n the past year, global capital markets have been buffeted by financial crisis and economic recession.
By the end of 2008, equity values had declined precip- itously—in the neighborhood of 40 percent—from their 2007 highs
As a result, the weighted average annual total share- holder return (TSR) for this year’s Value Creators da- tabase, covering the five-year period from 2004 through 2008, was an anemic 2.9 percent; and 5 of the 14 in- dustry samples we follow each year had negative TSR, on average, during this period
Although equity values have been on an upswing from their March 2009 lows, capital markets remain risk averse and stock prices are still nowhere near their 2007 levels
It is precisely in times of high uncertainty that compa- nies have to make carefully targeted bets
In particular, recessions typically accelerate the forces reshaping industries and create new winners and los- ers in the struggle for competitive advantage
The analytical tools of shareholder value manage- ment, in addition to being a critically important way of measuring company performance, also set an essen- tial context for corporate decision making
Especially in large, complex companies, the only way to assess and evaluate unlike businesses in the portfo- lio, weigh the potential tradeoffs and risks among different strategic options, and in the end optimize total business performance is in terms of contribution to TSR
The challenge facing companies today is to make their value-creation performance sustainable.
◊ And despite some signs that suggest the beginnings of a recovery, few observers have a clear picture of what it will look like
◊ Sustainable value creation is built on a foundation of distinctive customer value and defensible competitive advantage that allows a company to deliver superior shareholder returns over the long term
◊ In the face of so much uncertainty and volatility, many senior executives have turned inward; indeed, some have even come to question the relevance of share- holder value management in today’s tough economic environment
◊ Sustainable value creation is also characterized by con- sistency, with the companies that achieve it beating the market average in more years than not
The Boston Consulting Group believes that the very uncertainty of today’s economy makes the concepts and tools of shareholder value management more im- portant than ever before.
◊ Finally, sustainable value creation is balanced—be- tween short-term and long-term performance, across the key drivers of TSR, and among all the stakeholders of a company’s economic system, including employees, customers, suppliers, and society as a whole
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