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Excerpted from S&P 500 Organic Growth Efficiency Benchmarking: Leaders & Laggards
com 212‐785‐0205 Dominic Paniccia dpaniccia@brilliont. Anand Sanwal asanwal@brilliont.CONTACTING THE BRILLIONT TEAM Contact Us We welcome the opportunity to discuss any questions and ideas you have after you have reviewed this presentation.com 212‐785‐0302 2 .
In our research. industry consultants and others can purchase the report directly from us. organic growth discussions are typically one‐dimensional. focusing on either revenue or profit.EXECUTIVE SUMMARY Organic Growth Multiplier: Measuring Your Company’s Organic Growth Efficiency Organic growth indicates management's ability to expand business using internal resources and hence is a key driver of corporate performance. The full report for the S&P 500 Financials sector is available on a complimentary basis to select clients. its implications for corporate performance and the characteristics of OGM leaders as well as our findings as they relate to Travelers.3 billion of incremental profit for the company over the next three years. This presentation discusses our OGM research. buy and sell‐side analysts. In reality.8 billion of incremental revenue and $1. we analyzed all companies in the S&P 500 over the period 2002‐2007 to understand their individual Organic Growth Multipliers. Research Methodology Our research into organic growth efficiency examined the period from 2002‐2007 for the entire S&P 500 and was created using our proprietary OGM models coupled with research surveys. Non‐clients. a company’s performance is largely driven by its Organic Growth Multiplier (OGM) – a measure of organic growth efficiency that accounts for both revenue and profit. Unfortunately though. 3 . Simply put. OGM represents the amount of organic revenue and profit created per dollar of investment. public financials. The overall report analyzes the organic growth capabilities of all companies in the S&P 500. About the Research This presentation contains excerpts from our S&P 500 Organic Growth Efficiency Benchmarking: Leaders and Laggards report specifically for the S&P 500 Financials. M&A transaction history and secondary market research. Our summary findings and analysis of Travelers reveal the following: A modest improvement to Travelers' OGM could result in an estimated $1. and when maximized is an organization’s truest and best driver of shareholder returns.
Organizations that are efficient organic growth creators are those that deliver more organic revenue per dollar invested in strategic discretionary projects and investments. it is the best indicator of how well management uses its internal resources to expand revenues and profits. The efficient commitment of resources by management to discretionary projects. It doesn’t include growth derived from M&A or market‐driven growth and as a result. IT. 4 . What Matters Most in Driving Organic Growth? To maximize shareholder returns. it is the efficiency by which organic revenue and profit are created that is the best predictor of shareholder returns. and capital projects is the driver of organic revenue and profit growth. Our research and analysis finds that companies are rewarded for this efficiency by shareholders and outperform their competitive peers. operations. R&D. Organic growth clearly identifies whether managers use their skills to improve the business and is a prerequisite for top‐tier performance over the long term. sales. solely looking at organic revenue or profit growth misses the point. advertising. initiatives and investments in marketing. Instead. innovation.What is Organic Growth? What Drives Organic Growth? IT’S VITAL TO GET THE RIGHT TYPE OF ORGANIC GROWTH Organic growth represents the true growth for the core of the company.
a significant positive relationship between a company’s OGM and Total Shareholder Return (TSR) is apparent. In essence.S&P500 Financial s ‐ Organic Revenue Efficiency is Rewarded Consistency of Organic Revenue Creation is also Prized S&P 500 FINANCIALS High TSR = 13% Total Shareholder Return TSR = 16% Standard Deviation of OGM Revenue growth = 8% Revenue growth = 10% 0% TSR = 15% TSR = 20% Revenue growth = 5% Revenue growth = 13% ‘02‐’07 Average Annual Organic Growth Multiplier Low Low Organic Growth Multiplier (OGM) High Note: Data presented for S&P 500 Financials A Focus on OGM vs. companies with consistently efficient resource allocation as manifested by high annual OGMs are rewarded with higher annual TSRs and revenue growth as well. while a company’s average annual OGM over the period was positively correlated with greater TSR. Furthermore. Growth from M&A Increases Shareholder Returns Commentary In the case of S&P 500 Financials. This indicates a preference by shareholders for efficiently created organic growth which is less risky vs. those with high OGMs who derived less of their total revenue from M&A activity also saw the best TSR performance. Lastly. The obvious implication of this is that a company’s ability to efficiently and profitably generate organic revenue is rewarded by shareholders. greater OGM consistency led to even better returns as the figure above illustrates. 5 High M&A Revenue as % of Revenue Growth TSR = 15% TSR = 18% TSR = 11% TSR = 28% Low Low Organic Growth Multiplier (OGM) High Notes: Average Annual S&P 500 Financials TSR over ‘02‐’07 was 19%. acquired growth. 3556 M&A deals evaluated within S&P500 Financials . The same relationship was evident for the entire S&P 500.
8 billion Incremental Profit = $1. we examined the impact to Travelers of an approximate 10% improvement in the company’s OGM which would be fully realized in three years. Conversely. what are the implications to performance if Travelers successfully improves and sustains higher OGM levels even modestly? It is also worth considering the implications of not improving the OGM.3 billion of incremental revenue and profit.8 billion of cumulative incremental revenue over the next three years and $895 million of per annum revenue thereafter. We’ve estimated that with a disciplined effort to improve the company’s OGM by 10%. This was done to be pragmatic as it assumes modest improvements to OGM year‐over‐year with the 10% improvement fully manifesting itself fully by year 3. as well as the ongoing benefit of $895 and $711 million of incremental revenue and profit each year thereafter. Organic Revenue Incremental Profit OGM 6 .3 billion of cumulative incremental profit over the next 3 years and $711 million of incremental profit per annum thereafter.3 billion Commentary As we look specifically at Travelers' OGM. Travelers could drive: S&P 500 FINANCIALS – TRAVELERS $630 $477 $270 $158 Year 1 Year 2 Year 3 • $1. not improving the OGM modestly as described above puts at risk the cumulative $1.8 and $1. respectively. • $1.Revenue & Profit Implications of Improving OGM Incremental Revenue = $1. $895 $711 To understand this.
please detail the information collected. we identified a list of twenty key questions for organizations to consider in order to understand and improve their organic growth capabilities. Responses to the twenty questions provide you with specific insights into how your organization allocates its discretionary resources for organic growth and the appropriateness of this allocation. It allows you assess areas of strength and development and ultimately serves as the basis for a set of targeted measures that can be enacted to improve your organic growth efficiency. accepted. and more importantly. analyzed and tracked to gauge organic growth performance and inform future investment decisions? If yes. 7 . Is there a credible and empowered governance process that ensures proper go/kill decisions regarding organic growth projects and investments? If yes. are resources allocated so that segments with the best record of delivering efficient organic growth and who have the best opportunities for growth receive the most funding? If yes. please detail your company segments and your understanding of each in delivering profitable efficient growth.) Based on this segment‐level analysis.How Can Brilliont Help Improve Your Organic Growth Effectiveness? WHAT DO OGM LEADERS DO THAT OTHERS DON’T? Our research revealed that OGM leaders exhibit certain similarities that drive their success. We welcome the opportunity to further discuss our research into organic growth and the investment optimization process. please provide examples of how this was done both inter‐ and intra‐segment. as well as how it relates to Travelers. we look forward to sharing insights. Examples include: Has the organization analyzed and understood the ability of each organizational segment to deliver profitable efficient growth? If yes. across organizational segments to take advantage of the best organic growth opportunities? If yes. Is credible information collected. funded and stopped in the last year? Are resources regularly moved within. product groups and/or geographic business lines. please illustrate how your resource allocation reflects this. analyzed and tracked as well as its use to inform future decisions. please detail what number of projects were reviewed. Furthermore. (Please note the term “segments” refers to business units. experiences and case studies with you on other organizations who’ve taken steps to improve their organic growth efficiency. With this in mind.
ORGANIC GROWTH IN THE WORDS OF OTHERS 8 .
Recent & Upcoming Publications “S&P 500 Organic Growth Efficiency Benchmarking: Leaders and Laggards”. by Anand Sanwal Select Recent & Upcoming Events Members of the Brilliont team have been or will be featured speakers at the following events: – World Bank Resource Forum. July 2008. April 2008 9 . Oct 2008 – American Strategic Management Institute. The Brilliont team is comprised of experts and practitioners who have managed and led significant organic growth enhancement efforts at S&P 500 companies. Dec 2008 – Pharmaceutical Portfolio Management Summit. Fall 2008. by Dominic Paniccia Optimizing Corporate Portfolio Management (book). The firm’s groundbreaking report. by Anand Sanwal with foreword by Gary Crittenden. Business Finance Magazine. June 2008 “The House of Rolling Heads”. CFO Citigroup “OpEx as Investment: How to Spend More Strategically”. Nov 2008 – BPM Summit. investment optimization and innovation.BRILLIONT BACKGROUND About Brilliont Brilliont is a boutique consulting and advisory firm helping clients create and deliver shareholder value through disciplined cost optimization. by Anand Sanwal and Sandeep Arora “Budgeting: All Bad Things Must Come to an End”. March 2008. June 2008 – Beyond Budgeting Roundtable. Journal of Corporate Accounting and Finance. S&P 500 Organic Growth Efficiency Benchmarking: Leaders and Laggards is the most exhaustive analysis of organizational organic growth efficacy ever done and has already been used by many organizations as a starting point to begin understanding how they can improve their organic growth generation capabilities. BPM Magazine.
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