CPM Assignment Individual

Topic: Performance Base Management (PBM) & Value Based Management (VBM)Selected Company: NDTV Convergence LtdIndustry Type: Digital Media

Submitted By: Debashis GangulyRoll Number: EPGP011

Performance management is the practice of actively using performance data to improve an organizations performance. It involves strategic use of performance measures and standards to establish performance targets and goals.The performance management cycle refers to the whole set of management processes that starts with strategy formulation and is followed by alignment of corporate objectives and measures across levels. This is followed by performance analysis, reviews and based on the resultant business insights, strategy refinement measures are adopted.

Performance management measures within evolving Indian Media:Media as an industry falls under the ambit of the service sector and is generally associated and recognized for the sectoral traits of creativity, communication and people to people skills. The sustainability of the industry depends much on the feasibility of free speech in the working environment and to that extent the democratic fabric of India has contributed significantly to the growth of a thriving media ecosystem which plays an important role in shaping and communicating the aspirations and concerns of the nation. There are various format plays within the sector and these dominant platforms being:1. Print Newspapers and Magazines2. Television3. Radio4. Outdoor5. Cinema6. And Digital MediaAs the industry moved along the industry life cycle, it has witnessed significant infusion of technology and that has dramatically altered the resource views and resource allocations for the participant firms. As a result, performance measurement across this sector has undergone significant changes in line with the evolving business strategy. In order to achieve continued viability in business operations, many of the traditional media houses has been embracing digital media as they identified digital to be the future growth driver. The impact of this strategic shift meant many of these traditional players becoming multi-media conglomerates with business interests splitting across various domains simultaneously. Managing performance measurements in such a state of flux poses complex organizational challenge and firms are thereby adopting separate measures for individual group businesses to align the divisional focus with the specific and unique environments within which they continue to serve.In the above context, the emerging digital media is evolving into a unique media eco-system and that is forcing firms to adopt high degree of flexibility and creative intelligence in terms of identifying and institutionalizing relevant performance appraisal objectives and measurement parameters. The attempt of this assignment is to identify one such company, namely, NDTV Convergence Ltd which is the digital arm of the NDTV Group and to understand the approach of performance measure as instituted by the company over the years.

NDTV Ltd and NDTV Convergence Ltd:-Vision To be the most trusted global Indian media brandMission To serve the society through broadcasting and programming excellence in honest, unbiased, fearless journalism In keeping with the vision to be a contemporary and globally relevant media brand, NDTV extended its services into digital play and thus emerged the digital wing of the group- NDTV Convergence Ltd, which controls all NDTV websites, including NDTV.com, the number one News website and the fifth most popular portal in India. NDTV Convergence is now expanding into TV and online synergies with the launch of NDTV Active, Indias first full service, user aware mobile channel.The digital business primarily constituted its business model based on digital advertising revenue monetization and this led to a divisional structure with dedicated focus on creating and maintaining digital content infrastructure backed by a robust IT backend. The business strategy of the group was to operate in the premium branded content space of general news, business and lifestyle segments. This differentiated play was adequately backed with premium pricing policy with the aim to generate high profitability. Thus the major thrust areas of the group were delineated in the following terms:Defining Task Objectives:1. High operational profitability

2. High quality content mix in text, video and mobile app formats (IOS and Android operating systems)

3. In house direct sales team with the responsibility of generating premium display revenue (pricing structure excluded the option of performance based pricing model which is otherwise one of the dominant pricing formats in the industry)

4. Partnership with specialist teams on minimum revenue guarantee model

5. Ensuring low content development cost through freelance outsourcing as well as leveraging the in-house content (videos and transcripts) from flagship television business

Alignment and Execution Planning:With the above set of strategic value drivers in place, the company then communicates the corporate strategy broadly to the two business sub-units namely -Advertising and mobile value-added services (or VAS) and goes about defining the annual revenue targets and the measures to quantify and implement the operational plans for each of the units. That exercise is jointly accomplished through involvement of the business heads of each of the verticals. Key strategic initiatives are identified basis the target in hand and resource planning is accordingly done for effective execution of the stretched targets.

Measure and Analysis:Divisional targets are next set at individual region levels and then further down to individual executive levels. Sales opportunities are mapped against operational forecasts and product level forecasts and all of these data are collated and rolled-up to arrive at the macro corporate level business forecasts.

Review and Planning:NDTV Convergence being a digital play, it has to continuously scan the external business environment to understand the merging opportunities and options for scaling up. Thus by the very design of the organization, attempts have been made to embrace dynamic performance management approach. Performance reviews are therefore done quarter on quarter basis. Reviews and business insights are derived on a continuous basis both on financial and operational basis and based on the emerging trends prescriptive actions are implemented for necessary course corrections. Thus the entire management architecture conforms to the classical CPM approach to bring about systematic and integrated improvements across the performance management cycle. The entire architecture is modeled on Balanced Scorecard methodology wherein accountability is fixed and quantified at individual levels across the entire organization matrix.

Value Based Management: The value of a company is determined by its discounted future cash flows. Value is created only when companies invest capital at returns that exceed the cost of that capital. VBM extends these concepts by focusing on how companies use them to make both major strategic and everyday operating decisions. Properly executed, it is an approach to management that aligns a company's overall aspirations, analytical techniques, and management processes to focus management decision making on the key drivers of value. (Source: McKinsey&Company)The value mindsetThe first step in VBM is embracing value maximization as the ultimate financial objective for a company. Traditional financial performance measures, such as earnings or earnings growth, are not always good proxies for value creation. To focus more directly on creating value, companies should set goals in terms of discounted cash flow value, the most direct measure of value creation. Such targets also need to be translated into shorter-term, more objective financial performance targets.Companies also need nonfinancial goalsgoals concerning customer satisfaction, product innovation, and employee satisfaction, for exampleto inspire and guide the entire organization. Such objectives do not contradict value maximization. On the contrary, the most prosperous companies are usually the ones that excel in precisely these areas. Nonfinancial goals must, however, be carefully considered in light of a company's financial circumstances. Objectives must also be tailored to the different levels within an organization. For the head of a business unit, the objective may be explicit value creation measured in financial terms. A functional manager's goals could be expressed in terms of customer service, market share, product quality, or productivity. A manufacturing manager might focus on cost per unit, cycle time, or defect rate. In product development, the issues might be the time it takes to develop a new product, the number of products developed, and their performance compared with the competition.Exhibit 2

Exhibit 2 compares various measures of corporate performance along two dimensions: the need to take a long-term view and the need to manage the company's balance sheet. Only discounted cash flow valuation handles both adequately. Companies that focus on this year's net income or on return on sales are myopic and may overlook major balance sheet opportunities, such as working capital improvement or capital expenditure efficiency.

Finding Value Drivers: The critical stepAn important part of VBM is a deep understanding of the performance variables that will actually create the value of the businessthe key value drivers. Such an understanding is essential because an organization cannot act directly on value. It has to act on things it can influencecustomer satisfaction, cost, capital expenditures, and so on. Moreover, it is through these drivers of value that senior management learns to understand the rest of the organization and to establish a dialogue about what it expects to be accomplished.A value driver is any variable that affects the value of the company. To be useful, however, value drivers need to be organized so that managers can identify which have the greatest impact on value and assign responsibility for them to individuals who can help the organization meet its targets.Value drivers must be defined at a level of detail consistent with the decision variables that are directly under the control of line management. Generic value drivers, such as sales growth, operating margins, and capital turns, might apply to most business units, but they lack specificity and cannot be used well at the grass roots level.

Exhibit 3

Exhibit 3 shows that value drivers can be useful at three levels: generic, where operating margins and invested capital are combined to compute ROIC; business unit, where variables such as customer mix are particularly relevant; and grass roots, where value drivers are precisely defined and tied to specific decisions that front-line managers have under their control.

VBM practiced at NDTV Convergence Ltd:Reflecting back on the constructs of the VBM approach and the practice adopted at NDTV Convergence, the findings throw up an interesting reading. Major highlights of the company practices are summarized below:-1. Convergence is the evolving digital play for the group, which has been identified to be a robust growth engine for the future.2. The measures of operational and financial efficiency was set against achieving Y-o-Y profitability and growth in positive cash flow from the operation3. The effectiveness of the VBM model is aptly captured below:- (Source: Fin Results)NDTV Convergence Ltd(in Rs.million)

A. Statement of Profit & LossYear ended Mar 31, 2015Year ended Mar 31, 2015

Income

Revenue from operations1003.29642.67

Other income62.380.51

Total revenue (I)1065.59723.18

Expenses

Cost of Services327.47220.45

Employee Benefit Expense271.57170.22

Operations & Administrative Expenses131.77192.22

Marketing, Distribution and Promotion Expenses111.6819.48

Depreciation and Amortization Expense10.469.35

Finance Costs10.162.02

Total (II)863.11613.74

Earnings before exceptional and extra ordinary items and tax (I) - (II)202.48109.44

Tax expenses

Current tax60.9163.65

Tax on earlier years--0.16

Deferred tax26.65-27.25

Total tax expense87.5636.24

Profit for the year114.9273.2

NDTV Convergence Ltd

B. Components of cash and cash equivalentsAs at March 31,

20152014

Cash on hand0.020.01

With banks on current account5.860.31

on deposit account20.0020.00

Total cash and cash equivalent25.8820.32

NDTV Convergence Ltd

C. Reserves and Surplus(in Rs. Million)

As at March 31,

20152014

Securities premium account

Opening Balance236.35236.35

Closing Balance236.35236.35

Employee share purchase outstanding

Compensation for options granted till date33.8733.87

Less: deferred employee stock compensaion-11.54-30.66

Closing Balance22.333.21

Surplus/ (deficit) in the Statement of Profit and Loss

Balance as at the beginning of the year63.76-9.44

Profit for the year114.9173.2

Balance as at the end of the year178.6763.76

Total reserves and surplus437.35303.32