More than ever, increasing total shareholder return requires companies to align their business, financial, and investor strategies. They need to make sophisticated trade-offs regarding how much to invest in future versus current performance, how much capital to devote to particular businesses, how much value to return to shareholders, and how to appeal to their target investor groups.
Technology industries are at a critical juncture. Organic revenue growth is likely to moderate, cash balances are historically large and getting larger, and shareholder composition and expectations are evolving.
These trends can be challenging, but they also represent opportunities to create value. To survive, tech companies need to create value and improve TSR. Poor capital deployment and investment decisions erode value. But integrated financial, investor, and portfolio strategies can enable sustained value creation.
BCG takes a modular approach to helping clients create a holistic, value-driven strategy and operations program.
Diagnostic. Facing increasingly volatile market conditions, tech companies have to place bigger and riskier bets. Their businesses have become more complex and global. They’re facing shorter product cycles and shifting investor sentiment. And their product categories are rapidly changing.
BCG can compare a client’s TSR performance to its peer group to provide insight into each company’s valuations. The analysis, which draws on existing research and experience, can help determine the underlying drivers of—or barriers to—TSR growth. Recommendations for improvements might include growth ambitions, operational planning, investor strategy, portfolio mix, and financial strategy.
Strategic. Many tech companies are facing a shifting financial profile. Revenue growth may have slowed. Capital structures may have changed to include more cash or more debt. Post-crisis investors have become more distrustful of corporations and financial markets. These factors mean that, increasingly, tech companies have to think about managing for value, not simply for growth.
A value-driven investor strategy can help identify areas of misalignment between business direction and investor needs. It can determine where to make changes in business strategy, financial strategy, targeted investor groups, and communication strategy. And it can help develop a new investor value proposition, which can include potential modifications to corporate strategies based on explicit and implicit investor preferences.
Operational. Why would tech companies need a new operational scorecard? A traditional scorecard aligned for growth may not be useful for maturing markets, or for investors demanding greater attention to value creation. Tech companies with new business lines resulting from expansion, innovation, or acquisition may require scorecard integration. And top-down directives may be too slow for rapidly evolving markets.
A value-driven operational scorecard can help a company review its strategic direction and corporate goals. It can set a baseline for current operations and compare that baseline against a benchmark of global best practices. It also can identify areas and activities of potential competitive advantage, as well as high-impact or underperforming processes.
Capability Development. Sustained TSR growth for tech sector clients often requires the development of new capabilities. Companies may need to realign the cultures of businesses that were acquired through acquisitions or product expansion. They also will likely need to alter their decision-making to become more responsive at all levels. And they may need to adapt to changing customer preferences or investor needs.
Value-driven capacity development can help companies establish a baseline for current capabilities and norms. A gap analysis can identify and prioritize key development areas for capability building or culture shifts. It can assess the relative difficulty of building capabilities from within versus hiring or acquiring critical expertise from outside the company.