So are Syngenta’s shares fairly valued today? Scala won’t say — “that’s the market’s and the analyst’s job.” His job, he asserts, is to address the other issue that he identified back in 2003: the gap between Syngenta’s strategic planning and the market’s expectations.
In an internal presentation made shortly after his arrival — entitled “Enhancing shareholder value: Linking internal aspirations with external expectations” — Scala set out his vision for change. First of all, he announced how five-year planning — and by extension, budgeting — “would be turned on its head” and become a highly focused, top-down process, based much more on external market data while “putting the strategy at the centre of the discussions.”
It would be a big change. Planning at Syngenta had been largely bottom-up and was driven by the business units. The process was time-consuming and inefficient. In addition, “one planned only what one could deliver, and for the most part it was never very aggressive and almost always incremental,” Scala explains. He also questioned whether managers had learned to game the system in order to hit targets. “I really started to wonder when a five-year plan from one of our business unit heads landed on my desk that said, ‘Next year, my sales are going to be 5%, and the next 4.9% and the next 5.1%.’ I know the world doesn’t work like that…you can’t attack the future in increments.”
Having focus from the top is important, says Marakon’s Kibble. He cites research by the consultancy that analysed more than 1,000 companies between 1983 and 2003, which found that managers had a good understanding of the key issues facing their companies; they struggled, however, when it came to prioritising those issues and acting accordingly. To address that at Syngenta, Scala pushed back on managers preparing their plans: “Now you know what the goal is, tell me how you’re going to reach it. Cost reduction? More effective use of capital? Each business unit should find its own answer.”
Along with the top-down process, Scala also said in his 2003 presentation that markets-centric performance metrics would be introduced — the main one a comparison with rivals on a total shareholder return basis (share price appreciation plus dividends divided by a daily average of share prices). At the same time, the company would begin using what Scala refers to as an internal value model, “a variation on the models used by shareholders and sell-side analysts when making their investment decisions” for assessing the economic value (that is, the amount of invested capital that is delivering returns exceeding its cost) generated by individual plans or investments, which would be given prominence equal to traditional metrics such as Ebitda.
The project is still a work in progress and “we’re learning as we go,” Scala concedes. Still, he’s pleased with the early results. “The focus on the actual content of the strategy has grown,” he says. And that’s cascaded down into various parts of the organisation, including its product portfolio, which is now more aligned to group strategy. Revenue from new products — those launched since 2000 — has been increasing, growing by $200m last year to nearly $1 billion.