Learn More About Some Practices For Better Capital Investment Management

Executives can improve performance by mastering several practices and adopting a capital-portfolio-management system powered by a comprehensive digital application.

Across industries, senior executives know that managing capital investments wisely means better cash flow, faster growth, and competitive advantage. Many organizations, however, struggle to manage spending on hundreds or even thousands of capital projects and miss substantial growth and profitability opportunities as a result.

1. Make the capital portfolio a priority

Capital-investment performance can have an enormous impact on an organization’s value, and it can drive growth and increase overall returns on invested capital. The best companies use a clear capital-allocation strategy to build winning portfolios. They link strategic imperatives to a target capital portfolio, setting and communicating targets for growth and productivity improvements and for sustaining capital expenditures.

For example, when a leading utility generated an integrated view of its capital portfolio, it found that a large share of projects were classified as “regulatory,” skewing the portfolio from its optimal mix. As a result, the portfolio overweighted investments that offered little, if any, cash returns or enhancements of operational stability. With this insight, managers reevaluated the portfolio, project by project, and removed discretionary elements that were bundled into the regulatory requirements. By freeing capital this way, they had more to spend on other cash-generative priorities, such as increasing network reliability.

2. Tap the organization’s collective wisdom

Despite an increasing amount of cross-disciplinary activities, recurring “stay in business” capital projects often still represent an engineer’s solution to a business problem. Hence, the design of these projects often overindex on technical versus commercial attributes. Sourcing project ideas from experts across the business, including engineering, operations, and procurement, however, can bring the best thinking to the surface and help introduce more commercial inputs so that the portfolio is the best it can be for the business, not just technically. Digital tools that manage capex company-wide can facilitate this collaboration, improve transparency, and improve stage-gate reviews. Effective collaboration systems provide colleagues with all the information they need to track project activity, have productive dialogues, and cross-pollinate best practices.

3. Set clear investment objectives and compare even seemingly disparate projects

Most organizations categorize potential investments either qualitatively or quantitatively. Qualitative investments typically include strategic projects or those that address new mandates or regulatory requirements. Most quantitative investments have clear financial goals.

To prevent “pet projects” from moving under the radar, managers should be able to compare and prioritize them on an apples-to-apples basis—even across disparate categories. One chemical company forced a management discussion to compare quantitative facts with qualitative rankings of its portfolio. The conversation led to informed trade-offs on productivity, growth, and maintenance categories, increasing portfolio net present value (NPV) by more than 30 percent.

4. Scrub the business case for each project multiple times throughout the life cycle

Every project proposal should include a detailed rationale, an explanation of alternatives, and a calculation of the expected return or qualitative benefit, timing, context, and risk. Each aspect is likely to evolve as the portfolio takes shape.

A standard model or system for identifying the sources of value of each project helps reduce uncertainties, eliminate cognitive biases, and build an empirical foundation for portfolio optimization. Across industries, scrub-and-optimization sessions commonly result in 10 to 30 percent reductions in spending for nonmajor projects.

5. Use ROI throughout the investment life cycle

Companies must be able to track return on investment (ROI) across the project life cycle, particularly when planning a portfolio or annual budget and again when reviewing formal approval requests.

While the initial budgeting process should identify the most valuable projects, formal reviews allow managers to reevaluate priorities and understand each project’s rank as it unfolds. Calculating ROI is also critical in postcompletion reviews, to understand how each investment performed against expectations, to improve future results.

Proper ROI analysis can drain resources, since it often requires support from finance. Leading companies adopt standard metrics and calculations, checking them with “scrubbing teams.” The best use tools that calculate ROI automatically throughout the investment process—reducing errors, increasing transparency, and freeing up time for project managers and finance alike.

6. Streamline approvals and make contextually informed decisions

Capital-expenditure approvers must tackle three questions when evaluating requests: Is this proposal complete, and does it exceed minimum hurdle rates? Do we have the funds to invest in this project now? How attractive is this project compared with others?

They can take time to answer, delaying valuable projects. To invest in the most attractive projects and consistently hit targets, senior managers must assess each proposal quickly and easily given the capital position versus the budget and the alternatives. Decision authority must be streamlined. Many organizations require that too many people or functions be “consulted,” inadvertently giving them pocket-veto power.

7. Forecast more frequently to enable tactical shifts

Many managers build a forecast process in a stand-alone spreadsheet—almost guaranteeing that forecasts are outdated by the time senior management sees them. Shortening this cycle requires several complementary advances:

Actual data must flow automatically into the capital-management system so that project managers can easily and frequently update forecasts, and forecast roll-ups must be automatic.
Forecasts must be compiled in a systematic and standardized way, and accessible from any device or location, to enable effective collaboration.
Management must then act promptly based on these frequent, real-time forecasts—pushing tactical decisions down as far as possible.
As companies utilize digital tools to enable more frequent reporting and forecasting, they should work in parallel to become nimbler and more efficient.

8. Implement a unified cross-platform approach

Most organizations approve and deny projects in silos. Approvals may reside in a custom work-flow application, for example, while actuals live in the enterprise-resource-planning system, and budgeting, forecasting, and ROI in a series of spreadsheets. Managers who must navigate multiple reports and databases may not have an accurate portfolio perspective, diminishing their ability to invest in the most attractive projects.

Companies overcome these limitations by adopting a capital-portfolio-management system that is unified across the investment life cycle, from project inception to postcompletion review. This can benefit other functions. For example, when a global manufacturer deployed a single digital tool for budgeting and project approvals, it gained visibility into capital spending across the organization and enabled the supply-chain team to identify significant savings opportunities.

9. Adopt a culture of continuous improvement

To maximize the value of their capital investment, organizations need to identify past errors and correct course. A clearly defined path to success can help.

If investment objectives are explicit and supported from the top down, managers know what they need to do to succeed—and cultural change can be relatively painless. In one company, leaders adopted a mechanism to flag projects over schedule or budget, instituting a formal review process for every project no matter how small, and tracked ROI by project and budget cycle to allow comparisons.

Using this approach, one oil and gas company steadily reduced capital-expenditure budgets by several percentage points in the years after a step change in performance without falling back to business as usual.

A case example

As companies focus on raising revenues and profits, a digitally enabled capital-investment-management system can quickly help to improve financial results and improve decision making so that today’s projects are prioritized and selected with an optimal business target in mind. (For more on the potential of the approach, see sidebar, “A case example.”)

Better capital-expenditure management aligns investments more closely with the organization’s strategy and reduces infighting in the struggle for funding. Furthermore, it allows project managers to make faster, fact-based decisions and gives senior leaders more time to focus on strategic issues.

In our experience, most organizations can institute a far more efficient and effective project-management process in four to six months and see project and portfolio NPV improvements of well over 10 percent within a year.

Starting a Business When You Have a Full Time Job

It’s tempting to want to put 100 percent of your time and effort into plans to launch a new business from Day One. But jumping in with both feet is far riskier than working the business on the side while you hang onto the income and security of your day job.

Start a Business While Working Full Time

Here are five tips from entrepreneurs who have successfully started a business while working full time.

1. Just Get Started

Fear of failure and becoming overwhelmed are two common roadblocks when starting a business. The key is to do something small every day and build on it, says Diane Melville, founder of Skin Care Ox, a skin care blog.

“Even if you’re just figuring out what your domain name is going to be, if that’s all you have time for today, some progress is infinitely better than no progress,” says Melville, who previously worked as a marketing consultant specializing in digital content production.

She also advises budding entrepreneurs to find ways to avoid burnout by having fun during the planning stage, since you’ll likely be working nights and weekends to get your business going.

“I just tried to change my mentality to make it fun,” Melville says. “I would tell myself, ‘This is my baby and I’m going to build this thing.’ Eventually, you get excited and can’t wait to get back to work on it.”

2. Build Expertise and Test the Market

As you get going, build knowledge and skills and develop relationships, says Wilma Nachsin, co-founder of Life Working, LLC, a resume and career coaching business.

Nachsin, a former human resources director, and Arlene Wanetick, her former co-worker and current business partner, learned resume writing, trained as life coaches and signed up clients before they launched the business full time to practice their skills and gather feedback.

Nachsin and Wanetick also sought help to set up key systems, such as software to manage customer relationships and invoicing. They continued to work their jobs for 2½ years before quitting to focus on their business.

“Slowly but surely, we filled our toolbox up with what we thought we needed to build a successful business,” Nachsin says.

3. Avoid Conflicts with Your Job

If your business is in a field unrelated to your job, you may not need to talk to your boss before starting up. If you think there may be a conflict, check with your human resources department to see if you signed a nondisclosure or noncompete agreement, which prevents you from working for a competitor or against the company.

The employee handbook where Nachsin and Wanetick worked barred any two employees from going into business together. But their office director agreed to sign a letter giving them permission to start their business.

“We promised the highest ethics and standards in keeping our business separate from our day jobs,” Nachsin says.

If you need to talk about your new business, restrict those conversations to appropriate times, such as during lunch breaks or outside of work hours, says Pam Farley, founder of Brown Thumb Mama, a home and garden blog.

“I didn’t want [colleagues] to come to a project meeting and think, ‘Oh, good heavens, she’s going to go off on a tangent,’” says Farley, who started her blog while working as a marketing writer for a health insurance company.

Your boss or co-workers may also be able to share expertise that will help your business grow — or even become its first customers, as was the case with Farley.

4. Set Realistic Targets

Achievable goals will help you stay motivated and encouraged, says Linda Pophal, founder of Strategic Communications, LLC, a marketing consulting and content marketing firm.

“I aim for 10 percent to 20 percent more business each year as opposed to 100 percent or 200 percent,” says Pophal, who sets annual sales targets and breaks them down into monthly and weekly goals.

Be sure to keep an eye on profitability by including expenses in your targets as well. For example, Pophal works with freelancers and contractors on certain projects, and now tracks costs versus revenue for each project, aiming to keep at least 25 percent of revenue in profits.

5. Know the Right Time to Leave Your Job

If you’re generating enough income from your business to cover your living expenses and are feeling unfulfilled by your day job, it may be time to give notice.

“For me, it was a combination of having wanted to strike off on my own for a long time, and also not really feeling that challenged,” Pophal says.

When you’re ready to take the leap, look at factors such as whether you have other sources of income, emergency savings and health insurance coverage.

More Information About The Case for Digital Reinvention

Digital technology, despite its seeming ubiquity, has only begun to penetrate industries. As it continues its advance, the implications for revenues, profits, and opportunities will be dramatic.

As new markets emerge, profit pools shift, and digital technologies pervade more of everyday life, it’s easy to assume that the economy’s digitization is already far advanced. According to our latest research, however, the forces of digital have yet to become fully mainstream. On average, industries are less than 40 percent digitized, despite the relatively deep penetration of these technologies in media, retail, and high tech.

The case for digital reinvention
As digitization penetrates more fully, it will dampen revenue and profit growth for some, particularly the bottom quartile of companies, according to our research, while the top quartile captures disproportionate gains. Bold, tightly integrated digital strategies will be the biggest differentiator between companies that win and companies that don’t, and the biggest payouts will go to those that initiate digital disruptions. Fast-followers with operational excellence and superior organizational health won’t be far behind.

These findings emerged from a research effort to understand the nature, extent, and top-management implications of the progress of digitization. We tailored our efforts to examine its effects along multiple dimensions: products and services, marketing and distribution channels, business processes, supply chains, and new entrants at the ecosystem level (for details, see sidebar “About the research”). We sought to understand how economic performance will change as digitization continues its advance along these different dimensions. What are the best-performing companies doing in the face of rising pressure? Which approach is more important as digitization progresses: a great strategy with average execution or an average strategy with great execution?

The research-survey findings, taken together, amount to a clear mandate to act decisively, whether through the creation of new digital businesses or by reinventing the core of today’s strategic, operational, and organizational approaches.

According to our research, digitization has only begun to transform many industries (Exhibit 1). Its impact on the economic performance of companies, while already significant, is far from complete.

This finding confirms what many executives may already suspect: by reducing economic friction, digitization enables competition that pressures revenue and profit growth. Current levels of digitization have already taken out, on average, up to six points of annual revenue and 4.5 points of growth in earnings before interest and taxes (EBIT). And there’s more pressure ahead, our research suggests, as digital penetration deepens

While the prospect of declining growth rates is hardly encouraging, executives should bear in mind that these are average declines across all industries. Beyond the averages, we find that performance is distributed unequally, as digital further separates the high performers from the also-rans. This finding is consistent with a separate McKinsey research stream, which also shows that economic performance is extremely unequal. Strongly performing industries, according to that research, are three times more likely than others to generate market-beating economic profit. Poorly performing companies probably won’t thrive no matter which industry they compete in.

Would you like to learn more about our Digital McKinsey Practice?
At the current level of digitization, median companies, which secure three additional points of revenue and EBIT growth, do better than average ones, presumably because the long tail of companies hit hard by digitization pulls down the mean. But our survey results suggest that as digital increases economic pressure, all companies, no matter what their position on the performance curve may be, will be affected.

Uneven returns on investment

That economic pressure will make it increasingly critical for executives to pay careful heed to where—and not just how—they compete and to monitor closely the return on their digital investments. So far, the results are uneven. Exhibit 3 shows returns distributed unequally: some players in every industry are earning outsized returns, while many others in the same industries are experiencing returns below the cost of capital.

These findings suggest that some companies are investing in the wrong places or investing too much (or too little) in the right ones—or simply that their returns on digital investments are being competed away or transferred to consumers. On the other hand, the fact that high performers exist in every industry (as we’ll discuss further in a moment) indicates that some companies are getting it right—benefiting, for example, from cross-industry transfers, as when technology companies capture value in the media sector.

Where to make your digital investments

Improving the ROI of digital investments requires precise targeting along the dimensions where digitization is proceeding. Digital has widely expanded the number of available investment options, and simply spreading the same amount of resources across them is a losing proposition. In our research, we measured five separate dimensions of digitization’s advance into industries: products and services, marketing and distribution channels, business processes, supply chains, and new entrants acting in ecosystems.

How fully each of these dimensions has advanced, and the actions companies are taking in response, differ according to the dimension in question. And there appear to be mismatches between opportunities and investments. Those mismatches reflect advancing digitization’s uneven effect on revenue and profit growth, because of differences among dimensions as well as among industries. Exhibit 4 describes the rate of change in revenue and EBIT growth that appears to be occurring as industries progress toward full digitization. This picture, combining the data for all of the industries we studied, reveals that today’s average level of digitization, shown by the dotted vertical line, differs for each dimension. Products and services are more digitized, supply chains less so.

To model the potential effects of full digitization on economic performance, we linked the revenue and EBIT growth of companies to a given dimension’s digitization rate, leaving everything else equal. The results confirm that digitization’s effects depend on where you look. Some dimensions take a bigger bite out of revenue and profit growth, while others are digitizing faster. This makes intuitive sense. As platforms transform industry ecosystems, for example, revenues grow—even as platform-based competitors put pressure on profits. As companies digitize business processes, profits increase, even though little momentum in top-line growth accompanies them.

The biggest future impact on revenue and EBIT growth, as Exhibit 4 shows, is set to occur through the digitization of supply chains. In this dimension, full digitization contributes two-thirds (6.8 percentage points of 10.2 percent) of the total projected hit to annual revenue growth and more than 75 percent (9.4 out of 12 percent) to annual EBIT growth.

Despite the supply chain’s potential impact on the growth of revenues and profits, survey respondents say that their companies aren’t yet investing heavily in this dimension. Only 2 percent, in fact, report that supply chains are the focus of their forward-looking digital strategies (Exhibit 5), though headlining examples such as Airbnb and Uber demonstrate the power of tapping previously inaccessible sources of supply (sharing rides or rooms, respectively) and bringing them to market. Similarly, there is little investment in the ecosystems dimension, where hyperscale businesses such as Alibaba, Amazon, Google, and Tencent are pushing digitization most radically, often entering one industry and leveraging platforms to create collateral damage in others.1
Exhibit 5
Where are companies focusing their forward-looking digital strategies?
Instead, the survey indicates that distribution channels and marketing are the primary focus of digital strategies (and thus investments) at 49 percent of companies. That focus is sensible, given the extraordinary impact digitization has already had on customer interactions and the power of digital tools to target marketing investments precisely. By now, in fact, this critical dimension has become “table stakes” for staying in the game. Standing pat is not an option.

The question, it seems, looking at exhibits 4 and 5 in combination, is whether companies are overlooking emerging opportunities, such as those in supply chains, that are likely to have a major influence on future revenues and profits. That may call for resource reallocation. In general, companies that strategically shift resources create more value and deliver higher returns to shareholders. This general finding could be even more true as digitization progresses.

On the front foot

Structuring your digital reinvention

Our survey results also suggest companies are not sufficiently bold in the magnitude and scope of their investments (see sidebar “Structuring your digital reinvention”). Our research (Exhibit 6) suggests that the more aggressively they respond to the digitization of their industries—up to and including initiating digital disruption—the better the effect on their projected revenue and profit growth. The one exception is the ecosystem dimension: an overactive response to new hyperscale competitors actually lowers projected growth, perhaps because many incumbents lack the assets and capabilities necessary for platform strategies.

Exhibit 6
When companies respond to digitization assertively and across multiple dimensions, they improve their performance.
As executives assess the scope of their investments, they should ask themselves if they have taken only a few steps forward in a given dimension—by digitizing their existing customer touchpoints, say. Others might find that they have acted more significantly by digitizing nearly all of their business processes and introducing new ones, where needed, to connect suppliers and users.

To that end, it may be useful to take a closer look at Exhibit 6, which comprises six smaller charts. The last of them totals up actions companies take in each dimension of digitization. Here we can see that the most assertive players will be able to restore more than 11 percent of the 12 percent loss in projected revenue growth, as well as 7.3 percent of the 10.4 percent reduction in profit growth. Such results will require action across all dimensions, not just one or two—a tall order for any management team, even those at today’s digital leaders.

Looking at the digital winners

To understand what today’s leaders are doing, we identified the companies in our survey that achieved top-quartile rankings in each of three measures: revenue growth, EBIT growth, and return on digital investment.

We found that more than twice as many leading companies closely tie their digital and corporate strategies than don’t. What’s more, winners tend to respond to digitization by changing their corporate strategies significantly. This makes intuitive sense: many digital disruptions require fundamental changes to business models. Further, 49 percent of leading companies are investing in digital more than their counterparts do, compared with only 5 percent of the laggards, 90 percent of which invest less than their counterparts. It’s unclear which way the causation runs, of course, but it does appear that heavy digital investment is a differentiator.

Leading companies not only invested more but also did so across all of the dimensions we studied. In other words, winners exceed laggards in both the magnitude and the scope of their digital investments (Exhibit 7). This is a critical element of success, given the different rates at which these dimensions are digitizing and their varying effect on economic performance.

What leading companies do differently from the rest
Strengths in organizational culture underpin these bolder actions. Winners were less likely to be hindered by siloed mind-sets and behavior or by a fragmented view of their customers. A strong organizational culture is important for several reasons: it enhances the ability to perceive digital threats and opportunities, bolsters the scope of actions companies can take in response to digitization, and supports the coordinated execution of those actions across functions, departments, and business units.

So we found a mismatch between today’s digital investments and the dimensions in which digitization is most significantly affecting revenue and profit growth. We also confirmed that winners invest more, and more broadly and boldly, than other companies do. Then we tested two paths to growth as industries reach full digitization.

The first path emphasizes strategies that change a business’s scope, including the kind of pure-play disruptions the hyperscale businesses discussed earlier generate. As Exhibit 8 shows, a great strategy can by itself retrieve all of the revenue growth lost, on average, to full digitization—at least in the aggregate industry view. Combining this kind of superior strategy with median performance in the nonstrategy dimensions of McKinsey’s digital-quotient framework—including agile operations, organization, culture, and talent—yields total projected growth of 4.3 percent in annual revenues. (For more about how we arrived at these conclusions, see sidebar “About the research.”)

Most executives would fancy the kind of ecosystem play that Alibaba, Amazon, Google, and Tencent have made on their respective platforms. Yet many recognize that few companies can mount disruptive strategies, at least at the ecosystem level. With that in mind, we tested a second path to revenue growth.

Companies in this profile lack a disruptive strategic posture but compensate by being in the top 25 percent for all the other elements of digital maturity.2 This fast-follower profile allows more room for strategic error—you don’t have to place your bets quite so precisely. It also increases the premium on how well you execute. The size of the win is just slightly positive at 0.4 percent in annual revenue growth: 5.3 percent from good (but not best-in-class disruptive) strategy and an additional 7.1 percent through top-quartile digital maturity. This is probably good news for incumbents, since many of them are carefully watching tech start-ups (such as those in fintech) to identify the winning plays and then imitating them at their own bigger scale. That approach, to be sure, demands cutting-edge agility to excel on all the operational and organizational aspects of digital maturity.

In the quest for coherent responses to a digitizing world, companies must assess how far digitization has progressed along multiple dimensions in their industries and the impact that this evolution is having—and will have—on economic performance. And they must act on each of these dimensions with bold, tightly integrated strategies. Only then will their investments match the context in which they compete.

Learn More About Digital Marketing and Your Small Business

Moving into the future, businesses need expertise in an ever-increasing array of marketing tools: email marketing, social media marketing, Google Ads, blogging, growth hacking, lead generation, SEO, SEM, etc. Understanding which tools and strategies to use to achieve your business objectives can be difficult. That’s where this book list fits in. This list contains nine books that cover almost every aspect of digital marketing, so you can prepare for your marketing future today.
Digital Marketing Books for Your Small Business
9 Digital Marketing Books for Your Small Business – Digital Marketing for DummiesDigital Marketing for Dummies
By Ryan Deiss and Russ Henneberry

With all of the constant changes in digital marketing, it can be hard even for experienced business professionals, to keep up.
Digital Marketing for Dummies highlights the importance of digital marketing and how it can be adapted to get the best return on investment for your time and money.
Digital Marketing for Dummies provides a non-technical, strategy-oriented approach for this.
Written by the CEO and Editorial Director (Ryan Deiss and Russ Henneberry) of DigitalMarketer.com, the book helps readers develop or refine their digital marketing strategies to align with their business goals in the areas of content marketing, social media marketing, search engine marketing (SEM), and online advertising.
If you have wondered why your business needs to Tweet, create YouTube videos, or blog when you have more important things to do, this book will provide the answer with a lot more.
9 Digital Marketing Books for Your Small Business – Marketing 4.0Marketing 4.0
by Philip Kotler, Hermawan Kartajaya, and Iwan Setiawan

Moving forward in the sharing and on-demand global economy, the world of marketing is changing.
Your business can’t rely on the traditional marketing techniques of the past. Customers demand a two-way conversation and with that transparency and accountability. They have more options and less patience with pop-ups and commercials.
They seek diversity in the workplace and in their entertainment,
Marketing 4.0, written by three pioneering marketing gurus, helps business owners understand what the transition for digital marketing means to business owners.
In particular, the book shares how businesses can adapt their marketing to be more inclusive, more social and more flexible in the face of an unpredictable future.
If you are looking for a book to help you wrap your head around the bigger picture going in and how it affects your business, this book might be for you.
9 Digital Marketing Books for Your Small Business – Digital SenseDigital Sense
by Travis Wright and Chris J. Snook

The first two books on this list talked about the “big picture” when it comes to digital marketing.
Digital Sense helps business owners tie everything together on a ground-floor level.
Specifically, it helps business owners learn how to create an “omnichannel presence”
An omnichannel presence is the marketing term for a business that maintains a consistent marketing presence across various channels and devices.
It represents the future of marketing.
“Digital Sense” helps business owners develop this omnichannel presence using two frameworks designed to help businesses align their marketing efforts with their customers in a globally competitive world.
9 Digital Marketing Books for Your Small Business – The Smarter ScreenThe Smarter Screen
by Shlomo Benartzi with contributions by Jonah Lehrer

This is already a world filled with screens (TV, smartphones, laptops, tablets, even smart appliances) and the world is going to have a lot more in the next few years.
Mobile technology has affected the culture, economy and global society in a variety of ways.
The cultural and economic changes brought about by mobile technology are more obvious. But understanding the psychological impact of mobile technology, both good and bad is a bit trickier.
That’s where The Smarter Screen comes in.
Written by a behavioral economist, the book helps readers understand the complicated world of brains using mobile technology. For example, the book explores why people value shopping on mobile devices more than in the store or why humans remember things when it’s displayed on a screen.
Using the information in the book, the author of The Smarter Screen hopes to help businesses design mobile technology to help them better realize their objectives — and those of their customers.
9 Digital Marketing Books for Your Small Business – Mobile MarketingMobile Marketing
by Daniel Rowles

Mobile Marketing is also concerned with designing mobile technology for the best customer experience.
The difference is how.
In Mobile Marketing, digital marketing expert Daniel Rowles wants readers to upgrade their definition of mobile technology.
Mobile technology isn’t all about cell phones and apps. It’s a spectrum of devices and services including wearables, mobile payment systems, location-based advertising, virtual reality and more.
Rowles contends that businesses are just starting to tap into the vast potential of the mobile economy and provides strategies (along with case studies) showing how businesses can tap into this expanded concept of marketing technology and use it to drive profits now and in the future.
Businesses that take the lead in marketing will have a competitive advantage over the status quo still stuck in the “traditional marketing” mindset.
9 Digital Marketing Books for Your Small Business – TapTap
by Anindya Ghose

This list has looked at the psychology and technology behind the mobile economy.
Tap looks at the data breadcrumbs we leave while using mobile technology.
The amount and type of data has been a source of controversy with some consumers believing they are giving away too much of their personal information. On the other hand, businesses benefit when consumers share information, such as web clicks, page views and other data helping businesses offer more personalized services.
It also saves businesses money, time and effort that would have been wasted on ill-suited marketing campaigns.
Tap argues that there is a happy medium between offering privacy and participation in the mobile economy. Using research conducted around the world, professor and author Anindya Ghose shares why he believes businesses can achieve this healthy balance of privacy plus utility for consumers.
Ghose also shares the nine primary forces that impact a customer’s decision to buy. He then provides strategies and recommendations to help businesses adapt their mobile technology to address these forces.
9 Digital Marketing Books for Your Small Business – Brain SurfingBrain Surfing
by Heather LeFevre

Heather LeFevre worked hard as an advertising and marketing strategist and it paid off. She grew an impressive resume completing behind-the-scenes work for some of the largest brands, including Burger King, Emirate Airlines, Phillips and Pampers.
LeFevre wanted more, though. She wanted more insight into the ultimate question every marketer, advertiser, communications professional or public relations professional has about marketing: How do I get into my customer’s brain?
Brain Surfing was the answer.
LeFevre literally went around the world to find the answer to the ultimate marketing question. Before you think this is a book about another marketing guru spouting a few marketing tips, think again.
The author did more than go around the world to pick up a few insights. She tracked down the top marketing strategists and lived in their homes as she learned from them.
Her book is a travel log, marketing advice guide and invitation to take your marketing to a deeper level so you can reach more people than you ever imagined.
9 Digital Marketing Books for Your Small Business – Analytics to ActionAnalytics to Action
by Tim Cigelske

What is one big gripe about marketing on social media? They don’t see a return on investment.
Many business owners still aren’t able to connect the dots between their Tweets, pins, posts and updates and their business objectives. As a result, many businesses undermine their own efforts at social media.
Analytics to Action was written to help with this problem.
In the book, author Tim Cigelske helps business owners better understand the numbers that appear on their social media accounts.
Cigelske, the current director of social media for Marquette University, shares the principles, strategies and resources he used throughout his career and his current role as manager of a social media team with 30 people and 50 social media accounts.
Throughout Analytics to Action, Cigelske helps readers figure out how social media goals can help them reach business goals, which statistics to look out for, and how to combine all of this data into a consistent and reliable process that leads to success.
9 Digital Marketing Books for Your Small Business – The Conversion CodeThe Conversion Code
by Chris Smith

As businesses are learning, traditional sales methods are no longer working like they once did.
Cold calling, getting your name in the Yellow Pages, disruptive advertising and billboards are becoming a thing of the past as smart consumers are learning how to dodge and weave communication they aren’t interested in.
Consumers are using ad blockers, online reviews, social media and more to skip past these old sales methods and find the products and services that fit them.
If your organization is looking to adapt its sales strategies to the modern world of Twitter, Facebook, blogs and YouTube, The Conversion Code may be the thing that helps you do it.

Written by Chris Smith, a sales coach who raised two million dollars in revenue for the company he founded, The Conversion Code shares the tips, strategies and techniques Smith along the way.
The book covers lead generation starting where your customers are (online) and guides readers through the steps to convert their ”maybe“ or ”no“ into a ”yes“.
As the books on this list prove, the world of marketing will face a complex and unpredictable future. Social media channels will rise and decline in popularity. Marketing strategies will come in and out of vogue. Trends will come and go. As a business owner, it is your job to steer your business through these marketing decisions.
At the end of the day, these decisions pale in comparison to the marketing principles which never change:
Create something you are proud to offer your customers.
Use feedback to make your product or service the best it can be.
Keep innovating.

Stick to these basic marketing principles and your business will build a marketing foundation, no matter how unpredictable the future turns out to be.

Should You Know Small Business Marketing Should Focus on Authenticity

Spend any time researching marketing trends and tactics for 2017, and you’ll see the words ‘genuine’ and ‘authentic’ over and over. Today’s marketing plan is to channel your authenticity and invite customers into your world. Marketers create relationships with their potential customers by making customers feel like they know the people behind the brands.

Individuals and companies are more visible than ever before. With dozens of social media outlets, brands have the opportunity to tell their story even as it’s happening. Social media is a staple in most people’s lives. It makes us feel like we know everyone that we follow, and that’s bled into how customers consume businesses. Companies have to build genuine connections within their target demographics to succeed today.

To invite your customers into your world, you have to open up. Creating online content like blogs, videos, podcasts or photos that tell your company’s story helps to humanize your company. Offline, supporting causes that align with your company’s mission, or doing pop-up shows where people can meet you in person helps to plant your brand in their hearts and minds.

You can focus on authenticity in your brand marketing easily. Here are three ways you can tell your story, and three things that accomplishes.

Three Marketing Tactics That Build Authenticity

Create marketing content that shares your story. Today, everyone feels entitled to a behind the scenes look at things. We want to see the final product AND how it was made. We want stars to share their stories during red carpet interviews and on their personal Instagram stories. When you create content that shares your business story you open your world to your potential customer. You can introduce themto employees, share your values and practices, and make them feel like they are a part of the team.

Introduce yourself and be consistent. Brands that jump around are dead in the water today. There’s so much competition for a customer’s attention that you need to hammer home your message several times before it really sinks into anyone’s mind. Being consistent helps get your message to more people and helps it resonate more. Plus, you tell a cohesive story. Customers don’t simply want to know what you have to offer them. Customers want to feel like they know the brands they support. They want to know the history, the practices and the ethics of your brand. Customers give their money to brands that they understand.

Allow creativity to take the front seat. Again, competition is fierce out there. In order to stand out, allow your creativity to run wild. Take some risks. Share personal triumphs or stories of struggles. Be that guy in your field. When you do this in your marketing you come across as real. Nothing is more paramount than authenticity today. Brands that rely on automation or canned, clunky responses will fail. Customers want to connect with the humans behind the logos. When you take a risk, it shows that you’re about more than just profits. Stories that share personal information, such as work habits and challenges, resonate with people. It makes you real in their eyes. It makes you relatable.

When you’re developing a marketing plan, look to brands that move you. Marketing works on all of us. Even when we’re in the same game, a well-executed marketing plan will still wriggle into our hearts and minds. Business owners are still consumers.

So, what are the brands that tug on your heartstrings? Which company’s Instagram accounts do you stalk? Take the aspects that you respond to from them and incorporate them into your own plan. For example, Dove is a multi-national company that relies on using ‘everyday’ people in their marketing. American Eagle clothing has vowed to do away with airbrushing their models, to create more ‘realistic’ pictures of bodies. Their company message is that everyone is beautiful as they are- they just happen to be companies that sell beauty products.

You don’t have to be a beauty or clothing company to piggyback on their ideas. Use real people in ads for your tool company. Snap a picture of yourself before you get all dolled up for an interview and post it to social media. Your message is bigger than sales- it’s sharing a relatable story. Sales will come after your story has been shared.

Authenticity is the name of the game at the moment. It’s the best strategy to get people to notice and remember your brand. It’s the way to establish a true and lasting connection with your audience. Invest your time and energy into content marketing to see a difference in your growth and business success.

The New Of Vending Machines

When you think of vending machines, you probably picture small bags of chips, cookies and soda. But there are so many more possibilities. And some businesses are starting to capitalize off those opportunities.

Non Food Vending Machines

Take Uniqlo, for example. The company sells down jackets out of vending machines mainly in airports. Best Buy also has placed vending machines in airports, selling Beats headphones among other tech gadgets. And Sephora sells mascara and other beauty products out of similar machines.

What all of these examples have in common is that they offer a product people might need quickly. And they offer it in a place where people who need such products are likely to be. Travelers sometimes don’t plan for the weather or forget to pack things like headphones and mascara, so these solutions really work for the venue.

Other examples could be offering sunglasses and hats at amusement parks or outdoor events, ties and small accessories at business conference centers, and toiletry items at hotels. Basically, you can offer anything out of a vending machine as long as there’s a market and a location that makes sense. And using this type of setup can help your customers save time and your business save money.

Learn More About The CEO Guide to Boards

Greater responsibilities require increased commitments of time and energy.

Building a strong board of directors never seems to get easier. High-profile board failures, the boom in activist investing, and the disruptive forces of technology are only a few of the reasons effective board governance is becoming more important.

Start with oversight, a role of the board that, most directors would agree, is no longer its sole function. Directors are now required to engage more deeply on strategy, digital, M&A, risk, talent, IT, and even marketing. Factor in complexities relating to board composition, culture, and time spent—not to mention social, ethical, and environmental responsibilities—and the degree of difficulty continues to rise.

To help CEOs and board chairs, as well as executives and directors, build strong boards, this CEO guide synthesizes multiple sources to make quick sense of complex issues in corporate governance, while focusing on four areas that are essential for building a better board. (For a quick read of these topics, see the summary infographic, “Four essentials for building a stronger board of directors.”)

There are four essentials for building a stronger board of directors.
Broaden the board’s scope

McKinsey Global Surveys indicate the best boards go beyond fiduciary responsibilities to take a more active role in constructively challenging and providing input on a broader range of matters. Since some of these are also the province of executives, finding the right place to draw the line between governance and management is as important for senior executives as it is for directors. Strong collaboration between the CEO and board chair can help define a broad and forward-looking board agenda, one that, rather than pressuring management to maximize short-term shareholder value, instead helps the company thrive for years.

Contribute the ‘outside view’ to strategy. McKinsey’s recent board survey shows that strategy is, on average, the area boards give most of their attention. Yet directors still want to increase time spent on strategy (Exhibit 1). The board member’s role in strategy is to provide the overall strategic framework, to contribute an outside view that challenges the strategic alternatives presented by management,1 and, ultimately, to approve the chosen strategy. CEOs should help make sure their own boards are playing this valuable role.

Directors spend more time on strategy than in 2013.
Bring your board into the digital age. Getting more deeply involved in strategy and other matters will require many board members to increase their digital literacy. More than a few directors are feeling outmatched by the ferocity of changing technology, emerging risks, and new competitors. Reflecting on the digital skills most relevant to individual business lines is one way boards can raise their collective understanding of technology and generate more productive conversations with management.

Ask the right questions about technology. Successful boards must also ask broader questions about technology and IT strategy. Deeper board involvement provides a mechanism to cut through company politics and focus executives on the big, integrated technology investments needed as digital weaves ever further into the fabric of today’s businesses. This in turn requires that CIOs, business executives, and board directors develop a shared language to discuss IT performance. Five crucial questions can help steer boardroom conversations toward not just the costs but also the capabilities and value that IT engenders.

Examine M&A through a long-term lens. Some executives believe board involvement in M&A encroaches on the line that separates governance from management, but boards have (and should have) the final responsibility to review and approve any M&A deal. While senior executives can be motivated by shorter-term incentives, board directors are well placed to take a long-term view of a deal’s value, and to challenge biases that can cloud M&A decision making and goal setting. They can also embolden senior management to pursue promising deals that may seem unfashionable or be unpopular initially with investors. Strong boards also help companies overcome resource-allocation inertia. McKinsey research shows that companies that reallocate more resources earn higher total returns to shareholders.

Involve your board in talent and culture. Most board directors recognize that CEO succession is one of their most important responsibilities, even while the incumbent CEO plays a critical leadership role in preparing and developing candidates (recent research shows some 86 percent of new CEOs are hired from within). Beyond CEO succession, boards are well positioned to focus on long-term talent development throughout the company, where they can help override some of the personal ties that can influence decisions on important hires and appointments. Boards should also (and, in fact, are required by regulations to) play a key role in defining and establishing an effective corporate culture.

Safeguard the brand. Many successful companies already view customer engagement as the whole organization’s responsibility. A few are involving their boards in marketing, too. Against a backdrop of social media, viral video, and reputational risks, the CEO of one North American manufacturer recently placed the potential for brand-changing events on the board’s agenda. The ensuing conversation transcended traditional marketing communications and touched on the company’s overall strategy, as well as its approach to crisis response.

Deepen directors’ commitment

How can boards expand into these new responsibilities while still having time for the traditional fiduciary duties that remain important?

Work more days. Directors at the most effective boards, according to our recent Global Survey results, spend an average of 41 days per year in their role and say they have no ambitions to spend more time. But directors on less effective boards spend an average of 28 to 32 days and say they would, ideally, spend 5 days more. Our own experience is that the time required to do a good job is usually more than directors initially expect.

Develop a dynamic agenda. Given the time constraints board directors face, broadening their role will require developing a dynamic board agenda that explicitly highlights forward-looking activities and ensures these activities get sufficient time over a 12-month period (Exhibit 2). Winning boards will be those that work in the spirit of continuous improvement at every meeting, while keeping long-term strategies top of mind.

Forward-looking boards should develop a dynamic agenda.
Clarify responsibilities and board composition

William George, former CEO of Medtronic and a veteran of ten corporate boards, says one’s perspective on board governance depends on the board seat one holds—independent director, chair and CEO, or chair only. Looking at corporate governance through the eyes of each of these positions can help board leaders better see the whole as they look for the diverse mix of experience and know-how that’s right for their company.

Appoint an ambitious chair. No matter the title board leaders take, it stands to reason they will have a disproportionate effect on board dynamics. Effective board leaders are those who run meetings well, establish a culture of trust and constructive discourse, and invest in training, development, and feedback.2 Good leadership sets the tone for the board as a whole and can set the stage for a more effective, value-enhancing board. Finding the right person for this job is important. The process of selecting a board leader has been evolving from an unstructured and haphazard approach toward one that ideally resembles the best practices for CEO succession.

Look for experience and talent. How do you find the right people for board-director positions? And what are the right tasks for them once they are on the board? Even though every board director to some degree needs to be a generalist, each has areas of special expertise, perhaps related to an industry, a function, or a geography. Ideally, the board brings together individuals with the right combination of skills and background. One recommendation is for boards to appoint directors and assign them tasks the same way private-equity firms assign their partners to deals: according to their experience and what they’re best at.3
Clarify what the board leader does. Ever since stock-listing requirements prompted many US companies to name an independent director to serve as the chairman, lead director, or presiding director of the board, these companies have been grappling with what, exactly, the board leader should do and how to find the right person for the job. One survey found that nonexecutive board leaders have taken over or partnered with the CEO on some functions the chief executive has historically led, such as setting board agendas, recruiting new directors, and more aggressively assessing risk.

Create trust by investing in board dynamics

How do you know a board is effective? One litmus test is the growth and involvement of activist investors. If boards were doing their jobs, there would be no activist opportunities, according to David Beatty, Conway director of the Clarkson Centre for Business Ethics and Board Effectiveness at the University of Toronto’s Rotman School of Management. Apparently, boards are doing “badly enough that there’s been huge growth in activist firms,”4 says Beatty, who interprets that growth “as a direct comment on boards of directors and their past performance.” (When companies do attract the attention of activist investors, they should plan their response tactics thoughtfully toward the most beneficial outcome.)

Balance trust with challenging discourse. According to our recent Global Survey results, the boards that are most effective and well rounded also have the strongest board dynamics, characterized by openness, trust, and collaborative senior executives and board directors—a group that includes the CEO and the chair, a crucial factor. Directors possessing these collaborative tendencies must balance them by thinking like owners and guarding their authority, or there will be little constructive challenge between independent directors and management, and the board’s contribution to the company’s fortunes is likely to fall short of what it could be. It’s no coincidence, then, that directors at leading boards report these characteristics most often.

Educate and train your board members. To be able to challenge management with critical questions, board members should have a good understanding of the company they serve and regularly compare internal performance data with those of their competitors. Other ways to help board members raise their game include inviting renowned experts to board meetings, holding some board meetings in overseas locations where directors can be exposed to relevant new market developments and technologies, and, from time to time, seeking outside advice to get an independent view.5
Engage in a continuous improvement process. Providing effective induction training, for example, and conducting regular feedback and board evaluations is something still done by only a minority of boards—even the leading ones, according to our survey results (Exhibit 3). The best boards challenge their members to continually learn, grow, and develop professionally.

Effective boards engage in a continuous improvement process.
Boards must keep close watch on the shifting nature of their role in today’s corporations and find the right balance between governance and management. Greater responsibilities require increased commitments of time and energy, not only during board meetings but also between meetings to stay current and to learn more about the industry, the company, its competitors, and its customers. These responsibilities also raise the premium on carefully protecting the independence that makes boards valuable allies to senior executives, shareholders, and a diverse array of other stakeholders.

Know How Functional Leaders Become CEOs

Limited operational experience is not necessarily a barrier to the top job. Here’s what CFOs and others must do to jump to the next level.

Holding a functional leadership role isn’t the most direct route to becoming a CEO. Fewer than 15 percent of the CEOs in a data set we’ve been scrutinizing for more than a year ascended to the corner office after serving as a functional leader such as chief financial officer, chief marketing officer (CMO), chief strategy officer, chief technology officer (CTO), or general counsel. Nearly all the rest had been operators—CEOs at other companies, leaders of major operating divisions, or chief operating officers.

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The case for a functional CEO is strongest when his or her expertise is core to a company’s critical business challenges. Organizations in the midst of a major digital transformation might benefit from a CTO in the top spot, and a CMO-turned-CEO could be just what the doctor ordered for a company rethinking its brand portfolio. Similarly, companies undertaking a growth plan based on M&A or a major cost-reduction effort often look to CFOs. (More than 70 percent of former CFOs promoted to CEO at FTSE 250 companies were appointed to lead cost-reduction or M&A-led growth initiatives, according to research by our colleagues.)

Regardless of the expertise they bring to bear, functional CEOs have a common set of challenges, rooted in their relative lack of operating experience. To understand both the challenge and the opportunity for functional CEOs, we scrutinized the former CFOs in our data set of 599 CEOs. CFOs represented two-thirds of the functional CEOs,1 so they provided the most robust fact base for analysis. In our experience, the issues that CFOs-turned-CEOs wrestle with are emblematic of those faced by other functional executives.

Broadening the base of leadership

Lack of general management experience is a challenge for all functional executives. Many of the CFOs-turned-CEOs in a sample reviewed by our colleagues —a full three-quarters of those promoted to CEO at the FTSE 250 companies—compensated for this lack of experience by spending time outside the finance function. Sometimes nonfinancial experience comes from line roles; in other cases, CFOs burnish their skills by taking on additional functional roles in strategy or by joining the boards of other companies. Broader experiences like these appeal to boards choosing CEOs, and they can also build decision-making instincts for CFOs when they encounter issues that can’t be resolved through numbers.

More than 90 percent of the CFOs-turned-CEOs in our data set were promoted from within an organization rather than hired from outside. Deep knowledge of personalities and corporate culture can help the new CEO motivate employees as he or she articulates a vision for the company. Insider status also often necessitates a reset of relations with former peers on the management team, some of whom may also have been candidates for the CEO post. About three-quarters of the former CFOs in our research reshuffled their management teams within two years of taking office, compared with two-thirds for all new CEOs.

Building on strengths

CFOs have some natural strengths that can facilitate effective transitions into the CEO role. Former CFOs are often better at developing detailed strategies, have a deeper understanding of the drivers of business value, and can communicate that to investors. Extensive experience in budgeting and forecasting builds an appreciation of objective analysis, which CFOs typically bring to bear early in their new role. For example, former CFOs were almost twice as likely as the average CEO to conduct a strategic review in their first two years in office (exhibit).

CEOs who were formerly CFOs are more likely to conduct a strategic review.
The CFO role provides experience, and breeds skill, in allocating capital to support the organization’s strategy. This is key to outperformance, as research by our colleagues has shown. Effective resource reallocation requires CEOs and their management teams to develop a detailed view of the attractiveness of different business lines and customers. They also need to be attuned to the biases that can distort allocation decisions, combating through measures such as adopting a common set of metrics to evaluate funding opportunities or committing to annual reallocation thresholds. CFOs’ experience leading planning processes makes them especially suited to these tasks.

Slower growth, rising cost pressures, and business-model challenges from digital players steeped in analytics have made a robust financial skill set a big plus for any executive making the transition to CEO. Capabilities once seen as the preserve of the finance function, such as the roles that finance and analytics play in setting strategy, are now priorities for all senior leaders. Functional executives who aspire to the CEO’s chair should look for opportunities to show analytic leadership, deploy their own expertise, and broaden their leadership foundation.

Know Some Types of Successful Acquisitions

Companies advance myriad strategies for creating value with acquisitions—but only a handful are likely to do so.

There is no magic formula to make acquisitions successful. Like any other business process, they are not inherently good or bad, just as marketing and R&D aren’t. Each deal must have its own strategic logic. In our experience, acquirers in the most successful deals have specific, well-articulated value creation ideas going in. For less successful deals, the strategic rationales—such as pursuing international scale, filling portfolio gaps, or building a third leg of the portfolio—tend to be vague.

Empirical analysis of specific acquisition strategies offers limited insight, largely because of the wide variety of types and sizes of acquisitions and the lack of an objective way to classify them by strategy. What’s more, the stated strategy may not even be the real one: companies typically talk up all kinds of strategic benefits from acquisitions that are really entirely about cost cutting. In the absence of empirical research, our suggestions for strategies that create value reflect our acquisitions work with companies.

In our experience, the strategic rationale for an acquisition that creates value typically conforms to at least one of the following six archetypes: improving the performance of the target company, removing excess capacity from an industry, creating market access for products, acquiring skills or technologies more quickly or at lower cost than they could be built in-house, exploiting a business’s industry-specific scalability, and picking winners early and helping them develop their businesses.

Six archetypes

An acquisition’s strategic rationale should be a specific articulation of one of these archetypes, not a vague concept like growth or strategic positioning, which may be important but must be translated into something more tangible. Furthermore, even if your acquisition is based on one of the archetypes below, it won’t create value if you overpay.

Improve the target company’s performance

Improving the performance of the target company is one of the most common value-creating acquisition strategies. Put simply, you buy a company and radically reduce costs to improve margins and cash flows. In some cases, the acquirer may also take steps to accelerate revenue growth.

Pursuing this strategy is what the best private-equity firms do. Among successful private-equity acquisitions in which a target company was bought, improved, and sold, with no additional acquisitions along the way, operating-profit margins increased by an average of about 2.5 percentage points more than those at peer companies during the same period.1 This means that many of the transactions increased operating-profit margins even more.

Keep in mind that it is easier to improve the performance of a company with low margins and low returns on invested capital (ROIC) than that of a high-margin, high-ROIC company. Consider a target company with a 6 percent operating-profit margin. Reducing costs by three percentage points, to 91 percent of revenues, from 94 percent, increases the margin to 9 percent and could lead to a 50 percent increase in the company’s value. In contrast, if the operating-profit margin of a company is 30 percent, increasing its value by 50 percent requires increasing the margin to 45 percent. Costs would need to decline from 70 percent of revenues to 55 percent, a 21 percent reduction in the cost base. That might not be reasonable to expect.

Consolidate to remove excess capacity from industry

As industries mature, they typically develop excess capacity. In chemicals, for example, companies are constantly looking for ways to get more production out of their plants, even as new competitors, such as Saudi Arabia in petrochemicals, continue to enter the industry.

The combination of higher production from existing capacity and new capacity from recent entrants often generates more supply than demand. It is in no individual competitor’s interest to shut a plant, however. Companies often find it easier to shut plants across the larger combined entity resulting from an acquisition than to shut their least productive plants without one and end up with a smaller company.

Reducing excess in an industry can also extend to less tangible forms of capacity. Consolidation in the pharmaceutical industry, for example, has significantly reduced the capacity of the sales force as the product portfolios of merged companies change and they rethink how to interact with doctors. Pharmaceutical companies have also significantly reduced their R&D capacity as they found more productive ways to conduct research and pruned their portfolios of development projects.

While there is substantial value to be created from removing excess capacity, as in most M&A activity the bulk of the value often accrues to the seller’s shareholders, not the buyer’s. In addition, all the other competitors in the industry may benefit from the capacity reduction without having to take any action of their own (the free-rider problem).

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Accelerate market access for the target’s (or buyer’s) products

Often, relatively small companies with innovative products have difficulty reaching the entire potential market for their products. Small pharmaceutical companies, for example, typically lack the large sales forces required to cultivate relationships with the many doctors they need to promote their products. Bigger pharmaceutical companies sometimes purchase these smaller companies and use their own large-scale sales forces to accelerate the sales of the smaller companies’ products.

IBM, for instance, has pursued this strategy in its software business. Between 2010 and 2013, IBM acquired 43 companies for an average of $350 million each. By pushing the products of these companies through IBM’s global sales force, IBM estimated that it was able to substantially accelerate the acquired companies’ revenues, sometimes by more than 40 percent in the first two years after each acquisition.2
In some cases, the target can also help accelerate the acquirer’s revenue growth. In Procter & Gamble’s acquisition of Gillette, the combined company benefited because P&G had stronger sales in some emerging markets, Gillette in others. Working together, they introduced their products into new markets much more quickly.

Get skills or technologies faster or at lower cost than they can be built

Many technology-based companies buy other companies that have the technologies they need to enhance their own products. They do this because they can acquire the technology more quickly than developing it themselves, avoid royalty payments on patented technologies, and keep the technology away from competitors.

For example, Apple bought Siri (the automated personal assistant) in 2010 to enhance its iPhones. More recently, in 2014, Apple purchased Novauris Technologies, a speech-recognition-technology company, to further enhance Siri’s capabilities. In 2014, Apple also purchased Beats Electronics, which had recently launched a music-streaming service. One reason for the acquisition was to quickly offer its customers a music-streaming service, as the market was moving away from Apple’s iTunes business model of purchasing and downloading music.

Cisco Systems, the network product and services company (with $49 billion in revenue in 2013), used acquisitions of key technologies to assemble a broad line of network-solution products during the frenzied Internet growth period. From 1993 to 2001, Cisco acquired 71 companies, at an average price of approximately $350 million. Cisco’s sales increased from $650 million in 1993 to $22 billion in 2001, with nearly 40 percent of its 2001 revenue coming directly from these acquisitions. By 2009, Cisco had more than $36 billion in revenues and a market cap of approximately $150 billion.

Exploit a business’s industry-specific scalability

Economies of scale are often cited as a key source of value creation in M&A. While they can be, you have to be very careful in justifying an acquisition by economies of scale, especially for large acquisitions. That’s because large companies are often already operating at scale. If two large companies are already operating that way, combining them will not likely lead to lower unit costs. Take United Parcel Service and FedEx, as a hypothetical example. They already have some of the largest airline fleets in the world and operate them very efficiently. If they were to combine, it’s unlikely that there would be substantial savings in their flight operations.

Economies of scale can be important sources of value in acquisitions when the unit of incremental capacity is large or when a larger company buys a subscale company. For example, the cost to develop a new car platform is enormous, so auto companies try to minimize the number of platforms they need. The combination of Volkswagen, Audi, and Porsche allows all three companies to share some platforms. For example, the VW Toureg, Audi Q7, and Porsche Cayenne are all based on the same underlying platform.

Some economies of scale are found in purchasing, especially when there are a small number of buyers in a market with differentiated products. An example is the market for television programming in the United States. Only a handful of cable companies, satellite-television companies, and telephone companies purchase all the television programming. As a result, the largest purchasers have substantial bargaining power and can achieve the lowest prices.

While economies of scale can be a significant source of acquisition value creation, rarely are generic economies of scale, like back-office savings, significant enough to justify an acquisition. Economies of scale must be unique to be large enough to justify an acquisition.

Pick winners early and help them develop their businesses

The final winning strategy involves making acquisitions early in the life cycle of a new industry or product line, long before most others recognize that it will grow significantly. Johnson & Johnson pursued this strategy in its early acquisitions of medical-device businesses. J&J purchased orthopedic-device manufacturer DePuy in 1998, when DePuy had $900 million of revenues. By 2010, DePuy’s revenues had grown to $5.6 billion, an annual growth rate of about 17 percent. (In 2011, J&J purchased Synthes, another orthopedic-device manufacturer, so more recent revenue numbers are not comparable.) This acquisition strategy requires a disciplined approach by management in three dimensions. First, you must be willing to make investments early, long before your competitors and the market see the industry’s or company’s potential. Second, you need to make multiple bets and to expect that some will fail. Third, you need the skills and patience to nurture the acquired businesses.

Harder strategies

Beyond the six main acquisition strategies we’ve explored, a handful of others can create value, though in our experience they do so relatively rarely.

Roll-up strategy

Roll-up strategies consolidate highly fragmented markets where the current competitors are too small to achieve scale economies. Beginning in the 1960s, Service Corporation International, for instance, grew from a single funeral home in Houston to more than 1,400 funeral homes and cemeteries in 2008. Similarly, Clear Channel Communications rolled up the US market for radio stations, eventually owning more than 900.

This strategy works when businesses as a group can realize substantial cost savings or achieve higher revenues than individual businesses can. Service Corporation’s funeral homes in a given city can share vehicles, purchasing, and back-office operations, for example. They can also coordinate advertising across a city to reduce costs and raise revenues.

Size is not what creates a successful roll-up; what matters is the right kind of size. For Service Corporation, multiple locations in individual cities have been more important than many branches spread over many cities, because the cost savings (such as sharing vehicles) can be realized only if the branches are near one another. Roll-up strategies are hard to disguise, so they invite copycats. As others tried to imitate Service Corporation’s strategy, prices for some funeral homes were eventually bid up to levels that made additional acquisitions uneconomic.

Consolidate to improve competitive behavior

Many executives in highly competitive industries hope consolidation will lead competitors to focus less on price competition, thereby improving the ROIC of the industry. The evidence shows, however, that unless it consolidates to just three or four companies and can keep out new entrants, pricing behavior doesn’t change: smaller businesses or new entrants often have an incentive to gain share through lower prices. So in an industry with, say, ten companies, lots of deals must be done before the basis of competition changes.

Enter into a transformational merger

A commonly mentioned reason for an acquisition or merger is the desire to transform one or both companies. Transformational mergers are rare, however, because the circumstances have to be just right, and the management team needs to execute the strategy well.

Transformational mergers can best be described by example. One of the world’s leading pharmaceutical companies, Switzerland’s Novartis, was formed in 1996 by the $30 billion merger of Ciba-Geigy and Sandoz. But this merger was much more than a simple combination of businesses: under the leadership of the new CEO, Daniel Vasella, Ciba-Geigy and Sandoz were transformed into an entirely new company. Using the merger as a catalyst for change, Vasella and his management team not only captured $1.4 billion in cost synergies but also redefined the company’s mission, strategy, portfolio, and organization, as well as all key processes, from research to sales. In every area, there was no automatic choice for either the Ciba or the Sandoz way of doing things; instead, the organization made a systematic effort to find the best way.

Novartis shifted its strategic focus to innovation in its life sciences business (pharmaceuticals, nutrition, and products for agriculture) and spun off the $7 billion Ciba Specialty Chemicals business in 1997. Organizational changes included structuring R&D worldwide by therapeutic rather than geographic area, enabling Novartis to build a world-leading oncology franchise.

Across all departments and management layers, Novartis created a strong performance-oriented culture supported by shifting from a seniority- to a performance-based compensation system for managers.

Buy cheap

The final way to create value from an acquisition is to buy cheap—in other words, at a price below a company’s intrinsic value. In our experience, however, such opportunities are rare and relatively small. Nonetheless, although market values revert to intrinsic values over longer periods, there can be brief moments when the two fall out of alignment. Markets, for example, sometimes overreact to negative news, such as a criminal investigation of an executive or the failure of a single product in a portfolio with many strong ones.

Such moments are less rare in cyclical industries, where assets are often undervalued at the bottom of a cycle. Comparing actual market valuations with intrinsic values based on a “perfect foresight” model, we found that companies in cyclical industries could more than double their shareholder returns (relative to actual returns) if they acquired assets at the bottom of a cycle and sold at the top.

3 While markets do throw up occasional opportunities for companies to buy targets at levels below their intrinsic value, we haven’t seen many cases. To gain control of a target, acquirers must pay its shareholders a premium over the current market value. Although premiums can vary widely, the average ones for corporate control have been fairly stable: almost 30 percent of the preannouncement price of the target’s equity. For targets pursued by multiple acquirers, the premium rises dramatically, creating the so-called winner’s curse. If several companies evaluate a given target and all identify roughly the same potential synergies, the pursuer that overestimates them most will offer the highest price. Since it is based on an overestimation of the value to be created, the winner pays too much—and is ultimately a loser.

4 A related problem is hubris, or the tendency of the acquirer’s management to overstate its ability to capture performance improvements from the acquisition.

5 Since market values can sometimes deviate from intrinsic ones, management must also beware the possibility that markets may be overvaluing a potential acquisition. Consider the stock market bubble during the late 1990s. Companies that merged with or acquired technology, media, or telecommunications businesses saw their share prices plummet when the market reverted to earlier levels. The possibility that a company might pay too much when the market is inflated deserves serious consideration, because M&A activity seems to rise following periods of strong market performance. If (and when) prices are artificially high, large improvements are necessary to justify an acquisition, even when the target can be purchased at no premium to market value.

By focusing on the types of acquisition strategies that have created value for acquirers in the past, managers can make it more likely that their acquisitions will create value for their shareholders.

Save Time And Reduce Your Investment In Endpoint Security

Trojans, worms and spyware sound like elements straight from a summer blockbuster, but the kind of action/adventure they provide on your PCs, Macs, smartphones and tablets make them more like a horror movie.

By deploying effective endpoint security, you can help prevent attacks and keep your users safe from viruses and other malware, such as spear phishing and advanced persistent threats. Today’s  state-of-the-art endpoint securityhas come a long way from its early roots in “antivirus” and has morphed into a complex suite of sophisticated protections against modern threats.

But good protection isn’t free; so, how can you save money, while still protecting your computers? Here’s how to reduce your investment….

Keeping users safe

In an ideal world, users would be perfectly security conscious. These mythical users wouldn’t:

  • Click on suspicious links.
  • Open file attachments emailed by criminals pretending to be their friends.
  • Respond to phishing messages that appear to be from a bank.
  • Disable software updates because warnings and reboots are annoying.
  • Disable a security product because it slows down their PC.
  • Install free software from an untrustworthy developer, because their friend liked it on Facebook.

Sadly, our world is less than ideal. Much, much less: A recent report said that 86 percent of U.S. businesses surveyed had lost sensitive data during the previous year.

User awareness training helps, but it isn’t sufficient. That’s why your endpoints need securing. Doing so helps prevent your users from accidentally exposing sensitive business information, such as your  banking credentials, secret-sauce recipes or future product plans.

Save time and money on endpoint security

Your challenge is to protect your users while minimizing costs: How do you save time and money, while keeping your company safe?

Look for a modern endpoint security solution – not one thrown together from an old antivirus program and a fresh coat of paint.

How can you tell?

A start-of-the-art solution does the following:

  • Works intelligently in the background, without bogging down the user’s computer
  • Scans for malware in seconds, not hours
  • Uses a reliable, built-from-the-ground-up cloud security service to identify malware, not a huge signature file that’s quickly out-of-date
  • Works intelligently while offline, reconnecting with the cloud service to check changes made while disconnected
  • Fixes infected PCs, if necessary, by rolling back the computer’s state to a known-good point
  • Automatically monitors untrusted software executions to prevent infection
  • Allows you to enforce certain policy settings, such as use of USB ports, and prevents users from disabling security features
  • Doesn’t fight with competing installed products, to allow you to test it safely

How does it reduce your investment?

A modern solution will reduce costs by being integrable, controllable and reliable. That means your operating costs are lower, and you won’t lose money from malware infections that only waste IT workers’ time and squander end-user productivity.

Purchase cost is, of course, a factor. However, in most analyses of total cost of ownership (TCO), operations and end-user productivity losses dwarf all other costs.

You have to first consider your budget realities, but it’s smart to benchmark yourself against what similar companies spend. There are free security solutions, but they don’t provide the control or sophistication to minimize your TCO.

Don’t Be Fooled

Keeping your company safe requires more than a warmed-over, 10-year-old anti-virus product. You need a state-of-the-art endpoint protection solution to safeguard your organization, in addition to user awareness, enforced policies and proper patch management.

The best solutions allow you to sleep soundly, knowing that you’ve taken the key steps to protect your systems, while keeping costs low.