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MoF Issue 25

MoF Issue 25

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Published by: qween on Jul 22, 2008
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McKinsey on 
Finance
How to improve strategic planning
1
It can be a rustrating exercise, but there are ways to increase its value.
Market fundamentals:
2000
versus
2007
 
8
Whither the
S&P
500? Comparing the market’s recent turmoil with its declineat the end o the dot-com boom can help investors assess what might come next.
When to break up a conglomerate:An interview with Tyco International’s CFO
12
Chris Coughlin explains how spinning o some o the company’s largestbusinesses was the key to ensuring its long-term growth.
How to choose between growth and ROIC
 19
Investors reward high-perorming companies that shit their strategic ocusprudently, even i that means lower returns or slower growth.
Perspectives onCorporate Financeand Strategy
Number 25,Autumn 2007
 
McKinsey on Finance
is a quarterly publication written by experts and practitioners inMcKinsey & Company’s Corporate Finance practice. This publication oers readersinsights into value-creating strategies and the translation o those strategies into companyperormance. This and archived issues o 
McKinsey on Finance
are available onlineat corporatefnance.mckinsey.com, where selected articles are also available in audioormat. A
McKinsey on Finance
podcast is also available on iTunes.Editorial Contact: McKinsey_on_Finance@McKinsey.comTo request permission to republish an article send an e-mail topermission@mckinseyquarterly.com.Editorial Board: James Ahn, Richard Dobbs, Marc Goedhart, Bill Javetski,Timothy Koller, Robert McNish, Herbert Pohl, Dennis SwinordEditor: Dennis SwinordExternal Relations: Joanne MasonDesign Director: Donald BerghDesign and Layout: Veronica BelsuzarriManaging Editor: Sue CatapanoEditorial Production: Roger Draper, Drew Holzeind, Scott Le, Mary ReddyCirculation: Susan CockerCover illustration by Keith NegleyCopyright © 2007 McKinsey & Company. All rights reserved.This publication is not intended to be used as the basis or trading in the shares o anycompany or or undertaking any other complex or signifcant fnancial transaction withoutconsulting appropriate proessional advisers. No part o this publication may be copiedor redistributed in any orm without the prior written consent o McKinsey & Company.
 
How to improve
strategicplanning
It can be a frustrating exercise, but there are ways to increase its value.
This sense o disappointment was capturedin a recent
McKinsey Quarterly
surveyo nearly 800 executives: just 45 percent o the respondents said they were satisedwith the strategic-planning process.
1
 Moreover, only 23 percent indicated thatmajor strategic decisions were madewithin its connes. Given these results,managers might well be tempted tojettison the planning process altogether.But or those working in the overwhelmingmajority o corporations, the annualplanning process plays an essential role.In addition to ormulating at least someelements o a company’s strategy,the process results in a budget, whichestablishes the resource allocation mapor the coming 12 to 18 months; setsnancial and operating targets, oten usedto determine compensation metrics andto provide guidance or nancial markets;and aligns the management team on itsstrategic priorities. The operative questionor chie executives is how to make theplanning process more eective—notwhether it is the sole mechanism used todesign strategy.
CEO
s know that strategy isoten ormulated through ad hoc meetingsor brand reviews, or as a result o decisionsabout mergers and acquisitions.Our research shows that ormal strategic-planning processes play an important rolein improving overall satisaction withstrategy development. That role can beIn conerence rooms everywhere, corporate planners are in the midst o the annualstrategic-planning process. For the better part o a year, they collect nancial andoperational data, make orecasts, and prepare lengthy presentations with the
CEO
andother senior managers about the uture direction o the business. But at the end o thisexpensive and time-consuming process, many participants say they are rustrated by itslack o impact on either their own actions or the strategic direction o the company.
Renée Dye andOlivier Sibony
1
Improving strategic planning: A McKinseySurvey,”
The McKinsey Quarterly
,Web exclusive, September 2006. The survey,conducted in late July and early August2006, received 796 responses rom a panel o executives rom around the world. Allpanelists have mostly inancial or strategicresponsibilities and work in a wide rangeo industries or organizations with revenueso at least $500 million.

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