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Strategic Financial Management Frameworks - 3: Sunder Ram Korivi

This document provides an overview of strategic financial management frameworks and concepts. It covers key topics such as corporate objectives, performance measurement, strategy, organizational architecture, cost management, risk management, mergers and acquisitions, corporate governance, and value creation. Performance is measured both qualitatively and quantitatively using various financial and non-financial metrics. Strategy formulation should leverage manager experience and diversity of thought. Organizational design impacts decision-making, performance evaluation, and compensation. Risks come in various forms and must be properly identified, mitigated and managed. Mergers and acquisitions are forms of corporate restructuring. Governance standards have evolved with guidelines from organizations like the LSE, NYSE, and Kotak Committee recommendations in

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Aman Machra
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57 views25 pages

Strategic Financial Management Frameworks - 3: Sunder Ram Korivi

This document provides an overview of strategic financial management frameworks and concepts. It covers key topics such as corporate objectives, performance measurement, strategy, organizational architecture, cost management, risk management, mergers and acquisitions, corporate governance, and value creation. Performance is measured both qualitatively and quantitatively using various financial and non-financial metrics. Strategy formulation should leverage manager experience and diversity of thought. Organizational design impacts decision-making, performance evaluation, and compensation. Risks come in various forms and must be properly identified, mitigated and managed. Mergers and acquisitions are forms of corporate restructuring. Governance standards have evolved with guidelines from organizations like the LSE, NYSE, and Kotak Committee recommendations in

Uploaded by

Aman Machra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Strategic Financial Management

Frameworks - 3
Sunder Ram Korivi
Agenda
• Corporate Objectives
• Performance Measurement & Analysis
• Strategy and Business Model
• Organizational Architecture
• Cost Management
• Corporate Risk Management
• Mergers, Acquisitions and Corporate Restructuring
• Corporate Governance
• Value Based Management
• Stellar Value Creators
Corporate Objectives
• Dutch East India Company – evolution of corporations and capital
markets; Italian Banking, French Bond Markets, British Insurance
Markets.
• Shareholder Wealth (Value) Maximization, Stakeholder Wealth
Maximization and Sustainable Resource Management
• Enlightened value maximization is equivalent to stakeholder welfare
maximization
• Triple bottom-line
• ESG, Green Finance and CSR
Performance Measurement
• Qualitative and Quantitative Measures
• Pros and Cons
• How to blend
Non-Financial Measures
• Customer Satisfaction Index
• Customer Returns
• Market Share
• New Product Introduction
• On-time Delivery
• Manufacturing Cycle Time
• Defects Percentage
• Throughput
• Employee Productivity
• Patents Obtained
...which one is the Leading indicator? Actionable?
…can they be gamed by managers?
The Balanced Scorecard
• Robert Kaplan
• The aircraft pilot analogy
• Leading and Lagging indicators
• Customer Satisfaction, Learning & Innovation, Internal Processes,
Financial Results
Value Metrics Framework
• Value Drivers, Financial Determinants, Intrinsic Value, Stock Market
Performance
Strategy and Business Model
• “Water is precious. There is no place for leaking pipes and buckets”
• Strategy is a broad formula about how a business is going to compete
• To be based on the best fit, between Opportunities and Threats,
External and Internal Factors
• Various businesses: Invest, Hold, Divest based on Industry Scenarios
and Internal Capabilities
Case for Diversification
Market Form Economies Achieved
Capital Market Unrelated Governance
Product Market Vertical Coordination
Resource Market Related Scope
Risk Market Strategic Option
Other Pros and Cons of Diversification
PROS CONS
• Better use of managerial talent • Unprofitable investment
• Higher debt capacity • Cross subsidization
• Lower tax burden
• Larger internal capital
Testing a Strategy
• Will it beat the market?
• Will it tap the true source of advantage?
• Is the strategy granular to tell where to compete?
• Does it put you ahead of trends?
• Does it rest on privileged insights?
• Does it embrace uncertainty?
• Does it balance commitment and uncertainty?
• Is it free from bias?
• Is there conviction?
• Does it translate into action plans?
Indian examples
• HDFC Bank
• TCS and Infosys
• Bharti Airtel
• ICICI Bank
• Asian Paints
• Aravind Eye Care
• Mittal Steel
Gary Hamel on Strategy Formulation
• Insight comes from experience
• Leverage on managers’ passion
• Make the best use of diversity of thought
• Invest aggressively in building competencies
Organizational Architecture
• Organization: Tangibles, Intangibles, People
• Jensen & Meckling: Nature of Man and the 5 models
• REMM, Economic, Social, Psychological, Political
• Problem with Enron and Barings
• 3 aspects: Decision Making, Performance Measurement,
Compensation Structure
• McKinsey’s 7S framework: Strategy, Systems, Structure, Skills, Style
and Staff
• Corporate Culture: “How we behave when no one is looking”
Cost Management:
Building Cost Consciousness
• Identification
• Classification
• Allocation
• Apportionment
• Absorption
• Reporting
• Reduction
• Control
Strategic Cost Management
• Kaizen
• Total Quality Management
• Target Costing
• Life Cycle Costing
• Activity Based Costing
• Activity Based Management
• Value Analysis & Value Engineering
• Benchmarking
• JIT ‘Kanban’
• Theory of Constraints
• Balanced Scorecard
Risk Management
• Identification
• Classification
• Mitigation
• Retention
• Transfer
• Pricing
• Review
• Reporting
• Control
Risk Types
• Operating and Financial
• Credit, Operational and Market
• Natural and Kindred
• Interest Rate, Currency, Commodity, Liquidity, Counterparty,
Settlement
• Discounting and Reinvestment
• Country, Political
Mergers, Acquisitions & Corporate
Restructuring
• Forms
• Theories
• ALT
• Bankruptcy
• Disinvestment
Corporate Governance
• LSE, NYSE
• India: KM Birla Committee
• Companies Act, 2013
• LODR
• Kotak Committee
Uday Kotak Committee:
Key Recommendations
• Split Chairman and MD. Non Exec Independent Chairman
• At least one woman director
• Minimum six directors on board
• Independent directors minimum 50% of board
• Formal communication channel between promoters and company
• Minimum qualification for independent directors, disclose their relevant skills
• PSUs to be guided by listing regulations, not nodal ministries
• SEBI to penalize auditors if lapses found
• SEBI to grant immunity to whistle blowers
• Companies to disclose and update all rating actions
• Companies to disclose medium to long term business strategies in annual reports
Economic Value Added
• Deficiencies of EPS
• EVA = NOPAT – WACC
• Division of Bonus Pool
Stellar Value Creators:
Saurabh Mukherjea: Unusual Billionaires
• Asian Paints
• Berger Paints
• Marico
• Page Industries
• Axis Bank
• HDFC Bank
• Astral Poly
Foundations of Corporate Success:
John Kay
• Brands and reputation
• Architecture
• Innovation
Thank You

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