BTR1+2 PDF

BTR Door: Balt van Hulten Table of Contents BTR 1 intro...................................................................................................................... 8 BTR 1 Marketing MC1.................................................................................................... 8 BTR 1 Strategy MC1.................................................................................................... 13 BTR 1 Strategy MC2.................................................................................................... 16 Threat of substitutes.................................................................................................................................17 BTR digital transformation MC2................................................................................ 20 BTR 1 Regulations & Ethics MC1.............................................................................. 22 GDPR...................................................................................................................................... 22 What can go wrong?............................................................................................................ 23 Intellectual property (IP)...................................................................................................... 23 Trademarks...............................................................................................................................................25 Copyright....................................................................................................................................................25 Trade secrets............................................................................................................................................26 Patents.......................................................................................................................................................26 IP problems...............................................................................................................................................27 BTR 1 People - Organizational structure & culture MC1....................................... 28 BTR ESG MC1.............................................................................................................. 31 Key take-aways..................................................................................................................... 32 How does ESG clash with value creation?....................................................................... 33 How does ESG lead to value?............................................................................................ 33 Greenwashing....................................................................................................................... 34 BTR 1 ESG MC2........................................................................................................... 36 9 big issues that link to ESG urgency in 2022................................................................. 36 Leadership is key.................................................................................................................. 38 BTR 1 Strategy MC4.................................................................................................... 41 Porter’s 2 generic strategy......................................................................................................................41 Economy of scale................................................................................................................. 42 Parity VS. Proximity............................................................................................................. 43 Differentiation strategy........................................................................................................ 43 Condition for differentiation.....................................................................................................................44 Cost leadership VS differentiation..........................................................................................................44 Focus strategy...................................................................................................................... 45 Porter’s 3 generic strategies............................................................................................... 45 Hybrid strategy..................................................................................................................... 46 Mix between cost leadership & differentiation......................................................................................46 Conditions for hybrid strategy.................................................................................................................46 Bowman’s strategy clock.................................................................................................... 46 What is a Business Model................................................................................................... 48 Essential questions to determine strategy............................................................................................49 Ansoff’s Growth Matrix........................................................................................................ 50 Constraints to diversification............................................................................................. 51 Value creators/destroyers of diversification..........................................................................................51 Attractiveness & balance of business portfolio.....................................................................................52 BTR 1 Digital Transformation MC3........................................................................... 55 What is a business model?................................................................................................. 55 The platform play;................................................................................................................ 55 New marginal supply;.......................................................................................................... 55 Data monetization;............................................................................................................... 55 Customized products & services....................................................................................... 55 Digital distribution channels............................................................................................... 55 Disadvantages..........................................................................................................................................55 Process and cost optimization........................................................................................... 55 BTR 1 Strategic Finance............................................................................................. 57 Strategic finance allows:..................................................................................................... 57 Main strategic finance activities are:................................................................................. 57 Financial freedom position................................................................................................. 57 Liquidity position.......................................................................................................................................57 Solvency position......................................................................................................................................57 Financial performance growth........................................................................................... 57 Return ratios..............................................................................................................................................57 Mezzine financing................................................................................................................. 58 BTR 1 strategic finance WS2..................................................................................... 59 BTR 1 Strategic Marketing MC6................................................................................ 60 International strategies........................................................................................................ 60 Market selection.................................................................................................................... 61 Market entry........................................................................................................................... 61 Growth methods................................................................................................................... 62 Organic development........................................................................................................... 63 Mergers and Acquisitions (M&A)....................................................................................... 63 Strategic alliance.................................................................................................................. 64 BTR 1 People & leadership MC2............................................................................... 66 Focus of strategic leadership............................................................................................. 67 Leadership styles................................................................................................................. 68 Transformational leadership....................................................................................................................68 Positive leadership...................................................................................................................................68 Goleman leadership styles......................................................................................................................69 Commanding.............................................................................................................................................69 Visionary....................................................................................................................................................69 Affiliate........................................................................................................................................................69 Democratic................................................................................................................................................69 Pacesetting................................................................................................................................................70 Coaching....................................................................................................................................................70 Leadership styles of Goleman............................................................................................ 70 BTR 1 Digital Transformation MC4.................................................................................... 71 BTR 1 Growth Path WS C6......................................................................................... 73 BTR 1 Strategy MC7.................................................................................................... 74 Organisational Performance............................................................................................... 74 SAFE-Model........................................................................................................................... 74 Stages of industry life cycle............................................................................................... 76 Assessing acceptability...................................................................................................... 76 Assessing risk...................................................................................................................... 77 Assessing returns................................................................................................................ 77 Assessing stakeholder reaction......................................................................................... 78 Assessing feasibility............................................................................................................ 78 Assessing people & skills................................................................................................... 78 Qualifications to evaluate process.................................................................................... 79 BTR 1 MOCK................................................................................................................. 80 Plan of approach.......................................................................................................... 81 Theory.................................................................................................................................... 81 BTR Coaching.............................................................................................................. 83 Coaching WK 2..................................................................................................................... 83 Coaching Wk 11.................................................................................................................... 83 Feedback Finance................................................................................................................ 84 BTR 2 Strategy MC 9 Competition............................................................................ 85 Defining competition............................................................................................................ 85 Basic steps for understanding competition..................................................................... 86 Levels of competition.......................................................................................................... 88 BTR 2 digital transformation...................................................................................... 89 BTR 2 Business ethics & principles MC2................................................................ 92 Ethics consists of:................................................................................................................ 92 Value:..........................................................................................................................................................92 Moral foundation:......................................................................................................................................92 Business norms........................................................................................................................................93 Understanding business ethics......................................................................................... 93 BTR 2 Strategy MC10 Growth Paths......................................................................... 95 Methods for achieving growth............................................................................................ 95 Market entry........................................................................................................................... 96 Comparing acquisitions, alliances & organic development.......................................... 96 Applying SAFE to Growth Finance.................................................................................... 97 Suitability: addressing strategic challenges..........................................................................................97 Acceptability: Return, risks & stakeholders..........................................................................................98 Feasibility: Can it be done.......................................................................................................................99 Evaluation................................................................................................................................................100 BTR 2 Strategy MC11 Organic growth path........................................................... 101 What are resources & capabilities:.................................................................................. 101 Advantages of organic growth......................................................................................... 101 Disadvantages of organic growth.................................................................................... 101 Suitability; changes depending on the situation.......................................................... 101 BTR 2 strategic finance MC4: financing growth 1................................................ 102 Business Unit Financing................................................................................................... 102 Special Purpose Vehicle.................................................................................................... 102 Benefit of SPV.........................................................................................................................................102 BTR 2 strategic alliance MC12................................................................................. 103 Types of strategic alliances.............................................................................................. 103 Licensing VS Franchising................................................................................................. 104 Motives for strategic alliances......................................................................................... 105 Motives for alliances.......................................................................................................... 105 Creating broader value networks..................................................................................... 106 Strategic alliance evolution.............................................................................................. 106 Pro’s & Con’s Alliances..................................................................................................... 107 When is alliances most suitably....................................................................................... 107 BTR 2 Regulations & ethics MC3............................................................................ 108 What is a business contract?........................................................................................... 108 Why is a handshake not enough?........................................................................................................108 The 6 formal elements of a contract................................................................................ 109 UCC vs. CISG, key distinctions and application........................................................... 110 What is UCC-Article 2............................................................................................................................110 Incorrect contracting......................................................................................................... 111 Who is contracted?............................................................................................................ 111 Internally..................................................................................................................................................111 Externally.................................................................................................................................................111 Who wants what in the contract?.................................................................................... 111 Employers vs Employees......................................................................................................................111 Commissioner vs Supplier....................................................................................................................112 Commissioner vs Strategic alliance partner.......................................................................................112 Supplier code of conduct & framework agreements.................................................... 112 BTR 2 regulations & ethics MC4: Due Diligence.................................................. 113 Who is involved?................................................................................................................ 113 What happens after?.......................................................................................................... 115 What are the steps in due diligence?.............................................................................. 116 10 areas of due diligence.................................................................................................. 116 What should be done in parallel to Due Diligence?...................................................... 116 What can go wrong in Due Diligence?............................................................................ 117 Mistaken can be made by both sides.............................................................................. 117 Where else is the Due Diligence process relevant?..................................................... 118 BTR 2 strategy MC13: M&A...................................................................................... 119 Mergers & Acquisitions (M&A)......................................................................................... 119 2 types of acquisitions...........................................................................................................................119 M&A context............................................................................................................................................119 Main types of M&A............................................................................................................. 120 Main motives for M&A........................................................................................................ 120 Reasons why M&A’s fail.................................................................................................... 120 Mistakes during deal process...............................................................................................................120 Mistakes related to management & integration process...................................................................120 Steps of acquisition........................................................................................................... 121 Step 1: Acquisition strategy...................................................................................................................121 Step 2: Acquisition criteria.....................................................................................................................121 Step 3: Searching for target..................................................................................................................121 Step 4: Acquisition plan.........................................................................................................................121 Step 5: Valuing & evaluating.................................................................................................................121 Step 6: Negotiation.................................................................................................................................122 Step 7: Due Diligence (DD)...................................................................................................................122 Step 8: Purchase & sales contract.......................................................................................................122 Step 9: Financing....................................................................................................................................122 Step 10: Integration of the acquisition.................................................................................................122 BTR 2 Strategic Finance MC5: JV & M&A.............................................................. 123 Debt financing structures:................................................................................................ 123 Pro’s of debt financing structures.........................................................................................................123 Con’s of debt financing..........................................................................................................................123 Equity financing structures.............................................................................................. 124 Pro’s of equity financing structures......................................................................................................124 Con’s of equity financing structures.....................................................................................................124 Hybrid financing structures.............................................................................................. 125 Pro’s of hybrid financing structures......................................................................................................125 Con’s of hybrid financing structures.....................................................................................................125 Factors to consider when selecting financing............................................................... 126 Joint venture....................................................................................................................... 126 Potential financial benefits of JV..........................................................................................................126 Potential financial risks of JV................................................................................................................126 JV financing.............................................................................................................................................126 M&A...................................................................................................................................... 127 Motivation................................................................................................................................................127 Merger considerations...........................................................................................................................127 Acquisition considerations.....................................................................................................................127 Financial advantages of M&A...............................................................................................................127 Financial disadvantages of M&A..........................................................................................................128 M&A Financing........................................................................................................................................128 BTR 2 Strategy MC14 Transformation Plan........................................................... 129 Why do we need a business plan.................................................................................... 129 Key to success.................................................................................................................... 129 What key questions should be answered?.................................................................... 129 What should the executive summary make clear?....................................................... 129 Presentation pitch text.............................................................................................. 138 Assessment overview............................................................................................... 140 PRD.............................................................................................................................. 145 Business Model You (BMY)............................................................................................... 145 Key activities...........................................................................................................................................145 Key resources.........................................................................................................................................145 Value provided........................................................................................................................................145 Customer relationships..........................................................................................................................145 Channels..................................................................................................................................................145 Customers...............................................................................................................................................145 Costs........................................................................................................................................................145 Revenue & Provided..............................................................................................................................145 CLP scources..........................................................................................................................................146 BTR 1 intro Global entertainment something BTR 1 Marketing MC1 BTR 1 Strategy MC1 BTR 1 Strategy MC2 Threat of substitutes Substitutes are products or services that offer the same benefits, as an industry product or service, but originate from a different basis. Substitutes can limit or cap prices. E.g. Train tickets from Amsterdam to Paris will impact prices of flight tickets going to the same destination Price/Performance Ratio The price/performance ratio is more important than simply the price. ➔ Aluminium is more expensive that steel, but it is lighter and corrosion resistant, so may be more applicable, despite the higher cost ➔ Despite a higher cost, flying may still be preferable to taking the train, where travel time is important Switching costs The potential threat of substitutes forces players to look beyond direct competitors. If the buyer faces low switching costs, the threat increases, resulting in a less attractive industry. Porters 5 forces model is about the industry’s future and potential future returns BTR digital transformation MC2 BTR 1 Regulations & Ethics MC1 Ethics VS law; Minimal requirement is legally binding, however ethically may require more effort/time/money etc. GDPR What can go wrong? Intellectual property (IP) Trademarks Copyright Trade secrets Patents A patent is an exclusive right granted for an invention. It relates to a product or process that provides a new way or offers a new technical solution to a problem (WIPO). The technical information about the invention needs to be disclosed to the public, via a patent application. IP problems BTR 1 People - Organizational structure & culture MC1 BTR ESG MC1 Key take-aways ESG was first coined by the UN. Many sort-like initiatives have sprung up, in some cases merged with other initiatives. ESG is a forerunner of the UN’s SDG’s and now plays an active role as a tool to achieve many of those goals. ESG also plays a key role in the EU’s Green Deal. ESG criteria mandatory for all EU financial institutions like pension funds, mutual funds, private banks, banks, and so forth (SFDR), and to some large EU companies (NFRD/CSRD) There are many differences globally, increasing alignment is crucial but also hard to do. How does ESG clash with value creation? Often, increasing an ESG score means: o Higher costs/lower output -> lower cash flows and hence lower valuation o Can a lower WACC mitigate this? The regulatory burden of ESG imposes extra costs, as information needs to be gathered, interpreted, processed, stored, and shared. Differences globally in the application and adherence to the ESG framework can lead to a shift in competitive advantage o i.e. those that do not go for high ESG can produce and sell at lower prices How does ESG lead to value? As fund flows to high-scoring ESG and away from low-scoring ESG companies, funding costs (Ke and Kd) for the former go down (so WACC down) while for the latter it goes up. I.e. WACC is affected and therefore valuation will be positively impacted by a higher ESG score and vice versa. Customers and employees might use a certain level of ESG score as a prerequisite to do business/work there. Greenwashing “Greenwashing is where a company uses advertising and public messaging to try to appear to be environmentally sustainable and green – greener than it really is. It’s also a technique used by certain companies to distract consumers from the fact that their business model and activities actually do a lot of environmental harm and damage.” In the ESG context, Greenwashing can also refer to Social and/or Governance issues. Do note that Greenwashing accusations can also happen with no fault by the company; due to differing standards and interpretations, a company can be accused of Greenwashing without really doing so! Most breaches are marketing-driven, and regulators have been cracking down on these practices lately. BTR 1 ESG MC2 9 big issues that link to ESG urgency in 2022. 1. Elections matter (a lot) and so does policy a. Bolsonaro’s deforestation was destroying the Amazon – New leadership may change this. b. US passage of Inflation Reduction Act includes billions of spending on climate priorities, tax credits for clean energy, EV incentives, and funding for clean tech manufacturing – Congress and Senate being inline help. c. EU passed cross border tax on carbon – means that it will be less interesting to relocate your production facilities to locations that are not so strict on climate change. 2. Russia invades Ukraine. a. Accelerated a sprint to clean energy in Europe at the same time coal also an option now. b. Global sanctions – highlighted the companies making a clean break or digging in staying – transparency (G) creating public outcry and what does it do for your brand? 3. Clean tech especially EV reached tipping point some countries linked to policy. a. Almost every big car producer will stop making combustion cars within the next 10-12 yrs b. Renewable energy will pass coal usage by 2025 predicted by International Energy Agency 4. Business stands up for rights of women and LGBTQ+ community in the US. a. Florida created a don’t say gay bill – Disney came out publicly against it and was stripped of their special tax status as a retribution. b. Roe vs Wade was overturned, prompting many companies to support women financially when seeking abortions in other state. 5. ESG investing is dead, long live ESG investing. a. Anti woke movement in the US to Blackrock lost a 2 billion investment in Florida as a protest to climate fund investing. b. FEDs has said they are not a climate bank policy maker since they are not elected. c. Largest Norwegian sovereign fund will vote against any investments that don’t set net zero carbon targets, overpay top execs, or lack diversity on their boards. 6. A continued a sea of acronyms for sustainability standards and regulations 7. Transparency is rising. a. More companies need to report on CO2 footprint so more transparency. b. Climate TRACE – using AI and satellites to map CO2 emissions globally – no more hiding. 8. Service companies feeling pressure from their employees to drop certain clients a. Primarily in banking, consulting and agency world as the workforce becomes younger 9. More companies are complying to Net zero and beyond a. Mid-2022, 700 companies had set net zero goals, a 68% increase vs two years ago. Leadership is key. 1. The CEO must take the lead role in explaining and committing to ESG targets, both inside and outside the organization. 2. The CEO, through the rest of the executive board, has to instill the urgency and importance of reaching the ESG internal targets. 3. The CEO should regularly check on progress with the rest of the board and the line managers (spider in the web) 4. The CEO should also regularly communicate (two-way communication!) directly with all levels of the organization to show the company’s commitment to its ESG targets. This also applies to the rest of the board and the line managers. 5. The CEO, if possible, as to appoint a Chief Sustainability Officer (CSO) in the executive board. 6. The supervisory board should preferably also include a dedicated ESG specialist or at least also use certain ESG KPI’s to judge and steer the executive board. 7. In general, having at least one ESG dedicated specialist in the organization will help the organization to act and implement ESG correctly and efficiently. Furthermore, the hiring of these specialists shows Co’s commitment to ESG internally and externally. 8. Company should train the employees in ESG. This ensures understanding, buy in of employees and correct execution. This includes a common definition of ESG (i.e. everyone should know what is meant exactly) 9. If it doesn’t get measured, it will not be managed! Therefore, the organization needs to set up adequate data collection, storage and sharing systems (this is a must!) 10. Management should define clear KPI’s that are linked to the company’s overall ESG targets a. Each employee should have a clear understanding of how he/she will be judged and rewarded (note that this point can not be implemented correctly if there is no proper data system!) 11. Management should clearly define all the ESG risks and integrate these into their risk management system (note again importance of data!) a. reputational risk b. regulatory risk c. environmental risk d. employee turnover risk, etc. 12. Company needs to make sure that its marketing and branding are aligned with its ESG claims (both now and those for the future) 13. The above-mentioned points are mostly a Top-Down approach, but in most cases a Bottom-Up approach should also be used (change management) 14. The company should make sure that the employee feedback is also made part of the data collection system. 15. ESG implementation will be a lot about change management. a. Management should be aware of its corporate culture and sensitivities when implementing its ESG part of its strategy. b. Management should map and categorize the barriers to change within its organization and develop plans to overcome or mitigate these. c. The HR department should also screen on certain characteristics in its employee selection procedures (willingness to change/learn, knowledge of ESG, support of ESG targets, willingness to provide feedback, etc. d. Management should identify individual employees that can become agents of change within the organization (catalysts) etc. BTR 1 Strategy MC4 Porter’s 2 generic strategy 1. Cost leadership 2. Differentiation a. Cost focus b. Differentiation focus Economy of scale Parity VS. Proximity Differentiation strategy Condition for differentiation Cost leadership VS differentiation Focus strategy Porter’s 3 generic strategies Hybrid strategy Mix between cost leadership & differentiation Conditions for hybrid strategy Bowman’s strategy clock What is a Business Model Essential questions to determine strategy Ansoff’s Growth Matrix Diversification strategy can be split into Related diversification and unrelated diversification. Constraints to diversification Value creators/destroyers of diversification Attractiveness & balance of business portfolio BTR 1 Digital Transformation MC3 What is a business model? - A business model is the way you make money. - Explanation of how the company delivers value to the customers at the appropriate cost level. o Everything it takes to make something; design, raw materials. o Everything it takes to sell that thing; marketing, distribution. o How and what the customer pays; pricing strategy and payment methods. The platform play; Is a business model where the company provides a platform for others to promote or sell their goods or services. I.E.; marktplaats, Airbnb, booking.com, Uber New marginal supply; Is a business model which generates a low operational margin, in most cases related to achieving ESG goals. Digitally enables products & services; Upgrading existing devices to incorporate a more technologically advanced version in order to supply more information and customization to the user. Data monetization; - Data is a valuable asset to most companies. - Internal data monetization is the method of using data and analytics to improve the internal processes and make better business decisions. - External data monetization is the method of creating a product or service using internal data assets … Customized products & services Digital technologies enable mass customization insert ss slide 47 Digital distribution channels Digital stores Advantages - Allows selling around the world - Decreases barriers to enter - Provides higher profit margin Disadvantages - Limit customer connection - Higher return rates - Attracts only those who prefer online shopping Process and cost optimization … insert BTR booster BTR 1 Strategic Finance Strategic finance helps businesses move from outdated, backwards looking financial planning and reactive data analysis to modern forward-looking strategic planning and proactive analytics. Strategic finance allows: - Unified data - Forward looking insights - Connected platforms - Accelerator - Universal understanding - Where you’re going and how to get there - Finance as strategist Main strategic finance activities are: - Capital budgeting - Corporate finance - Mergers and acquisitions - Risk management - Valuation - Financial forecasting - Portfolio management - Aligning compensation with performance - Planning & budgeting Financial freedom position Liquidity position - Cash - Cash conversion cycle - Net working capital Solvency position - Collateral - Underutilized assets - Maturity of capital Financial performance growth Profitability Margin ratios - Gross margin - Net margin Return ratios - ROA (return on assets) - ROE (return on equity) Mezzine financing - Senior debt and asset-backed lending - Senior subordinated debt - Convertible subordinated debt - Redeemable preferable stock - Equity o Middle 3 Fall under Mezzanine financing § Cash interest § Payment in kind interest § Ownership § Participation pay-out § Arrangement fee BTR 1 strategic finance WS2 BTR 1 Strategic Marketing MC6 Advantage can be gained from the international configuration of the value system, locating each element of the value chain in the country/region, where it can be conducted most effectively and efficiently. Sources of advantage: - Cost advantages: labour, transportation, comms, tax, investment incentives - Unique local capabilities: tap into those found elsewhere - National market characteristics: (un-)differentiated targeting International strategies Market selection Market entry Growth methods Organic development Mergers and Acquisitions (M&A) Strategic alliance BTR 1 People & leadership MC2 1. Globalization 2.0 a. New economic world order is emerging b. Power is shifting from ‘old’ economies to emerging markets in Asia 2. Environmental crisis a. Scarcity of critical natural resources and threatening climate change b. Accelerating costs and social and market pressures ask for fundamentally rethinking existing operations 3. Individualization a. People want to be treated as individuals, both customers and employees b. Opportunities for customized offerings, diversification of employee demands c. Requires a greater sensitivity and agility from organizations 4. The digital era a. Digital platforms are shifting power from organizations to consumers and employees b. Breaking down divisions between personal and professional life c. Transparency, which will oblige leaders to act with sincere and authentic 5. Demographic change a. A rapidly aging world population leads to transformed markets and pressure on social structures and welfare systems b. A shrinking global workforce leads to a war for talent and people c. Leading and developing an intergenerational workforce 6. Technological development a. Nanotechnology and biotechnology will transform our lives and create new product market b. Staying ahead of the curve and collaboration with competitors on complex R&D programs Focus of strategic leadership Leadership styles Transformational leadership Positive leadership Goleman leadership styles Commanding Visionary Affiliate Democratic Pacesetting Coaching Leadership styles of Goleman BTR 1 Digital Transformation MC4 BTR 1 Growth Path WS C6 BTR 1 Strategy MC7 Organisational Performance SAFE-Model Stages of industry life cycle Assessing acceptability Assessing risk Assessing returns Assessing stakeholder reaction Assessing feasibility Assessing people & skills Qualifications to evaluate process. BTR 1 MOCK Learn; forecasting strategy Company strategy 5 stages of Digital maturity STP model Plan of approach Theory 1. External - Pestel 2. Internal - 7 P’s - SWOT analysis 3. Key strategic insights - 4. Strategic insights 5. Thinking differently 6. Growth paths 7. Evaluating options 8. Tying it all together 9. Stress test CSD 10. Individual reflection BTR Coaching Coaching WK 2 Topic Journal; - Topic Journal feedback written and published on myhth -> week 4 How far are we now; - Finished external, to be added to the canva, - Key drivers for change to be finished, - Internal is work in progress, o Pestel (not mandatory) in appendix - Lifecycle should be added!!! - VRIO model explained during ESG MC3 - ESG -> before SWOT, digital, Finance - “What is Netflix doing?” -> Internal Coaching Wk 11 End deliverable is poster, elevator pitch video and budget sheet Week 19 is open question exam More operational poster, which is supposed to inform rather than sell More working on growth options Pitch in wk 16, with 2 assessor, 10 mins pitch and Q&A, questions posed to random team member -> individual grade for Q&A Poster, video (elevator pitch abt. Poster) & budget sheet are graded Pitch is about First 2 weeks is deciding which growth option to pick Next weeks are about how to realize growth options (I.E. M&A, partnership, organic growth or hybrid) Underpinning is highly important After holidays focus lies on chance management, marketing, communication plan Poster includes growth options, option, ESG component, people, finance, chance plan and legal and ethics (shown during intro class, to be found on myhth) Next week (2) mock presentation abt growth option BTR exam is about - business ethics - regulation (contracting + due diligence) - financing growth -… -… Everyone present for MC & WS as it’s a new course Feedback Finance 1. EBITDA margin unrealistic (GO 1) 2. Initial investment & capex need depreciation (GO 1) 3. Recalculate TV (GO 1&2) 4. DCF not taken into consideration, take from yr 1 to 10 5. G “mentioned in class” is not sufficient (GO 2) 6. G cannot be higher than Econ. Growth over >10yrs (GO 2) 7. Revise COS (GO 2) linked directly to revenue 8. Depreciation (GO 2) unclear 9. Capex to be included in depreciation Next week formative assessment - Pitch both GO’s and pick one BTR 2 Strategy MC 9 Competition Defining competition - Marketing, demand view: Competitors are companies that satisfy the same customer need (Kotler & Keller 2006) - Broader demand view, multiple markets & needs: Companies compete in multiple markets, different types of customers and needs. o Competing for buyers; customers/consumers o Competing for labour; employees o Competing for capital; money/investors/shareholders Supply view, broader strategic: o Competing on/for resources and capabilities With latent resources and capabilities non-competitors can become competitors Managers myopia = focussing more on short-term gains, rather than keeping the long-term in mind - Hence, a b r o a d e r definition: Competitors are companies that satisfy the same need and/or have similar resources and capabilities enabling them to (potentially) satisfy the same need. - Which includes: o Direct competitors o Indirect competitors (incl. substitutes) o Potential competitors (potential direct or indirect) Basic steps for understanding competition 1. Identify & categorize competition. a. Framework direct, indirect & potential b. Levels of competition direct & indirect 2. Analyse, evaluate & compare competitors. a. E.g. strategies, objectives, strengths, weaknesses, likely behaviour, etc b. Strategic groups Levels of competition Needs based, customer perceived value: “What alternative products and services solve the problem at hand?”. Level 1: Product form Similar product or service features, same market segment. Most narrow view, closest competitors. Diet Coke. Level 2: Product category Somewhat broader, usually how ‘industry’ is defined, various product forms. E.g. personal computers, fast food, televisions, soft drinks. Level 3: Generic competition Substitutable product categories. Products and services fulfilling the same customer need. Eg soft drinks and juices in “thirst-quenching” market”. Avoids overlooking threats and opportunities. Level 4: Budget competition Broadest view: considers all products and services competing for the same customer wallet. $20 to spend. Broader view is more complex yet allows seeing more opportunities & threats. BTR 2 digital transformation BTR 2 Business ethics & principles MC2 Ethics consists of: Value: Moral foundation: Business norms Understanding business ethics BTR 2 Strategy MC10 Growth Paths Methods for achieving growth Strategic option - Diversification - Internationalisation - Innovation Strategic method - Organic development (DIY) - M&A (buy it) - Strategic alliances (collaboration) Market entry Comparing acquisitions, alliances & organic development Applying SAFE to Growth Finance Suitability: addressing strategic challenges Acceptability: Return, risks & stakeholders Feasibility: Can it be done Evaluation Continue to weigh what is most important to each pillar of the SAFE model BTR 2 Strategy MC11 Organic growth path What are resources & capabilities: Advantages of organic growth - Can enhance organisational knowledge & learning - Allows the spreading of investment over time - Fewer availability constraints - Strategic independence - Culture management Disadvantages of organic growth - Reliance on internal capabilities can be slow, expensive and risky - Additional resources & capabilities may have limited availability - Hard to deploy existing capabilities, as a means to leaps of innovation, diversification and internationalisation Suitability; changes depending on the situation - Urgency: Organic Growth is the slowest option; everything needs to be made from scratch - Uncertainty: risks of high financial losses entirely on the company - Types of resources or capabilities: soft vs. hard BTR 2 strategic finance MC4: financing growth 1 Business Unit Financing Normally, new projects and ideas structured withing the existing company are financed using the company’s available financial resources: - internal funding within the organisation - the company’s revolving credit facilities - existing or new bank loans - equity financing - retained earnings and available cash excess Special Purpose Vehicle An SPV is a subsidiary created by a parent company to isolate financial risk. Its legal status as a separate company makes its obligations secure even if the parent company goes bankrupt. For this reason, an SPV is sometimes called a bankruptcy-remote entity. In any case, the operations of the SPV are limited to the acquisition and financing of specific assets, and the separate company structure serves as a method of isolating the risks of these activities. Benefit of SPV - Isolated financial risk - Direct ownership of a specific asset - Tax savings, if the vehicle is created in a tax haven - Easy to create and set up the vehicle - Flexibility as SPV’s structure could be customised to fit specific needs of the growth option - The possibility of obtaining larger borrowed funds in comparison with the parent company–business unit structure BTR 2 strategic alliance MC12 Types of strategic alliances - Equity alliance o Partial ownership eg A buying 40% shares of BJoint Venture (JV), A and B create C Four types: § Project/goal specific § Functional, structural § Horizontal § Vertical - Consortium, Affiliation o Shared proposition, services etc - Non-equity alliance o Purely contractual agreements, where no equity structure is created. E.g. franchising, licensing, in/outsourcing Licensing VS Franchising Motives for strategic alliances Motives for alliances Creating broader value networks Value system: broad, interlinking value activities across companies. Business Ecosystem: arrangement of collaborative partners.... interacting and combining their individual offerings into a coherent customer solution to create value for all. Win-win community, co-value creation. Complementors: adding value by adding another product or organisation. Collaborate and compete at same time. Strategic alliance evolution Pro’s & Con’s Alliances When is alliances most suitably BTR 2 Regulations & ethics MC3 What is a business contract? A contract is a spoken or written agreement between two or more parties. One side agrees to perform a certain obligation for which they receive certain rights from the other side. Why is a handshake not enough? Without a formal written contract, the following could occur: - A simple misunderstanding of what was agreed - The ‘supplier’ does not supply what was agreed (on time/at all) - The ‘buyer’ refuses to pay the agreed amount - What the ‘supplier’ delivers is substandard or even dangerous - The ‘supplier’ causes damage to the ‘buyer’ on delivery The 6 formal elements of a contract UCC vs. CISG, key distinctions and application What is UCC-Article 2 UCC - Article 2 is the most important element of the UCC, as it regulates contracts for transactions related to goods. The laws in individual states (common law) often differ in significant areas. The purpose of the UCC is to provide a general common ground for trading goods: when contracts apply, and which terms and conditions are attached. Incorrect contracting Who is contracted? Internally - Employees Externally - Suppliers - Strategic partners - Advertisers - Other third parties Who wants what in the contract? Employers vs Employees Commissioner vs Supplier Commissioner vs Strategic alliance partner Supplier code of conduct & framework agreements BTR 2 regulations & ethics MC4: Due Diligence Due diligence is key part of M&A process. Who is involved? - Buying party - Additional buying parties? - Selling party - Lawyers - Corporate Finance advisors - Consultants What happens after? What are the steps in due diligence? 10 areas of due diligence - Administrative Due Diligence - Financial Due Diligence - Asset Due Diligence - Human Resources Due Diligence - Environmental Due Diligence - Taxes Due Diligence - Intellectual Property Due Diligence - Legal Due Diligence - Customer Due Diligence What should be done in parallel to Due Diligence? What can go wrong in Due Diligence? Mistaken can be made by both sides Where else is the Due Diligence process relevant? BTR 2 strategy MC13: M&A Mergers & Acquisitions (M&A) 2 types of acquisitions M&A context Main types of M&A Main motives for M&A Reasons why M&A’s fail Mistakes during deal process. - Misevaluation, including synergies - Negotiation errors Mistakes related to management & integration process. - Unclear strategy and objectives - Unclear governance and decision-making structures - Poor cultural fit - Poor integration process - Lack of trust amongst parties - Lack of commitment amongst management Steps of acquisition Step 1: Acquisition strategy What problems are you trying to solve with this growth path? - Gain access to new technology or resources and capabilities - Acquire talent or new expertise - Increase or protect market share - Achieve economies of scale and synergies - Access new markets - Diversify the business - Acquire new product or service Key missing elements frequently leading to failure: - Human resources: insufficient resources allocated to the M&A deal - Financial goals: synergies are overstated - Risk tolerance - Timeframe: the deal could take longer than expected Step 2: Acquisition criteria Determine key criteria for identifying potential target companies: - Size - Geographic location - Revenue and earnings growth - Customer base - Unique assets: technology, expertise, talents - Financing constraints - Complete versus partial acquisition Step 3: Searching for target Two main criteria apply: - Strategic fit – does the target firm strengthen or complement the acquiring firm’s strategy? (N.B. Potential synergy is often over-estimated, as negative synergies are often neglected) - Organisational fit – is there a match between the management practices, cultural practices and staff characteristics of the target firm and the acquiring firm Step 4: Acquisition plan The acquirer makes contact with one or more companies that meet its search criteria and appear to offer good value; the purpose of initial conversations is to get more information and to see how amenable to a merger or acquisition the target company is. Step 5: Valuing & evaluating Acquirer asks target company to provide substantial information that will enable the acquirer to further evaluate the target, both as a business on its own and as a suitable acquisition target. Step 6: Negotiation After producing several valuation models of the target company, the acquirer should have sufficient information to enable it to construct a reasonable offer. Once the initial offer has been presented, the two companies can negotiate terms in more detail. Step 7: Due Diligence (DD) DD is an exhaustive process that begins when the offer has been accepted; DD aims to confirm or correct the acquirer’s assessment of the value of the target company by conducting a detailed examination and analysis of every aspect of the target company’s operations. Step 8: Purchase & sales contract DD is an exhaustive process that begins when the offer has been accepted; DD aims to confirm or correct the acquirer’s assessment of the value of the target company by conducting a detailed examination and analysis of every aspect of the target company’s operations. Step 9: Financing The acquirer will have explored financing options for the deal earlier in the process, but the details of financing typically come together after the purchase and sale agreement has been signed. Step 10: Integration of the acquisition Two key criteria are important for structural integration: - The extent of strategic interdependence – the need for transfer or sharing of capabilities and/or resources. - The need for organisational autonomy – sometimes the distinctiveness of the acquired company can be an advantage, but sometimes it is problematic. BTR 2 Strategic Finance MC5: JV & M&A Debt financing structures: Loans: A loan is a type of debt financing where a company borrows a fixed amount of money from a lender, which must be repaid with interest over a specified period of time. Loans can be secured or unsecured, and can be used to finance a wide range of business activities. Bonds: A bond is a type of debt financing where a company issues debt securities to investors in exchange for a fixed interest rate over a specified period of time. Bonds can be publicly traded or privately placed, and can be used to raise large amounts of capital for long-term investments. Lines of credit: A line of credit is a type of debt financing where a company establishes a credit limit with a lender and can draw on the funds as needed. Interest is only charged on the amount borrowed, and lines of credit can be secured or unsecured. Convertible bond: Convertible debt is a type of debt financing where the lender has the option to convert the debt into equity in the company at a later date. This can be an attractive option for investors who want to participate in the potential upside of the company, but also want the security of a fixed income investment. Lease financing: Lease financing is a type of debt financing where a company borrows money to purchase or lease assets, such as equipment or vehicles. The lender retains ownership of the assets until the loan is repaid, and the borrower pays interest on the loan over the term of the lease. Pro’s of debt financing structures - Interest on debt is tax-deductible. - Debt financing allows companies to maintain control over business. - Debt financing provides a predictable repayment schedule. Con’s of debt financing - Debt financing requires regular payments despite of company’s performance - Failure to repay debt can lead to bankruptcy or financial distress - Debt financing can result in high interest costs and restrictive covenants Equity financing structures Common stock: Common stock is a type of equity financing where a company issues shares of stock to investors in exchange for ownership in the company. Investors who own common stock are entitled to vote on certain company matters and may receive dividends if the company earns a profit. Preferred stock: Preferred stock is a type of equity financing where a company issues shares of stock to investors that have preferential rights to dividends and other distributions. Preferred stock may also have a fixed liquidation preference, meaning that in the event of a sale or liquidation of the company, preferred stockholders are entitled to receive their investment back before common stockholders. Convertible equity: Convertible equity is a type of equity financing where investors receive equity in the company that can be converted into another form of equity or debt at a later date. This can be an attractive option for investors who want to participate in the potential upside of the company, but also want to protect their downside risk. Stock options: Stock options are a type of equity financing where a company issues options to purchase shares of the company's stock to employees or other stakeholders. The options typically have a strike price, which is the price at which the stock can be purchased, and may have a vesting period, which is the amount of time an employee must work for the company before the options can be exercised. Pro’s of equity financing structures - No regular payments are required. - Equity financing can provide access to expertise and resources from investors. - Equity financing does not require collateral or personal guarantees. Con’s of equity financing structures - Equity financing dilutes ownership and control - Shareholders expect a return on their investment, which may require the company to prioritize short-term profits over long-term growth - Equity financing can be expensive due to high transaction costs and legal fees Hybrid financing structures Convertible debt: Convertible debt is a hybrid financing structure that combines elements of debt and equity financing. It is a type of debt that can be converted into equity at a later date, typically when the company achieves certain milestones or raises additional capital. This provides the lender with the security of debt financing, while also allowing them to participate in the potential upside of the company through equity Mezzanine financing: Mezzanine financing is a hybrid financing structure that combines elements of debt and equity financing. It is a type of financing that is typically used to bridge the gap between senior debt and equity financing. Mezzanine financing may be structured as a loan or as preferred equity, and typically involves higher interest rates and greater flexibility than traditional debt financing Preferred convertible stock: Preferred convertible stock is a hybrid financing structure that combines elements of preferred stock and convertible debt. It is a type of equity financing where investors receive preferred stock that can be converted into common stock at a later date. This allows investors to participate in the potential upside of the company, while also having preferential rights to dividends and other distributions Revenue-based financing: Revenue-based financing is a hybrid financing structure that combines elements of debt and equity financing. It is a type of financing where investors receive a percentage of a company's future revenue in exchange for an investment. This provides the investor with a regular stream of income, while also allowing them to participate in the potential growth of the company Pro’s of hybrid financing structures - Hybrid financing allows companies to access both debt and equity financing - Hybrid financing can provide more flexibility in terms of repayment and ownership structure - Hybrid financing can be tailored to the specific needs of the company and project Con’s of hybrid financing structures - Hybrid financing can be more complex than debt or equity financing alone - Hybrid financing can result in higher costs due to transaction fees and legal expenses - Hybrid financing can result in dilution of ownership and control Factors to consider when selecting financing Joint venture Potential financial benefits of JV - Access to new markets: JV can provide access to new markets and customers that the company may not have been able to reach on its own, which can increase revenue and profitability. - Shared resources: JVs can result in cost savings by sharing resources, such as facilities, equipment, and technology, which can improve operational efficiency and reduce costs. - Reduced risk: JVs can help to reduce risk by sharing financial and operational responsibilities, which can help to spread the risk of a new venture across multiple parties. Potential financial risks of JV - Lack of control: The company may have less control over the operations of the JV than it would over its own operations, which can lead to difficulties in managing the JV effectively - Investment risk: The company may be required to make a significant investment in the JV, which can result in financial losses if the JV does not perform as expected JV financing When structuring a new project or idea in the form of JV, the following financing could be used: - capital contributions by JV partners in proportion to their ownership stake. - loans provided by JV partners. - external financing via banks or other lenders, bonds could be possible as well. - mezzanine financing. M&A Motivation Merger considerations - Fiscal factor: depending on how the assets of the merging parties are valued, taks consequences might occur. - Capital market factor: a merger can be executed in different ways (an exchange of shares, or all cash or a mix); normally, financing need is often less compared to an acquisition. - Reputational factor: often deemed more friendly than an acquisition by the outside world, but makes running the combined entity a lot more complex. Acquisition considerations - Fiscal factor: an acquisition transaction itself might have fiscal consequences; in addition the target company will continue to be a tax payer - Capital market factor: big financing packages will be involved especially when the acquisition target will be bought at a premium price - Foreign exchange factor: could have a significant impact especially when two companies are located in different countries - Reputational factor: acquiring a company can strengthen or weaken the reputation of the acquirer Financial advantages of M&A - Increased revenue - Cost savings - Improved profitability - Access to new financing - Increased market capitalisation Financial disadvantages of M&A - Acquisition costs - Integration costs - Reduced liquidity: mergers can result in reduced liquidity for shareholders, as the shares of the merged company may be less liquid than those of the individual companies. - Increased debt - Loss of value: mergers can fail to generate the expected financial benefits, resulting in a loss of value for shareholders M&A Financing In the M&A deals the most common sources of finance are: - exchanging stock - debt financing - mezzanine financing - leveraged buyout - cash - IPO - bond issuance - bank loan BTR 2 Strategy MC14 Transformation Plan Why do we need a business plan - These are ambitious growth options, which won’t ‘just happen’. - Everyone needs a common understanding of what needs to be achieved. - You need to get everyone on board. - You need a common understanding of the steps to be followed to make your growth option a reality. - In the meantime, ongoing business needs to continue. Key to success - Sense of urgency (clarity on strategic challenge being met and what will happen, if we don’t) - Aspiration, involvement & commitment of Management & Employees - Strong Leadership What key questions should be answered? 1. What do we want to achieve? Is our strategy clear and well understood? 2. Do we know what we need to do, in order to implement the strategy? 3. Do we know how to make that happen and what the impact will be on the organisation? What should the executive summary make clear? o Growth Option: What is your Strategic Growth Option? What strategic challenges is your SGO tackling? o Growth Path: What is your selected Growth Path? What are the key benefits of your Growth Path? o Strategy Mission & Vision Sense of Urgency Strategic underpinning of overall story o Evaluation Suitable, Acceptable & Feasible BTR 2 People & Culture MC5 Impact Strategic leadership styles Leadership theory and models that help shape the strategic leadership within the company - TransformaBonal leadership - PosiBve leadership - 6 styles of Goleman Topics in strategic HRM - Shortage in staﬀ; war for people and talent - New leadership development - Diversity and inclusion - Sustainability - Mental and physical well-being - Hybrid working and connec?ng people/teams to organisa?on - Data-driven and digitaliza?on of HR Diﬀerent models BTR 2 Change MC1 Push interven

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