Enterprise Value Map

Overview and Quick Tour

The Value Initiative

The Goal: “Deep understanding of the client”

Deep understanding of the client

• Business model dynamics • Financial and operational performance
• Business strategies/approaches • Improvement needs and plans

Strong value propositions Credibility with executives

• Focused on what matters most to client • Industry and company knowledge
• Deep, broad-based insights • CXO/shareholder value perspective
• Practical, contextual solutions • Insight/issue-driven, not RFP-driven
• Proactive recommendations/proposals • Strong emphasis on client’s business results

High win rates

Strong margins, commensurate with value delivered
Durable, high-value relationships
High-impact, rewarding work
What do client executives think about?

• How does my company

create value? How do we make everyone happy?
for shareholders, customers, employees
and the broader community

• How are we doing? Are we succeeding?

relative to past years and relative to our
peers

• What improvement efforts

How do we preserve what we
would be most valuable? have and move forward?
growth, innovation, process improvement
and maintenance

• What’s the best way to make Are we doing the right things
these improvements? …and doing them well?
initiatives and resource distribution
Enterprise Value Map: The Unifying Framework
A management framework that explicitly links operational performance
to shareholder value via cause-effect relationships

Shareholder Value
How Value is Created
(Value Drivers) Revenue Operating Asset
Expectations
Growth Margin Efficiency
•Volume •Selling, General •Property, Plant •Company Strengths
•Price Realization & Administrative & Equipment •External Factors
Costs •Inventory
•Cost of Goods •Receivables &
Sold Payables
•Income Taxes

What You Can Do

(Improvement Levers)
The Red Boxes: Value Drivers

Shareholder Value

Revenue Growth Operating Margin Asset Efficiency Expectations

(after taxes)

Price Receivables Company External

Volume SG&A COGS Income Tax PP&E Inventory
Realization &Payables Strengths Factors
Shareholder View…

Total Shareholder Return = Capital Gain + Dividend

Price

Shareholder Value

Revenue Growth Operating Margin Asset Efficiency Expectations

(after taxes)

Price Receivables Company External

Volume SG&A COGS Income Tax PP&E Inventory
Realization &Payables Strengths Factors
Operational View…

Shareholder Value

Revenue Growth Operating Margin Asset Efficiency Expectations

(after taxes)

Price Receivables Company External

Volume SG&A COGS Income Tax PP&E Inventory
Realization &Payables Strengths Factors

Economic Operating Cash Flow - Capital Charge

=
Margin Invested Capital
(Cash Flow
Return on
Investment)
Operational View…

Shareholder Value

Revenue Growth Operating Margin Asset Efficiency Expectations

(after taxes)

Price Receivables Company External

Volume SG&A COGS Income Tax PP&E Inventory
Realization &Payables Strengths Factors

Operating Returns
(From Income Statement)
Operational View…

Shareholder Value

Revenue Growth Operating Margin Asset Efficiency Expectations

(after taxes)

Price Receivables Company External

Volume SG&A COGS Income Tax PP&E Inventory
Realization &Payables Strengths Factors

Assets Employed
(From Balance Sheet)
Operational View…

Shareholder Value

Revenue Growth Operating Margin Asset Efficiency Expectations

(after taxes)

Price Receivables Company External

Volume SG&A COGS Income Tax PP&E Inventory
Realization &Payables Strengths Factors

Future Value
(From Valuation
Ratios)
The White Boxes: Operational Improvement Levers
• Improve Process Effectiveness • Lower Investment Requirements
• Improve Process Efficiency • Strengthen Ongoing Capabilities

Shareholder Value

Revenue Growth Operating Margin Asset Efficiency Expectations

(after taxes)

Price Income Receivables Company External

Volume SG&A COGS PP&E Inventory
Realization Tax &Payables Strengths Factors

Retain and Leverage Improve Improve Improve Improve Improve

Acquire Grow Income- Strengthen Customer Shared Development Logistics & Improve Improve Improve Receivables Improve Improve
New Current Generating Pricing Interaction Service & Production
Service Income Tax PP&E Inventory & Payables Managerial Execution
Customers Provision Efficiency Efficiency Efficiency Effectiveness Capabilities
Customers Assets Efficiency Efficiency Efficiency Efficiency Efficiency

Product Product Demand & IT, Telecom Logistics Real Estate Accounts,
Cash /Asset Marketing & Product Income Tax Finished Notes & Governance Operational
& Service & Service Supply & & & Interest
Innovation Innovation Management Management Advertising Networking Development Distribution Mgmt Infrastructure Goods Excellence
Receivable

Marketing Equipment Work in Accounts, Partnership

& Account Price Sales Real Estate Materials Merchandising & Process & Notes & Business
Management Raw Interest Planning &
Sales Optimization Systems Materials Payable Collaboration

Customer Human Service Program Relationship

Retention Service & Production Delivery
Support Resources Delivery Strength

Cross-Sell/ Order Business Agility &

Fulfillment Procurement Performance
Up-Sell & Billing Management Flexibility

Business Strategic
Management Assets

Financial
Management

• Asset Categories • Capabilities

• Business Processes (e.g., Sales, Finance) (Working Capital) (Managerial & Execution)
The Action Level: How to improve performance

Strategy
Tactics
• Expand / Process Assignment Process Design • Raise or Lower
Broaden • Reassign / Reroute • Efficiency / Effectiveness Requirements
• Eliminate /
Labor Resources Technology Resources
Redirect
• Productivity ( tools, info, • Productivity (faster)
• Focus /
incentives etc.) • Capability (more versatile)
Narrow
• Capability (recruiting, training, • Capacity (more
• Prioritize tools, etc.) utilized/scalable)
• Capacity (utilization, training, • Costs (less expensive)
tools, etc.)
• Costs (salary, benefits, etc.)
Input Process Output
Using the EVM
Framework and Tools

The Value Initiative

How Are We Using the EVM To Help Clients?
Three Recurring Themes . . .

• Focus
– Key Operational Areas
(What do we have to be good at? Where do little changes matter a lot?)
– Key Improvement Areas
(Where are we not good in an operational area that matters?)

• Align
– Metrics
(Which metrics matter most? Is our balanced scorecard aligned?)

– Initiatives
(Which initiatives/project matter most? Is our portfolio aligned?)
– Incentives
(Are we promoting the right decisions/behaviors?)

• Execute
– Operational Results
(Are we hitting our operating performance targets?)
– Project Results
(What’s the most practical way to get things done? Are we getting business value out of our
projects?)
Some examples from “real life” …

Client’s strategic themes and

priorities for the year
Industry Solution Map
Driving Operational and Financial Performance
with Oracle PeopleSoft Technology Shareholder Value The Market has rewarded Pfizer’s ability to
grow the business even at the expense of
Revenue Growth has been driven buy new products.
There are plans to grow the business in specific positive Economic Margins and seems to
The Enterprise Value Map T M geographies, like developing countries. be punishing them for low pipeline

Operating Margin historically flat at 17+%

Revenue Growth ... but down in 2006. Analysts uncertain Operating Margin Asset Efficiency Expectations
(after taxes)
around raw material prices.

Financial Volume Price Realization

Selling, General &
Administrative Target in FY07: 40.7% Cost of Goods Sold Several company
Income Taxes
Property, Plant &
Equipment Inventory Receivables Company Strengths External Factors
(COGS) initiatives targeting & Payables

Performance
(SG&A) (PP&E)
Logistics & Distribution
Bundling services as a
way to drive pricing
Improve
Retain and Grow Current Leverage Income- Improve Improve Improve Improve Improve Improve Improve Improve
Acquire New Customers Strengthen Pricing Customer Interaction Logistics & Service Management & Governance
Improve
Customers Generating Assets Corporate/Shared Services Development & Production Income Tax PP&E Inventory Receivables & Payables Execution Capabilities

Operational
Efficiency Efficiency Efficiency Provision Efficiency Efficiency Efficiency Efficiency Effectiveness
Efficiency

Performance Marketing &

Sales
Product &
Service
Innovation
Account
Management
Cross-Sell/
Up-Sell Retention Cash/Asset
Management
Demand &
Supply
Management
Price
Optimization
Marketing &
Advertising Sales
Customer
Service &
Support
Order
Fulfillment &
Billing
IT, Telecom &
Networking Real Estate Human
Resources
Procurement
(Excluding Production
Materials &
Merchandise)
Business
Management
Financial
Management
Product
Development Materials Production Logistics &
Distribution Merchandising Service
Delivery
Income Tax
Management
Real Estate &
Infrastructure
v
Equipment &
Systems
Finished
Goods
Work in
vProcess& Raw
Materials
Accounts,
Notes &
Interest
Receivable
v
Accounts,
Notes &
Interest
Payable
Governance Business
Planning
Program
Delivery
Business
Performance
Management
Operational
Excellence
Partnership &
Collaboration
Relationship
Strength
Agility &
Flexibility
Strategic
Assets

Capabilities and
Addressing high Ability to address
Possible areas of focus for the client to
Confidence around
Improving working capital
Current Challenges Driving out operating costs
compliance Costs inefficiences of managing
inventory, storage & through Processes Efficiencies &
succession as the Baby
Boom generation retires
are the
increase shareholder value
associated with Key Business movement elimination of Disparate Systems
Enhancing HR Address insufficient
Processes through new process
Opportunities for Capabilities to manage
talent, attract and retain efficiencies elimination of
Address inconsistencies of
Governance & Risk Improved availability of
Management
Value Creation talent, and engage disparate systems
Policies & Procedures for
financial information driving
superior planning capabilities
employees across the Management of Physical
enterprise and more insightful reporting
Assets

Gross Cash Flow Margin - 2006 Gross Cash Flow Margin: 2001 - 2006 Infl. Adj. Gross Investment Turnover - 2006
60.0% 60.0% 0.8 0.75

Relative Financial Performance: 49.0% 0.7

Relative Financial
US:PFE
50.0% 45.4% 50.0% 0.60
41.0% 0.6

Operating Margin is best among the peer set. Pfizer has the
Revenue Growth - 2006 Revenue Growth: 2001 - 2006 40.0% 0.50 0.50
35.5% 40.0% 0.5
70.0% 70.0%
US:NVS
60.1%
30.0% 0.4

lowest COGS, but is among the highest spends on R&D.

60.0% 60.0% US:PFE
30.0%
0.3
50.0% 50.0%
20.0%

Performance
US:AZN
0.2
40.0% 40.0% 20.0%
US:NVS
10.0% 0.1
30.0% 30.0%
10.0%

Opportunities to Drive Value:

0
20.0% US:TEVA

US:PFE
US:TEVA

US:NVS
US:AZN
20.0% 0.0%
US:PFE

11.9% US:AZN US:NVS

US:TEVA
US:AZN

10.5%
10.0% 10.0% 0.0%

Purchasing and Procurement

2001

2002

2003

2004

2005

2006
0.0%

&
0.0%
US:TEVA
-10.0%
-10.0% -5.7%

Eliminate check requests, petty cash and manual checks

US:PFE
US:TEVA

US:NVS

US:AZN

-20.0%
Receivable Days - 2006 Payable Days - 2006
2001

2002

2003

2004

2005

2006

140 350

Increase use of online purchase requisitions systems

Cost of Goods Sold % of Revenues - 2006 Cost of Goods Sold % of Revenues: 2001 - 2006 127
SG&A (Excl. R&D) % of Revenues - 2006 Infl. Adj. Gross PP&E Turnover - 2006 Inventory Days: 2001 - 2006 302
SG&A (Excl. R&D) % of Revenues: 2001 - 2006 50.0% 60.0%
40.0% 2.5 2.38 450 120 300
45.0% 44.2%
35.2% 45.0%

Opportunities to Drive
34.3% 251

Improve management of debt portfolio

US:PFE
35.0% 32.2% 40.0% 50.0% 400 250
US:PFE 40.0% US:PFE
100
2
85
30.0% 35.0% 35.0% 350 81
1.65 1.65
1.58 80 75 200
30.0% 40.0%
25.0% 30.0% US:NVS 1.5 300
US:NVS US:NVS
18.7% 25.0% 23.1%
60 150 131
20.0% 25.0% 250 109
30.0%

Information Quality
20.0% 1
15.0% 20.0%
15.9% 200 40 100

Relative Financial Performance:

15.0% US:AZN

Value
US:AZN 11.6% US:AZN
20.0% 150
10.0% 15.0% 10.0% 50
0.5 20

Strengthen enterprise-wide financial reporting standards 5.0% 10.0% 5.0%

10.0%
100
-

Sales Growth is lagging and showing a declining trend.

-

US:PFE
US:TEVA

US:NVS
US:TEVA

US:AZN
US:TEVA

US:PFE
US:TEVA 0.0% 50

US:TEVA

US:NVS
US:AZN
0.0% 5.0% 0

US:PFE
US:PFE

US:TEVA

US:NVS

US:AZN

US:PFE
Increase breadth and depth of financial information
US:NVS

US:TEVA
US:AZN

US:TEVA

US:NVS

US:AZN
0.0% 0.0% -

2001

2002

2003

2004

2005

2006

2001

2002

2003

2004

2005

2006
2001

2002

2003

2004

2005

2006

Optimize comparability through consistent sourcing, definitions

Opportunity to Drive Value:
Company Name Ticker and calculations of measures
Performance Management 18.0%
R&D Expense % of Revenues - 2006
Opportunities to Drive Value:
Improve incentives around efficiency and effectiveness Relative Financial Performance: Business Planning & Performance Management
15.7%
16.0% 15.0% 14.7%

1 PFIZER INC US:PFE 14.0%

Asset Performance is just average or a bit below, implying potential

Link performance ratings to compensation and development Increase focus on managerial, forward-looking information
12.0%

10.0%

2 NOVARTIS AG ADS US:NVS Establish achievable targets based on internal/external data

8.0%

6.0%
5.9%
opportunities to drive value. Pfizer’s Inventory Days are greater than Streamline business performance reporting processes
their peers and they are showing a rising trend, while their peers
4.0%

Improve assignment of accountability and authority

3 ASTRAZENECA PLC US:AZN
2.0%

0.0%
US:PFE

Inventory Days have been declining. Align business planning, management and reporting functions
US:NVS

US:TEVA
US:AZN
4 TEVA PHARMACEUTICAL LTD US:TEVA

Deloitte’s Enterprise Transformation Approach

Oracle At-a-Glance PeopleSoft Enterprise Deloitte’s Upgrade Planning Tool (UP Tool) PeopleSoft Enterprise
Enablers and Value Tools to accelerate your project…
Did You Know? Value Proposition A tool kit to support your upgrade roadmap… Differentiators
EVD Methodology EVM ValueLink ValuePrintTM ValueAnalytics

How the client is performing on key

Foundation
Value Foundation

Globally… Value

The Complete ERP Suite That • Flexibility

People, Change and Learning

Upgrade Plan
Process and Package

Enterprise Business Intelligence

Value Delivery Information Technology

Security and Controls

(EVD)

#1 in Database • Deloitte’s Upgrade Planning Tool for Oracle (UP

Tax

Support

Project Management

• Modular, yet integrated ERP suite

#1 in Supply Chain Mgmt Enterprise Value Delivery Enterprise Value Map (EVM) ValueLink is an on-line portal ValuePrint™ is a business ValueAnalytics provides Extends Customer Value Tool) is an assessment tool to better plan and Upgrade
Questionnaire
(EVD) institutionalizes our firm provides the integrating which integrates our thought case development tool which rigorous financial estimate an upgrade. • Greater platform and database options

metrics over time and vs. competitors

Value

wide capabilities and best framework linking what our leadership using the Enterprise aligns to the EVM structure. benchmarking to competitors
practices, including methods, clients do in terms of strategies, Value Map framework as the Improvement opportunities are
#1 in Customer Relationship Mgmt tools, and content from areas initiatives and operations with primary navigation approach assembled into a consolidated
• Measures level of effort required to upgrade the
The Deloitte
such as tax, security and the creation of shareholder project business case
global delivery value
#1 in Human Capital Mgmt
IndustryPrintTM CulturePrintTM Technical Tools Applications Unlimited
Enables customers to… client’s Oracle application (eBS, JDE, PeopleSoft)
• Ownership Experience
CM
Manage Cash
Deloitte Online currently in a production environment to currently
Roadmap Tools
and
Investments
Upgrade Plan
Configuration Audit

#1 in Industries
Accelerators

Process

• Strong usability
CM-020
Manage
Key Accelerators

Upgrade

available version.
Liquidity
Type in the
Questionnaire Table List 1 tables to
compare

PeopleSoft Difference
Assessment Summary

•
Deloitte
Configuration
2
Generate SQL
Script
…………………….
……………………
Founded in 1977. Headquarters in Redwood Shores,
Assessment Summary Audit Tool
……………………. EXCEPTION REPORT
Custom Object List
…………………… 4
GL Accounts
…………………….

Extend Value Using Next Generation Technology

Custom Object List
……………………
Custom Object Count ….
UP Tool ……………………
……………………. ….

……………………
……………………
……………………. ….

- Retail
Tables ………99999 Correct
……………………. SQL script Departments

• Low total cost of ownership

Pages………...9999
……………………. …. differences
Programs ……9999

…………………….
…
Queries………..999 ..

…………………….
Scripts Pull Execute script/

CA with operations in 145 countries.

3 Generate audit
Upgrade Metrics report

……………………
from databases
Upgrade
Assessment
Reports
Oracle
eBS/JDE/PS
Oracle
eBS/JDE/PS
…………………….
Custom Object Count
……………………
Oracle eBS/JDE/PS Test DB Link Stage
System System
Production

Record Cash Received

System
Note: The current release of the tool supports Oracle RDBMS only.

UP Tool …………………….
Tables ………99999

• 275,000 total customers • 17,700 partners - Communications Enterprise-wide process CulturePrintTM is a graphical The technical tools accelerate Deloitte OnLine (eRoom) is a Roadmap to fusion is a set of • Key areas include degree of customization of the …………………….
Pages………...9999
Programs ……9999

•
models that reflect best representation of an the technical components of an web-based extranet platform
• 220,000 database customers - Public Sector practices for key processes in organization’s culture along 20 upgrade / implementation for project teams to
tools that enable a client in
determining the migration
system, technical requirements, and business Queries………..999

• 60,000 employees Deliver Best-in-Class Business Processes

a given industry segment. dimensions, grouped into 5 key
• Depth & Breadth of Offering
Key

process. Key ones are upgrade collaborate via secure internet path to fusion based on drivers.
• 30,000 applications customers Depicted in three or four levels orientations. Helps in identifying planning tool, configuration connection. It provides useful current state and degree of Scripts Pull
• 14,000 developers - Professional Services of detail with decomposition the ones that should be enhanced audit tool, performance tuning databases, document sharing change required by client Upgrade Metrics
• 19,000 SMB apps customers and flow diagrams and others where change needs
to take place
solutions repository, upgrade
reconciliation procedures
and other collaboration
functionality
imperative
from databases Upgrade • Complete set of applications for all business processes
•
• 30,000 middleware customers • 7,000 support staff - Financial Services Assessment
•The UP Tool is a collection of scripts, templates,
Drive Superior Ownership Experience Reports
• Best-in-class functionality
ablers

Enterprise
Enterprise Lean
Lean Six National
National Center
Center of
blers

Six of RACK
RACK Database Industry
Industry Solutions
Sigma
Sigma (ELSS)
(ELSS) Excellence
Excellence
Database Solutions and methods that have been developed by Deloitte
Oracle eBS/JDE/PS
Enterprise Applications practitioners throughout Production
 Single digit EPS
SHAREHOLDER VALUE growth in next 5 years

Targeting 5% Top
Line Growth
Goal: 2%
Reduction
Revenue Growth in SG&A Operating Margin Asset Efficiency Expectations

Client X with
superior 3D
Price Selling, General
How the proposed
Cost of engagement
Property,, Plant Receivables Company External
supports (COGS)
the client’s strategic
Volume graphics should
& Administrative Goods Sold & Equipment Inventory
lead wireless Realization & Payables Strengths Factors
handset games (SG&A) (PP&E)
goals and shareholder value The proposed engagement
market
Partner/Contact
Profile Database

Improve
supports the client’s strategic
Leverage Improve Improve Improve Improve
Acquire New
Customers
Retain and Grow
Current Income-
Generating
Strengthen
Pricing
Customer
Interaction
Corporate /
Shared Service
Development &
Production
Logistics &
Service Provision
Improve PP&E
Efficiency
imperatives
Inventory and shareholder
Improve
Receivables &
Payables
Improve
Managerial
Improve
Execution
Customers Efficiency Effectiveness Capabilities
Assets Efficiency Efficiency Efficiency Efficiency
value Efficiency

Online
Accounts, Learning
Product & Product & Cash / Asset Demand & IT, Telecom & Logistics & Real Estate & Finished Notes & Business Operational
Service Supply Marketing & Product Management
Service Management Advertising Networking Distribution Infrastructure Goods Interest Planning Excellence
Innovation Innovation Management Development Receivable
Solution

Accounts,
Account Price Work in Notes & Program Partnership &
Marketing & Real Estate Materials Equipment & Process &
Sales Management Optimization Sales Merchandising Systems Interest Delivery Collaboration
Raw Materials Payable

Customer Human Service Business

Service & Performance Relationship
Lead Retention Resources Production Delivery Strength
Management Support Management
System IT Benefits eCommerce
Procurement • Proven SAP solution for Functionality
Cross-Sell /
MDF/Co-op Order Agility &
Program Fulfillment & (excluding production, semi-conductor channel
Up-Sell materials & management life cycle Integrated Platform for Flexibility
Management Billing merchandise)
• Leverage of existing Improvements in
integration • Business Performance
• SAP platform for lower Management (faster
Global Partner Marketing Resource POS Data Business disruption to Client X
Portal Solution Management end-to-end reporting)
Collection Management • Managerial Capabilities
Solution System &
Process (effective performance
monitoring
management)
Financial
Management

Copyright © 2005 Deloitte Development LLC. All rights reserved. Confidential.

* Cleansed and adapted for illustrative purposes. Internal use only.

Copyright © 2006 by Deloitte Development LLC. All rights reserved.
GER Example – Auto Maker

Issues and opportunities aligned to

value drivers

Approaches and frameworks (how Deloitte

can help)
Introducing The Solution
Map

The Value Initiative

Using a Solution Map to have a Value based discussion
with a client
Objective: Provide focused, contextual assistance to our clients based
on a solid understanding of their business

Approach
– Step 1: What is the driving (or qualifying) business event?
– Step 2: What are the driving issues?
– Step 3: What are the ideas we want to discuss?
– Step 4: Why us (Deloitte) and why now?
Step One – What is the driving (or qualifying)
business event?
• What are the pertinent points of the current situation? Circle any that
apply or write them in.
Step Two – What are the driving issues?
• What are types of issues or opportunities you expect the company to
have, based on the scenario, and how do they relate to value? Align
issues with value drivers.
Step Three – Ideas we want to discuss?
• What are the action options that we want to put in front of the client?
Frame the cross functional options for discussion.
• How does your offering align to the issues or opportunities above?
About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms and their respective subsidiaries and affiliates.
Deloitte Touche Tohmatsu is an organization of member firms around the world devoted to excellence in providing professional services and
advice, focused on client service through a global strategy executed locally in nearly 150 countries. With access to the deep intellectual capital
of approximately 135,000 people worldwide, Deloitte delivers services in four professional areas, audit, tax, consulting and financial advisory
services, and serves more than one-half of the world’s largest companies, as well as large national enterprises, public institutions, locally
important clients, and successful, fast-growing global growth companies. Services are not provided by the Deloitte Touche Tohmatsu Verein
and, for regulatory and other reasons, certain member firms do not provide services in all four professional areas.
As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other’s acts or
omissions. Each of the member firms is a separate and independent legal entity operating under the names “Deloitte”, “Deloitte & Touche”,
“Deloitte Touche Tohmatsu” or other related names.
In the United States, Deloitte & Touche USA LLP is the U.S. member firm of Deloitte Touche Tohmatsu and services are provided by the
subsidiaries of Deloitte & Touche USA LLP (Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Financial Advisory Services LLP, Deloitte
Tax LLP, and their subsidiaries), and not by Deloitte & Touche USA LLP. The subsidiaries of the U.S. member firm are among the nation’s
leading professional services firms, providing audit, tax, consulting, and financial advisory services through nearly 40,000 people in more than
90 cities. Known as employers of choice for innovative human resources programs, they are dedicated to helping their clients and their people
excel. For more information, please visit the U.S. member firm’s Web site at www.deloitte.com
Copyright © 2008 Deloitte Development LLC. All rights reserved.