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McKinsey on Finance

Perspectives on Corporate Finance and Strategy
Number 11, Spring 2004

High tech’s coming consolidation 1 Economic pressures to restructure high tech will eventually become irresistible. More acquisitions loom. When efficient capital and operations go hand in hand 7 Olli-Pekka Kallasvuo, Nokia’s head of mobile phones and a former CFO, discusses strategic organization, performance measurement, and the value of financial transparency. All P/Es are not created equal 12 High price-to-earnings ratios are about more than just growth. Understanding the ingredients that go into a strong multiple can help executives make the most of this strategic tool. Putting value back in value-based management 16 Value-based management programs focus too much on measurement and too little on the management activities that create shareholder value.

McKinsey on Finance is a quarterly publication written by experts and practitioners in McKinsey & Company’s Corporate Finance & Strategy Practice. It offers readers insights into value-creating strategies and the translation of those strategies into stock market performance. This and archive issues of McKinsey on Finance are available online at http://www.corporatefinance.mckinsey.com

McKinsey & Company is an international management-consulting firm serving corporate and government institutions from 85 offices in 47 countries. Editorial Board: Richard Dobbs, Marc Goedhart, Keiko Honda, Bill Javetski, Timothy Koller, Robert McNish, Dennis Swinford Editorial Contact: McKinsey_on_Finance@McKinsey.com Editor: Dennis Swinford External Relations Director: Joan Horrvich Design and Layout: Kim Bartko Circulation Manager: Kimberly Davenport Copyright © 2004 McKinsey & Company. All rights reserved. Cover images, left to right: © Paul Schulenburg/Stock Illustration Source/Images.com, Corbis, Bonnie Rieser/ Photodisc Green/Getty Images, Timothy Cook/Stock Illustration Source/Images.com This publication is not intended to be used as the basis for trading in the shares of any company or for undertaking any other complex or significant financial transaction without consulting appropriate professional advisers. No part of this publication may be copied or redistributed in any form without the prior written consent of McKinsey & Company.

High tech’s coming consolidation | 1

High tech’s coming consolidation

sector’s leading industries. The indicators we looked at included each industry’s fragmentation levels, maturity (as measured by growth rates), and profitability. We also considered incentives for consolidation, such as the need for scale to justify larger capital expenditures and the importance of scope to meet the customer’s changing needs.1

Where and how

Economic pressures to restructure high tech will eventually become irresistible. More acquisitions loom.
For some time, the rules of economics

Bertil E. Chappuis, Kevin A. Frick, and Paul J. Roche

appeared not to apply to the hightechnology sector. Growth slowed, profits shrank, and investors eagerly awaited the billions of dollars in value likely to flow from mergers, acquisitions, downsizings, and liquidations. All signs pointed to an imminent restructuring, yet until recently little occurred. Today consolidation pressures are mounting fast, and some segments have already succumbed. Where operating systems for PCs, midrange computers, and mainframes were once numerous, now only a few remain. Ditto for database software. Niche players in segments such as vertical-specific applications may remain fragmented, thanks in part to the unique nature of the value propositions they offer. To develop a sense of how imminent consolidation really is, and to pinpoint the segments within and outside high tech that might encounter challenges or opportunities in the trend, we investigated the extent to which the economic forces driving consolidation were at play in 21 of the

We found strong signs of impending restructuring in 11 of the industries we analyzed (Exhibit 1). These hot spots account for more than two-thirds of the sector’s revenues—a fact that speaks volumes about its ripeness for consolidation. In IT services, for example, professional and outsourcing services seem to be poised for an across-the-board restructuring. Software is vulnerable in particular areas, such as enterprise applications, network and systems management and security, middleware, and software for application servers. In hardware, the targets are PCs and notebook computers, networking gear, and storage systems; in semiconductors, they are logic, memory, and semiconductor equipment. Our research also found many small and midsize companies that are barely profitable, if at all, with cost structures more appropriate to larger businesses (Exhibit 2). As economic forces take effect, companies will jockey for increased scale or scope or for some combination of both (Exhibit 3). As in any sector, scale-driven mergers, which aim to streamline fixed costs over greater volumes and to satisfy the demand for bigger and more stable suppliers, will mostly take place between companies competing in the same industry. Customer needs will also influence mergers that are undertaken to achieve advantages of scope. Indeed, deals of this nature have already

2 | McKinsey on Finance | Spring 2004

exhibit 1

Ripe for restructuring
Key IT industries and segments,1 2002, % of revenues
Ripe for restructuring

Software ($146 billion)
• Enterprise applications • Operating systems • Database • Desktop applications • Storage • Middleware,

Semiconductors ($174 billion)
• Logic • Microcomponents • Memory • Analog • Semiconductor equipment • Discrete

• Vertical applications • Network/systems

management, security

application server

17 35 Hardware ($299 billion) 20
• PCs/notebooks

28

• Servers • Networking • Printers • Storage

IT services ($243 billion)
• Professional and

• Smart handhelds

outsourcing services

1 Metrics

examined include market growth rate, 2002–07 (industry maturity); Herfindahl–Hirschman Index (fragmentation levels); number of top 10 companies with negative earnings before interest and taxes in 2002 (industry profitability); qualitative assessment of scale, scope, changes in customer buying behavior (incentives for consolidation). Source: McKinsey analysis

taken place: in response to financial pressures and to the clamor of capital markets, companies that manufacture technology products have been acquiring service firms. We expect such mergers to proliferate as companies expand their breadth of product or service offerings to position themselves as preferred suppliers for big customers, to chase new profit streams, and to hunt for cross-selling and multichannel synergies. The semiconductor-equipment industry, for one, is likely to see both scale and scope come into play as companies prepare to serve fewer and bigger semiconductor manufacturers, only some of which will be able to finance next-generation research and

fabrication plants. Consolidation has already taken place in certain pockets, such as deposition, diffusion, and lithography, but the industry as a whole remains fragmented; only a handful of companies, including Applied Materials and Tokyo Electron, have significant positions in more than one or two areas. The need to consolidate will therefore inspire scale deals in the few areas that are still fragmented (automation, assembly, and packaging), while demand for complete process-module solutions means that scope deals are likely across industries. Vendors will thus capture sales and marketing synergies by selling to the same customer base. Moreover, an integrated solution across related areas (such as deposition and etching) can shorten

High tech’s coming consolidation | 3

exhibit 2

Unsustainable
Average EBIT1 margin of public IT companies by revenues,2 2002, % Revenues <$50 million $50,000,000–$99,999,999 $100,000,000–$299,999,999 $300,000,000–$499,999,999 $500,000,000–$999,999,999 $1 billion–$5 billion >$5 billion Software –320 –1 2 –2 12 11 29 Hardware –167 –1 –1 2 4 3 5 IT Services –29 –3 4 5 6 6 6 Semiconductors –59 –13 –9 –15 2 –4 11

1 Earnings before interest and taxes. 2 Includes 2,121 companies worldwide

in software (913), hardware (562), IT services (266), semiconductors (380).

Source: Bloomberg; Thomson Financial; McKinsey analysis

development cycles and ramp-up times. The enterprise software market will restructure along similar lines. Restructuring could also be triggered by companies that exit an industry altogether. This is likely to happen in the PC business if some incumbents decide that the benefits of merging are questionable in light of the industry’s deteriorating economics. Finally, where mergers and acquisitions don’t make sense, companies might forge alliances or transform themselves without resorting to alliances or M&A.

the long view and the need to prepare for more hostile deals.

Leaders and challengers
When industries consolidate, market leaders and challengers can make acquisitions within their industries to create economies of scale or across industries to gain economies of scope. To know what to do and when, companies need to develop a perspective on restructuring trends and the way these affect their particular industry. To envision the likely endgame, they should consider shifts in customer behavior and the factors required for success. And as they make their moves, they must evaluate how competitors will probably respond. Market leaders. In restructuring sectors, market leaders aim to protect their position from challengers while seizing opportunities to extend their dominance; they therefore make acquisitions to head off those challengers and to increase their scale. In the high-tech sector as a whole, market leaders should defend the customer base by

Shape IT or leave IT
The economic rationale for consolidation might be similar in all sectors of the economy, but restructuring unfolds in ways specific to each of them. In the same vein, our perspective on how to respond to high-tech consolidation begins at a general level (Exhibit 4), then tackles specifics. We’ll examine the two classic roles— market leader and challenger—before discussing the advantages for M&A of

4 | McKinsey on Finance | Spring 2004

exhibit 3

Scale, scope, or skedaddle
Restructuring activity Scale: peer consolidation Drivers
• Improved fixed-cost structures (SG&A,1 R&D,

Examples
• Logic • Memory • Network/systems management, security • Storage hardware • Database: middleware, application server • Hardware: IT services • Networking hardware: storage

depreciation)
• Customer preference for bigger suppliers • Network, platform effects

Scope: strategic crosssegment moves

• Customer preference for broader-reaching suppliers • Channel, cross-selling synergies • Technological synergies (such as those between

networking and storage)
• Value migration from hardware to software, services • Maturing core businesses; capital market pressures

hardware, software
• Semiconductor equipment

for growth Exit
• Desire to limit losses, free up capital • Refocusing resources on other businesses • Logic • PCs/notebooks

1 Selling,

general, and administrative.

Source: McKinsey analysis

tightening their control of the value chain and customer relationships or by creating scale advantages in R&D and sales. Oracle, for instance, is pursuing a broader footprint and new growth in its play for PeopleSoft. Scale offers efficiencies in large fixed costs— essential in industries requiring massive up-front capital investment (like memory chips) or expensive R&D (like software). It also extends control over the value chain. Customers gain confidence in the vendor’s ability to provide long-term support services and are more likely to choose it as a preferred supplier. HP’s merger with Compaq, for example, gave HP enhanced control over its value chain, cost synergies, and access to additional customers, to which it could now sell more comprehensive solutions. These factors should help HP compete with IBM and Dell. Scope acquisitions can broaden the footprint of a leader and increase the dependence of its customers. Cisco Systems’ growth strategy in the 1990s was based on

scope acquisitions, and the company swiftly used its distribution capabilities to stake out strong positions in access solutions and security. Microsoft’s purchase of Great Plains Software and Navision extended its reach into enterprise applications. EMC’s acquisition of Legato Systems presaged a move away from the slower-growth and rapidly commoditizing storage-disksubsystem market and into the systemmanagement-software market—a core control point of an enterprise IT infrastructure. The company’s decision to buy Documentum shows a similar move into content management. For companies in some segments, such as IT services, scope deals offer an opportunity to become the prime integrator for customers’ needs; IBM’s acquisition of the consulting arm of PricewaterhouseCoopers is a recent example. A few words of warning should be sounded, however: if the acquisition has a different revenue model (as in the case of a hardware company acquiring a software

High tech’s coming consolidation | 5

exhibit 4

The big picture
Strategy Type of company Market leaders Scale Grow bigger; buy or block challengers Merge with peers Carve out sustainable niche Scope Cross-sell to boost customer dependence Buy adjacent businesses Maximize sale value Exit

Challengers Small companies

Source: McKinsey analysis

management. In semiconductors, several companies could combine to form a large chip maker focused on consumer electronics. (Beyond high tech, banks such as Morgan Stanley and UBS Warburg have used scope combinations to reposition themselves as financial-services providers.) Such deals challenge the acquirer to create a compelling value proposition and to build a sales force that can communicate it forcefully enough to displace incumbents. If confronting the market leader directly is too risky, companies can pair up to carve out a defendable niche. IT service providers could take this approach in health care, say, if they found themselves unable to compete more broadly. Aspiring niche players must assess whether they can create sustainable entry barriers based on proprietary technology, innovation, industry knowledge, or locked-up customer ties. Selling out. Finally, the best way to recoup value is sometimes to sell part or all of a company. In this case, it is often wise to move sooner rather than later to get the highest value for shares and to position the company in the most attractive light, which may mean shedding noncore assets. Such moves sometimes unlock resources that can be reinvested to make a company stronger in more strategic segments.

one), the buyer must avoid compromising the target’s underlying business model. Challengers. Typically, a challenger in a restructuring industry confronts industry leaders by “rolling up” smaller companies to achieve scale or by merging with another challenger, thereby driving radical coststructure changes through operational integration and redesigned business processes. PeopleSoft’s acquisition of J. D. Edwards in enterprise applications provides a good example of a challenger buying a peer to reduce operating costs. The combined company can use its larger scale to become a preferred supplier to key customers. Alternatively, a challenger can attempt to extend its scope by acquiring players in adjacent industries and combining the offerings into solutions, with the eventual aim of changing the basis of competition. BEA Systems, for example, started with a transaction-processing product and then, by acquiring companies such as WebLogic, gained leadership in the application server and middleware market, where we expect further consolidation. Second-tier storage and networking vendors could also benefit from teaming up in this way, as might companies in middleware and network

The long view
Market reactions to merger announcements tend to favor the target; fewer than half of high-tech acquirers see their shares rise after disclosing their plans. No wonder boards and executives are wary of acquisitions. But the most successful high-tech companies— those averaging more than 39 percent annual growth in returns to shareholders from 1989 to 2001—were serious deal

6 | McKinsey on Finance | Spring 2004

makers, undertaking almost twice as many acquisitions as their competitors.2 History also shows that companies with active M&A agendas tend to outperform their peers during and after industry downturns.3 Companies that avoid acquisitions often run out of steam, whereas enterprising acquirers renew and refocus themselves. Companies should be cognizant of, but not overly concerned with, investors’ short-term reactions. Instead, they need to ensure that the long-term returns from their acquisition plans maximize shareholder value. Take Intel, which in recent years has acquired several suppliers of communications chips. Not all of the deals have been applauded as successful by observers (for example, the acquisition of Level One Communications), but together they helped Intel establish a new communications growth platform on which the company has built a multibilliondollar business. High valuations can sometimes make alliances more enticing than M&A, especially if synergies wouldn’t justify a full acquisition. Dell’s recent alliances with EMC and Lexmark are examples of how these arrangements can be used as a lowrisk step to broaden a company’s scope into new segments.

Furthermore, as companies reach for scale and scope, they will attempt larger deals. While a hostile takeover is rarely the preferred approach, these deals are likely to become more common, especially when the target’s management has strong incentives to resist an acquisition that has real economic logic. For acquirers with deep pockets, cash offers may be more attractive in hostile situations, when cash can give shareholders a low-risk way to take money out of their investments.

The scale and extent of the coming shifts in the high-tech sector promise to unlock tremendous value for companies that survive the consolidation. However quickly change comes, those that act wisely can position themselves as the shapers of high tech’s next era. MoF
The authors wish to acknowledge the contributions of Jukka Alanen and Jean-Francois Van Kerckhove, consultants in McKinsey’s Silicon Valley office. Bertil Chappuis (Bertil_Chappuis@McKinsey.com) and Paul Roche (Paul_Roche@McKinsey.com) are principals in McKinsey’s Silicon Valley office, where Kevin Frick (Kevin_Frick@McKinsey.com) is an associate principal. Copyright © 2004 McKinsey & Company. All rights reserved.

More hostile deals
Most technology mergers have been small, friendly affairs financed by the acquirer’s stock, but we expect that picture to change. Oracle’s attempt to acquire PeopleSoft is an early example of what could become the new reality in high-tech restructuring. Executives and boards should thus prepare for hostile takeovers, cash deals, and the greater involvement of private equity firms—all common in other sectors.
1

To measure the strength of each driver, we used qualitative and quantitative metrics such as the Herfindahl-Hirschman Index (a common metric established by the US Department of Justice and the US Federal Trade Commission) to assess the current degree of fragmentation. Kevin A. Frick and Alberto Torres, “Learning from high-tech deals,” The McKinsey Quarterly, 2002 Number 1, pp. 112–23. Richard F. Dobbs, Tomas Karakolev, and Francis Malige, “Learning to love recessions,” The McKinsey Quarterly, 2002 special edition: Risk and resilience, pp. 6–9.

2

3

When efficient capital and operations go hand in hand | 7

When efficient capital and operations go hand in hand
Olli-Pekka Kallasvuo, Nokia’s head of mobile phones and a former CFO, discusses strategic organization, performance measurement, and the value of financial transparency.
Nokia’s transformation from a Finnish

mobile-phones group after serving as chief financial officer from 1992 to 1996 and 1999 to 2003. A lawyer by training, Kallasvuo, 50, sees his move from finance to the leadership of the business group responsible for most of Nokia’s profits as perfectly natural. In an interview conducted at Nokia headquarters outside Helsinki, Kallasvuo spoke to Fredrik Lind and Risto Perttunen of McKinsey about Nokia’s strategy, communicating with markets, and the CFO’s mind-set when operational and capital efficiencies go hand in hand. McKinsey on Finance: What long-term trends in the handset business do you see, and how are they affecting Nokia’s strategy? Kallasvuo: The biggest long-term trend is our customers’ increasing mobility and, as a result, their demands for ever more sophisticated handsets. In one sense, it’s a kind of convergence of businesses into a new business domain defined by mobility. The result is that we’ll continue to see a very simplistic entry-level phone, with no bells and whistles, on one hand, and on the other hand we’ll see a multipurpose device that has all sorts of capabilities, like mobile gaming or mobile imaging. This is what we need to tackle at Nokia, and hence the reorganization to align our structure to different segments of this market. MoF: How do you think about measuring performance? Kallasvuo: The thinking over the years has definitely changed. We’ve learned to understand that for us, traditional measures of performance like working capital, for example, are financial matters, yes, but more important they’re indicators of how a company is performing operationally.

Fredrik Lind and Risto Perttunen

conglomerate with its roots in pulp and paper to the world’s leading mobile-phone supplier has earned it a reputation as a model of innovation, brand building, and operational efficiency. Even during the severe downturn in the telecommunications industry the company maintained strong margins on its sales of mobile phones. Today Nokia runs 16 manufacturing facilities in 9 countries, conducts R&D in 11 countries, and has more than 51,000 employees around the world Nokia is reorganizing itself yet again as it anticipates increased demand for high-tech phones and other mobility products. A base of four business groups—mobile phones, networks, multimedia, and enterprise solutions—will exploit scale advantages across common functions such as finance, marketing, and operations to provide maximum flexibility for business units. The goal: “to go after every market in this industry and take share.” So says Olli-Pekka Kallasvuo, who in January of this year was named head of the

8 | McKinsey on Finance | Spring 2004

Olli-Pekka Kallasvuo

Vital statistics Born July 13, 1953, in Lavia, in western Finland Education Holds a Master of Laws degree from the University of Helsinki Career highlights Nokia, Inc. (1980 to present) – Assistant vice president of the legal department (1987) – Assistant vice president of finance (1988) – Senior vice president of finance (1990) – Executive vice president and chief financial officer (1992 to 1996) – Corporate executive vice president, Nokia Americas (1997 to1998) – Chief financial officer (1999 to 2003) – Executive vice president and general manager of mobile phones at Nokia (2004–present)

Fast facts Served as chair and board member of Helsinki Stock Exchange from 1991 to 1996 • Serves on the boards of: – Sampo, a Finnish full-service financial group – Nextrom Holding, a Swiss machine manufacturer – F-Secure, a Finnish company specializing in data security solutions • In spare time, enjoys golf, tennis, and reading about political history

And if there were just one single thing to do to improve performance, it would have been done already. Improvement is usually not about making a quantum leap; it’s about taking small steps, improving a little bit every day. Nor is this about pushing responsibility off to individual departments and saying, “You look at working capital,” or, “You look at inventory.” These are the responsibility of everyone at Nokia because efficiency is the core of the business— and then working capital becomes a reflection of how efficient we are, and that’s why it’s such an important indicator that remains very high on our agenda even if financially it’s not critically relevant at the moment. MoF: Can the corporate team and the CFO team contribute to and lead the different divisions and businesses on the working capital dimension? Kallasvuo: No; this is exactly the point. Efficiency is so intricately entwined in the system that everyone has a stake in it, everyone is helping out. So if you were to start some big push for working capital at Nokia, with a big headline saying, “Now we are going to emphasize working capital,” or announce that suddenly financial concerns will drive everything, no one would understand what you’re talking about. Everyone understands that working capital is everyone’s job—by taking those little steps to get logistics working even better. This is one of our key competitive areas. MoF: Are there any particular structures or processes at Nokia to make this cooperation work? Kallasvuo: In the end, it really comes down to a company’s business infrastructure and

When I look at working capital, I really see it first as a reflection of efficiency and then as a reflection of where our capital is invested, which is the reverse of the usual way of thinking. MoF: So how do you track the company’s performance over time? Kallasvuo: A more capital-intensive business would probably look much more closely at its returns on investment, but ROI just is not as useful a measure for a company that makes its money by investing in people, in research and development, and in brand marketing. Measures of efficiency are much more helpful—operational efficiencies, production efficiencies, and yes, financial efficiencies—and they really all go hand in hand. Production efficiencies and capital efficiencies are very relevant for every finance person at Nokia.

When efficient capital and operations go hand in hand | 9

how it operates in general. As we have grown from a small, flexible player to such a large company, we’ve put considerable effort into combining flexibility and economies of scale, which has an impact on how we operate. The emphasis has been on doing everything we can to take advantage of economies of scale where we can and where it makes sense, but not to centralize anything that is business specific. We’ve drawn that line very carefully. If something is business specific, it gets maximum flexibility, empowerment, decentralization. If it’s not business specific, then let’s take the economies of scale. The result has been an increasing platformization, if you will, of the business infrastructure. And here the business infrastructure means other than IT, so it’s a wider concept. MoF: What have been the special challenges of communicating the results of a very fastgrowing company to financial markets? Kallasvuo: Communicating results is easy. Giving estimates is more of a challenge, because in this type of fast-moving business no one can really know what will happen over three months—no one. No system in this world can make that prediction in a way that is certain. The best you can do is communicate your best understanding to the market at the time, which is actually pretty simple. At Nokia, we have been simply communicating our best possible understanding to the market. We have not been playing games. I was personally criticized by some investors for not playing games—for not giving an estimate and then exceeding it by one penny, which so many companies were doing. Now, of course, everyone feels this way. Whatever numbers come out of the

system, in accordance with your accounting principles, those are your results. MoF: What is your view of the emergence of companies over the past year or so that are minimizing their financial transparency to the markets? Kallasvuo: Of course, I can’t speak on behalf of other companies, but I feel that our investor base wants quarterly guidance. It’s very much a matter of providing the markets with the information they want, rather than telling them what we think they should want. This isn’t brain surgery. If the markets want information, you give them information. The question has to be, how can we better understand what our investors want? The mind-set really needs to be that we must listen and communicate in terms of what is expected. This is very relevant coming from a small market and growing into one of the most traded shares in the world. We come from a context where we really didn’t have the benefit of the doubt when it came to our existence and our ability to deliver over the long-term. It really was an imperative to listen to what investors expected—if we did not have that mind-set, we never would have become one of the most widely held shares in the United States. MoF: What is the optimal way to distribute value back to the shareholders—for example, through share buybacks or dividends? Kallasvuo: I don’t think there is a big difference between dividends and buybacks. In the end it’s a pragmatic choice, very much driven by tax questions and the shareholder base. Otherwise they’re both pretty equal from the financial perspective.

10 | McKinsey on Finance | Spring 2004

MoF: How important is it for a company to be listed in the United States? Kallasvuo: It’s really not possible to become a major name among US investors if you’re not represented in the US market in a major way. Being listed supports the business, and the business supports the listing—which Nokia’s experience in the 1990s illustrates very well. Indeed, I would claim that without its listing in New York, Nokia would not have become the market leader in the United States. Furthermore, if it had not become a market leader in the United States, the share story would have been a lot less wellknown. When we first issued our IPO in the United States, it wasn’t really that we needed US capital but rather that the listing would support the business, which is how it worked out. The result was a positive spiral, if there is such a thing, each one supporting the other. MoF: And how has that transformation changed your relationship with shareholders— on both sides of the Atlantic? Kallasvuo: Sometime in 1995 or 1996, we became the first company in the world with a major market cap that had the majority of its market capitalization coming from outside its home country, as domestic Finnish share dipped below 50 percent. That happened very suddenly and continued at a rapid pace. Other companies have since found themselves in similar positions, but not to the same extent. So we basically said to ourselves, “Now we have to see ourselves as a US company and we have to do things in the same way a US company would, because that’s what a majority of our investors will expect.”

That became a real priority. For example, instead of having our US investor relations (IR) staff report to an IR executive in Helsinki, we located the IR head office for the entire company in the United States—and then of course allocated a lot of resources and everything to make it work. Even the Helsinki-based IR office reported for many years to the US office. When it came to communications, we said to ourselves, we need to communicate like a US company. Even today, if some capital-markets-related legislation or other comes out of the United States that isn’t necessarily applicable to non-US companies, we comply anyway, even if the legislation does not, strictly speaking, apply. There is no other way for us. Other companies have chosen exactly the other way: to be domestic first and foremost, abiding primarily by their own government’s practices and legislation and domestic shareholders. Which one is wrong or right I can’t say. MoF: And how comfortable are you with Nokia’s current level of transparency? Kallasvuo: I can say that every time we have had a discussion internally about whether we should go into this more transparent reporting, and every time we have made a decision to report instead of holding back, the decision to report has been the right decision, eventually. It’s what I feel. Not once have I looked back and thought, “Why did we have to tell this?” But here again, I would suggest that theories aside, in our case it’s been a necessity. You are foreign. You are an ADR.1 You don’t have the option of not listening to what the market wants. MoF: Is there any risk, as Nokia begins reporting separately for multimedia

When efficient capital and operations go hand in hand | 11

handsets and enterprise solutions? What if one unit doesn’t achieve very good results? Kallasvuo: No, definitely not. As I said, every time we’ve increased our transparency it was the right decision, so it must be the right decision here too. And you have to also remember that external pressure is good for you. It makes you run even harder. The people running those operations have even more reason to perform if external pressure is there also. That’s been our experience. MoF: Has the CFO been a part of the strategic decision-making process in Nokia, and do you see that role being strengthened in the future? Kallasvuo: I don’t really think there is one and only one role for a CFO. Of course, the role of a CFO has to be aligned with the way the company operates, and it also depends very much on the size of the company. But it really can’t be the same in every company, in every business situation, and in every type of business a company is in. At Nokia, being CFO has meant being very much a part of the management team, looking at matters from a financial perspective but really not taking the role of a finance guy who primarily becomes the voice of that department. Instead of defining the role in one way and taking that into the management team, the CFO at Nokia has a responsibility for the same decisions as everyone else on the management team. Yes, of course, you might look at those decisions from a certain perspective, but that doesn’t have to mean that you always take the same sort of role. You have to be more versatile than that, which makes the role a very strategic one.

MoF: In many companies, the role of the CFO has been expanding on the traditional role in two directions: the first is a more strategic-architect or strategic-planning type of role, even to the point of having M&A or strategy divisions; the second is moving toward a more involved operations role, enhancing some business-controlling activities or leading corporate-pricing or working-capital programs. What are your thoughts on the evolution of the CFO role in general? Kallasvuo: If you assume a traditional sort of controller role as the starting point, then yes, those are the two natural directions for the role to evolve. But because it varies depending on how the company operates, it’s also possible that both of those roles might even be combined. The latter role— the more involved operations role—is particularly apt for the CFO of a major business unit, which is very much an operational role in an operational unit. The former, more strategic role is more apt for a corporate, head-office CFO who operates, supervises, and oversees several business units. And both are quite relevant at Nokia, too, because of how we operate and how the roles of the business units or even business groups have been defined. And I would also claim that the role of the CFO must be aligned to the approach of the CEO. Without alignment, success is difficult. MoF
Fredrik Lind (Fredrik_Lind@McKinsey.com) is a principal in McKinsey’s Stockholm office, and Risto Perttunen (Risto_Perttunen@McKinsey.com) is a director in the Helsinki office. Copyright © 2004 McKinsey & Company. All rights reserved.

1

American depository receipt

12 | McKinsey on Finance | Spring 2004

All P/Es are not created equal

High price-to-earnings ratios are about more than growth. Understanding the ingredients that go into a strong multiple can help executives make the most of this strategic tool.
When it comes to price-to-earnings ratios,

Nidhi Chadda, Robert S. McNish, and Werner Rehm

most executives understand that a high multiple enhances a company’s strategic freedom. Among other benefits, strong multiples can provide more muscle to pursue acquisitions or cut the cost of raising equity capital. Unfortunately, in their efforts to increase their P/E, many executives reflexively try to crank up growth. Too many fail to appreciate the important role that returns on capital play in channeling growth into a high or low multiple. Simply put, growth rates and multiples don’t move in lockstep. For instance, the retailer Williams-Sonoma has a P/E multiple of about 21, based on earnings growth over 15 percent in the past three to five years and low returns on capital.1 By contrast, Coca-Cola has a slightly stronger P/E at 24, despite its lower growth rate.2 Coke’s secret? Returns on capital over 45 percent relative to a 9 percent weighted average cost of capital. It’s common sense: growth requires investment, and if the investment doesn’t

yield an adequate return over the cost of capital, it won’t create shareholder value. That means no boost to share price and no increase in the P/E multiple. Executives who do not pay attention to both growth and returns on capital run the risk of achieving their growth objectives but leaving behind the benefits of a higher P/E and, more important, not creating value for shareholders. They may also discover that they have confused their portfolio and investment strategies by treating some highP/E businesses as attractive growth platforms when they are actually highreturning mature businesses with few growth prospects.3 Better understanding of the way growth and returns on capital combine to shape each business’s multiple can produce both better growth and better investment decisions.

Doing the math on multiples
The relationship between P/E multiples and growth is basic arithmetic:4 high multiples can result from high returns on capital in average or low-growth businesses just as easily as they can result from high growth. But beware: any amount of growth at low returns on capital will not lead to a high P/E, because such growth does not create shareholder value.

exhibit 1

Companies can have identical P/E multiples for dramatically different reasons

Expected ROIC Growth, Inc Returns, Inc 14% 35%

Expected growth 13% 5%

Implied P/E multiple1 17 17

1 Assuming

10% cost of equity, no debt, and 10 year’s excessive growth followed by 5% growth at historic levels of returns on invested capital. Source: McKinsey analysis

All P/Es are not created equal | 13

exhibit 2

Sustaining high growth requires considerably more reinvestment than sustaining high returns
Growth, Inc1 Year 1 Operating profit less taxes Reinvestment Free cash flow 100 93 7 Year 2 113 105 8 Returns, Inc1 Year 1 100 14 86 Year 2 105 15 90

Reinvestment rate 93%

Reinvestment rate 14%

Because Growth, Inc., and Returns, Inc., take very different routes to the same P/E multiple, it would make sense for a savvy executive to pursue different growth and investment strategies to increase each business’s P/E. Obviously, the rare company that can combine high growth with high returns on capital should enjoy extremely high multiples.

1 Assuming

10% cost of equity, no debt, and 10 year’s excessive growth followed by 5% growth at historic levels of return on invested capital. Source: McKinsey analysis

The hard part: Disaggregating multiples
Not many executives and analysts work to discern how much of a company’s current value can be attributed to expected growth or to returns on capital. Those who try often fail. To see why, consider one widely used model to break down multiples as it might be applied to a large consumer goods manufacturer and a fast-growing retailer with similar P/E ratios (Exhibit 3). The first step is to estimate the value of current earnings in perpetuity, assuming no growth.6 The model then attributes the remaining value to growth. The interpretation from this simple two-part approach would be that the market assumes that the consumer goods manufacturer would have better growth prospects than the retailer. But this reading misleads because it doesn’t take into account returns on capital. Discount retailers fight it out primarily on price, which translates into lower margins and relatively low returns on capital—similar to Growth, Inc. In contrast, consumer goods companies compete in an environment where brand equity can generate higher margins and returns on capital, making them more like Returns, Inc. In fact, the simple two-part model is wrong. The discount retailer is actually expected to grow faster and to

To illustrate, consider two companies with identical P/E multiples of 17 but with different mechanisms for creating value. (Exhibit 1). Growth, Inc., is expected to grow at an average annual rate of 13 percent over the next ten years, while generating a 14 percent return on invested capital (ROIC) which is modestly higher than its 10 percent cost of capital. To sustain that level of growth, it must reinvest 93 cents from each dollar of income (Exhibit 2). The relatively high reinvestment rate means that Growth, Inc., turns only a small amount of earnings growth into free cash flow growth. Many companies fit this growth profile, including some that need to reinvest more than 100 percent of their earnings to support their growth rate. In contrast, Returns, Inc., is expected to grow at only 5 percent per year, a rate similar to longterm nominal GDP growth in the United States.5 Unlike Growth, Inc., however, Returns, Inc., invests its capital extremely efficiently. With a return on capital of 35 percent, it needs to reinvest only 14 cents of each dollar to sustain its growth. As its earnings grow, Returns, Inc., methodically turns them into free cash flow.

14 | McKinsey on Finance | Spring 2004

exhibit 3

Traditional assessments of enterprise value can lead to a misinterpretation of where value comes from
100% = operating enterprise value Traditional decomposition Consumer goods manufacturer, P/E: 20 Fast-growing retailer, P/E: 20 48% 50% 52% 50% ROIC: 38% Implied growth: 5.1% ROIC: 12% Implied growth: 9.5%2 Value from current performance with no growth ROIC1-growth decomposition 48% 50% 50% 29% 21% 2%

Value from current earnings in perpetuity

Value from future earnings

ROIC premium

Value of expected growth

1 Return on invested capital. 2 From 2004 to 2018.

Source: Compustat; Zacks; McKinsey analysis

create more value from growth than the consumer goods company, whose high valuation would be primarily based on high returns on capital. An executive relying on the faulty analysis produced by such a simple model might flirt with trouble. The CEO of the consumergoods company The best way to understand might increase investment or the respective roles of returns discount prices to drive growth, on capital and growth in potentially shaping a company’s P/E is destroying shareholder value to expand the simple twoin the long run. By part model to draw out a digging a little deeper and premium for high returns appreciating the on invested capital. role of returns on capital, the CEO would more likely focus on protecting high returns and market share.

on capital and growth in shaping a company’s P/E is to expand the simple two-part model and draw out a P/E premium for high returns on invested capital. This approach effectively disaggregates value into three easily understood parts: Current performance. Current performance is still estimated in the usual manner, as the value of current after-tax operating earnings in perpetuity, assuming no growth. Intuitively, this is the value of simply maintaining the investments the company has already made. Return premium. This is the value a company delivers by earning superior returns on its growth capital. In order to assess how a company’s return on growth capital influences its P/E multiple, we recommend discounting a company’s cash flows as if they grew in perpetuity at some normalized rate, such as nominal GDP growth.7 Through repeated analyses, we have found that the result is a good proxy for the premium a company enjoys in the capital markets because of its high returns on future growth capital. In our

Accounting for the ROIC premium
How can we avoid these misinterpretations and still keep the analysis relatively simple? In our experience, the best way to understand the respective roles of returns

All P/Es are not created equal | 15

example, the consumer goods manufacturer would enjoy a large return premium, consistent with its high historical returns on capital. Value from growth. This value represents how much a company delivers by growing over and above nominal GDP growth. It can be calculated as that portion of the company’s current market value that is not captured in current performance or the return premium.8 While more sophisticated and time-consuming analyses are sometimes appropriate, in our experience executives can learn a lot about their P/E multiple with this simple threesophisticated part model.

even determine that a top management priority is to redirect some attention from growth to operations improvement.

High P/E multiples can serve as a powerful strategic tool. Executives who understand the complex chemistry of growth, returns, and P/E multiples will be better positioned to make strategic and operating decisions that increase shareholder value. MoF
Nidhi Chadda (Nidhi_Chadda@McKinsey.com) and Werner Rehm (Werner_Rehm@McKinsey.com) are consultants in McKinsey’s New York office. Rob McNish (Rob_McNish@McKinsey.com) is a principal in the Washington, DC, office. Copyright © 2004, McKinsey & Company. All rights reserved.

While more

analyses are sometimes

How might an executive change appropriate, executives can his or her insights learn a lot about their P/E about the consumer goods company and multiple with this simple the discount retailer three-part model. using this three-part model? The consumer goods company would be seen to enjoy a large premium for its return on capital. In the consumer goods sector, preserving that return premium must be paramount, but anything the company can do to increase its organic growth rate while preserving its return premium would translate directly into shareholder value and the possibility of a very high multiple. In contrast, the CEO of the discount retailer would face a tiny premium for return on capital, since his or her company derives most of its value from the rapid growth prospects. Anything this company could do to increase its ROIC, possibly even reining in its growth rate, would add value. By applying the model to calibrate the trade-off between growth and return, the CEO could

1

Adjusted for operating leases, Williams-Sonoma’s ROIC has historically averaged about 10 percent, the same as its cost of capital. Coke reports earnings around 3 percent over the past seven years. Likewise, stock market investors can make the same mistake by thinking they are investing in high P/E “growth stocks” when in fact some of these stocks are highreturning “value” investments. For instance, assuming perpetuity growth for a company without any financial leverage, P/E = (1 – growth/return on capital)/(cost of capital – growth). Real GDP growth over the past 40 years in the United States was 3.5 percent. At no growth, we assume that depreciation is equal to capital expenditure, and therefore net operating profits less adjusted taxes (NOPLAT) is equal to free cash flow for a business that does not grow. In effect, the first contributor is calculated as NOPLAT divided by the company’s cost of capital. This can be achieved without an explicit discounted cash flow model by using, for example, the value driver formula derived by Tom Copeland, Tim Koller, and Jack Murrin, Valuation: Measuring and Managing the Value of Companies, third edition, New York: John Wiley & Sons, 2000. For a company that grows more slowly than GDP, this value will be negative.

2

3

4

5

6

7

8

16 | McKinsey on Finance | Spring 2004

Putting value back in value-based management
Value-based management programs focus too much on measurement and too little on the management activities that create shareholder value.
Value-based management (VBM) burst

an anecdotal view of how the most successful practitioners push the principles of VBM to achieve its real promise for shareholders. Simply put, ailing VBM programs typically settle for merely measuring value creation in business initiatives, while successful approaches push to link tightly the measurement to how the business can be improved. For example, some companies mechanically measure historical performance but then fail to apply what they’ve learned to the strategies from which value should flow. Most also neglect to account for future growth and sustainability. Others make this important link but then set targets in ways that fail to mobilize the troops needed to make VBM pay off. Still others go to great lengths to implement VBM programs but then relegate them to the finance department, where they languish without the commitment of seniorlevel management. Troubled VBM programs do not necessarily manifest all these symptoms at once. In our experience, however, the vast majority suffer from at least one. Moreover, the best practitioners have learned to overcome them and can provide guidance about how to push VBM to better fulfill its potential.

Richard J. BensonArmer, Richard F. Dobbs, and Paul Todd

onto the scene a decade ago with a revolutionary promise: a company that traded in traditional management approaches in favor of VBM could align its aspirations, mind-set, and management processes with everyday decisions that truly add shareholder value. Name the initiative— investing in a new project, say, or spinning off a subsidiary, or implementing new customer-service guidelines—and management could not only pinpoint better projects but also better understand the value they would create for shareholders. Indeed, well-implemented VBM programs typically deliver a 5 to 15 percent increase in bottom-line results. Sadly, even as VBM has evolved, most programs are notable more for their implementation shortfalls than for their successes. In our ongoing work and discussions with executives, we have begun to identify a few common pitfalls that have repeatedly plagued underperforming VBM programs going back years as well as some newer wrinkles that stanch the benefits that VBM can deliver. We’ve also developed

Missing the link between measurement and value
The original breakthrough of value-based management was to draw attention to the failure of traditional accounting measures, such as net income and earnings per share, to account for the cost of capital. Traditional managers focused far more intently on improving cost and gross margin and paid little if any attention to the capital invested in the business. As a

Putting value back in value-based management | 17

exhibit 1

Metrics designed to measure value have strengths—and weaknesses
Traditional P&L and balance sheet approaches
• Revenues • EBITDA1 • Net income • Book value • ROS1 • EPS1 (diluted or not) • Relevance for management declining, but still

Value creation: historical metrics
• Return ratios

Value: forward-looking metrics
• DCF1-value • Discounted EVA1 • IRR1 • CFROI1

–ROE1 –ROCE,1 ROIC1 –ROA1 • Economic profit or EVA1
• Widely used concepts orientated

• Required for active management of

widely used by companies for communication to investors (e.g., EPS)
• Economic cost of the capital invested ignored • Growth, long-term performance, and sustainability

towards taking into account the economic cost of the capital in the business
• Growth, long-term performance, and

company’s value
• Explicit consideration of growth and

long-term impact of decisions
• High correlation to market value of

not taken into account

sustainability not taken into account

company
• Much harder to measure accurately

and so can be gamed

1 EBITDA

= earnings before interest, taxes, depreciation, amortization; ROS = return on sales; EPS = earnings per share; ROE = return on equity; ROCE = return on capital employed; ROIC = return on invested capital; ROA = return on assets; EVA = economic value added; DCF = discounted cash flow; IRR = internal rate of return; CFROI = cash flow return on investment Source: McKinsey analysis

result, it was common to find projects in which much of the capital deployed in businesses was wasted. As managers focused on value creation and the true economic cost of capital deployed in the business, VBM proponents introduced metrics to measure a business’s or program’s value, including return on invested capital (ROIC), economic profit, cash flow return on investment (CFROI), or economic value added (EVA™).1 The advantages of different measures vary (Exhibit 1), but they all attempt to recognize the cost of capital in the benchmarks managers use to gauge the value their decisions create. Yet many companies fall into the trap of focusing their measurement too much on historical returns, which are easily quantified, and too little on more forwardlooking contributors to value: growth and sustainability. For instance, one consumer goods company (Exhibit 2) was able to demonstrate strong economic returns for

five years as measured by economic profit. But because the company delivered its growth by increasing prices, it ultimately damaged its customer franchise and could not sustain its growth rate. Companies that apply VBM at a more advanced level move beyond measurement to help the management team focus on the levers that can be used to improve the business. The best programs use value trees2 to identify underlying drivers of operating value. These have long been at the core of VBM theory, but we find that they are still conspicuously missing in many applications. Savvy VBM practitioners use these trees to identify areas of improvement, pushing deep into a business’s operating performance and comparing it with others to create clear benchmarks. These benchmarks can also be pegged to the performance of peers outside the company, or to the performance of similar internal businesses. One particularly informative and credible internal benchmark comes from analyzing the historical

18 | McKinsey on Finance | Spring 2004

exhibit 2

Financial measures alone are inadequate
Economic profit went up, to a point . . . Year 1 = 100 200 160 120 80 40 0 1 2 3 4 Year
Source: McKinsey analysis

. . . but proved unsustainable, as market share steadily declined, % 60 50 40 30 20 10 0

Profit growth due to price increases

5

6

7

1

2

3

4 Year

5

6

7

performance of the same business over time. For example, one processing company’s analysis found that daily performance alone varied so widely that the management team didn’t need to look for outside benchmarks. Instead, they could improve the overall performance of the company enough just by focusing their efforts on the levers that led to the most severe underperformance on bad days.

Consider the experience of one global consumer goods company. When the corporate technical manager ordered that all the company’s bottling lines should achieve 75 percent operating efficiency, regardless of their current level, some plant operators rebelled. Operators at one US plant, concluding that at 53 percent their plant was running as well as it had ever run, worked only to maintain performance at historical levels. Yet after the plant launched an inclusive process to permit the operators to set their own performance goals, they raised performance levels above the 75 percent target over a period of only 14 months. The most effective VBM programs fine-tune this dynamic even more. As they set targets, some build in a challenge from peers running similar businesses. This approach helps to stretch targets, to highlight accountability in view of peers, and to create the sense of commitment and purpose that comes from collaborating on tough issues. Because colleagues running similar businesses will be familiar with all the opportunities for improvement, they will be much more effective than line managers at providing such challenges. Companies that have excelled at VBM programs arrange them not only on overall profitability but also on capital expenditure, growth, pricing, and costs—as well as performance during the year. Others create formal processes that encourage mutual support among colleagues to improve the performance of the business. At one of Canada’s largest privately held companies, for example, stronger performers are explicitly assigned to help their colleagues who are not performing as well. Or consider how one chemical company designed a more effective way to review

The error in focusing on targets rather than how they are set
A second common VBM pitfall stems from the way executives set performance targets and hand them down to the individuals responsible for meeting them. These targets may seem perfectly reasonable to the managers who set them, but they often appear arbitrary and unrealistic and convey little sense of ownership to the teams that receive them. In our experience, only when those assigned to meet the targets also actively help in setting them is a company likely to generate the understanding and commitment needed to deliver outstanding performance (Exhibit 3). Indeed, we find the process of setting targets to be the single biggest factor in delivering superior VBM performance.

Putting value back in value-based management | 19

exhibit 3

Involve managers early in KPI1 definition process to ensure acceptance and accountability
Success factor Guided self-discovery This
• Managers discover the key value drivers and KPIs for

Not this
• External team (or a staff team) does

themselves
• The process, rigor, and insights will be shared between

the analysis and develops value drivers and KPIs

units Strong senior management leadership
• Management actions and messages emphasize value • Senior managers, publicly or privately,

creation and value-based shaping of the management agenda Inclusive and open communication
• Relevant staff is involved both in analysis and rollout,

communicate or act in ways that do not reflect the value drivers and KPIs
• Staff is told what the new value drivers

with a clear understanding of the ultimate objective Fact-based debate and challenge
• Discussions and decisions are based on facts

and KPIs are
• Discussions and decisions are based on

personal preferences and past actions Link to ‘real deliverables’
• KPI framework leads to clear assignment of • KPI work is done separately from the

accountabilities for targets and actions
1 Key

budget and targeting processes

performance indicator.

Source: McKinsey analysis

performance. A year after introducing a VBM approach to make reported data more transparent, the company had yet to see the improvements it expected. Worse, nearly everyone in the organization recognized that official discussions about performance were something of a sham. Some managers misrepresented reports of their actual performance in order to create the appearance of meeting targets; others built enough slack into future performance targets to make sure they would easily be met. The company’s response: change the review process. What had been a one-on-one review involving the division head and unit leader became a broader discussion between the division head and all unit leaders together. And rather than simply reviewing the data, the meeting focused on the most important lessons from the previous reporting period, as well as the greatest risks and opportunities expected to appear in the coming reporting period. Emphasis at

the meeting shifted away from individual successes and failures to a combination of shared lessons and problem solving on future risks and opportunities. Next the company introduced a series of peer meetings among unit leaders without the division heads present. These meetings aimed to review plans and identify risks and opportunities in order to set priorities for allocating capital and resources. In the first year of operating under the new processes, capital outlays dropped 25 percent and underlying profits, adjusted for the usual modulations of the business cycle, rose by 10 percent.

Not ingraining VBM in day-to-day business processes
Setting targets and committing to meet them is one thing. It’s another to make sure that performance targets are acted upon. This process happens by making certain that specific individuals are accountable and responsible for making decisions and by

20 | McKinsey on Finance | Spring 2004

guaranteeing a link between performance and an individual’s evaluation process. One energy company, for example, implemented a VBM program that seemed to have all the right parts. But management then failed to carry it over from a discrete program in the finance department to engage the Until a VBM program is an entire company. This result was integral part of how a company despite the fact that the manages, it will always be company’s simply something else to do finance team developed a and will inevitably fail. first-rate scorecard covering financial performance, operating drivers, organizational health, and customer service. Nearly a year later, there was no discernible impact. Beyond top-level conversations, few of the company’s managers used the scorecard— some didn’t even know what it was. They had had no involvement in the program’s development, little understanding of why the new scorecard was necessary, and no incentive to use it. The few that did use it found that targets regularly were missed. Some companies overcome this pitfall by using a formal performance contract to explicitly link the key performance indicators—such as sales, profit margin, return on investment, and customer satisfaction—with roles such as sales manager, business unit manager, finance manager, and call-center manager respectively. This link forces an explicit conversation to take place about whether roles and decision rights are correctly lined up. Other companies link their peopleevaluation system to hitting targets, with explicit rules about dismissals for

individuals who fail to meet their targets more than once. By tying performance evaluation and compensation to individual objectives, performance can also be aligned with the objectives of the VBM program. A rule of thumb: until a VBM program is an integral part of how a company manages, it will always be simply “something else to do” and will inevitably fail as employees continue to perform as they always have. Finance department input is essential, for example, but delegating VBM to the finance department as a discrete, isolated program is a surefire way to snuff its potential.

Too few VBM programs have fulfilled their early promise. But recognizing common patterns in programs that have gone awry is a first step in moving VBM closer to its goal to help line managers deliver better performance for shareholders. MoF
Richard Benson-Armer (Richard_BensonArmer@McKinsey.com) is a principal in McKinsey’s Toronto office. Richard Dobbs (Richard_Dobbs @McKinsey.com) is a principal in the London office, where Paul Todd (Paul_Todd@McKinsey.com) is an associate principal. Copyright © 2004 McKinsey & Company. All rights reserved.

The authors wish to acknowledge the valuable contributions of Joe Hughes, Tim Koller, and Carlos Murrieta to the development of this article.

1

EVA is a registered trade mark of Stern, Stewart & Co., New York, and is synonymous with the more generic term, “economic profit.” Tom Copeland, Tim Koller, and Jack Murrin, Valuation: Measuring and Managing the Value of Companies, third edition, New York: John Wiley & Sons, 2000.

2

AMSTERDAM ANTWERP ATHENS ATLANTA AUCKLAND AUSTIN BANGKOK BARCELONA BEIJING BERLIN BOGOTA BOSTON BRUSSELS BUDAPEST BUENOS AIRES CARACAS CHARLOTTE CHICAGO CLEVELAND COLOGNE COPENHAGEN DALLAS DELHI DETROIT DUBAI DUBLIN DÜSSELDORF FRANKFURT GENEVA GOTHENBURG HAMBURG HELSINKI HONG KONG HOUSTON ISTANBUL JAKARTA JOHANNESBURG KUALA LUMPUR LISBON LONDON LOS ANGELES MADRID MANILA MELBOURNE MEXICO CITY MIAMI MILAN MINNEAPOLIS MONTERREY MONTRÉAL MOROCCO MOSCOW MUMBAI MUNICH NEW JERSEY NEW YORK OSLO PACIFIC NORTHWEST PARIS PITTSBURGH PRAGUE QATAR RIO DE JANEIRO ROME SAN FRANCISCO SANTIAGO SÃO PAULO SEOUL SHANGHAI SILICON VALLEY SINGAPORE STAMFORD STOCKHOLM STUTTGART SYDNEY TAIPEI TEL AVIV TOKYO TORONTO VERONA VIENNA WARSAW WASHINGTON, DC ZAGREB ZURICH

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