ING Direct 2004 Annual Report Download - page 12

STRATEGY
(continued)
1.1
WHO WE ARE
10 ING Group Annual Report 2004
THE IMPORTANCE OF ECONOMIC PROFIT
In order to measure its performance on value-based
management, ING focuses on economic profit, which measures
profit beyond the cost of capital. In the past, it was often
considered sufficient to focus on accounting profit, because
capital was abundant and profit and value creation went
hand in hand. In today’s circumstances, capital is scarce and
the right allocation of capital is key as it is a major element
to value creation. This makes economic profit a key measure
when managing for value. Two important indicators help ING:
Risk-Adjusted Return On Capital (RAROC) and Internal Rate of
Return (IRR). RAROC measures value creation in ING’s banking
activities. IRR on new business stands for the internal rate of
return realised on new life business written and is a good
measure of value creation in ING’s insurance activities.
ING improved on both measures in 2004, encouraging us to
continue with the implementation of the new strategic focus.
MANAGING FOR VALUE BECAME
THE CORE OF OUR STRATEGY.
CONCLUSIONS AND AMBITIONS
ING sharpened its strategic focus in 2004. Managing for value
became the core of ING’s strategy. Good execution, a focus on
the customer and active business portfolio management led
the way to improved results. But ING’s strategy does not focus
on one year. ING wants to offer continuity to its investors,
providing them with better returns on their investment in
the longer run. We will therefore continue to emphasise and
implement the renewed strategic focus, by optimising the
business portfolio, guiding the business lines towards good
execution skills and investing in future growth. The final result
of this strategy will be a business mix that respects ING’s
identity, offers more value-creating opportunities and rewards
our shareholders with a better total shareholder return.