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 rooted-cosmopolitan 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_leaders

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.