The Boston Consulting Group

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CHARACTERISTICS OF VALUE CREATING

STRATEGIES AND BUSINESS MODELS

Lars Terney & Bent Dyhre Hansen

Copenhagen, May 30th, 2006

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INTRODUCTION

This material includes material developed by The Boston Consulting Group for a presentation with Finansanalytikerforeningen on Tuesday, May 30th, 2006 in Copenhagen

The material is incomplete without accompanying oral comments. As such, it is most meaningful to those who participated in the meeting.

For further information please contact:

The Boston Consulting Group Amaliegade 15

1256 Copenhagen K Phone: +45 77 32 34 00

Bent Dyhre Hansen can also be contacted directly at +45 77 32 34 15 or at

[email protected]

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THREE OBJECTIVES TODAY

1. Put value creation in Danish companies in a long term and international perspective

2. Give our perspective on what characterizes value creating strategies and business models

3. Facilitate an open discussion on how to “test” strategies and business models

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WHO IS HERE TODAY

The Boston Consulting

Group (BCG) Lars Terney Bent Dyhre Hansen

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Founded in 1963

>3,000 consultants in 61 offices in 37 countries

Work with clients on topics of strategy and operational effectiveness

Office in Denmark since 1998

• Today 35 employees

• Part of Nordic system

with 170 employees • Vice President & Director • With BCG since 1995 • Managing Director • With BCG since 1994

• Cand. merc., ASB

• Works with strategy,

M&A, post merger

integration, organization and pricing

• HA from Odense

University, MBA from Kellogg

• Works with corporate

strategy, strategy,

efficiency improvement, organization and

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DENMARK HAS BEEN A TOP PERFORMER

ON VALUE CREATION LAST TEN YEARS

10y Annual TSR Growth 5y Annual TSR Growth 1y Annual TSR Growth

0 5 10 15 20 25 30 Ne th e rl a n d s UK Ge rm a n y US As ia No rw ay Eu ro p e n e w S w ed en F ran ce Den m ark Finla n d CAGR %(1) 0 5 10 15 20 25 30 Ne th e rl a n d s US UK S w ed en F ran ce Ge rm a n y No rw ay Finla n d As ia Eu ro p e n e w Den m ark CAGR %(1) 0 10 20 30 40 50 60 US UK F ran ce Finla n d Ne th e rl a n d s Ge rm a n y As ia Den m ark Ne w E U S w ed en No rw ay CAGR %(1) 4

(1) CAGR: Cumulative Average Growth Rate

Note: Including companies >100MEUR Market Cap. Data rolling 24th of November each year, Last date 24.11.2005. US: Frank Russell 3000 Index. Asia: Indonesia, Malaysia, Hong Kong, Singapore, China, South Korea, India

Europe new: Estonia, Latvia, Lithuania, Poland, Czech Republic, Hungary, Slovakia, Slovenia, Cyprus, Malta Source: BCG Analysis, Datastream.

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LARGE DIFFERENCES IN PERFORMANCE OF DANISH COMPANIES

Performance of Individual Danish Companies

Annual TSR growth, %(1) 12 12 30 19 28 40 25 38 65 0 10 20 30 40 50 60 70 Period

Bottom 25 Median Top 25

1996–2005 2001–2005 2005

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(1) CAGR: Cumulative Average Growth Rate

Note: Including companies >100MEUR Market Cap. Data rolling 24th of November each year, Last date 24.11.2005

Note: Median have been applied due to the small sample size i.e. listed companies in Denmark with a Market Cap > 100 MEUR Source: Datastream, BCG Analysis

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TSR RANKING OF DANISH COMPANIES

Ten Year Perspective

0 5 10 15 20 25 30 35 40 B io m ar H o ld in g T K D e v e lo p m en t Ti v o li Ca rl s b e rg A/ S Pe r A a rs le ff S a n ist ål UP Da n is c o M o nbe rg & Tho rs e n FL S m id th DL H A u ri g a I n d u s tri e s S c h o u w & Co No rd is k S o la r L å n & S p a r Ba n k AM BU I n te rn a ti o n a l Co d a n Fl u gge r UI E H a rboe H&H I n te rn a ti o n a l Ch r. Ha n s e n T DC B a ng & O luf s e n E D B G rup pe n C o lopl a s t Ro y a l Un ib re w GN S to re N o rd K b h' s Lu ft h a v ne Al m B ra n d ØK DF DS D a nt he rn H o ld ings N ø rre s u n d b y B a n k No v o No rd is k Fi o n ia B a nk AP M ø ll e r M æ rs k Je u d an L o k a lb an k i N o rd S p a rba nk V e s t H ø jg aa rd H o ld in g s Da n s k e Ba n k Top D a nma rk Ve s tj y s k B a n k Di b a Ba n k No rd jy s k Ba n k Jy sk e B a n k G ro n la nds ba nk e n R ing k jø b in g B a nk S p a r No rd Ba n k NK T D ju rsl an d s B a n k S p a rka ss en F å b o rg S y dba nk W illi a m D e m a n t For s tæde rn e s B a nk A m ag er b a n k e n Lu x o r NE S A G ree n tc h E n er g y No rd ic o m R in g k jøbi ng La n dbo E gns ba nk H a n H e rr e d D /S Tor m Ro s k il d e Ba n k DS V D/S No rd e n

Company Annual TSR Growth(1) _10y

(%)

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(1) CAGR: Cumulative Average Growth Rate Source: Datastream, BCG Analysis

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MOST DANISH COMPANIES HAVE OUTPERFORMED

EUROPEAN INDUSTRY AVERAGE

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William Demant Company’s performance relative to own sector average

Company’s sector performance relative to overall market Højgaard

Chr. Hansen

B&O Tivoli

TDC

(1) Refers to value creation performance last 5 years

Note: Company performance indexed vs. relevant DJTM Western Europe index. Each industry segment has a different index performance i.e. comparison point Source: DJ, Datastream, BCG Analysis

Top Danmark High Low Low High Codan Nesa Novo Nordisk Carlsberg En tertain m en t Insurance Te leco m Inds. Goo d s/S e rv ices Pharma Indus tria ls Food & Bev e ra ge s Cons ume r Goods Me dic a l Equi p m e n t

Banks Utilities Inds

. Tra n s p o rta tion Be v e rages GN Danske Bank Jyske Bank Danisco NKT FLS Monberg & Thorsen Alm. Brand Harboe Ambu Coloplast Mærsk Norden Torm DSV Royal _Unibrew KBH lufthavne Roskilde Bank ØK Companies performing below average in strong sectors(1) Companies performing above average in strong sectors(1) Companies performing above average in difficult sectors(1) Companies performing below average in difficult sectors(1)

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CREATING SUPERIOR SHAREHOLDER VALUE

YEAR AFTER YEAR IS A DIFFICULT TASK

Number of

companies(1)

Number of years in which

they beat the local market(2)

Relative TSR Analysis 1995-2004 1 522 305 98 5 ₁ 556 147 35 5 343 0 100 200 300 400 500 600 0 1 2 3 4 5 6 7 8 9 10 What characterize these companies? 8

(1) Sample characteristics: 2,020 companies excl. financial service companies; continuously listed for at least 10 years; market cap above $1B as of end 2004 (2) Relative TSR > 0

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LEADING PRACTICES OF TOP PERFORMING COMPANIES

Key Check Points

Set explicit value creation targets

• And translate these into operational targets on business level

Actively improve business portfolio health

• Shift investments from under-performing units to strong performing

• Improve profitability to above the cost of capital before growing

• Manage portfolio mix, roles of BU’s

Use M&A to improve businesses and to take advantage of relative valuation

• Migrate portfolio through acquisitions and divestitures

• Create value from acquiring relatively undervalued companies

Apply disciplined management processes

• Install processes that reinforce value creation

Actively manage the valuation and the free cash flow

• Understand key share price drivers and expectations

• Understand tradeoffs on capital structure and free cash flow payouts

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1 SELECTING RIGHT MEASURES AND DRIVING THESE DOWN THE

ORGANIZATION ALLOWS FOCUS ON VALUE DRIVERS

Profitability CFROI TBR ∆intrinsic value Free cash flow Growth in assets Cash flow margin Asset turns TSR Capital gains Dividends

~

Top value creators set explicit value creation goals and translate them into internal value creation metrics

Top value creators set explicit value creation goals and translate them into internal value creation metrics

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1 VALUE DRIVER DISCOVERY PROCESS BUILDS OPERATING TEAM

CONSENSUS AROUND PRIORITIES AND TRADEOFFS

Value drivers are known by management

But not prioritized for value impact

And trade-offs across them not syndicated

1. Reduce churn 2. Extend asset lives 3. New services 4. Price 5. New customer additions 6. … High Medium Low Service levels Revenue growth Acquisition costs Cost of service Extend lives Capital costs Customer pruning Lifetime value Customer churn Maintenance costs Price Service level Volume Market share Safety Working capital turns Employee turnover …

Value driver discovery creates a shared understanding of priorities and tradeoffs for managing revenue, margin, and capital

Value driver discovery creates a shared understanding of priorities and tradeoffs for managing revenue, margin, and capital

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2 THREE ASPECTS IN MANAGING PORTFOLIO HEALTH

BU strategic fit BU value creation fit BU logic fit

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Market attractive -ness High Low High Supports portfolio vision CFROI High Low High High Low Low High Low Low Business Unit position/competitive advantage TBR Parenting advantage to BU value Value creation fit Strategic fit Logic fit ? ? ?

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TOP VALUE CREATORS MANAGE

THEIR PORTFOLIO BASED ON PERFORMANCE...

Historical performance of the BU(1) over three years

Average relative

change in assets (%)(2) Comment

–67

Out-performers stop investing in business units with deteriorating performance

–182 Steadily declining

22 99 Consistently above average

169 83

Steadily rising Out-performers clearly identify _{turnaround candidates}

Out-performers consistently support well-performing units

Top performer Under-performer –200% 0% 200%

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(1) Business-unit ROI relative to the average cost of capital in the region in the year under review (2) Relative to the change in the company's total assets

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... AND DON'T INVEST IN BUSINESSES BEFORE THEY REACH

COST OF CAPITAL – THE “C” CURVE

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Hurdle rate

Hurdle rate

Top relative TSR performers, year 0–5 Bottom relative TSR performers, year 0–5

Low starting point profitability

companies and subsequent performance

ROI (%)

Capital employed index (starting year= 1.0) 0 5 10 15 0,6 0,8 1,0 1,2 1,4 1,6 1,8 0 5 10 15 0,6 0,8 1,0 1,2 1,4 1,6 1,8 ROI (%)

Capital employed index (starting year= 1.0)

(n = 27) (n = 36) Yr 5 Yr 4 Yr 3 Yr 2 Yr1 Starting point Yr 5 Yr 4 Yr 3 Yr 2 Yr 1 _{Starting point} 14

Note: Top performers are second-quartile ROI companies that achieve year 1–5 RTSR >1.0; bottom performers are second-quartile ROI companies that achieve year 1–5 RTSR < 1.0

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EXAMPLES OF THE “C-CURVE”

Gross investment CFROI Cost of capital 2. Increase profitability 1. Downsize for profitability 3. Leverage profitability Louisana-Pacific(1)_: TSR 16% p.a. (Miscellaneous, USA) 2000 2003 2002 2001 WACC CFROI (%) Gross investm. (Bn. USD) 10 3.5 2.5 3.0 5 15 Orica: TSR 25% p.a. (Chemicals, Australia) WACC 2003 2004 10 3 2002 2001 2 Gross investm. (Bn. USD) CFROI (%) 8 6 1 4 Hyundai Mobis: TSR 70% p.a. (Automotive Supply, Korea) 2004 2003 2002 2001 CFROI (%) Gross investm. (Bn. USD) 10 1.5 WACC 1.0 2.0 0.5 2000 1999 20

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(1) Not included in any TPS industry sample Source(s): BCG Value Creators Report 2005

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TOP VALUE CREATORS COMPANIES ACQUIRE

AND DIVEST MORE THAN UNDER PERFORMERS

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6.7 13.7 4.6 5.8 Average number

of deals in 2000 BCG research shows that companies growing

Acquisitions Divestments

Out-performer Under-performer

through M&A creates more value Analysis of 700 largest companies from 1992-2002 shows that companies growing through M&A creates more value

Successful M&A practices

• Growth through M&A only when inherent part of the strategy and only when competitive advantage can be achieved

• Develop detailed understanding of the role of M&A in achieving growth – far in advance of bidding on any particular deal

• Rigorous deal evaluation, buy in "lean times"

• Pay at least as much attention to integration as to the deal itself and integrate fast

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4 SUCCESSFUL COMPANIES HAVE VALUE MANAGEMENT

INGRAINED IN MANAGEMENT PRACTICES

Explicit shareholder value goal?

Are more than 75% of managers trained In VBM?

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Note: Success is defined as improvement of a 3-year average annual total shareholder return relative to industry peers (to 3-year averages were compared) Source: INSEAD, BCG and Harvard Business Review study ‘Getting The Most Out of Value Based Management’ (July 2001)

Are more than 75% of employees participating in a bonus scheme?

‘Our budgets and strategic plans are closely integrated’

32% Successful Companies Unsuccessful Companies 65% 26% Successful Companies Unsuccessful Companies 65% 37% 70% Successful Companies Unsuccessful Companies 50% 12% Successful Companies Unsuccessful Companies

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5 INVESTOR/ANALYST DISCUSSIONS SHEDS LIGHT

IN A NUMBER OF IMPORTANT AREAS

Feedback to

management’s agenda

Goals and measures Acquisitions, portfolio Diversification

Growth vs. ROIC focus Capital structure Dividend policy Share repurchase Incentive alignment Risk management 18

Who are your investors, segmented by investment style?

What are investor expectations for performance?

What is your credibility quotient with current investors?

How could or should your investor base change

• To improve valuation?

• In response to strategies?

Fact base development Tailored communication/ outreach strategy

Equity “story” and commitments

Targeting new investors and “natural” investor LOB reporting Strategic milestone reporting Value creation commitment and alignment dissemination Investor migration plan

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POPULAR AND NECESSARY STRATEGIC THEMES

Low cost manufacturing – what is the role of Rapid Developing Countries (RDCs)

Lean concept – introducing it in production, logistics, administration, commercial development (but competition is likely doing the same...)

Winning model development – knowing your capabilities and their worth (inspired from Danaher’s Business System thinking)

Acquisitions – building scale, forward integration, or entry into new adjacent businesses

Growth strategy and sales force effectiveness – understand growth drivers on an operational level

Innovation – increasing success rate to secure long term performance

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Testing the water

• Recognize LCC potential

• May source some products on a trial basis

• Have no formal LCC initiatives

• Are not yet organized for sourcing in LCCs Purchasing components or complete products • Focus on reducing purchasing costs • Obtain valuable understanding of the supply base

• But gain little

defensible advantage

Developing comprehensive sourcing

• Sourcing plan includes

- parts

- products

- talent/R&D

• Advantage gained from

- supplier relationships - product development - proprietary tools and processes - market intelligence Using an integrated single country strategy

• View LCCs as both a market and a sourcing location • Leverage synergies between export sourcing and domestic production - integrated capacity planning - Supply chain - flexible production

• Create global centers of excellence in LCCs Capture global advantage • Exploit global synergies in - cost structure - manufacturing strategy - Supply chain • Re-deploy assets in high- cost countries

FIVE LEVELS OF LOW COST COUNTRY (LCC) ADVANTAGE

Check Point: What Far is The Company in Question

Level 1 Level 2 Level 3 Level 4 Level 5

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0% 5% 10% 15% 20% 25% 30% 35% 0% 5% 10% 15% 20%

Net growth of LCC imports, 1997–2002

(percentage points)(1)

LCC penetration, 2002: LCC imports as a percentage of

U.S. consumption Footwear

Audio and Video equipment

Apparel

Measuring and controlling devices

Motor vehicles

Communication equipment Motor vehicle parts

Household appliances 80% 70% 50% Fabricated metal products 60% Computer equipment Semiconductors and other electronic components

Heating and ventilation Engine, turbine and

power transmission equipment Industrial goods average = 9.8% Industrial goods average = 10.5%

Pumps, compressors, and material-handling equipment

Moving early Growing fast

Globalizing slowly Up and coming

Case Study U.S.

Value of 2002 LCC imports into the United States ($5B) Consumer goods

CHECK POINT: AHEAD THE CURVE FOR THE INDUSTRY?

Role of LCC For Sourcing

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(1) The average annual growth rate of LCC imports minus the average annual growth rate of U.S. domestic consumption

Note: Consumption is defined as U.S. production plus imports minus exports; industrial imports from LCCs consist of North American Industry Classification System codes 332 to 336 with import value greater than $2B

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CHECK POINT: AHEAD THE CURVE FOR THE INDUSTRY?

Role of LCC For Out-Sourcing (This Case India)

High-end Call centers • GECIS • CITI Bank • HSBC Data conversion

• Decision support Intl. Medical Transcription

• Selectronic

• Ephinay

Insurance claims processing

• Conseco

Back office operations (payroll, accounting) • GECIS • BA • World Bank Animation • Toonz animation Geographical systems

• Creation of maps etc. Testing

• Altair Engineering Manufacturing

• Alcatel (Switching)

• Novar Plc (IBS(1)₎

R&D (Fundamental & incremental)

• GE FHP Motors (Manufacturing)

• HP (Design)

• Texas instruments (Design)

• Intel

• Cadence (Software) Clinical research

• Pfizer

• Eli Lilly

Web/Digital content development

• Smart analyst

• E-value serve Business consulting

• Inductis

Embedded software development

• Xerox

• Motorola

• Canon

• Honeywell

Low end

(1) Intelligent Business Systems

Note: Only a few indicative companies listed for each application. The list is not exhaustive in nature Source: Literature survey, Nasscom

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Communication and involvement of employees HR support and incentive programs

Performance culture to ensure constant efficiency initiatives

3 2 Kaizen events Key numbers, bench-marking, best practice 4b 4c

THE WINNING MODEL – EXAMPLE OF KEY ELEMENTS

Knowing The Value of Your Capabilities And “Business System”

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(1) Called ”policy deployment” Source: Interview February 2005

Integrated ”lean” business system(1) “Lean” tools 4a 1

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Global Global

INNOVATOR MARKET PERFORMANCE SUPERIOR

TO REGIONAL PEERS

0 2 4 6 8 10 12 14 16 18 Global Innovators vs. S&P 1200 US Innovators vs. S&P US 500 European Innovators vs. S&P Euro 350 Asian Innovators vs. S&P Asian Composite

Total Shareholder Return For Innovative Companies and Industry benchmarks

10-Year TSR (ending December

2005) Peer Group Median

Innovator Median

TSR = Total shareholder return = Capital appreciation plus dividends Innovators based on public innovators domiciled in indicated region S&P Asian composite = S&P/TOPIX 150 + S&P/ASX 50+ Asia 50

S&P 1200 = Global Largecap Index = S&P US 500 + S&P Euro 350 + S&P/TOPIX 150 + S&P Asia 50 +S&P/ASX 50 + S&P/TSX 60 + S&P Latin America 40 Source: 2006 BusinessWeek/BCG Innovation to Cash Survey; BCG\ValueScience analysis

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-Nordic Nordic

JUST OVER HALF OF NORDIC RESPONDENTS

ARE SATISFIED WITH THEIR INNOVATION ROI

0% 20% 40% 60% 80% Yes No

“Are you satisfied with the financial return on your investments in innovation?”

57%

43%

But >90% of CEOs rate innovation as top-3 priority and >70% plan to increase R&D spending in plan period But >90% of CEOs rate innovation as top-3 priority and

>70% plan to increase R&D spending in plan period

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Nordic Nordic

UNDERSTANDING BARRIERS FOR INNOVATION

How is The Company Approaching Innovation (track record, measures, targets, etc.)

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4% 9% 17% 17% 17% 17% 17% 22% 22% 36% 35% 0% 10% 20% 30% 40%

Developm ent tim es are too long Not enough great ideas Lack of coordination w ithin the com pany Not enough custom er insight Risk-averse culture Selecting the right ideas to com m ercialize No good w ay to m easure the ROI accurately Marketing and/or com m unicating our innovation Insufficient senior-m anagem ent support In-m arket perform ance is below expectations Com petitors are m ore innovative

“If you are not completely satisfied with the return on your investments in innovation, what are the obstacles you face?”

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INNOVATION CHECK POINTS

R&D/Engineering Sales & Marketing

How is my R&D project investment weighted in terms of cost reductions vs. line extensions vs. truly innovative products?

How is my innovation process linked with the life-cycle management of a product?

Are the products slated to be launched in the next 2-3 years sufficiently breakthrough to deliver the sales growth in my plan?

What was the root cause of my last failed product launch? Have I fixed it?

Finance Manufacturing/operations

Am I differentially investing in the projects that will earn the highest returns?

How good is the organization at predicting the revenues and costs of new products? What is creating the systematic biases in our business plans and how can I fix them?

Is my plant sufficiently flexible to incorporate new products?

How quickly did I reach low-cost, at-scale manufacturing position on my last product launch?

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FUNDAMENTAL BCG BELIEFS ABOUT STRATEGY

“Unless a business has a unique advantage over its rivals, it has no reason to exist”

“The underlying principle of a good strategy is simple: concentrate your strength against your competitor’s relative weakness”

“Strategy is by definition the essentially irretrievable commitment of resources… success almost always depends upon the competitor’s decision not to compete”

“Strategy is more than a posture or a pattern; it is a dynamic concept involving sequence, timing and competitive reaction...strategy development is thus a reiterative process requiring art as well and science”

Bruce Henderson, Founder of BCG

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A GOOD BUSINESS PLAN ANSWERS THREE KEY QUESTIONS

Where do you want to go?

• Vision and aspiration

• (Quantitative) objectives in terms of market positions and financial

performance,

Which road(s) will you take?

• What is your strategy to get there, and the subsequent high level activities

required?

• What will you do and more importantly, what will you NOT do!

How will you get there – what does it take?

• A more detailed action agenda covering priorities, timing, investment, etc.

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INGREDIENTS FOR A SUCCESSFUL STRATEGY

Uniqueness Competition Sustainability Implementation Disruption (deconstruction) Surprise Influence this dynamic equilibrium to

your own benefit

STRATEGY

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CHECK POINTS (I)

Uniqueness Competition

From the customers' perspective, is

our product clearly different/differentiable from competitors' products?

Do our products offer further basic approaches for differentiation?

Can we remove elements from our offering and would the customers really miss them?

Can our uniqueness/differentiation be defended over the long term or can it be copied?

Are our investments in innovation sufficient to maintain our

differentiation?

Do we know our competitors?

Have we correctly defined our market segment or possibly forgotten potential competitors?

Do we spend enough time analyzing the competitors' strengths/

weaknesses?

Have any new competitors emerged and why?

Have we been surprised in the last few years by any unforeseen steps from competitors?

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Source: BCG

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CHECK POINTS (II)

Surprise Disruption

Is our strategy focused not only on incremental changes?

Do we have "radical" innovations in the pipeline?

Have we sufficiently surprised competitors/customers in the past?

Have we been surprised several times by competitors?

In the past has the competition always quickly responded to our actions?

Are our strategies capable of changing the competitive equilibrium over the long term?

Are there any considerations being made in our industry on deconstructing the value chain?

Do we have employees that do not only act as administrators?

Is our strategy simply an update or does it really have something new/different to offer?

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Source: BCG

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CHECK POINTS (III)

Sustainability Implementation

Is our strategy focused on the long term?

Do we have clearly formulated and consistent long-term goals?

Do we reserve sufficient space for strategy discussions/the long-term in our planning?

Do we have a clear idea of the long-term trends in our industry?

Do we take the long-term implications of our decisions into consideration?

Have we devoted enough attention to implementing the strategy?

Are we also prepared to make uncomfortable decisions (despite resistance) and to carry through? Are the leaders fully committed to the strategy and are employees convinced/loyal?

Do our present (decision-making) structures interfere with our strategy?

Are our systems (staff development, compensation, IT, etc.) aligned with our strategy?

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Source: BCG

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QUESTIONS A CEO SHOULD KNOW HOW

TO ANSWER IN REGARD TO VALUE CREATION (I)

1. Do you understand the historical sources of your company's TSR?

2. What fundamental value will your current plans generate in the future?

3. What are the current market expectations embedded in your stock price?

• Is there a gap between what you can deliver and what your investors

expect?

4. What drives valuation multiples in your industry?

• Why is your multiple at the level it is relative to industry peers?

5. What are the key tradeoffs for your company between improving fundamental value, optimizing your valuation multiple, and distributing free cash flow?

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QUESTIONS A CEO SHOULD KNOW HOW

TO ANSWER IN REGARD TO VALUE CREATION (II)

6. Who are the dominant investors in your company and what are their priorities?

• Are your plans in sync with their investment goals?

7. What are the consequences of your company’s value creation strategy for line managers and their business units?

• Do they know what they must deliver to achieve your TSR target?

• Have you translated that target into operational metrics and goals that

they can actually influence?

8. Are management processes such as planning and budgeting, resource allocation, and incentive compensation aligned with your value creation strategy?

• Do they surface the right tradeoffs for management discussions?

• Do they appropriately balance short-term and long-term priorities?

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OTHER POINTS

Can the strategy be articulated short and precisely?

Is the strategy clear including key actions and investment plan?

What is the completive advantage and how are they maintained?

What is the projected revenues for existing products, known launches and thus the gap the “R&D machine” must cover?

What risks are being taking and how are they contained?

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