The CEO, Strategy, and Shareholder ValueMaking the Choices That Maximize Company Performance
A new look at delivering effective shareholder value from Peter Kontes, a true leader in the world of strategic management In The CEO, Strategy, and Shareholder Value, Peter Kontes, a true leader in the strategic management field, outlines the key to creating and growing shareholder value. The proper focus, contends Kontes, is in using quantitative measurements as guideposts on the path to success. The book first outlines the basics of the argument Kontes is making. He then briefly covers the five most important areas for business leaders, followed by a more detailed look at each of the focus areas. Finally, Kontes provides readers with a road map to implementing his suggestions. Presents an argument for a more holistic approach to delivering shareholder value Defines and then elaborates a new approach to strategic management Written by a true thought leader in the field, regularly featured in publications such as Fortune and BusinessWeek Never before have business leaders experienced the kind of tough decisions they are being forced to make as the economy undergoes incredibly rapid shifts. The common sense guide to successful leadership, The CEO, Strategy, and Shareholder Value delivers exactly the kind of solid, dynamic advice that will keep your organization moving on an upward path.
Preface xi Acknowledgments xv Introduction xvii Chapter 1: Foundations 1 The Purpose of Strategy 2 The Role of the CEO 4 Five Choices That Shape Strategy 6 A Strategic Management Framework 9 Chapter 2: The Economics of Strategic Management 11 Economic Profit 11 Economic Profit and Strategy Valuation 13 The Financial Drivers of Economic Profit and Equity Value 15 The Strategic Drivers of Economic Profit and Equity Value 17 Dealing with Mythology 23 Chapter Summary 29 Chapter 3: Choosing the Right Performance Objectives 31 Aspirations 32 Business Unit Objectives 34 Company Objectives 39 The Tyranny of Top-Down Targets 39 Chapter Summary 46 Chapter 4: Making the Right Participation Choices 49 General Considerations 50 Assessing Participation Opportunities 51 Offering Choices 63 Geographic Market Choices 67 Customer Segment Choices 72 Corporate Participation Choices 75 Chapter Summary 82 Chapter 5: Making the Right Positioning Choices 85 Positioning Choices and Competitive Advantage 86 Business Models 88 Execution Capabilities 107 Corporate Positioning Choices 111 Chapter Summary 122 Chapter 6: Making the Right Organizational Choices 125 The Institutional Imperative 126 Governance Practices 128 Executive Processes 134 Executive Capabilities 151 Chapter Summary 155 Chapter 7: Making the Right Risk Management Choices 157 Clarifying "Risk" 158 Setting Risk Thresholds 160 Portfolio Choices 162 Balance Sheet Choices 166 Ethical Choices 174 Chapter Summary 181 Chapter 8: Making It Work 183 Conditions Conducive to Success 183 Priorities for Change 189 The Prize 195 Chapter Summary 198 Appendix I: Economic Profit Growth, Earnings Growth, and Total Shareholder Returns 201 The Data 201 The Analysis 202 Discussion of the Results 204 Appendix II: Economic Profit and Equity Value 207 Valuation Models 207 Maximizing Economic Profit Growth versus Maximizing Equity Value 209 Valuation Issues 210 Appendix III: Economic Profit and Equity Value: Illustration 213 Appendix IV: Reconsidering the Corporate Center 215 The Need for Change 215 Creating a New Model of the Center 217 Conclusion 221 Appendix V: CEO Pay Practices: An Alternative 223 Typical Package 224 An Alternative Approach 224 Illustrative Compensation Plan 226 Alerting The Board Early and Often 229 Notes 231 Index 239
PETER KONTES has a long and distinguished career advising chief executives on all aspects of strategic management. Peter was the cofounder and former chief executive of Marakon Associates, a firm cited by Fortune magazine as "among the half dozen firms that form the elite of strategy consulting." He coauthored a previous book, The Value Imperative. He has been a guest speaker at conferences sponsored by the Economist, Fortune, the London School of Economics, and the World Economic Forum, and has had articles appear in a number of publications including the Financial Times and Directors & Boards. He is currently an Executive-in-Residence at the Yale School of Management and continues consulting independently. He can be contacted at email@example.com.
Strategy, ultimately, is not about a company's market share, or cost position, or even customer satisfaction. It is about performance, making sure that every dollar invested in the company becomes worth $2 or $5 or $10. Making the key choices that achieve that performance is the primary responsibility of the CEO and the essence of good strategic management. Written by a recognized thought leader in the field, The CEO, Strategy, and Shareholder Value defines and then elaborates a new approach to strategic management, built on a foundation of five critical choices every CEO must make: What are the right performance objectives for the company? In which product-markets should the company invest or divest capital? How should the company compete in its chosen product markets? How can the company build an organization aligned with high performance? How can the company protect itself against performance implosions? How well or badly these five choices are made largely determines the long-term strategic and financial performance of the company. Maximizing company performance over time requires that a CEO be able to lead his or her company by making these choices consistently better than the competition. The CEO, Strategy, and Shareholder Value presents a powerful framework, with many company examples, to help executives understand how they can make these choices in the best possible way.
Praise for The CEO, Strategy, and Shareholder Value "Peter Kontes presents a clear-eyed framework for making the top management decisions that have a large and lasting impact on company performance. If your schedule only allows you time to read a few books a year, this should be one of them." —James E. (Jes) Staley, CEO, J.P. Morgan Investment Bank "This is a first-class book that can make a difference in achieving results." —Jim Kilts, former chairman and CEO, The Gillette Company "Peter Kontes has written a masterful and eminently readable book that makes clear the real work of the CEO. He debunks much of the voodoo that surrounds trendy management and performance concepts. It's a must-read for all who are charged with leadership in these turbulent times." —Arthur Martinez, former chairman and CEO, Sears, Roebuck and Company "The marriage of theories on leadership, strategy, and finance is long overdue. In this book, Kontes brings these themes together around the principle that growing economic profit over time is, or should be, the common overriding objective of all three. He cogently argues and amply illustrates the pitfalls of conventional business practices across many areas, including target setting, competitive positioning, and capital management. Executives who take the time to read this book will come away with a wealth of ideas for changing these practices and significantly improving the performance of their companies." —Stan Garstka, Deputy Dean and Professor in the Practice of Management, Yale School of Management