SF ROX. Investing in Execution Pays Dividends. Authors: Global Research. Copyright 2010 SuccessFactors, Inc.

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Agatha McDaniel
6 years ago
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SF ROX Investing in Execution Pays Dividends Authors: Erik Berggren VP of Customer Results &

2 Execution in Good Times and in Bad Times SuccessFactors agenda is no secret, nor is it humble: increase worldwide productivity by 50%. It is audacious and not easy to measure consistently. However, the following pages will present one measure of our success and explain the linkages between our work and tangible customer results. In the fall of 2008, when impending doom and financial crisis were on every headline, closing the gap between strategy and execution rapidly made it to the top of CEO agendas. Other items that increased in importance were speed, flexibility, adaptability to change and people performance. At this time we decided to invest in our customers. We believed that the execution and people performance advantages we offer would help them outperform their competition. Especially in those tough times, since execution and adaptability to change matter even more when conditions are deteriorating rapidly. We were right: our customers significantly outperformed the market, and far fewer of them have yet to regain their value. To understand why, we applied the learning from more than one thousand business cases built together with our customers. That work has given us tremendous insight on how we drive value in different industries, geographies, and organization sizes. We can be very precise in how and why we create tremendous value for our customers. This paper will discuss the selection and performance of the SuccessFactors portfolio, and more importantly the detailed links between investing in execution and financial results. SuccessFactors customers were almost three times more likely to capitalize strongly on the downturn. All rights reserved. 2

3 Companies Above the Execution Threshold When selecting which customers to invest in, we picked customers with a critical mass of software modules. Specifically, we included all public customers where more than half of the employees used at least three modules for at least three full quarters. As can be seen in Graph 1, these companies represent a wide variety of industries. They are split almost equally among NYSE and NASDAQ. The full list can be found in Appendix A. We call this portfolio the SF ROX SF Research Return on Execution portfolio. 9.8% 9.8% 4.9% 4.9% Business Service Consumer Service Energy Financial Service 9.8% 9.8% Hardware Healthcare High Tech 4.9% Industrial Manufacturing 9.8% Industrial Materials 9.8% 4.9% Insurance Research & Development Retail 2.4% 7.3% 4.9% 7.3% Software Utilities Graph 1 SF ROX Industry Composition All rights reserved. 3

4 Capitalizing in the Downturn Since October 2008, our investment in our customers companies focused on execution have significantly outperformed all major indices, includes fewer companies that lost value, and more that gained significant value % +21% +4% +3% /1/2008 1/1/2009 4/1/2009 7/1/ /1/2009 1/1/2010 4/1/2010 NASDAQ S&P500 DOW SF ROX Graph 2 SF ROX Portfolio vs S&P 500, Dow Jones and Nasdaq, 10/1/2008 to 4/14/2010. Graph 2 clearly shows how SF ROX companies started outperforming all three major indices as soon as economic conditions stabilized in March Since then, the gap has steadily increased. S&P500 increased 4% between 10/1/2008 and 4/14/2010, while SF ROX increased 31%. (Annualized 3% and 19%, respectively). This means that it would take 25 years for an investment in the S&P500 to double, but only 4 years for SF ROX. SuccessFactors customers were less likely to have destroyed value since the downturn. All rights reserved. 4

5 Comparing to the NASDAQ index, SF ROX delivered 1.5x the value: 31% vs. 21% (19% and 13% annualized), doubling in 4 years compared to 5.6 years for NASDAQ. 50% 40% 30% 20% 10% 0% Share of companies in each performance group, SF ROX & S&P500, Performance 10/1/2008 to 4/14/ % 24% 38% 43% 22% 16% <0% 0-25% 25-65% >65% 6% 16% S&P500 SF ROX Outcome 8/1/2008 4/1/2010 S&P 500 SF ROX Lost Value 35% 24% Gained 0 25% 38% 43% >25% Increase 28% 32% >65% Increase 6% 16% Graph 3 distribution of outcomes in S&P500 and SF ROX, 10/1/2008 to 4/14/2010 Another perspective on our customers performance is to examine the distribution of results within S&P500 and the SF ROX portfolio. Two key observations immediately jump out: there are fewer underperformers and more over performers among companies investing in their ability to execute. What our solution does for individuals within companies, it also does for companies within our portfolio. Shifting the balance between high and low performers has a direct effect on the average, impacting productivity and revenues directly. Companies in SF ROX were 45% more likely to have recovered from the financial crisis than companies in S&P500: 24% lost value between October 2008 and April 2010, compared with 35% in the S&P500. This is a strong result showing how companies armed to react can handle adversity better. However, the most impressive result of this study is that an SF ROX company was 18% more likely to have gained more than 25% value, and 2.8 times more likely to have gained more than 65%. All rights reserved. 5

6 Why Are These Companies Outperforming the Market? We have seen a strong correlation between investing in SuccessFactors Business Execution solutions and increased shareholder value creation. But what is the specific causal link? During the last few years, SuccessFactors Research has created more than 1000 business cases and worked with a top three global consulting company to analyze the impact business execution software has had on our customers. In short, the causal link is that SuccessFactors addresses the key challenges of modern companies: 1) Closing the gap between strategy and execution by closely aligning goals and monitoring performance in real time, and 2) Improving people performance. Aligning Strategy and Execution proved critical during the financial crisis. Growth Profit Shareholder Return Company Strategy and Market Position ALIGNMENT PERFORMANCE Motivation x Talent/ Competencies x Organizational Ability Graph 4 BizX addresses key challenges All rights reserved. 6

7 Addressing Execution and Performance Issues In the Harvard Business School Press book The Workforce Scorecard, Mark Huselid estimated that execution was responsible for an astounding 85 percent of financial success of a company and strategy definition just 15 percent. SuccessFactors customers have invested in addressing their issues in those 85%. Regardless what the exact number is for a given company, it is clear that execution is what sets companies apart. Business execution software delivers value by improving the processes that enrich and support the ongoing dialogue between managers and employees. Equally important are gains from more consistent output. This is about providing decision makers with real strategic data: who is working on what, who is getting it done, who is leaving, and who is ready to step up to new challenges? Longer and more strategic use of Business Execution Software increased the benefits. Our research has revealed that companies using business execution software more strategically perform better than those who opt for narrow point solutions because they take advantage of broader and deeper data. When more modules are deployed, growth is stronger. Returns often double over the first year when three modules are deployed instead of one or two, and gains persist over time. The other key pattern we have seen from previous research is that the relative financial performance grows over time. The longer a company uses execution software, the greater the difference in financial performance to its competition. In summary, SuccessFactors customers are companies focused on Business Alignment and People Performance. They create agile organizations with aligned goals where the right people are motivated to deliver the right results. This allowed them to recover much quicker from the recent recession, and in many cases even capitalize on it. All rights reserved. 7

8 Appendix A The Return on Execution Portfolio (SF ROX) includes the following companies. The investments discussed in this paper were made in October COMPANY TICKER Industry Listed Alliance Data Systems...ADS...High Tech...NYSE Assurant...AIZ...Insurance...NYSE Applied Materials AMAT...Industrial Manufacturing...NASDAQ Avnet...AVT....High Tech...NYSE Cameron International...CAM...Energy...NYSE Centene...CNC...Healthcare...NYSE Cray...CRAY...Hardware...NASDAQ CapitalSource...CSE...Financial Services...NYSE Citrix Systems...CTXS...Software...NASDAQ Duke Energy...DUK Utilities...NYSE ebay....ebay...consumer Services...NASDAQ Con Edison...ED...Utilities...NYSE Equifax....EFX....Business Services...NYSE Equitable Resources....EQT...Energy...NYSE Electronic Arts....ERTS...Software...NASDAQ Edwards Lifesciences...EW...Healthcare...NYSE Forrester Research...FORR...Business Services...NASDAQ Gen-Probe...GPRO...Research & Development...NASDAQ Goodrich Corporation....GR...Industrial Materials...NYSE IDEX...IEX...Industrial Materials...NYSE Illumina...ILMN... Research & Development...NASDAQ Itron...ITRI...Software...NASDAQ Invitrogen...LIFE... Research & Development...NASDAQ MasterCard...MA...Consumer Services...NYSE Methode Electronics....MEI...Industrial Manufacturing...NYSE Macrovision....ROVI....Software...NASDAQ NASDAQ Stock Market...NDAQ....Financial Services...NASDAQ NiSource...NI...Utilities...NYSE Nektar Therapeutics...NKTR... Research & Development...NASDAQ Insight Enterprises...NSIT....Business Services...NASDAQ Northeast Utilities...NU...Utilities...NYSE Omnicell...OMCL....High Tech...NASDAQ Pep Boys...PBY...Retail....NYSE Polycom...PLCM...Hardware...NASDAQ SRA International...SRX...Business Services...NYSE Varian Semiconductor...VSEA...Hardware...NASDAQ Xerox...XRX...Industrial Materials...NYSE All rights reserved. 8

9 Appendix B Dividing the SF ROX Companies in two groups: the ones on S&P500, and the ones on NASDAQ gave some additional insight. Even though S&P 500 only gained 4% during the period, and NASDAQ gained 21%, the SF ROX companies in S&P500 outperformed NASDAQ with their 23% gain % +31% +23% +21% +4% +3% /1/2008 1/1/2009 4/1/2009 7/1/ /1/2009 1/1/2010 4/1/2010 NASDAQ S&P500 DOW SF ROX SF ROX S&P500 SF ROX NASDAQ Index performance, 10/1/2008 to 4/14/2010 All rights reserved. 9

10 Appendix C The incremental returns of the SF ROX portfolio cannot be attributed to higher volatility during the period. Comparing beta values and risk-adjusted returns for the period confirms that SF ROX outperforms S&P500, DOW, and NASDAQ. Portfolio S&P500 NASDAQ DOW SF ROX SF ROX S&P500 portion SF ROX NASDAQ portion Beta (Annual vs. S&P500, 10/ / ) Excess, risk-adjusted return vs. S&P 500 0% 15.1% -1.4% 16.6% 11.0% 23.7% S&P500 vs. SF ROX Return 10/1/2008 4/14/ % SF ROX Year-over-Year Return 100% 80% 60% 40% y = x R 2 = % 0% -20% 0% 20% 40% 60% 80% S&P500 Year-over-Year Return i The Workforce Scorecard, Huselid, Becker & Beatty, Harvard Business School Press 2005 ii Strategic Talent Management Solutions And Superior Topline Growth, Saugatuck Technology 2008 All rights reserved. 10

11 SuccessFactors global research is dedicated to helping companies maximize their Return on Execution by leveraging unique insights from our 3,000 customers with 8 million+ seats. We conduct primary and secondary research in collaboration with our select thought leader partners. We have developed more than 1,000 specific business cases for all industries and size business on a global scale. We have published numerous papers and are frequently invited to speak at premier conferences around the world. Top and Bottom Line Results SuccessFactors global research recognizes the critical role workforce performance plays in Business Execution. People drive both top and bottom line growth in any organization. Today, they are the ultimate differentiator, driving shareholder value through innovation, creativity, and great execution. Our research, along with that of our thought leaders, shows that investing in people performance pays off, and failing to invest can incur costs to productivity and ultimately overall financial results. This paper is one of many that are discussing and suggesting strong evidential data that supports our vision of driving worldwide productivity while creating work a better place. You could get a good estimate of your own potential using our free return on execution estimator at All rights reserved. 11

To our shareholders Letter from Our Chairman & CEO

To our shareholders Letter from Our Chairman & CEO To our shareholders 2008 Letter from Our Chairman & CEO We are proud of Accenture s performance in fiscal 2008. We responded to the challenges of the global economy by relentlessly focusing on our clients