The EVA Challenge: Implementing Value-Added Change in an ...

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32 The EVA Challenge on the total cost of capital for the first time in the corporation’s history. But it was not enough for that constraint to be felt in the executive suite; the discipline had to be thrust down into the operating units. That was the logic of the thoroughgoing reorganization of the company that ensued. In the old days, when the mission was producing more or less generic engines with near-universal market acceptance, a functional, vertically integrated organization was undoubtedly the most efficient. Little corporate planning was required beyond planning for operational capacity. By the 1980s, however, the small-engine industry began to show a much higher level of uncertainty and complexity—and the size and complexity of the company’s internal operations increased as well. Changing the company’s organizational design in response to this increase in complexity was critical to its future. Under Stratton, the company that had long been the epitome of vertical integration was restructured into seven separate operating divisions, such as the small-engine division (small engines powering walk-behind lawn mowers), the large-engine division (engines for ride-on lawn mowers and commercial applications), a division that makes aluminum castings and another that produces iron castings, and so on. The divisions were given a large grant of autonomy, not only for operational matters but also for capital expenditures. By pushing decision making down to this level, the company accomplished a dramatic improvement in cash flow and capital management. Managers became acutely aware of the cost of capital and how it affected their performance—which was now the divisional EVA result. Their annual bonuses were now, in part, dependent on that figure, which tended to concentrate attention. The basic formula for all divisional executives calls for 50 percent of bonus to be based on corporate results, 40 percent on divisional EVA, and 10 percent on appraisal of personal performance by a superior. Bonuses for corporate staff are based 100 percent on corporate performance, but
The Need for a Winning Strategy and Organization 33 again with the option to base 10 percent on personal performance criteria. The incentive plan for executive staff also has a bonus bank, and top managers, in addition, have leveraged stock options. Financial improvement, in turn, reflected a number of important changes that flowed from restructuring: better focus on the product line; more thorough integration of cross-functional initiatives; better assessment of labor/capital trade-offs; and, not to be minimized, the development of more seasoned and resourceful managers as a result of enhanced responsibility. EVA analysis played a key role in all corporate decisions—divestitures, the establishment of new factories in the hinterland, and strategic alliances in China, India, and Japan. Over the years, decentralization was accompanied by shopfloor initiatives that had not been encouraged before. After a good deal of labor turmoil (covered in a later chapter), the hourly-rated workers in Wauwatosa have a modified form of EVA written into their union contracts. Rank-and-file representatives participate in process-improvement teams, which quantify their proposed savings in the standard EVA format. The Spectrum division in Wauwatosa, which makes specialized parts for other divisions, has a high level of worker participation and seems in a continual buzz with process-improvement teams. The new strategic emphasis, decentralization, and the EVA discipline led to continual improvements. In 1989, just before adoption of its EVA program, Briggs & Stratton’s negative EVA was a whopping $62 million. In fiscal 1993, the company achieved a positive EVA for the first time in many years. It earned a 12.9 percent return on capital, with a calculated cost of capital of 12 percent. The company never turned back. It has earned the cost of capital in each fiscal year since 1993, including a record $50.9 million EVA in FY 1999. Shareholders have had a most agreeable ride. Anyone who bought $100 worth of stock in the fall of 1990 at $10.25 per share would have had $673 in hand in May 1999.
Page 2 and 3: The EVA Challenge Implementing Valu
Page 4 and 5: Advance Comments on The EVA Challen
Page 6 and 7: This book is printed on acid-free p
Page 9 and 10: Chapter 1 The Problem Back in the e
Page 11 and 12: The Problem 3 for systems to get ma
Page 13 and 14: The Problem 5 for a building, but i
Page 15 and 16: The Problem 7 Not only does EPS dis
Page 17 and 18: The Problem 9 significant and growi
Page 19 and 20: The Problem 11 admiring articles in
Page 21 and 22: The Problem 13 few years. Forstmann
Page 23 and 24: Chapter 2 The Solution What is Econ
Page 25 and 26: The Solution 17 There is a signific
Page 27 and 28: The Solution 19 than projections. E
Page 29 and 30: The Solution 21 (R&D) costs, (2) ad
Page 31 and 32: The Solution 23 capital, Tate & Lyl
Page 33 and 34: The Solution 25 is usually the chie
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Page 37 and 38: The Need for a Winning Strategy and
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Page 71 and 72: Value Creation Capital Structure
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Page 79 and 80: Chapter 5 The Changes Wrought by EV
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Page 83 and 84: The Changes Wrought by EVA 75 all d
Page 85 and 86: The Changes Wrought by EVA 77 Even
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The Changes Wrought by EVA 83 prese
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86 The EVA Challenge mechanical cou
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88 The EVA Challenge company fired
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90 The EVA Challenge skirmishes of
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92 The EVA Challenge but the reduct
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94 The EVA Challenge We now move on
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96 The EVA Challenge employees, man
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98 The EVA Challenge 3,500. The thr
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100 The EVA Challenge with economic
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102 The EVA Challenge November 1998
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104 The EVA Challenge their drawbac
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106 The EVA Challenge to establish
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108 The EVA Challenge It is helpful
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110 The EVA Challenge Managing for
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112 The EVA Challenge After a coffe
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114 The EVA Challenge EVA 101, the
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116 The EVA Challenge facilitator t
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118 The EVA Challenge The classroom
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Herman Miller—Continental North A
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122 The EVA Challenge in an organiz
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124 The EVA Challenge In the modern
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126 The EVA Challenge efficiencies
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128 The EVA Challenge A company tha
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130 The EVA Challenge units and imp
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132 The EVA Challenge Witter’s re
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134 The EVA Challenge $70.8125 eigh
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136 The EVA Challenge companies wer
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138 The EVA Challenge design, manuf
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140 The EVA Challenge you can lose
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142 The EVA Challenge Allen-Bradley
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144 The EVA Challenge Disadvantages
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Chapter 9 EVA Incentives We revert
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EVA Incentives 149 EVA incentive pl
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EVA Incentives 151 For a typical di
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EVA Incentives 153 bonus by 10, div
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EVA Incentives 155 these approaches
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EVA Incentives 157 quarters of the
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Chapter 10 How EVA Can Fail What mo
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How EVA Can Fail 161 created by a d
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How EVA Can Fail 163 Stern Stewart
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How EVA Can Fail 165 pay. Monetary
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Chapter 11 New Frontiers: Real Opti
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New Frontiers: Real Options and For
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180 The EVA Challenge conflict betw
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182 The EVA Challenge Question 2. W
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184 The EVA Challenge managers will
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186 The EVA Challenge Question 6. M
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188 The EVA Challenge framework suf
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190 The EVA Challenge problems ofte
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192 The EVA Challenge Only after th
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194 The EVA Challenge followed by a
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196 The EVA Challenge There are two
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198 The EVA Challenge floor, the fi
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200 The EVA Challenge Consider the
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202 The EVA Challenge 5. Provide bo
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204 The EVA Challenge degree, but t
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206 The EVA Challenge annual sales
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Epilogue EVA and the “New Economy
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EVA and the “New Economy” 211 W
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EVA and the “New Economy” 213 b
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EVA and the “New Economy” 215 a
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EVA and the “New Economy” 217 d
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EVA and the “New Economy” 219 i
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EVA and the “New Economy” 221 h
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EVA and the “New Economy” 223 L
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EVA and the “New Economy” 225 W
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EVA and the “New Economy” 227 O
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EVA and the “New Economy” 229 a
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EVA and the “New Economy” 231 o
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Acknowledgments This project has be
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Acknowledgments 235 monitoring mana
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Acknowledgments 237 Approximately s
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Acknowledgments 239 business and pr
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Acknowledgments 241 seemingly insur
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Acknowledgments 243 assignments to
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246 Index Competitive positions (Po
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248 Index Incentive plans based on
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250 Index Takeover artists, 11 Tate
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