Topic 2: Capital Management The current theme will be focusing on the management of capital for global firms. This week we looked further into human capital and cash capital. Together these are the most difficult elements to manage. We will be looking at busting the myths and analyzing how to raise performance in this post crisis economy.
Cash Capital
As the global financial crisis has choked off credit, cash management has become strategic. Companies with weak operating cash flows also find it more difficult to secure outside funding. The resulting cash pinch can threaten the largest global players. This article from Bain&Company outlines several approaches on how firms could manage balance sheet to increase liquidity.
By tracking the current deployment of capital, mapping capital to each business, product, customer, geography and activity and assessing return on net assets results, firms will be able to de-emphasize units that weren't able to generate adequate return on capital and drive profit improvements. Aggressive management of both working and fixed capital can free up large amounts of cash. Firms could set explicit, granular productivity targets for their assets and use these targets to reverse-engineer the appropriate level of capital expenditures for each business. By pursuing strategies that allow firms to own fewer assets or outsourcing third parties to own their assets, businesses that would otherwise be capital-intensive could generate higher returns and grow more profitably.
http://www.bain.com/publications/articles/right-sizing-balance-sheet.aspx
Human Capital
1. This article from Deloitte focuses on the importance of the identification and retention of human capital in order to be competitive in the technological revolution. The article summarizes main issues (trends) arising in human capital, which can be organized in three categories. The first is the need to extend employees' leadership abilities in order to promote corporate learning and, as such, in house problem solving. This trend is considered to be the most urgent, as the leaders of today have to be prepared for the ever changing flow of information. The second most important trend is the ability to attract and retain a passionate and engaged workforce. And finally is the creation of a robust HR platform that can be adapted to both the local and the global environment. The goal of these trends is to work as crutches for managers in setting goals and arranging priorities. This information has been compiled from multiple industries and a common conclusion has been drawn, the need to focus largely on the readiness and availability of leadership. As such, the article hints that it would not recommend decreasing funding for the Human Resources department as these issues bleed over into all areas of the business. The "bottom line" is that corporate training is necessary and should be an ongoing process in order to deal with these issues. http://dupress.com/wp-content/uploads/2014/04/GlobalHumanCapitalTrends_2014.pdf
2. As firms reach across borders, global-leadership capacity is surfacing more and more often as a binding constraint. This article by McKinsey provides us some insights on this issue. Having pointed out and corrected 5 predictable biases rooted in widespread misperceptions about globalization, this should help the efforts of companies to increase their global-leadership capacity.
While many companies claim to be global, they often lack international interaction and integration. Thus, an accurate read on extent of globalization in one’s firm, industry, as well as its people, is certainly a crucial requirement for global leadership.
While many believe that global leadership is developed through experience, investigation proved that experience, while required, is not sufficient for the development of an accurate global mind-set. Conceptual learning, for example, the magnitude and patterns of international interactions, is just as important.
Lists of global-leadership competencies have been developed in business and academia, but customization and focus are just essential. Developing a portfolio of competencies rather than an interchangeable set of global leaders who have all met a single set of requirements.
Significant localization has taken place in the management teams of foreign subsidiaries. However, when localization is taken too far, it implies giving up on building the diverse bench of global leaders required.
While multinational companies believe they are attracting the best talents, nationals from key growth markets are often underrepresented in the leadership ranks. Forming rootedcosmopolitan ideal and emphasizing on talent development so as to hire future global leaders from these areas is critical.
http://www.mckinsey.com/insights/leading_in_the_21st_century/developing_global_lea ders
In conclusion, we have looked into two areas of capital management, both of which are crucial to the performance of firms. With regard to cash management, firms that implement tight management of the balance sheet could often liberate more cash, preserve options and drive value for shareholders. In terms of managing human capital, effective talent retention as well as the essential global leadership skills is the key.