Page 5: The Mfv umbrella
In Cadbury Schweppes, MFV has five elements. The individual parts are closely related and at times overlap.
1. Raising financial performance
In order for Cadbury Schweppes to stretch itself to meet its objective of delivering superior returns and to help measure its progress towards MFV, it has set three demanding financial targets. These are:
- to increase earnings per share by at least ten per cent each year
- to generate £150 million of free cashflow every year. Free cashflow is the money left in the business after tax and dividends have been paid and after investments have been made in plant, machinery and other equipment
- to double the value of shareholders' investment every four years.
Raising financial performance means 'raising the bar' - in other words setting higher standards and goals and achieving them.
2. Sharpening the culture
In order to deliver these superior returns, Cadbury Schweppes needed to become an organisation where all its employees were more accountable, aggressive and adaptable in pursuit of goals. This included finding better ways of doing things, being innovative and open to new ideas and taking responsibility for delivering results. Cadbury Schweppes has promoted the MFV process internally through communication and training in its business units around the world.
3. Value Based Management
Value Based Management (VBM) is a systematic way of analysing a business, the market in which it operates, its strengths and weaknesses together with those of its competitors. The VBM approach focuses everybody on what they can do to maximise returns for shareholders.
At its most practical level, this is about everyone understanding what creates the most value in his or her area of responsibility and subsequently working to achieve it. The emphasis is on the employee feeling a responsibility toward the business in such a way that they would base their judgement on the question 'if this was your business, what would you do?'
What drives value in one part of the business may be different within another and this means all situations must be judged on their own individual merits. For example, in one business the creation of value may be through new product development, while in another it may involve focusing upon a few core existing brands. Better strategies are sought to produce changes in competitive performance, returns and ultimately the ability of the business to create long-term growth in value. VBM is a method of making strategic decisions based upon whether a chosen path will create or destroy value.
4. Leadership capability
Able leadership is required to ensure Cadbury Schweppes achieves its goals. The company identified that it needed leaders who were capable of motivating their teams, achieving objectives and delivering results and who are accountable, aggressive, adaptable, assertive, motivating, forward thinking, mature and international in their outlook.
To make MFV work, Cadbury Schweppes recognises the need to align the interests of employees as closely as possible with the interests of shareholders. This involves rewarding (pay and benefits) employees for the creation of value and encouraging greater share ownership amongst employees so that they benefit from the results of MFV as employees and as owners of the business.