• Shareholder wealth creation and EVA
• Implementing “Value based management” programs

                   o   How we do it

                   o   Does it work

• Current environment and implications for Indian business
• About Stern Stewart

Although Market Value Added (MVA) is the best measure of value, it poses some challenges from a performance measurement perspective, such as

1. Can’t measure if you don’t have a market
2. Volatility due to relationship with share price
3. Difficult to link with operating and/or financial metrics

Why EVA?

1. EVA is intrinsically linked to MVA and wealth creation
2. There is no need of a market to calculate EVA
3. Does not suffer from volatility on account of short term changes in market price

MVA is equal to the PV of all expected future EVAs

Current Operations Value (COV) = Capitalized Current EVA + Invested Capital.

Enterprise value (EV) = Future Growth Value (FGV) + PV of EVA + Invested Capital

FGV is subject to expectations and fluctuations and is highly correlated to market sentiments. FGV = PV (improvements in EVA year on year). Thus the job of the management is to improve EVA (current performance) and at the same time build options and initiatives for the future and communicate it to the market (increments in EVA y-o-y). This will improve FGV and EVA and result in improved EV.

The PV of EVA is fundamentally equal to NPV of FCF

EVA can be increased by increasing NOPAT (operations/profitability) and by reducing cost of capital (financing).

Stern Stewart’s value creation framework synthesizes organization’s value by

-          Profitability – affects NOPAT

-          Prospects – affects FGV

-          Financing – arrive at the ideal capital structure – affects cost of capital

Disadvantages of using EVA: EVA is not applicable if there are period of negative EVA and taking decisions in the short term, whereas in the long term net EVA could be positive.

Stern Stewart currently has 11 professionals in its Mumbai office. It has been present in Mumbai since 1999-2000. The growth (in terms of professionals) is based on the projects under implementation. The work is highly performance driven since the success of a particular project can be measured by the client and evaluated directly. Stern Stewart recruits professionals who have a corporate finance bent of mind. 

Somick Goswami, Associate Director PricewaterhouseCoopers (PwC) came down to ISB for the pre-placement talk.

He informed the batch that PwC has the following Strategic business units in its Advisory line of services: Financial Advisory Services (FAS), Performance Improvement (PI), Internal Audit Services (IAS) and Government Reforms and Infrastructure Development (GRID)

PI is the largest SBU within Advisory and has1500 consultants across 9 offices in India. Its primary task is to engage with clients to analyze the processes, transform the processes and eventually IT enable them. PI engages with the client for end to end projects.  PwC is the oldest advisory firm to set foot in India. It started out in 1880 with an office in Calcutta. PwC has been in India for 128 years and is the largest amongst Big 4 firms in India. In 1998 Coopers and Lybrand and Pricewaterhouse merged and formed a single entity known as PricewaterhouseCoopers.

PwC provides

-          World class training

-          Personalized career paths

-          Competitive compensation

-          Challenging projects

-          Bright, dedicated colleagues and

-          Innovative incentive awards

PwC has the following lines of services viz. Advisory, Assurance, Tax and Markets & Industry. Markets & Industry is a new business unit that caters to the business requirements of other business units and provides support in terms of expert industrial and market knowledge. In all its engagements, PwC draws its strength from being an integrated company providing services across the spectrum ranging from advisory, tax and audit. The entire work revolves around People, Technology and Process.

Key focus areas are

-          Risk and Regulation

-          IT Effectiveness

-          Finance function effectiveness

-          Strategy and Operations

-          People and Change

-          Outsourcing Advisory Services

-          eGovernance

-          Forensic Technology Services

In eGovernance, recently PwC was involved in evaluating proposals for automation of passport process.  PwC has also acquired a site that has wealth of information about the best practices across the globe http://globalbestpractices.com. Forensic Technology Services is a relatively new SBU and focuses on the fraud detection and prevention aspect of business.

 

Amit Jain (Class of 08, HLL 4 yrs)
Neha Kalra (Class of 08, ITC 3 yrs)
Neha Mittal (Class of 08, Deloitte 2 yrs)
Sambit Sathapathy (Class of 03, ITC 11 yrs)
Vikas Chadha (Class of 07, L&T 6 yrs, Sharp 6 yrs)
Lav Agarwal (Class of 2005, HLL 5 yrs)
Raj Kamal (Class of 03, IAS 8 yrs)
Ruchi Kalra (Class of 07, Evalueserve 2 yrs)

Saket Pradhan (IIMA PGPX, 10 yrs)

 

I feel that the highlight of the visit was getting to know the work culture more closely instead of the usual projects or the life of a consultant at McKinsey.

Life at McKsiney
Our conversation started around trying to understand the work-life balance at Mckinsey. We spoke at length about different support systems available at McKinsey that help employees cope with their work mixed with travel and their personal lives. We got a first person account of this from Bharati, who is the recruiting coordinator at McKinsey. Since joining McKinsey, she had to quit the firm 3 times for personal reasons and was able to join back again. She also told us how flexible McKinsey was, and that the company was willing to work with her and gave her the option of working part time when she had to quit for personal reasons. Our conversation also revolved around the up-or-out policy that most of us are familiar with. It was pleasantly surprising when our alums told us that they know of no one who had been asked to quit. They admitted that on a day to day basis, work does get stressful, but that there are excellent support systems available to help employees to cope with it and the firm makes all possible efforts to retain its people.

Experiences of Alums
The alums shared some of their experiences with us and their motivation for being a part of McKinsey. A theme that resonated across all of them was the opportunity that McKinsey provides for individual development and personal growth. Each of them related a unique memorable experience at McKinsey. Besides this, Ruchi walked us through the different phases involved in a typical client engagement and answered some of the questions we had. The alums also highlighted McKinsey’s role in ensuring implementation of its recommendations after the consulting phase is over in order to ensure the client’s success.

Office tour
We also had a quick office tour where we got to know about the facilities available to employees. The office does not have cubicles for every employee since most people travel often. It instead has team rooms where different consulting teams work together on their projects. The McKinsey office also houses a Gymnasium and a cafeteria. There is also VA (Visual Aids) group dedicated exclusively to the Delhi office. This group provides support to the consulting teams by helping the teams with their PowerPoint and any other form of communication document that they want to present to the client. We also had a quick chat with a partner who shed some light on the clients served out of the Delhi office. The Delhi office serves clients in various sectors including power, healthcare, retail, infrastructure, real estate, technology, government, public sector, non-profit, media, etc.

Life after McKinsey
Towards the end we also talked about some exit options that consultants have. The alums were very open about discussing this topic. Around 20% of people leaving McKinsey go on to become entrepreneurs. Most others go on to join PE firms or some top management position in the industry, depending on the position from which they leave the firm. Quite a few of them also opt to work in the development sector with NGOs.