1.STRATEGIC IMPLEMENTATIONFINANCE

2. INTRODUCTION 3. Role of Finance in Strategic Planning Fundamental success of a strategy depends on three critical factors A firms alignment with the external environment A realistic internal view of its core competencies andsustainable competitive advantages Careful implementation and monitoring 4. Strategic Planning and Decision Making Process Vision Statement Mission Statement Analysis Strategy Formulation and Strategy Implementation and Management. 5. The Role of Finance Financialgoals and metrics are established based on benchmarking the best-in-industry and include Free cash flow Economic Value-Added Asset Management Financing Decisions and Capital Structure Profitability Ratios Risk Assessment and Management Tax Optimization 6. FINANCE & STRATEGY 7. Aligning Finance with strategy Finance functions Generating budgets, reports, routine financial status updates and providing management reports for decision making Providing usable building block data to support analysis Ensuring cash availability and rationing of capital Providing analysis of new possibilities Other activities ( compliance with regulations, audits, banking function, etc.) 8. Aligning Finance with strategy Strategic alignment does not require adding newfunctions it just requires deepening of the traditional activities Finance can make a major contribution to strategic alignment by promoting and supporting the monitoring process Generating reports transforms to having a good balanced scorecard with outcome measures and performance drivers Budgets should reflect the costs/benefits and scheduled timelines of the Action Plans and Other Key Strategic Initiatives. 9. Aligning Finance with strategy Finance function happens in the deep recesses ofthe backroom but it is the oxygen to an organizations short and long term health In todays changing world there should be minute details and projections regarding investments made, costs incurred, potential cash flows and profits to implement a strategy to its fullest potential. Hence, Finance as a function is required at every stage to execute a strategy 10. FINANCE & HR 11. Holistic Approach The Pivot Relationship 12. Finance & HR Business delivers through people and profits. HR decisions affect firms profitability. CFO - Manage Financial Assets CHRO - Manage Human Capital Balanced Score Card for better financialperformance 13. Harris Corporation Communication and IT based company in Florida. Healthcare services John Hopkins Medicine On-site medical imaging center 100 % of the Florida employees (6500 ) and theirdependents use the imaging center. 90%use the pharmacy and 75% use the medical center. 14. Finance is from MarsHR is from Venus 15. FINANCE & OPERATIONS 16. Strategic Decisions Product/Service Selection Facility Location Process/Technology Selection Layout Decisions Product Design Capacity Decisions 17. Operational Decisions Scheduling Adjustment of Output Rate Quality Control Inventory Decisions Transport Decisions Housekeeping 18. FINANCE & SYSTEMS 19. Finance & Systems Business Intelligence Strategic planning & Budgeting Performance measurement metric Financial processes Systems serve as integration tool betweenfinance and operations. 20. Finance & Systems Technological shifts & choices Financial modelling & use of informationtechnology Drastic shift in role of CIO Relationship between CIO and CFO 21. FINANCE & MARKETING 22. Finance leads with the mind. Marketing leads with the heart. Together finance and marketing are a failedmarriage do u all agree? 23. What is the reality? Finance and marketing dept. together Collaborative environment. Accurate budget planning. Added marketing flexibility. Overall stronger organization. flexible and successful organization 24. Banking industry Marketing concept lately entered Advertising and promotional measures. Launching new schemes Market oriented approach in India. 25. GLIMPSE OF ADVANCED FINANCE 26. Derivatives A derivative is an instrument whose value depends on the values of other more basic underlying variables -Forward Contracts-Future Contracts-Swaps- Options 27. Forwards and Futures Contracts Contract to buy or sell a certain asset for a certainprice at a certain time in the future. - Long Position -Short Position The forward price for a contract is the deliveryprice that would be applicable to the contract if were negotiated today 28. FORWARDS Private contract between 2 partiesNon-standard contractFUTURES Exchange tradedStandard contractUsually 1 specified delivery date Settled at end of contractSettled dailySome credit risk2.28Range of delivery datesVirtually no credit risk 29. Options Option give the right to do something but not anobligation. Buyer makes upfront payment to get this right 30. Use of Derivatives To hedge risks To speculate To lock in an arbitrage profit Help in risk transfer from those who have it tothose who will take it. 31. If we dont hedge jet fuel price risk, we are speculating. It is our fiduciary duty to try and hedge this risk. Scott Topping, Director of Corporate Finance for Southwest Airlines 32. FUEL HEDGING IN AIRLINE INDUSTRY NEED After labour, jet fuel is the second largest operating expense for airlines. High volatility of jet fuel prices. Historical daily volatility over a recent 25-day period for Gulf Coast has averaged 58.7 percent. 33. SOUTHWEST AIRLINES 34. PREDICAMENT Air travel commodity business Intense airline competition, firm unable to pass alongfuel costs to customers. Airlines decided to hedge fuel prices Carriers that produced an adequate return, tended to be those that had good fuel hedge positions in place. 35. STRATEGY Southwest Airlines use derivative instruments basedon crude oil, heating oil, or jet fuel to hedge their fuel cost risk. They rely on plain vanilla instruments to hedge their jet fuel costs, including swaps, futures, call options, and collars (including zero-cost collars). 36. RESULT In 2008, locked in more than 70% of the fuel itexpected to consume that year at about $51 a barrel, far below average crude price of $126.62 a barrel. Other large airlines, meanwhile, have only 20% to 30% of their fuel "hedged" that year at an average cost of $100 a barrel. Fuel costs were up 20% for Southwest in the first quarter whereas American said its fuel costs were up nearly 50%, which wiped out profit for the nation's largest airline. 37. OVERALL IMPACT Since then the airline has hedged 70% to 80% of itsanticipated fuel use every year, more than any other airline. The airline said it saved $727 million in 2008 by locking in lower fuel prices in prior years. Southwest only airline to make profits. Hedging enables Southwest to drive revenue growth, protect fuel prices and the rest of the cost structure, and thus enables it to expand and grow. 38. SOCIETE GENERALE 39. Derivatives- A Weapon of Mass Destruction?? Barings Bank- a 233 year old investment bank hadhuge exposures in the banking sector. Collapsed on February 26, 1995 due to Nick Leesonstrading activities. Reduced the values of the bank from $500 million to$1.60 million. Leeson used the infamous Error account 8888. Leeson sold straddles, earned premium by selling over37,000 straddles over a 14 month period. 40. Derivatives- Handle with Care EURO STOXX index is a list of 50 blue-chip companies in theEuro zone. A trader at Societe Generale bank (Jerome Kerviel) tookpositions on options on STOXX beyond his trading limits. The trading limits had been breached but was ignored by topmanagement. He had taken exposures worth $74 billion to make up forlosses which could not be squared off. The bank incurred a loss of $7 billion. 41. INTERNATIONAL FINANCE 42. Financial Markets What is it ?Why do we need it ? 43. International Finance International finance (also referred to as international monetary economics or international macroeconomics) is the branch of financial economics broadly concerned with monetary and macroeconomic interrelations between two or more countries. WikipediaSimple Definition: Branch of Finance that deals with interconnecting the financial markets of the world. Two Major Domains: Global Capital Market Foreign Exchange (Forex) Market 44. Global Capital Market Rapid growth and At $190 trillion, it was 4+ times of global GDPFrom 2003-06, capital markets increased by $65 trillion. Global GDP increased by $12 trillion and Goods and Services volume increased by a mere $5.4 trillion Source : US Dept. of Treasury Reportsdiversification of investor bases Increased activity by official monetary sources Investors search for higher yields and greater portfolio diversification Liberalization of financial markets, resulting in expanded market access to global financial services Rapid expansion of savings, particularly in emerging markets (esp. the BRIC countries) 45. Forex Market What is it ? Foreign Exchange Market is where foreign currency transactions are carried out and exchange rates between such currencies are determined. What is a Foreign currency Transaction ?Exchange of two different currencies between two different parties. 46. Exchange Rate What is it? The rate at which two currencies are exchanged Eg: INR/USD 61.43 Types: Direct, Indirect, Cash, Spot & Forward How is the rate fixed ? Purchase Power Parity (PPP) Absolute Relative Interest Rate Parity 47. STRATEGIC PLANNING - HEINZ 48. Key Financial Strategies 49. Maintain strong financials with increasing operating income 50. Deliver growth in organic sales and operating free cash flow 51. Generate strong return on invested capital 52. Invest in Heinzs leading brands and core categories to drive growth 53. Enhance Total Shareholder Return and EPS 54. Detroit 55. What happened? Suburbanization Deindustrialization Tax Downsizing Employee Benefits Bonus Borrowing Kilpatrick 56. Strategy - Classification of ActivitiesKey ServicesProjects Economic Activities 57. Strategy - Classification of Income Funding Mix Matrix Unrestricted Local authority grant, Investment income One-off grants and public donations General FundraisingCore FinancingLong-termShort-term Project FundingProgramme Funding Lottery Fund Legal Services Commission Restricted 58. CONCLUSION 59. Conclusion Finance plays an important role in improving theperformance of the various other functions of the firm. It helps firm implement and monitor their strategies Creating specific, industry-related, and measurablefinancial goals Strengthening the organizations capabilities with hard-to-imitate and non-substitutable competencies. It creates sustainable competitive advantages thatmaximize a firms value, the main objective of all stakeholders.