The New CEO Corporate Leadership Manual: Strategic and Analytical Tools for Growth

335 Pages·2011·3.12 MB·English

by  Steven M. Bragg(auth.)

The New CEO Corporate
Leadership Manual
The New CEO Corporate
Leadership Manual
Strategic and Analytical
Tools for Growth
STEVEN M. BRAGG
JohnWiley&Sons,Inc.
Copyright#2011byJohnWiley&Sons,Inc.Allrightsreserved.
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LibraryofCongressCataloging-in-PublicationData:
Bragg,StevenM.
ThenewCEOcorporateleadershipmanual:strategicandanalyticaltoolsforgrowth/
StevenM.Bragg.
p. cm.
Includesindex.
ISBN978-0-470-91287-4(book);ISBN978-1-118-09306-1(ebk);ISBN978-1-118-09307-8(ebk);
ISBN978-1-118-09309-2(ebk)
1. Leadership. 2. Chiefexecutiveofficers. 3. Management. 4. Successinbusiness. I. Title.
HD57.7.B732011
0
658.4 092–dc22
2011007208
PrintedintheUnitedStatesofAmerica
10 9 8 7 6 5 4 3 2 1
Contents
Preface xi
CHAPTER1 NewCEOActivities 1
ImmediatePriorities 1
MeasuretheBusiness 3
GettoKnowtheCompany 5
DevelopaStrategy 7
CreateaBudgetandRelatedSystems 9
ReviewtheManagementTeam 10
ReviewRisks 11
ReviewCosts 13
Summary 15
PARTI STRATEGYDEVELOPMENT 17
CHAPTER2 GeneralCorporateStrategy 19
OverviewofGeneralCorporateStrategy 19
BuildingaStrategy:GeneralConcepts 23
BuildingaStrategy:ProductDifferentiation 26
BuildingaStrategy:LowCost 29
BuildingaStrategy:FocusonaNiche 32
BuildingaStrategy:ImpactoftheInternet 34
BuildingaStrategy:AdditionalComments 34
StrategyTesting 37
Summary 38
CHAPTER3 FinancialStrategy 39
Cash 39
Investments 41
WorkingCapital 42
InventoryReductionDecision 45
FixedAssetLeaseversusBuyDecisions 46
Payables 47
v
vi Contents
Debt 49
Equity 52
ProductEliminationDecisions 56
StepCostReductions 59
TemporaryLaborDecisions 60
DivestitureDecisions 61
Summary 62
CHAPTER4 TaxStrategy 65
AccumulatedEarningsTax 66
CashMethodofAccounting 67
InventoryValuation 68
MergersandAcquisitions 68
NetOperatingLossCarryforwards 69
Nexus 69
SCorporation 70
SalesandUseTaxes 71
TransferPricing 72
UnemploymentTaxes 75
Summary 76
CHAPTER5 InformationTechnologyStrategy 77
ReasonsforDevisinganInformationTechnologyStrategy 77
DevelopingtheInformationTechnologyStrategy 78
TechnicalStrategies 81
SpecificApplications 82
Summary 85
CHAPTER6 OutsourcingStrategy 87
OverviewofOutsourcing 87
OutsourcingRisks 92
InitiatingOutsourcing 94
CompaniesthatTakeOverOutsourcedFunctions 94
Summary 97
PARTII THEBUDGET 99
CHAPTER7 BudgetingProcess 101
SystemofInterlockingBudgets 101
SampleBudget 109
FlexBudget 127
BudgetaryControlSystems 127
Summary 129
Contents vii
CHAPTER8 CapitalBudgeting 131
HurdleRate 131
PaybackPeriod 132
NetPresentValue 134
InternalRateofReturn 136
Throughput-BasedCapitalBudgeting 137
ProblemswiththeCapitalBudgetApprovalProcess 140
CashFlowModelingIssues 141
FundingDecisionsforResearchandDevelopmentProjects 142
PostcompletionProjectAnalysis 143
Summary 145
PARTIII RISKMANAGEMENT 147
CHAPTER9 RiskManagement:GeneralConcepts 149
RiskManagementPolicies 149
RiskManagementPlanning 150
ManagerofRiskManagement 152
RiskManagementProcedures 153
TypesofBusinessInsurance 155
TypesofInsuranceCompanies 157
EvaluatingtheHealthofanInsuranceCarrier 158
AnnualRiskManagementReport 159
Summary 160
CHAPTER10 RiskManagement:ForeignExchange 163
ForeignExchangeQuoteTerminology 163
NatureofForeignExchangeRisk 164
DataCollectionforForeignExchangeRiskManagement 165
ForeignExchangeHedgingStrategies 165
Summary 176
PARTIV FINANCIALANALYSIS 179
CHAPTER11 PerformanceMeasurements 181
AssetUtilizationMeasurements 181
OperatingPerformanceMeasurements 186
CashFlowMeasurements 190
LiquidityMeasurements 193
SolvencyMeasurements 197
ReturnonInvestmentMeasurements 199
MarketPerformanceMeasurements 204
Summary 206
viii Contents
CHAPTER12 CostReductionAnalysis 207
TypesofReportsUsedforCostReductionAnalysis 207
SpendAnalysisOverview 211
SpendDatabase 211
SupplierConsolidationAnalysis 212
PartsConsolidationAnalysis 213
Maintenance,Repair,andOperationsItemAnalysis 213
SpendCompliance 213
SpendAnalysisReports 214
WorkforceReductionAnalysis 217
WorkforceReductionIssues 217
WorkforceReductionAlternatives 221
5SAnalysis 223
ErrorQuantification 223
FixedCostAnalysis 224
IshikawaDiagrams 224
ValueStreamMapping 225
WasteAnalysis 226
Summary 227
CHAPTER13 MergersandAcquisitions 229
EvaluatingAcquisitionTargets 229
ComplexityAnalysis 245
ValuinganAcquisitionTarget 246
TypesofAcquisitions 260
Summary 266
PARTV THEPUBLICCOMPANY 269
CHAPTER14 InitialPublicOffering 271
ReasonstoGoPublic 271
ReasonsNottoGoPublic 272
CostofanIPO 274
PreparingfortheIPO 274
FindinganUnderwriter 277
RegisteringforandCompletingtheIPO 280
AlternativesforSellingSecurities 282
TradingonanExchange 284
AmericanStockExchange 285
OverviewoftheNasdaq 287
NewYorkStockExchange 289
ComparingtheStockExchanges 291
Over-the-CounterStocks 292
Summary 293
Contents ix
CHAPTER15 InvestmentCommunity 295
Analyst’sPerspective 295
FindingtheRightAnalyst 297
SellSide:Analysts 297
NegativeAnalystReport 299
SellSide:Brokers 300
SellSide:InvestmentBankers 301
SellSide:InvestorRelationsSpecialists 302
BuySide:TypesofInvestors 302
BuySide:InstitutionalInvestors 303
BuySide:IndividualInvestors 304
BuySide:PresentationstoInvestors 306
Summary 307
CHAPTER16 PublicCompanyActivities 309
InvestorConferenceCall 309
RoadShow 311
ConceptofGuidance 315
FormofGuidanceIssued 316
FrequencyandTimingofGuidance 318
AggressivenessofGuidance 319
HowShortSellersOperate 320
HowtoHandleShortSellers 321
MeasuringShort-SellerActivity 322
Summary 323
CHAPTER17 TakingaCompanyPrivate 325
Going-PrivateTransaction 325
Rule13e-3 325
300-ShareholderLimit 326
Form15 327
Summary 327
Appendix NewCEOChecklist 329
AbouttheAuthor 337
Index 339
Preface
The New CEO Corporate Leadership Manual is designed to give the chief executive
officer (CEO) a thorough understanding of his or her primary responsibilities and
whatpathtotaketosucceedasaCEO.
The first part of this book addresses the activities of the new CEO and answers
suchquestionsas:
& WhatshouldIdoduringmyfirstdaysonthejob?
& HowdoImeasurethebusiness?
& Whatistheprocessfordevelopingacorporatestrategy?
A major part of the CEO’s job is to develop a corporate strategy. Chapters 2
through6areconcernedwiththedevelopmentofhigh-levelstrategyaswellasmore
specific considerations in such areas as finance, taxation, information technology,
andoutsourcing.Thesechaptersprovideanswerstosuchquestionsas:
& HowdoIevaluatethecompetitiveenvironment?
& Whatarethethreemajortypesofcorporatestrategy?
& HowdoItestastrategytoseeifitwillwork?
& Whatshouldmystrategybeforhandlingdebtandequity?
& HowdoIdevelopaninformationtechnologystrategy?
& WhenshouldIuseoutsourcing?
The corporate strategy is much more likely to be implemented if it is fully
integrated into the annual budget. Accordingly, Chapters 7 and 8 provide a
detailed view of how the system of budgets is constructed and the criteria for
accepting a capital budget proposal. These chapters yield answers to the follow-
ingquestionsandmore:
& Howdoesthesystemofbudgetswork?
& How can a flexible budget enhance the comparability of a budget to actual
results?
& Howcanabudgetbeusedasacontrolmechanism?
& HowcanIintegratethroughputanalysisintocapitalbudgeting?
& Howdodiscountedcashflowsimprovecapitalbudgetinganalysis?
xi
xii Preface
The CEOneeds tobeconcernedaboutthe potentialimpactofavarietyofrisks
onthe company andsoshouldbeawareofthemandshoulddevelopariskmitiga-
tion plan to deal with them. Chapters 9 and 10 discuss risk management concepts
and, more specifically, the risk caused by foreign exchange transactions. Examples
ofthequestionsansweredbythesechaptersare:
& WhatriskmanagementpoliciesandproceduresshouldIhave?
& HowdoIdevelopariskmatrix?
& Whattypesofbusinessinsuranceareavailable?
& Whattypesofforeignexchangehedgingstrategiesareavailable?
TherearethreetypesoffinancialanalysisthataCEOshouldbeengagedinorat
leastawareof:performancemetricsforthecompany,varioustypesofcostreduction
analysis,andtheevaluationofpotentialacquirees.ThesetopicsarecoveredinChap-
ters11through13,andanswersuchquestionsas:
& WhatassetutilizationmeasurementsshouldItrack?
& Whichoperatingperformancemetricsarethemostuseful?
& WhichcashflowmeasurementsshouldImonitor?
& WhichreportsshouldIuseforcostreductionanalysis?
& Whatisinvolvedinaspendanalysissystem?
& WhatissuesshouldIconsiderforaworkforcereduction?
& HowdoIevaluateacquisitiontargets?
& HowdoIarriveatapriceforanacquisitiontarget?
Thegoalofmanylargercompaniesistogopublic,whichgivestheirsharehold-
ers a convenient way to sell their ownership interests and which also gives a com-
pany a potential source of new capital. The CEO should know the mechanics of
conducting an initial public offering as well as how to interact with the investment
community and, if the burdens of being publicly held are too great, of how to take
the company private again. These topics are covered in Chapters 14 through 17,
whichanswerthesequestionsandmore:
& WhatstepsdoIfollowtocompleteaninitialpublicoffering?
& Whataretherequirementsfortradingonastockexchange?
& HowdoIdealwithanalysts,brokers,investmentbankers,institutionalinvestors,
andprivateinvestors?
& Whatismyroleinaninvestorconferencecall?
& HowdoItakeacompanyprivate?
The book concludes with an appendix that contains a handy checklist of the
mostimportantshort-termstepsthatyoushouldaddressasanewCEO.