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Excerpted from S&P 500 Organic Growth Efficiency Benchmarking: Leaders & Laggards
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 212‐785‐0205 Dominic Paniccia email@example.com 212‐785‐0302 2 .
Non‐clients. public financials. 3 .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. OGM represents the amount of organic revenue and profit created per dollar of investment. M&A transaction history and secondary market research. organic growth discussions are typically one‐dimensional. The overall report analyzes the organic growth capabilities of all companies in the S&P 500. industry consultants and others can purchase the report directly from us. This presentation discusses our OGM research. Unfortunately though. 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. 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. • A modest improvement to PNC‘s OGM could result in an estimated $260 million of incremental revenue and $155 million of incremental profit for the company over the next three years. focusing on either revenue or profit. In reality. Our summary findings and analysis of PNC reveal the following: • PNC’s OGM is in the bottom half relative to the S&P 500 Financials. In our research. and when maximized is an organization’s truest and best driver of shareholder returns. we analyzed all companies in the S&P 500 over the period 2002‐2007 to understand their individual Organic Growth Multipliers. The full report for the S&P 500 Financials sector is available on a complimentary basis to select 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. Simply put. its implications for corporate performance and the characteristics of OGM leaders as well as our findings as they relate to PNC. buy and sell‐side analysts.
sales. 4 . advertising. R&D. 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.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. Instead. 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 efficiency by which organic revenue and profit are created that is the best predictor of shareholder returns. it is the best indicator of how well management uses its internal resources to expand revenues and profits. Our research and analysis finds that companies are rewarded for this efficiency by shareholders and outperform their competitive peers in a less risky way. solely looking at organic revenue or profit growth misses the point. initiatives and investments in marketing. innovation. operations. What Matters Most in Driving Organic Growth? To maximize shareholder returns. and capital projects is the driver of organic revenue and profit growth. IT. 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.
a significant positive relationship between a company’s OGM and Total Shareholder Return (TSR) is apparent. This indicates a preference by shareholders for efficiently created organic growth which is less risky vs. The same relationship was evident for the entire S&P 500. 3556 M&A deals evaluated within S&P500 Financials . The obvious implication of this is that a company’s ability to efficiently and profitably generate organic revenue is rewarded by shareholders. Furthermore. 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%. while a company’s average annual OGM over the period was positively correlated with greater TSR. those with high OGMs who derived less of their total revenue from M&A activity also saw the best TSR performance. In essence. acquired growth. greater OGM consistency led to even better returns as the figure above illustrates.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. Growth from M&A Increases Shareholder Returns Commentary In the case of S&P 500 Financials. companies with consistently efficient resource allocation as manifested by high annual OGMs are rewarded with higher annual TSRs and revenue growth as well. Lastly.
S&P 500 FINANCIALS – PNC PNC To understand this. 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. what are the implications to performance if PNC successfully improves and sustains higher OGM levels even modestly? It is also worth considering the implications of not improving the OGM. • $155 million of cumulative incremental profit over the next 3 years and $75 million of incremental profit per annum thereafter. we examined the impact to PNC of an approximate 10% improvement in the company’s OGM which would be fully realized in three years. Year 1 Year 2 Year 3 Organic Revenue Incremental Profit OGM 6 . not improving the OGM modestly as described above puts at risk the cumulative $260 and $155 million of incremental revenue and profit. we see the company’s OGM ranking puts it in the bottom half amongst its S&P 500 Financials peers. We’ve estimated that with a disciplined effort to improve the company’s OGM by 10%. Conversely. PNC could drive: Revenue & Profit Implications of Improving OGM Incremental Revenue = $260 million Incremental Profit = $155 million $130 $90 $75 $55 $40 $25 • $260 million of cumulative incremental revenue over the next three years and $130 million of per annum revenue thereafter. respectively. as well as the ongoing benefit of $130 and $75 million of incremental revenue and profit each year thereafter.Where Does Your Organization’s OGM Stack Up? S&P 500 Financials Organic Growth Multipliers (OGM) Commentary As we look specifically at PNC’s average annual OGM for the period of this analysis. As we look forward.
please provide examples of how this was done both inter‐ and intra‐segment. 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.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.) Based on this segment‐level analysis. Examples include: Has the organization analyzed and understood the ability of each organizational segment to deliver profitable efficient growth? If yes. please detail the information collected. please illustrate how your resource allocation reflects this. and more importantly. product groups and/or geographic business lines. please detail your company segments and your understanding of each in delivering profitable efficient growth. we look forward to sharing insights. Is credible information collected. funded and stopped in the last year? Are resources regularly moved within. With this in mind. (Please note the term “segments” refers to business units. Is there a credible and empowered governance process that ensures proper go/kill decisions regarding organic growth projects and investments? If yes. as well as how it relates to PNC. Furthermore. please detail what number of projects were reviewed. analyzed and tracked as well as its use to inform future decisions. experiences and case studies with you on other organizations who’ve taken steps to improve their organic growth efficiency. analyzed and tracked to gauge organic growth performance and inform future investment decisions? If yes. accepted. 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. across organizational segments to take advantage of the best organic growth opportunities? If yes. 7 . we identified a list of twenty key questions for organizations to consider in order to understand and improve their organic growth capabilities. We welcome the opportunity to further discuss our research into organic growth and the investment optimization process. 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.
ORGANIC GROWTH IN THE WORDS OF OTHERS 8 .
Business Finance Magazine. The Brilliont team is comprised of experts and practitioners who have managed and led significant organic growth enhancement efforts at S&P 500 companies. by Dominic Paniccia Optimizing Corporate Portfolio Management (book). March 2008. June 2008 – Beyond Budgeting Roundtable. investment optimization and innovation. by Anand Sanwal with foreword by Gary Crittenden. CFO Citigroup “OpEx as Investment: How to Spend More Strategically”. June 2008 “The House of Rolling Heads”. 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. April 2008 9 . Journal of Corporate Accounting and Finance. Fall 2008.BRILLIONT BACKGROUND About Brilliont Brilliont is a boutique consulting and advisory firm helping clients create and deliver shareholder value through disciplined cost optimization. BPM Magazine. Oct 2008 – American Strategic Management Institute. by Anand Sanwal and Sandeep Arora “Budgeting: All Bad Things Must Come to an End”. Recent & Upcoming Publications “S&P 500 Organic Growth Efficiency Benchmarking: Leaders and Laggards”. The firm’s groundbreaking report. 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. Nov 2008 – BPM Summit. July 2008. Dec 2008 – Pharmaceutical Portfolio Management Summit.