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Exhibit 3. Successful Portfolio Migrators Carefully Orchestrate Strategic Moves and Investor Messages

Strategic moves

Increase dividend by 90 percent

Do tuck-in acquisition

Divest slow-growth core business

Begin aggressive acquisition plan

Phase 1

Quarter 1

Quarter 2

Quarter 3

Phase 2 Quarter 4

Quarter 5

Quarter 6

Phase 3 Quarter 7

Quarter 8

Investor commu- nications

Investor day: reduce growth guidance; focus on TSR

Report high-growth brands separately

Earnings call: emphasize strong free cash flow and returns from M&A

Announce talent management program

Emphasize brand management skills

Announce more growth-oriented financial targets

Source: BCG analysis.

its growth guidance, emphasizing its strong free cash flow, and nearly doubling the company’s dividend. That move alone had a major impact on the company’s valuation multiple—causing it to increase by 30 percent within six months of the announcement. In the second phase, the company laid the groundwork for its new growth strategy by separating out reporting for its high-growth brands, adding to revenues by means of a small tuck-in acquisi- tion, and divesting itself of its largest legacy brand (which had been a drag on the company’s overall growth rate). In the third phase, as the company shied decisively to a high-growth path, it began emphasizing to analysts and investors the depth of its brand-management skills and released financial targets aimed squarely at investors in- terested in higher growth. Although recently the down- turn has caused the company’s TSR to decline, over the past ten years the company’s average annual TSR has been twice that of its local stock-market average and nearly three times that of its peer group.

Companies that follow this pathway are generally large established companies with a variety of businesses in their portfolio. Consistently exceeding investor expecta- tions for these companies is especially difficult for the simple reason that the market tends to be more efficient about estimating their future prospects. The companies are well known and closely followed by professional in- vestors and market analysts. The outlook for their mar- kets is oen more predictable.

Value impresarios aren’t wedded to any single pathway to sustainability. They tend to use all of them, shiing their emphasis to the approach that has the most poten- tial to exceed investor expectations at any moment in time—and sometimes using different approaches simul- taneously for different businesses in their portfolio. And they are keenly aware of the impact of any one lever of TSR on all the others.

The Value Impresario

Many large companies will eventually reach a point at which the size and complexity of the business require them to pursue not just one of these pathways to sustain- ability but all of them—with varying degrees of emphasis at different moments in time. We call this approach to sustainability the value impresario.

Value impresarios share some common characteristics. First, they tend to take the long view of company perfor- mance. Instead of just managing to annual plans, they define those plans within the context of a detailed three- to five-year value-creation strategy. And even as they fo- cus on executing that strategy, senior leadership is oen already thinking about what the most important drivers of value creation for the company will be in the subse- quent five years.

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