Lifesci cfo conference v2

1

Integrating the Financial Perspective into M&A and R&D

Activities

2010 Life Science Financial Forum

May 10, 2010

Phoenix, AZ

2

Agenda

What is “World Class FP&A” and why is it so darn important?

Case Studies

1. Unilever

2. Johnson & Johnson – Ethicon Endo Surgery

3. Corning

3

• A "world-class" finance organization is one that enables operating management to be truly proactive. In order to be proactive, the FP&A group must foresee the effects of different management choices and provide useful advice about those choices.

• The "world-class" FP&A group is constantly tuned-in to the company, to the industry and to the customers in order to proactively advise operating management about the financial impact of their decisions.

Source: Howard Fowler CFO, TransForce, Inc

4

Strategic Role of Finance

Source: McKinsey

5

FP&A in Current Economic Environment

Source: McKinsey

6

Strategic Relevance and Priority of Finance Issues

38%

40%

41%

42%

48%

49%

49%

51%

57%

61%

35%

31%

43%

43%

62%

55%

45%

57%

53%

67%

How do I plan for and manage globalization of service delivery in the finance function?

Gaining credibility and acceptance of the Shared Service Centers and Centers ofExcellence

How do I design and deploy effective data warehousing, BI and analytics solutions?

How do I drive greater performance and deliver more value through talent management?

Aligning strategic priorities with financial outcomes

Adding more value and becoming more strategically relevant to the broader organizationfrom a stakeholder perspective

How can finance contribute to improving planning processes in the organization?

Ensuring a successful ERP implementation and/or realization of the value of our ERPapplication platform

How does finance become a more effective business partner?

How do I drive more efficiency and automation in finance?

Priority

Strategic Relevance

4 out of the top 10 issues are focused on becoming a more effective business partner

Source: Hackett Group, 2009

7

Case Study: Unilever


“Finance of the Future”

8Source: Hackett Group, 2009

9



“Innovation Funnel” - Select best versus just good practices

Considered Not Considered

“observed to add value and can be used within the

finance units at their own discretion”

“broad applicability and significant

impact on decision making and is either

mandated or strongly

recommended”

Brand Launch – clear advice on leverage of brand development investments

Customer Development – evaluation of likely impact on sales promotions

Innovation – decision making toolkit for probability analysis

10


Source: Hackett Group

Transition Finance Professionals to Business Partners

• More time analyzing, less time gathering and correcting

• Ensure right people become business partners

• Move transactional accounting to out-sourced or shared services

• If it does not require in-depth understanding of the market – outsource it.

Percent of analysts

considered partners with operational managers

11

FP&A: COE or Outsource?

Source: Deloitte, 2009

• Trend from “concierge” FP&A in current economic environment

• Consolidate/centralize or outsource transactional activities

• Create COE’s for analytical decision support activities

12

Case Study: Ethicon Endo-Surgery

Situation Analysis

• Circa early ’90’s• New J&J operating company• Highly competitive environment • Rapid adoption and growth of endoscopy• Decentralized management• Inefficient use of resources

…… need to transform Product Development / R&D / Business Development to succeed in rapid growth, competitive market

13

Team Based Model

• “Teams” redefined! – no easy task– Many organizational challenges

• Multifunctional– EVERY function part of team

• Empowered– Governed by business plan, team contract

• Co-located– Multi-functional Team Centers

• Self-managed Finance work group– Very first in J&J


14


Present & Prioritize

• Multi-Functional

•Strategic Fit

• ROI

Quarterly Leadership

Scheduling

Resource Planning

Business Assessment Models (mini business plans)

• Strategic Intent

• Competitive Analysis

• Regulatory

• Valuation – Financial Model

Product Development

Business Development

Advanced Tech

Team Assignment Team Contract

BAM’s • rapid deployment

• efficient use of resources

• sound financial rationale

15


R&D

Production Eng

Finance

Marketing

Quality/Regulatory

Supplier Management

Clinical Affairs

VALUATION MODELS

TEAM ROSTER

EXPENSE BUDGET

CAPITAL BUDGET

SALES FORECAST

SCHEDULE

TEAM

CONTRACT

• Fully empowered multi-functional team

• Governed by team contract

• Co-located in team center

16

It wasn’t easy !!!


• Requires “C” level drive

• Restructuring with layoffs

• Build team culture

• Eliminate or De-emphasize traditional reporting structures

• Minimize fears of being on a team – what’s next?

17

Case Study: Corning, Inc.

Situation Analysis

• Circa 1999 - 2001• Telecom Industry Boom• Strategy to Expand beyond fiber optics into components• Skyrocketing Multiples - New Economy Mentality• White hot M&A environment

18


• Execution of Strategy Became Entirely Dependent Upon M&A

• Self feeding M&A environment: “Corning Cash”

• P/E trading as high as 147x

• Valuations +200x Revenue common

• Environment of “nervous optimism”

• Value = Growth Rate + Quality of Earnings

19


20


The music stopped – Nortel Earnings Announcement

• Stock dropped 30% overnight

• Share price went from high of $109.25 to $60.13 in 2 months

• Didn’t stop there. Dropped to $1.33 by October 2002

• Erased over $85 BILLION of market capitalization

• Over 18,000 workers laid off with major plant closures

• Wrote off $3.5 BILLION impaired goodwill

21

Case Study: Corning, Inc.Key Learnings !!

NEVER EVER EVER ignore valuation fundamentalsNEVER EVER EVER ignore valuation fundamentals

ALWAYS Ensure a Valid Strategy & Business PlanALWAYS Ensure a Valid Strategy & Business Plan

NEVER let Investment Bankers dictate value to Exec NEVER let Investment Bankers dictate value to Exec ManagementManagement

RUN FAST from words “new economy”RUN FAST from words “new economy”

22

Questions?Special thanks …..

Thomas Davoren

The Hackett Group

P: 312-421-4504

C: 312-560-9161

[email protected]

www.thehacketgroup.com

“ Enabling executives to achieve World-Class enterprise performance”

Robert C. Helfrich

Director of Business DevelopmentWelch Allyn, Inc.(315) 685-4684

[email protected]

mailto:[email protected]

http://www.thehacketgroup.com/

mailto:[email protected]