麦肯锡经典文献－Strategy=structure.docx

T H EMcKinseyQuarterlyStrategy = structureA McKinsey Quarterly ReaderMAY 2002TA B L E O F C O N T E N T SIntroduction3The alchemy of LBOs4Paul A. ButlerThe McKinsey Quarterly, 2001 Number 2How can investment bankers achieve better results at chemicalscompanies than engineers and chemists do? No, it isnt black magic.The innovative organization: Why new ventures need morethan a room of their own16Jonathan D. Day, Paul Y. Mang, Ansgar Richter, and John RobertsThe McKinsey Quarterly, 2001 Number 2Companies can grow quickly without sacricing performance disci-pline. The trick is to balance partitioning and integration.Teamwork at the top28Erika Herb, Keith Leslie, and Colin PriceThe McKinsey Quarterly, 2001 Number 2When the top team isnt working well, the whole company suffers.How can top teams x themselves?Further Reading40McKinsey is a registered trademark and The McKinsey Quarterly is a trademark of McKinsey& Company. Copyright 2002 McKinsey & Company. All rights reserved. The McKinsey Quarterlyhas been published since 1964 by McKinsey & Company, 55 East 52nd Street, New York, New York10022.IntroductionINTRODUCTION3Big companies used to follow a simple rule of organizational design:“structure follows strategy.” With this approach, executives would rst settheir strategy and then dene the organizational model that best supportedit. These days, however, big companies rarely have the luxury of followingstable, long-lived strategies and those companies organizational structuresmust now be as supple and adaptable as the strategies they reect.As Sir John Browne, of British Petroleum, puts it, “Our strategy is our orga-nization.” In this model, organizational design, the quality of interactionswithin teams, and the distribution of energy in a company may be far moreimportant determinants of success than the soundness of a given strategy.The new belief in the importance of organization is closely linked to chang-ing attitudes toward markets. As “The alchemy of LBOs,” one of the articlesin this Reader, reminds us, substantial value can be unlocked when busi-nesses are taken out of large companies and given market-oriented perfor-mance incentives.But a balance is necessary. Our second piece, “The innovative organization,”argues that winning companies incorporate features of both large and smallones: they give entrepreneurial activities plenty of space as well as access tothe parent companies resources and knowledge.Yet another piece of the puzzle is sustaining change and innovation withoutlosing performance discipline. “Teamwork at the top” offers practical adviceon how managers can work together most effectively a considerable chal-lenge as the scope of business changes.Managers will always need great strategies. But strategic thought increas-ingly shares pride of place with organizational design and with the qualityof leadership at every level of the corporation.4S T R AT E G Y = S T R U C T U R E : A M C K I N S E Y Q U A R T E R LY R E A D E RThe alchemyof LBOsPaul A. ButlerHow can investment bankers achieve better results at chemicalscompanies than engineers and chemists do? No, it isnt black magic.ver the past two years, big chemicals corporations seeking toimprove shareholder returns by running more focused businesses havesold assets worth almost $20 billion to leveraged-buyout (LBO) rms andsimilar private companies.1 Indeed, in 1999 and 2000 the value of public-to-private chemicals deals ran at about twice the total for the previous ten years.Many people in the industry are bemused by this trend. How, they wonder,can investment bankers with no knowledge of engineering or chemicals, and1specialty-chemicals business in 1999, while the investment bank Morgan Grenfell Private Equity spent$1.1 billion on Cibas epoxy resins business in the same year. Also, in 2000, the US LBO firm ApolloManagement paid a similar sum for Shells epoxy resins operations.OFor example, two private-equity firms, Cinven and Investcorp, paid a total of $2.1 billion for ZenecasADAM NIKLEWICZ6S T R AT E G Y = S T R U C T U R E : A M C K I N S E Y Q U A R T E R LY R E A D E REXHIBIT 1with plans that seem toReturns to investors: A comparisonignore industrial logicCompound average annual rate of return, percentand strategic synergies,20-yearannual return10-yearannual return5-yearannual returnsucceed as owners ofthese operations? ButNet returns for LBOsin chemicals sector124.524.227.8succeed they do. For20 years, the totalNet returns for LBOsin all sectors12chemicals companies320.015.216.613.318.615.8shareholder returnsof publicly traded USchemicals companiesTRS2 of S&P 50017.818.128.3have been lower thanthose of the S&P 5001Includes leveraged-buyout-fund investments in later stages (for example, management buyouts,(Exhibit 1). Mean-leveraged buyouts, and mezzanine financing); does not include venture capital. Returns are totalreturns to external investors, net of all fees, as of December 31, 1999.23while, chemicalscompanies owned bychemicals companies in the United States.LBO rms deliveredsubstantially higherreturns than did their traditional counterparts even when those returnsare corrected for the LBO rms higher leverage.This fact poses real threats to chemicals corporations. First, institutionalinvestors are questioning the ability of traditional managers the engineersand chemists who built those huge tangles of pipes and vessels in the 1960sand 1970s to run a maturing industry. The collapse of share prices overthe past two years signals this loss of faith, which has created another prob-lem: depressed prices make chemicals companies vulnerable to hostile bidsfrom LBO rms or stronger competitors.In addition, the ability of chemicals companies to grow through strategicacquisitions has been hampered by the ability of LBO players to pay higherprices for them. And chemicals companies are losing the war for talent: thebest managers would rather work hard to turn around underperformingbusinesses in return for the potentially high rewards that LBO rms offerthan cruise along in sluggish traditional chemicals companies.How should those companies respond to the threat? They must start byunderstanding what an LBO rm does with a business it buys.The truth about LBO rmsSome managers in the chemicals industry are consoled by any combinationof false beliefs: that the new owners are looking to transfer their companiesto a greater fool in the shortest possible time, that they are nancial magi-cians who turn solid balance sheets into smoke and mirrors, and, worst ofTRS of publicly tradedTotal returns to shareholders.Composite of total returns to shareholders (capital appreciation plus dividends) for publicly tradedTHE ALCHEMY OF LBOS7all, that they recklessly slash and burn sound businesses in their selsh questfor quick returns.The truth is quite different. Detailed nancial analyses of many deals, as wellas interviews with dozens of people experienced in buying, selling, and oper-ating leveraged chemicals buyouts, highlight some fundamental truths aboutLBO rms.They create the most value by improving operationsUnlike property sharks, LBO rms hold businesses for a considerable timeand improve their value before selling them. Although nancial data forLBO rms are not reported, McKinsey analyzed nine chemicals LBOs, subse-quently oated publicly, for which nancial histories were available. Abouttwo-thirds of the value these LBOs captured was created during the holdingperiod, and only one-third derived from the actual transaction. Other studieshad similar ndings.2 It is, after all, in the interest of LBO rms to improvetheir chances of selling the businesses they hold.They are tough but committedLBO rms have been accused of ripping companies apart for a quick buck.But research shows that the need to generate higher cash ows from opera-tions in order to service and repay high levels of debt compels LBO rms toimprove the performance of their companies.Freed from the constraints of the corporate center, LBO rms can moreeasily make difficult decisions about cutting jobs and disposing of busi-nesses; removing unnecessary costs and improving capital productivity arewell-tried levers. Moreover, R&D spending comes under close scrutiny afteran LBO; resources are refocused on projects that offer a reasonable chanceof return in the short and medium terms, not on undertakings with poorprojected returns or a low probability of success. Similarly, highly motivatedmanagers cut capital expenditures by getting more output from currentassets instead of following the traditional route of cadging money from thecorporate center every few years.They want growthLBO rms want more than value from their existing assets; they also seekgrowth: after all, an initial public offering is possible today only if thebusiness to be oated has a history of strong growth. Research shows that2look,” The McKinsey Quarterly, 1996 Number 2, pp. 96109.See, for example, Patricia L. Anslinger and Thomas E. Copeland, “Growth through acquisitions: A fresh8S T R AT E G Y = S T R U C T U R E : A M C K I N S E Y Q U A R T E R LY R E A D E RLBO owners of businesses are willing to make acquisitions previouslyrejected by their former owners, which usually regarded them as noncoreelements of the portfolio and therefore didnt want to invest much time andeffort in running them.Some nancial players concentrate on just a few sectors. Huntsman is one ofthe best examples; in the 1980s and 1990s, it created a polystyrene business(later sold to Nova) from a varietyEXHIBIT 2of US and European acquisitions.3Unconventional wisdom: LBO firms hold onD. George Harris & Associates,another case in point, created aOnly about one-third of LBO firms exit within5 years of purchase . . .global salt and soda ash businessfrom a number of acquisitions andPercent of deals exited by Year 5then sold it as a package to IMC34Global. Harris also undertook a2930Average = 31%similar project in constructionchemicals, while Geo SpecialtyChemicals did so in aluminumchemicals and Sovereign SpecialtyChemicals did so in adhesives.They hold on to their businesses198085198690199195Year of dealThe conventional view is that LBOrms dress up and resell businesses. . . but for those who do, the holding times havefallen sharplyas quickly as possible, usually withinve years of purchase. But researchAverage holding time for deals with exit, yearsinto the 200 public-to-private chemi-7.8cals deals undertaken since 1980shows that less than one-third of the5.2purchasers exited within ve years.Average =The holding times for deals that3.04.4 yearspurchasers do exit have been falling1.7sharply, however from around eightyears in the early 1980s to less thantwo in the late 1990s (Exhibit 2).198085 198690199195 19962000Year of dealThis change, however, may reectthe near impossibility of exiting3setting out on his nancial career, he had been a special assistant to US President Richard M. Nixon. In theyears since Huntsman bought his rst chemicals plant, from Shell, in 1982, he has built up the worldslargest privately held chemicals company through a series of shrewd deals, such as the acquisition ofmany Texaco chemicals operations (from 1994 to 1997) and a huge chunk of the commodity businessesowned by Imperial Chemical Industries (in 1999).Jon Huntsman, an early initiator of LBO activity in chemicals, had little experience in the industry; beforeTHE ALCHEMY OF LBOS9through the LBO rms favorite route: an IPO. As the quintessence of theold economy, the chemicals industry has been out of favor with investors,and since 1996 there has been no IPO of a chemicals business that had previ-ously been taken private; the last were ChiRex and Brunner Mond. Sellingto trade buyers is now the preferred exit route, though it isnt uncommon tomake use of private-to-private sales and even of secondary LBOs for exam-ple, a second injection of debt nancing, often from another LBO house,after the rst debt package has been repaid.They are excellent negotiatorsFinancial buyers consistently paid less for their acquisitions during the 1990sthan did trade buyers (Exhibit 3), probably because of their dispassionateapproach: they screen dozens of deals for every one they execute. By contrast,traditional chemicalscompanies often over-EXHIBIT 3estimate the synergiesFinancial buyers pay lessto be gained by acquir-Entity value/EBITDA multiples1 for chemicals industry deals, 19902000ing similar businesses10.7and then get carriedaway in the auctionof the prize asset, on6.57.820%65%which managers haveset their hearts andpossibly their careers.Average tradingAverage transactionAverage transactionThe tax shield on debtmultiple (49 USand Europeanmultiple for financialbuyers (16 US andmultiple for tradebuyers (35 US andinterest makes manycompanies)European deals)European deals)people think that thevalue in LBOs comesfrom using lots of debtUSmultipleEuropeanmultiple7.0 8.1 11.06.0 7.4 10.5rather than equity.LBOs are considered1interest, taxes, depreciation, and amortization (EBITDA).risky, however, so thistax advantage is almost entirely offset by the higher cost of the debt. Whatreally drives the high performance of the LBO rms is the need to repay somuch debt, as well as the fact that senior managers have put forward theirown funds often raised by borrowing from banks or by remortgagingfamily homes as equity in the company. Combined with hopes of a bigearn-out, these pressures promote concentrated efforts to generate cash anddeliver results.Differences between the nancial-incentive packages for executives in thetraditional part of the industry and their counterparts in businesses run byRatio of entity value (market value of equity + market value of debt excess cash) to earnings before10S T R AT E G Y = S T R U C T U R E : A M C K I N S E Y Q U A R T E R LY R E A D E RLBO rms are startling. The major disparity is the link between effort andreward. Managers with experience in both environments invariably pointto the weakness of the connection between what managers actually do inthe large chemicals corporations they work for and their nonsalary compen-sation. Effort is unrelated to payback, since the value of stock options,bonuses, phantom shares, and similar devices is subject to many forces including creative accounting outside the managers control.Traditional chemicals companies measure performance through return on netassets or on capital employed. LBO rms, by contrast, focus single-mindedlyeither on earnings before interest, taxes, depreciation, and amortization(EBITDA) or on cash ow. The achievement of targets typically intended todouble a businesss EBITDA within ve years triggers bonus payments tosenior managers and, often, to other employees.They often make companies safer and more environmentally responsibleOne manager spoke of a revolution in the way health, safety, and the envi-ronment were handled after an LBO rm purchased a chemicals business:a company whose record was so poor that insurance had been almost impos-sible to get metamorphosed into one whose “reception area is plastered withsafety awards.” Victrex, another company purchased in an LBO, won awardsfrom the United Kingdoms Royal Society for the Prevention of Accidentsin each of the rst two years following a buyout from Imperial ChemicalIndustries. No doubt, the motivation for these improvements wasnt entirelyaltruistic, since it is far easier to build up and exit from a business with agood safety record, but improved safety is a point in the LBO rms favor.The LBO approachAll these considerations show that traditional chemicals companies mustnow compete against new players that focus relentlessly on performance andgrowth. And this is no short-term trend. The amount of new funds seekinginvestment4 and the huge restructuring opportunities created by the disinte-gration of Eur