Building a storyboard for recovery

Mar 20, 2012
<p>Dare to be different and you&rsquo;ll capture the portfolio managers&rsquo; interest, advises <i>Ian Roundell</i></p>

We are now probably nearer the end of this recession than the beginning: although the next economic cycle is unlikely to be a boom in the same way as the last, just a single round of positive data should be enough to lift the markets out of the doldrums.

At that point, cash that has been sitting on the sidelines will be put back to work and investors will start looking for storyboards in the marketplace that are geared for growth. That means it’s time to look at how you can add strategic value to your company by facilitating this process.  

As the stock market recovers, portfolio managers will be deciding which stocks to invest in and will be on the lookout for promising growth initiatives.

Now is the time to act, ahead of this recovery phase. The challenge for IROs is to build a credible storyboard, one focused on growth. This must be far more engaging than simply focusing on undifferentiated emerging markets strategies or cost-efficiencies.

Portfolio managers are unlikely to invest in those two basic strategies, because there is much less certainty they will deliver outperformance. Instead, they want to hear compelling and innovative strategies for growth, with the necessary depth in detail.

Shift the focus to accentuate the positive

In these brutal times, when the economic environment still appears to be heading in the wrong direction, companies tend to focus on what they are not doing rather than what they are doing. Executives can easily slip into unhelpful ‘cutbacks’ language.

Professional investors will be much more inspired, however, if your company is gearing up for recovery and growth. They don’t normally hear this message in a downturn; it’s different, and it’s what investors want to hear.

Put yourself in a portfolio manager’s shoes: where would you look for something with a true performance differential to add to your portfolio? Does your firm’s IR pack fit that bill?

First, look to the valuation model to set the context. Investors will screen companies with a differentiated growth strategy, so you should address initiatives in the order below:
Market share
Talent management and people development
Increased depth of products by adding to the current range
New product lines development and innovation  
New markets your company plans to penetrate
Brand management
Inorganic acquisitions.

The current economic environment is a wake-up call for everyone, where ‘business as usual’ equates to mediocrity. IROs should be questioning slide presentations that focus solely on cuts and efficiencies.

Instead, redirect resources into blockbuster ideas and solutions relevant to the new world. Let investors see that your company is ready for growth returning to the market.

Portfolio managers don’t want re-runs of old corporate stories; they want new approaches with potential for share price uplift. These messages will build investor confidence ahead of the economic turnaround.

Engage the portfolio manager: talk ‘people’

Capturing market share becomes even more important when there is slow economic growth in prospect. In such an environment, convincing clients and customers to do business with your company is likely to require you to take a radically different approach.

Talent management: Investors are particularly interested in how companies develop their talent, so ask yourself: ‘What makes us the stand-out talent managers in our sector?’

Investors want to know that talent features high up on your company agenda as a core asset. Whoever has the best talent will also have the best capability to implement the business plan.

Generation Y: Most traditional companies have yet to get to grips with motivating and incentivizing Generation Y. Few have robust strategies for managing their ‘hi-pots’ (high potentials), the feedstock for their future leadership.

Engagement: Employee engagement activities are common, but how many firms correlate them with customer satisfaction to inform business strategy?

Performance evaluation: Employee performance evaluation is now a standard process for HR departments, but how many companies can pinpoint their key strengths – and do it in a way that will interest the portfolio manager?

Engage the portfolio manager: talk ‘product’

Increasingly, investors will be seeking initiatives that position a company to capitalize on the coming growth in markets. There are two possibilities:
The economic environment is presenting opportunities to acquire low-cost assets in order to support future growth.
The market environment is presenting opportunities to deepen product offerings and to innovate.

A product focus is likely to capture more market share in the coming phase of slow economic growth. Right now, distinctive strategies are absolutely vital to creating differential earnings.

Companies that can demonstrate novel growth strategies are likely to receive an investor premium on their share price compared with the industry average.

All change!

While people have been concentrating so hard on the continuing recession, they may not have fully realized its deeper impact.

Our economic climate has changed the way companies will need to do business because the next economic phase is heralding a new paradigm. For example, retail distribution has fundamentally changed forever, but some companies still cling desperately to their old models.

Even big name retailers are being cannibalized and marginalized by companies with better e-commerce distribution solutions: compare iTunes with HMV, Amazon with Waterstones.

Compare the leisure industry stalwart Thomas Cook with newcomers such as lastminute.com. In telecoms, everyone once bought Nokia phones, but now people want iPhones and Android devices.

Last June US business writer Douglas McIntyre listed 10 brands that won’t be around in 2012, including Sears, Sony Pictures, Sony Ericsson, Nokia and Saab.

Kodak, a once iconic brand, has filed for bankruptcy protection. No company can rest on its laurels, even with a star-studded track record and deep historical roots.

Investor relations professionals have a vital role in offering both support and challenges to their senior teams when developing a compelling story for investors.

Leaders must understand that just thinking a little differently does not go far enough. Senior management team thinking needs to become radically different ahead of market recovery.

Act before the fact

This type of radical thinking is not easy to achieve, but radical thinking after the fact is often a sign of desperation. For example, we are hearing that companies such as HMV are trying to reinvent themselves – but only after they have chalked up enormous losses.

Incremental or late change in a world of ever-faster cycles isn’t really good enough. The previous boom times concealed fundamental business problems, which are now being exposed in today’s tougher commercial environment.

In western market economies, even when the environment starts to turn around, recovery won’t bring us an immediate boom: just take a look across Europe to assess the general prospects.

We are most likely in for a long, slow haul, which means big competition to capture market share as the economy recovers.

Once the market does return, investors will already have made their decisions. If your company is still in business-as-usual mode, it will miss this main opportunity – an opportunity that occurred even before investors opened their wallets to start spending again.

Leaving your preparations until the markets come back is far too late, and your company may never catch up again.

Ian Roundell is head of investor relations at Credit Suisse.

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