Corporate Executive Board Company's CEO Hosts 2013 Investor Day (Transcript)

Jun.14.13 | About: CEB Inc. (CEB)

Corporate Executive Board Co. (NYSE:CEB)

2013 Investor Day Conference

June 14, 2013 9:00 am ET

Executives

Andrew Judt - Finance Director, EMEA

Thomas L. Monahan - Chairman and Chief Executive Officer

Kurt Reisenberg

Warren Thune

Stephen J. Meyer - Chief Commercial Officer and General Manager

Richard S. Lindahl - Chief Financial Officer and Principal Accounting Officer

Robert Morgan - Chief Marketing Officer

Paul Levett - Chief Product Officer

Haniel Lynn

Melody L. Jones - Chief Administrative Officer

Analysts

Gary E. Bisbee - Barclays Capital, Research Division

Timothy McHugh - William Blair & Company L.L.C., Research Division

David Ridley-Lane - BofA Merrill Lynch, Research Division

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Steven Shui - Stifel, Nicolaus & Co., Inc., Research Division

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Adan Wiesel

Andrew Judt

Okay. Good morning, everyone. Let's get started. My name is Andrew Judt, and I'm the Finance Director for the EMEA region of CEB. It is my pleasure to extend to you a very warm welcome to our 2013 Investor Day, which is being held live in our headquarters in Arlington, Virginia. We're also pleased to be sharing a live webcast event, a recording of which will be available for replay at the end of the day today at the company's website, www.exbd.com. In just a few moments, I'll hand the podium over to our Chairman and CEO, Tom Monahan, he'll get our program started in earnest.

Before I do so, I'll run through the agenda for the day. But first, I need to take care of one piece of business, reading through the Safe Harbor disclaimer.

To the extent that any non-GAAP financial measures are discussed in today's representation, you'll find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP, in the PDF of the supporting materials that the company will use in its prepared remarks this morning. That document can be found by going to the company's website, clicking the link to the Investors page and following the link to 2013 Investor Day. Please review the second page of these materials, which includes important information about any forward-looking information included in the presentation. This presentation webcast may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements among others, regarding CEB's expected quarterly and annual performance for fiscal 2013 and beyond.

For this purpose, any statements made during this presentation webcast that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, discussions of forecasts, estimates, targets, plans, beliefs, expectations and the like are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by important factors among others, set forth in CEB's filings with the Securities and Exchange Commission. Consequently, actual operations and results may differ materially from results discussed in the forward-looking statements. The company undertakes no obligations to update any forward-looking statements, whether as a result of new information, future events or otherwise.

So let me run through now the agenda for the day. Firstly, Tom Monahan, our Chairman and CEO, will run through some opening remarks and provide an overview of the business. And then Kurt Reisenberg, General Manager of the Finance, Strategy and Operations Practice and Legal and Compliance Practice, will talk about the growth potential of CEB markets. Warren Thune, General Manager Human Resources Practice, Information Technology Practice and North American Government Practice, will then talk through how we deliver business value through the provision of high-value content. Steve Meyer, Group President and Chief Commercial Officer, will represent how CEB is set up to drive predictable growth, talking about our channel structure and branding. Then Rich Lindahl, our Chief Financial Officer, will run through CEB's attractive financial model and why CEB is a compelling investment opportunity. After Rich's part, there will be a well-deserved break, around 20 minutes. And after the break, Robert Morgan, General Manager and President of our SHL Business, and Paul Levett, the Chief Product Officer of our SHL Business, will talk about talent management and measurement support. Haniel Lynn, General Manager Sales Marketing and Communications Practice and Financial Services Practice, will then take the stage, talk through new product development and the activation of assets to deepen and support key decisions. Melody Jones, our Chief Administrative Officer, will then take the mic to discuss scaling talent and technology to enable our work and to enable the growth of our business. We will then move on to Q&A, and as we have a pretty tight schedule today, I specifically ask please hold off questions until that session. Thank you so much for your cooperation in that regard.

So without further ado, I'd like to introduce Tom Monahan, our Chairman and CEO. Tom?

Thomas L. Monahan

Just check, did everyone in the room get a binder? Put your hand up if not, we'll run one over to you. Good morning to those live here in Waterview and to those logging in around the world. I think you know pretty much, everybody, I'm Tom Monahan, Chairman and CEO of the Corporate Executive Board, CEB. Along with my colleagues, I'm delighted to welcome you to our Annual Investor Day. We look forward to sharing our priorities and updating you on our progress.

Let me start were we start most conversations internally, which is with our mission. We do describe ourselves very comfortably as a mission-driven company. CEB exists to unlock the potential of organizations and leaders by advancing the science and practice of management. There's a lot of code in here that matters a lot to us. But let me call out one particular point, we're about the existing potential of the people and organizations we support. Our goal is not to take work away from the companies, but to arm them with the insights and tools to allow them to perform to their potential. This focus, which changes the client economics of traditional professional services firms, has powered not only 20 years of industry-leading growth but allowed us to thrive in some very complex operating environments.

On this page, you can see just how well we performed across our run as a public company. Growing revenues and profits nearly tenfold in 14 years and generating TSR across the period of 523%. Even with this track record of performance, we believe that our best years are still ahead of us, you can see why, actually, on this page, where big trends that our businesses built to take advantage of. If you're in the business of helping people wrestle with complex problems that make it difficult for them to set direction and execute, this is a great time to be alive. Four of these vectors really stand out. First, the sheer size and complexity of even mid-market enterprises and certainly the world's largest companies continues to expand. One data point not on the slide, about 20 years ago, the smallest member of the Fortune 500 had just under $900 million annualized revenue. Today, the smallest member of the Fortune 500 has about $5 billion in annualized revenue. Even adjusting for modest inflation, that gives you some sense of the scale, reach and complexity that your average leadership team has to manage to execute its mission.

Second, the very nature of work itself is changing. Going down the page, most jobs are now knowledge jobs. This changes the calculus around selecting, measuring, deploying and motivating employees to get your company's work done.

Third, these knowledge workers now confront an overabundance of information. In simple terms, the amount of information coming at the average corporate employee doubles every 2.5 years, and yet knowledge where they're expected to be able to make sound decisions to do their jobs.

And finally, social and mobile technology connect people and organizations in new ways that have both huge promise but also a huge potential risk, they radically amplify either the benefit or cost of any decision you make.

Our ability to help leading enterprises manage this challenge not only give us the ability to go out and drive productivity on a global scale, but to create tremendous returns and outcomes for our people and our owners.

It's worth noting that while the foundational opportunity in front of our business has always been very attractive. Our business itself has not always been perfectly positioned to take advantage of some of these trends. To place our recent success and future strategy in full context, let me spend a minute just talking about the steps we've taken to position the business for the road ahead.

The recession of 2008, 2009 was obviously difficult for businesses of all stripes, and CEB was no exception. Our largest end market, financial services, was under severe distress, and corporate budgets everywhere were shrinking, sometimes very quickly. As a leadership team, we were determined not to explain away any difficulties in the business as a mere derivative of economic outcomes. We took a hard look at the business, looking for vulnerabilities and/or opportunities, which the challenging environment had laid bare. You'll see a quick census of what we saw on this page. To the left, our strength was self-evident, an unmatched installed base of large corporate CXOs, rich data, IP and strong content in target domains and a very strong deep bench of research and sales talent. To the right you'll see some weaknesses that were becoming evident to us. We didn't support core workflows as reliably as we might have liked. Our ability to launch additional classic subscription memberships was quite limited. And our brand messages were, at best, mixed and, at worst, sometimes conflicting.

Armed with this clarity, we took a series of steps not just to weather the downturn but to foundationally strengthen the business. You'll see these on the next page. It began with assembling the tremendous team we've got over here on the left side of the room. Gathering a leadership team that was committed to and capable of building a great business. Some folks came from within the business, some from the outside. Together, we then committed to 4 important objectives, going on the right-hand side of the page. The first and most painful, I remember the meeting where Haniel, Melody and I decided that the really important thing to do was truncate the product set. Warren missed the meeting so he got assigned the task of sunsetting about 20% of our product portfolio, allowing the revenue to run off over the next 5 quarters. It's not an easy thing to do, certainly, in a public company context, but it freed our team to focus people, market capacity and product development energy on our strongest areas, deepening our commitment and reaching our workflow support to our strongest potential opportunities.

To support this focus, we restructured our channels globally, organizing our people against great service and to understanding deeply the work going on in our core buying centers. Our goal, not surprisingly, was first to help members realize great outcomes from our work and then to use these strengthened relationships as a platform for future growth.

Moving down the page. We buttressed this channel restructuring with additional investment in technology and advisory layers in our business, creating more than 300 new tools that linked our insight to member work and incorporating senior advisers to activate our engagement in key member decisions.

And finally, with all that in place, we resumed both product development and selective M&A to create richer, more powerful bundles to support key member executives. We'll talk more about what we got built across the course of the day. But that inflection of the business had its grounding in the realistic assessment of what we needed to be to succeed.

Key to this new strategy was an intensive focus on 5 core domains, corporate functions that service our key buying centers and key decision centers for the larger organizations, you see them listed here on the page, to the left, on Page 10: HR, finance, legal regulatory and compliance, marketing and sales and IT. We call these the corporate core. We believe that this focus creates a platform for us to create unusual value, first for our customers and then for you, our owners. We talked a lot about -- we've talked, over the years, a lot about our commitment to these buying centers, "Why can't we talk as much about why we see the world through this lens? Why do we kind of tilt the world on its side and not see it through an industry lens, which are functional lens?" It's a pretty distinctive strategy in a world where most information and technology and business services companies see the world through an industry lens first. Let me talk a little bit more about why we see such an opportunity in a functional view of the world, to the right-hand side of the page. First and maybe most obviously, these roles are present in every leading enterprise globally, which allowed us to build scale businesses, rich data sets and powerful resources.

Second, most of the challenges that functional leaders face are shared broadly across industry. I mean, whether we're talking about succession management for heads of HR, information security for CIOs, law firm costs for general counsels. This commonality of challenges creates rich fodder for performance improvement and innovation. People can look across at someone else in their job and take ideas, data and tools and apply them immediately.

Third, really important, functions are where talent lives. CEOs like myself talk all the time about lying awake at night worried about talent. We don't worry about people, generically. We worry about specific skill gaps that are located in our core corporate functions. It might be types of engineering talent we care about. It might be sales people in certain markets or in certain capability areas. It might be patent attorneys. It might be marketing skills in certain market segments. We worry specifically about talent that has specific professional skills and is located and lives its career inside these core functional areas.

Fourth, functions are where the buck stops in terms of big-dollar decisions. Think about the CapEx budget coming from the CIO or heads of HR and their massive recruiting budgets they control.

And the last point is actually really important, most workflows and hence most of the most important technology platforms are organized by function, not by industry. Think about ERP systems for finance, CRM for sales and marketing, performance management systems in applicant tracking systems for HR, et cetera. What this means is that the most widely used data elements and the most common workflows are more common by function than by industry. That creates a huge opportunity for us because we're able to norm data and support common workflows through this functional and technology-based view of the world. The good news for us is this has become even more pronounced, as more and more large companies adopt cloud-based solutions and hence operate with more common operating models, creating more common data elements.

Let me just double-click for 1 second on the big-dollar decisions portion of the conversation. Just 2 examples of how our work helps people make and execute important decisions. To the top of the page, the cost of a bad hire. Your average Fortune 500 company will hire, give or take, 3,000 people this year, and that's in the professional roles alone. The difference between doing this well and poorly is worth almost $5 million, if you triple the data at the top of the page, which is organized by 1,000-employee chunks. And this doesn't include the cost of diffusion, chaos and cultural degradation, if you make that decision wrong repeatedly.

Certainly, the cost of a failed leadership transition, which occurs every 3 or so years at the CXO level, is huge. A successful leadership transition is worth more than 3% of revenue, about half of them fail. These decisions are just a few of the opportunities we target, big-dollar decisions made regularly by the people we support, where getting it right matters hugely.

Flip on Page 12, you can see what happened in the subsequent 3 years since we got through the bulk of the change effort we drove. To the left, CEB segment contract value, which is a good proxy for organic growth, growing at the high end of our 8% to 13% target range. To the middle of the page, revenue run rate, augmented by some selective acquisitions, growing even faster at about 25% CAGR. And even with some onetime step up investment in SHL segment flowing through, our run rate EBITDA growing at about 21%. We have a lot of work to do, but we're encouraged by the early returns from our repositioning of the business.

Jump to the next page, Page 13. About a year ago, a long-time investor, a really long-time investor, I think, has been in the stock since the IPO and has maintained their stake since then, interrupted our conversation to remark, "You guys are going to be the only company that went public in 1999 that still have some of the same slides from the roadshow." And then he remarked, "I can't decide whether this makes you brilliant or lazy." Hopefully, a little of both. It is one of the slide -- this is one of the slides that hasn't changed all that much over the years. 476 companies went public in 1999, only about 20% actually bothered to include anything about profit in their roadshow. Guess how that worked out for those of us who watched that unfold across the next few years. We're the only ones not talking eyeballs in 1999 and it turns out that was a good idea. We talked pretty clearly about doing 4 things to build the business: one, retaining and growing existing customers. If you think about this, this is a business predominated by subscriptions, recurring revenue and an unmatched, large-company, large-cap customer base. Job 1 and probably jobs 2, 3, 4 and 5 is to retain and grow revenue from our existing customers. Our average customer, across all our market, pays us between $75,000 and $95,000. Our largest 200 customers pay us an average of $800,000, a number of which has been growing rapidly across the past several years. And our largest customers pay us north of $2 million annually. Not a single customer, globally, buys half of what they could from us today. Kurt will take you into the math in more detail here, but job 1, every day, at CEB is ensuring that every member realizes immediate tangible value from their relationship with us. Nothing else in the business that's interesting to us happens until this does. This paves the way for growth across all our product line and creates a great economic platform for good returns.

This is important work and, thankfully, a good news story. Through Q1, you saw contract value per member company increase at a 6% annualized rate, always something we can prove, but we're pleased with the impact we're having on clients and we're pleased with the opportunity that creates for us.

Job 2, to the middle of the page, is adding great new customers and great new logos to the member and client rosters. We do this through our growing middle market team, targeted international operations and an increased marketing investment. Over the last few years, we've consistently added several hundred new logos a year, each one creating both immediate revenue and becoming a foundation for future cross-sell opportunity.

Finally, to the right, we have high-quality new products that leverage both our incredible installed base and our rich set of intellectual property. Fourth, this allows us to build a firm that hits a targeted organic growth rate of between 8% to 13%.

Let's spend a minute on each of these drivers. You can assume, the rest of the day, we'll be going deep into each one of these, how we think about it, how we designed the firm and how we set ourselves up for success in the future. Let me just ring the conversation.

Retaining and growing our existing customer base. This starts to the top of the left-hand side with great must-have content. Insight into the economic levers that define success for the people we support. We wrapped that great insight into performance levers, powerful predictive assessments, rigorous documented best practices, rich quantitative and qualitative data sets. We've combined this with great technology platforms and targeted device and education and deliver it through high-value, high-impact sales and service.

To the right you see what happens when we do this well. First, we keep and grow our installed customer base, share a strong wallet retention at the top of the page. CEB segment at 100% north across the past several years and the SHL segment in this -- approaching the same zone. Just off the page is, we know that a really important part of this is creating new features and new usage patterns to drive price and power. We target an annualized 3% to 5% price increase and have consistently realized this. Strong wallet retention and pricing power are the foundations of customer growth. As I mentioned through Q1, we grew CEB per customer at 6%. And to the bottom of the page, you see that we grew our largest customers even faster. Our largest customer is now paying us $800,000, top 200.

Second big lever here is adding great new logos. They're important because they're not only a near-term source of revenue, but a platform for future cross-sell. Achieving this requires a disciplined approach on several fronts. First, having a system that routinely expands the sales force at a double-digit rate. At our scale, this requires great recruiting, great training, great coaching and development and great deployment on a global basis.

Second, a really disciplined process for selectively investing in key growth markets, putting more resources to work with the near-term opportunities even more attractive. Right now, our focus is on SHL North America, Asia-Pac at mid-market.

And third, establishing a strong brand that links our resources to the needs of our key buying centers and allows us to activate a series of creative marketing campaigns that bring customers to us and accelerate the efforts of our strong sales organization.

Let me double-click on the brand for just 1 minute. This is an area where I think, as a company, we've explained that we've historically under-invested. We steadily invested to increase the clarity and reach of our brand, and expect to do this even more as we incorporate SHL brand equity with our own.

The third and final lever of growth is introducing exciting new products. There are 2 parts to this objective, the first is obvious. We invest energy and resources, making sure that every product we operate gets better every year. New content, new features, new tools, all informed by evolving needs in the marketplace. This discipline is vital to creating value for our members and our clients. And it's critically important, both in terms of driving price increase and allowing us to add new customers to our existing product line, which is one of the most economically levered things we can do.

On the side of this, parallel to this, we also invest to create, truly, new products each year. And while these contribute modestly to in-year revenue, over time, they become a really vital elements of our growth strategy.

We asked 5 key questions in evaluating a new product launch. First and most importantly, does it solve a big problem that people will spend money to get solved? Second, the next 2 questions point to our emphasis on renewability and scalability. Is this a problem shared by many companies? That's the pathway to scalability. Does the problem recur? That's the pathway to renewability.

The last 2 center of our ability to create sustainable comparative advantage, is the point-of-sale someone we already serve and we're already in a conversation? We understand how they make their bones at their job. And then last, does it strengthen or leverage existing intellectual properties? Does it make us a stronger firm? To the right, you'll see -- I'll double-click on that subject of new product development that we do through M&A. Generally, we start with a clear view of the target customer, a problem our customers have that we are well-positioned to solve. We then ask whether somebody else has already built the intellectual property or technology to let us move more quickly. As you see at the bottom of the page, we're also particularly interested in capabilities that scale across our 5 domains. You can imagine how attractive the SHL business was to us when we looked through these lenses.

If you look at the SHL story, it puts CEB in a position to continue leading the analytic transformation of talent management. First question we ask, is this something people care about? Is this something people willing to pay dollars to get solved? When we asked our member HR executives whether they plan to increase investment and talent management analytics across the next several years, 95% of them said yes. And the overwhelming majority of them indicated they wanted our help in doing so. So the acquisition of SHL put us in a position to lead the transformation of talent management into being a truly analytic discipline.

To the right of the slide, you can see we now have richer more valuable bundle to engage our key HR customers with, that's the blue stripe going top to bottom. Coupling that, we also have a powerful opportunity to go left to right to take CEB's distinctive understanding of key workflows and key talent pools across the organization and business outcomes and marry it with SHL's deep insight into people, allowed us to create a rich array of new products. Robert and Paul will spend some time on what we've gotten built and what's ahead, later this morning.

Take one more minute just to update you briefly on the progress of the integration effort. To the left, you see the work already completed, that's on Page 16. We've integrated the core administrative functions so that we can operate effectively as a single company. We've also brought together our technology organizations to benefit from both interoperability and scale. We're comfortably on track to achieve the modest cost synergies we put out there in 2012 and probably far exceeding, if you look at some of the tax planning gains that we've realized and discussed.

The more exciting work is to the right. And here I'm also pleased with the progress, much of which we'll update you about today. There are 4 things we're doing to help 1 plus 1 equal 3 or more, as we bring the combined capabilities of the 2 companies to bear into the market.

First is making sure that we have a clear, compelling brand story that enables each of our colleagues globally to represent the full breadth of what we can now do. And this will serve as the backbone not only of great conversations, but allow us to activate some great marketing campaigns.

Second, we're going to supplement this with some targeted cross-selling efforts that take advantage of these powerful new messages and new capabilities.

Third, as I just said, linking our unique view of performance outcomes and drivers with our new depth on people decisions to create a rich array of compelling new products. And finally, using the full breadth of our research capability to add intelligence to every decision our customers make, and to build brand presence for our full suite of capability.

As happy as I am that work in Column 1 is all done, I'm even more excited about the fast progress we're making on the right-hand side of the page. Steve, Robert, and Paul will share some important milestones with you as the day unfolds.

The 5 core themes. We'll organize the rest of the day around the 5 themes we'll repeat ad nauseum in describing our business. First, we target an enormous addressable market that is all about areas of proven client need. Second, at the center of our business is really high-value content that we activate through great service and technology, that it's must-have for people looking to succeed in their jobs. Third, we've engineered a business system that creates predicable growth through subscription models, great service and high wallet retention. Fourth, we've engineered a business system that creates high profitability and marries that low capital intensity to pretty strong cash flows and attractive financial returns. And finally, we have a very clear growth strategy that allows us to sustain and accelerate momentum in the business in the years ahead.

I'll end where I began. Thanks very much for committing your day to understand our business better. We're excited to share our progress and engage with you as we bring you up-to-date on the CEB story. Thanks very much.

Kurt Reisenberg, a colleague of mine in CEB's corporate leadership team, will talk a little bit more about how we think about that massive addressable market. Thanks, Kurt.

Kurt Reisenberg

Thanks, Tom. Good morning, everybody. My name is Kurt Reisenberg, I've been at CEB for the past 19 years, and I currently run our finance strategy and operations practice, as well as our legal and compliance practice. Across the next 10 minutes or so, I'll be trying to add some new perspectives on CEB's organic growth potential, both in terms of our more traditional businesses and also the new potential we see stemming from our acquisition of SHL last year.

In doing so, there's 3 main points that I want to leave you with: first, there's still a significant amount of untapped potential for CEB's traditional products and services in the large corporate market; second, our increasing momentum in the middle market segment adds more than $1 billion in additional growth potential; and third, our acquisition of SHL will allow us to tap into a $4 billion selection and assessment market that is growing rapidly. We'll dive into those one at a time, but the sum of the parts is really a potential feature for CEB as a multi-billion-dollar organization, if we're able to execute effectively against the potential in front of us.

Now I know that multi-billion dollar sounds like a lot, but it's really only the tiniest of slices of the $300 billion professional services market we've spoken about before, or as you can see on this page, a small fraction of about $124 billion consulting market, just in the U.S. Just by winning 1% to 2% share of the categories on this slide that are core domains for us, such as HR consulting, finance consulting, IT or marketing, and you're at $1 billion pretty quickly.

To size the potential more specifically, we conducted a bottom-up analysis of some of our key markets. I'm going to go slow here in explaining it, because there's some data on the slide you haven't seen before. On the left, we looked at our current market penetration of large corporate customers, meaning, companies with more than $1 billion in annual sales in North America, and what their typical spending patterns look like. You can see on the Y-axis, of the 2,750 companies that we believe to be viable customers, 2,245 currently subscribed to at least one of our products.

As you can see on the X-axis, the average spend of those 2,245 customers is $162,000 per year. Quickly doing the math, that's approximately $360 million we've already captured from this market. But notice further on the right of the X-axis that our top 100 customers in this market spend almost 6x that amount, $962,000 across all the products and services we currently offer. If we were able to penetrate all 2,750 of those companies and get them to spend as much as our top-tier customers, the total market potential is $2.6 billion with just the products that we currently have.

From the shape of the blue box on the page and all the white space next to it, it's clear that the major opportunity here is to retain and grow existing customer revenue. In other words, move our average spend closer to our current top 100 spend. Now you might be wondering, how believable is this? Well, what's important to note here is that our list of top 100 customers doesn't just comprise companies with the largest staffs and budgets, for instance, the Fortune 100. While there is certainly some of the largest North American companies on that list, our list of top 100 spenders also includes, for instance, a $1 billion in revenue asset manager and also a nonprofit association. So we're not worried that only the biggest companies in the world can afford to spend that much with us. We've seen these levels of engagement and spend even with some of the smallest companies in the market.

Besides, to put this into context, my legal practice has the most exhaustive benchmarks of legal costs in the industry. We've tunneled into the matter management data for almost $10 billion worth of billings and normalized it across cases and companies. $962,000 buys you nearly 5 whole months of legal help from a single associate at a New York law firm in her first year.

So on the right, you'll see a similar analysis of a large corporate market and all geographic regions outside of North America. A smaller percentage of this universe has bought their first CEB product. And there's still a significant delta between our average spend and the spend of our top 100 customers in these markets. So we have a dual opportunity to both add new customers and also raise the spend levels of the customers we already have. Everything on this page adds up to a significant amount of potential for CEB's traditional products and services in the large corporate market, $3.6 billion that's immediately addressable without launching anything new. But we also see near-term opportunities to make these graphs bigger, so to speak, by increasing the number of things that our customers could buy from us. Those data points on the top 100 spend will invariably move to the right as we introduce exciting new products to our large enterprise portfolio which, in turn, will increase our potential market size.

Just to complete the picture of our traditional products and services, this next slide shows a similar analysis for our middle-market business. As a reminder, this market includes all global companies with between $100 million and $1 billion of annual sales. Of the 17,000 companies in this market we think are viable, we've convinced 2,600 companies to buy at least one product from us, and the average spend of those companies is $27,000. Our top 100 accounts spend $85,000 with us, annually. And just like the large corporate market, we think this number will increase over time, as we aggressively launch new follow-on services to our current customers. So again, we have significant opportunities to penetrate further up and further across this graph to the hypothetical point in which 17,000 companies would be spending $85,000 with us or $1.4 billion in total.

So that's CEB's traditional products and services. Let's turn now to the potential we see in our new SHL segment. As Tom already mentioned, the centerpiece of CEB's strategy is to lead the analytic transformation of talent management. The pairing of CEB and SHL makes this possible, and it also expands our market potential pretty significantly, and here's what I mean by that. This slide just represents the HR domain, which we saw a few slides ago is a $12.2 billion consulting market, just in the U.S. We estimate that the average large company spends about $7.5 million per year on human resources, consultants and vendors, as you can see on the bar on right. HR is one of our strongest functional domains, that said, with CEB's traditional product set, until recently, we tapped out a little short of $1 million of spend from the typical HR department at a typical large company. In other words, if a member of the Fortune 250 subscribed to every HR membership we offer, bought a healthy amount of leadership training for their high potential staff and engaged us to conduct their employee survey each year, we would still hit a ceiling of about $875,000 in annual revenue from HR-related products. But with all of SHL's data, technology and expertise in employee selection and assessment, CEB will be able to capture a significantly larger portion of the typical company's HR-related spend in the future.

And let's remember that HR professionals don't have a monopoly on talent issues. As Tom alluded, many of the other functional leaders we serve have their own personal talent headaches. And the universe of talent-related spend is greater than the universe of HR-related spend. The combination of SHL's expertise and talent analytics and CEB's functional domain expertise also allows us to open up new pockets of talent-related spend outside of this $7.4 million spent by the human resources department in sales, finance, IT, R&D, call centers and any other function that employs a critical mass of employees who define themselves by the function in which they sit. As you'll see on the next slide, the number is getting very large, as a result.

My colleagues Robert Morgan and Paul Levett will be speaking extensively about our SHL segment's capabilities in about an hour. So I don't want to steal any of their thunder, but at the highest level, we estimate that the market for selection and assessment products sold to the HR department or to anywhere else is growing at a 9% compound annual growth rate to the tune of already $4.6 billion in 2013. And that's separated into 2 subsegments: first, the pre-hire market, the selection piece of selection and assessment, predictive behavioral tests that can be administered to hiring candidates in order to determine if they would make good employees, that's growing at 7%; and second, the post-hire market, in other words, assessing employees you already have to see if they have the skills or exhibiting the behaviors that you really need, that's growing at 11%. As you can see on the following slide, we've only scratched the surface of this market, to date.

These are some market share charts for both the pre-hire and post-hire markets I just spoke about. SHL is the largest selection and assessment provider globally, but as you can see on the light-blue sections in the bottom, still has less than 7% market share, currently, in both pre-hire and post-hire markets, there's a lot of running room. The remaining market is divided into 2 parts. Orange on the slide represents other vendors in the space, a fragmented market with many smaller players that have less scale and brand recognition than SHL. We believe that we can win share from these firms over time. And dark blue represents the part of the market where companies perform their own assessments. We believe that, particularly in the pre-hire market, this approach is fraught with risks. You've probably seen headlines, recently, of companies using proprietary hiring tests were not deemed fair and defensible, creating massive reputational problems and legal fees for them. Scientifically validated tests performed by an organization that has specialty expertise in this area are superior to home-grown approaches for a whole host of reasons, not just avoiding these risks but also delivering more accurate results or allowing for the possibility of benchmarking against other companies. And so, we have an opportunity to educate the companies in this dark blue section about the benefits of outsourcing this activity to companies like ours that are better equipped to do this well.

Both approaches will allow us to tap into this more than $4 billion of market opportunity.

So just to recap, we still see a significant amount of untapped potential for CEB's traditional products and services in a large corporate market, $3.6 billion in total. Our increasing momentum in the middle market segment adds more than $1 billion in additional growth potential. And our acquisition of SHL will allow us to tap into $4 billion of selection and assessment market opportunity that is growing rapidly.

We've got our work cut out for us, all we need to do is execute over time on our product and sales strategies. And on that note, I'd like to introduce my colleague, Warren Thune, who will be talking to you about how our content delivers real business value to our customers.

Warren Thune

Great. Thank you, Kurt. Good morning. My name is Warren Thune. I work with our HR, IT and North American Government Practices. I have the pleasure of picking up the story today on how we go after that large addressable market by helping members create business value from our high-value content. This intellectual property is at the center of what we do and how we create value for executives.

Six themes to cover. Executives face common challenges, even as topics and projects change. CEB taps its network of smartest executives at the world's greatest companies to build valuable products and services. CEB's talent, network and unique research process are core to building high-value intellectual property. CEB's always-growing archive of content gives us a headstart on any new research initiatives. And CEB brings a cross-functional perspective that helps executives drive maximum impact from across the enterprise. And lastly, CEB's members avoid costly consulting through differentiated tools and services.

So let's get started. At the core of our business are some very intelligent people who have been creating proprietary content for a very long time in the form of data or documented best practices. You can see the dimensions on the left hand side of the page, over 500 researchers across more than 50 domains with functional expertise in over 220 disciplines. They annually produce more than 200 major unique research studies that, over time, have allowed us to build up a library of more than 300,000 tested and proven best practices.

We conduct over 30 million assessments annually, leading to 100 million-plus database of assessments that could be used for benchmarking and market studies. We produce this rich intellectual property in 3 ways: operate scalable content and services, mostly in the form of bundled subscription products via our leadership council programs; middle right, assessment capabilities for individuals and organizations; and on the lower right, products and services to hardwire best practices into an organization to enabling technology, target advisory assistance and executive education.

We have a very well-defined process for how we research shared member challenges, and that process generates much IP that you see on the page. It's what we train new hires on in their first year with CEB and something we adhere to across all of our leadership council programs. I'll use an example from Human Resources and CEB's corporate leadership council program to illustrate.

This is our largest leadership council. Across more than 20 years, we've built a program to more than 1,000 companies globally and more than 175,000 professionals. The chief human research officer, CRO, is the senior member executive who we work with. To share their responsibilities, you can see that on the middle left side of the page. And across this broad membership, just to give some perspective, the annual budget is between $10 million and $30 million. To set our research agenda, we match the challenges we've heard with members across the year with results from the annual membership poll that we do to make sure we're not missing anything. In the middle column you see some of the most pressing questions our HR executives ask and are currently faced with, one of which being how can we achieve significant improvements in employee productivity across performance.

The right-hand side is an overview of how we address any one of these challenges. The manner in which we execute these steps driven by a process, the quality of our research teams and the amount of resources we can bring to bear, given the size of the membership, make CEB's content game changing for our customers.

Net, 20 years of building proprietary process in the relevant assets yields right answers for members. Let me take you through how we do it.

First, we tap in a library of work CEB has already completed, and this is a huge advantage for CEB, right at the outside of any research project. For nearly any issue we've already done the research on a related challenge or issue that the -- and the question at hand, and quickly understand the baseline on where our members have come from on that challenge. This allows us to rapidly establish what prior practice has been and quickly identify new trends and new ideas. We then poll hundreds of members to identify the new shared challenge they are facing and make sure we really understand the challenge from HR's point of view.

Importantly, we also source insights from our member's business partners, so going beyond the HR team and getting these from CFOs, CIOs, heads of marketing and sales, as deep into CEB's membership base as we need to go, to understand the challenge from outside of HR. This allows us to sharpen our understanding of the exact nature of the problem. And sometimes, we're identifying issues that the HR executive might not even know that they have. We work towards developing and testing these hypotheses and challenges to test conventional wisdom. Members don't renew with us year after year after year to hear us tell them what a good company does or to -- for us to summarize things that are already readily available for them. They want to know what the best companies are doing and how to overcome very specific challenges.

We then survey thousands of HR professionals, employees, broadly, and HR's line business partners to test our hypotheses and generate the broad data needed to eventually link successful corporate and employee actions to financial outcomes. That breadth of survey power allows us to do a couple of things that are unparalleled. Because we survey both HR and business leaders from the same organization, we're able to do analysis, which allow us to look at direct relationships between their responses.

Therefore, instead of just providing a window into the view of HR leaders, we can supplement that view with what business leaders are thinking and what business leaders are experiencing. And by having responses from both parties, it allows us to look at the business impact of HR strategies.

Net, we can quantitatively prove what the best companies are doing, actions that are yielding statistically significant financial results. So now that we know what members are doing and what works, and we know which members are successful, we capture member practices once they have their own proven track records of success in ROI, and then we can teach that back to the rest of the membership.

So as you can imagine, we don't use the word best practice lightly. When we label a solution a best practice, it only comes with the level of rigor that we've put behind it. In other words, when we say something is fast, we actually mean that we've systematically proven that it's effective, that it's better than what over 90% of what other companies are doing. And we've been doing this for over 20 years. We know how to get after right answer from member and get them the next steps so that they can improve their outcomes.

On the next few pages, I'll take you through an example of some high-value content we delivered to HR executives last year.

One of the questions HR executives were asking CEB is how can we achieve significant improvements in employee productivity and performance? We were getting this question much more often than we had in the past, given that executives across the C-Suite were feeling an acute pressure to get more performance out of their existing employees, as their companies were looking to drive productivity gains in a low-growth environment. Narrowing this challenge down to clearly researchable area down to 3 questions, 3 things: defining what members meant when they said significant improvements in productivity; understanding just what employees could deliver with current approaches; and determining if current approaches could ever deliver the productivity increases that were needed.

On the last side of the page, we're able to go to 3 different constituencies: Executives outside of; HR, managers across the company; and chief human resources officers. So that going far beyond that, just that HR management base. And we were to triangulate it on what significant improvement meant. What is shown here is just one output of that study effort, and it turns out these constituencies were fairly consistent in defining significant improvement as 20% to 25%.

On the right side, we did extensive employee survey to understand just how much these current employees had to deliver upon on those needed improvements. And it turns out, there was very little.

Top right. Employees are saying they're seeing increases on workloads versus 3 years ago. And the interesting thing is when we asked this question several years ago, a much smaller proportion of employees were saying that their workload had increased across that 3-year period.

This gets back to my point from the previous page. We can use our prior research to establish a baseline to build from and very powerfully identify new trends, or in this case, limits to what people can do.

Bottom right. And here is where we can see the employees across timelines even more clearly. 55% of employees in 2012 said they had too little time to complete their work. 10 years ago, only 32% of employees agreed with that statement. It's a huge shift in 10 years.

So it's not this is just one of these things where life has always been hard. Coming out of the recession, the burden we've placed on our employees to do more with less is reaching its limits, a limit that will not allow for another 20% increase. And the solution is not to try to just get more productivity in the way that we have from the last several years. Rather, we need to figure out a way to manage employee performance to a breakthrough level in a different and kind way. And in fact, hitting that target is made even more challenging by all the changes we're experiencing in the work environment. Let me take you through that.

So the work environment we're facing today is very different than just 3 years ago. From a global employee survey we've done, we see that there's greater interdependence. 67% of employees collaborate more with others to get work done than they did 3 years ago.

Geographically dispersed workforce. 57% of employees work more with co-workers in other locations than they did 3 years ago.

Greater knowledge intensity. 76% of employees spend more time finding and reviewing data and information that they had in the past.

And frequent change. The average employee now experiences a major organizational change every 7 months.

So to recap, the world has changed, organizations have changed and the way it worked has got changed. So other than that, we're good.

To achieve breakthrough performance in this new environment, we need a new model of high performance. And with that, let's look at the bottom of the page.

Let's start on the far right, because as I cover a couple of pages back, we want to start with outcomes in mind, looking specifically at how employee performance and what kind of employee performance has the biggest impact on business unit profit and revenue. So with that outcome in mind, we wanted to better understand how to drive and measure employee performance in a way that better correlates to those business outcomes. We know that individual execution still matters, how well an employee accomplishes the specific tasks and responsibilities that are part of their role, and that's what we mean by individual task performance. But we also know increasingly, it's how employees have an impact and contribution outside of the specifics of their individual tasks. And that's what we're calling network performance.

Network performance is about the way in which employees have extended impact on the performance of others, the organization and more broadly, how in turn they can leverage others to improve their own performance. So it includes things like, did the employee introduce improved processes, new products or ideas that others in the organization they could take advantage of? Did the employee improve their own working methods or techniques by learning from others? Did the employee transfer great ideas or skills or knowledge to other parts of the organization? Together, an employee's individual test performance plus their network performance is what leads to their enterprise contribution. That goal, enterprise contribution, really captures the required shift in our performance management approach for companies to hit that 20% improvement that they need, going beyond individual tasks towards total contribution of employee to the enterprise. Let me show you a bit more of what I mean.

On this page, you'll see the economic impact from improving our network performance, as well as 2 snippets from over 10 complete member case studies that came out of this study. And we'll show how to drive more network performance and therefore, more enterprise contribution. On the left side, we see network performance is more than twice as important today as it was a decade ago.

Note the vertical access are comparable, important to business unit profitability. We're tying employee behaviors to profitability. CEB can make this link because beneath the network and the resulting data we can work with is that enormous data set. And the individual company can't do this in-house. They're just limited to their own data. A consulting firm can't do this across a couple or a handful of engagements that they do. When we go back to the data and look at the relative importance of individual versus network performance, 2002 to 2012, we see that today, that blue bar, network performance accounts for 49% of the impact on business unit performance, compared to just 22% in 2002.

And it's not just when it comes to knowledge workers. It's not on the page, but given the sample size, we were able to test this across geographies, industries and functions, and saw that shift to network's [ph] performance was universal.

Once we've statistically proven to members that network performance matters to profitability, we can show member best practices on how to improve network performance. And I'll show you one of the examples on the page.

So with Juniper Networks, they have recentered performance management on future capabilities and needs in addition to past performance. They've done this by replacing the traditional performance review scores and ratings, with a framework group focused on talent scenarios, so which is their way of effectively measuring relative enterprise contribution of employees going forward.

Replacing the traditional backward-focused performance appraisal with a forward-focused conversation that's about driving future enterprise contribution rather than just delivering a message about prior performance.

We have many pages detailing Juniper's approach so that CEB members can understand what Juniper did them, how they did it and how to replicate it. So this is just with this one small box and definitely not doing the case justice. But know that besides seeing great increases in employee productivity and after implementing this, Juniper saw a 75% reduction in their poor employees. They saw those poor employees self-select out of the organization. So think about that, the transparency of this solution had the low-performers removing themselves from the business.

So let's go back to the challenge that our HR executives were finding. Put yourself in their shoes. The question is, how can I achieve improvements in employee productivity, given that I need to get more performance out of my existing employees in the current slow-growth environment? Incremental improvements won't work. It won't get you in the needed 20%. It turns out that the frame you're looking at the problem is all wrong. You're the head of HR, how do you solve this? You don't even fully understand the problem that you're facing. The nature of work has changed and your old productivity enhancement plays won't work. CEB is the only company that can, driven by the quality of our research teams, the amount of resources we can bring and the size of the membership they can get after this proven type of high-value content the executives need to do their jobs well.

Now this great IP doesn't stay within the HR practice at CEB. These findings can be applied much more broadly, and we can see that on the next page.

Armed with our insight about network performance is much more of a driver of profitability than it was 10 years ago, there are many opportunities to bring that teaching to executives outside of HR. The HR practice shows its findings across all of the CEB's functional research teams, and those teams look for their own member challenges that may be due in part to these changes in the new work environment and the increased need for network performance. Four quick examples of best practices that increase and enable this network performance, these were all found outside of HR, that we were able to teach back to these respective memberships to great impact. So within IT, Brocade CIO investing in capabilities to enable network performance with our own sales and services net app, driving the increased network performance within customer service. Within the quality function, readily building a much more efficient network performance of culture. And within finance, DTT Energy, driving accounting productivity in their judgment-based environment.

This makes it clear that insights on talent are applicable across the executive suite. But it's not talent insights that have that pan function impact. Almost all of our insights across CEB can be leveraged outside the function that they were created at. For example, many of the principles we find in finance are available to our members in HR, IT, sales and marketing functions.

So that's the highly leveraged impact research we can have outside of the function where it was created. Let me quickly go back and show you how much we leverage, we get from this research within the HR function.

Research efforts, like driving breakthrough performance in a new work environment adds to the already existing huge library of IP we have at CEB. This then fuels the ability for members to leverage our work, supporting renewals and driving new sales for us. So 2 columns, middle and right, to show you the multitude of ways just our HR members get after and use our content.

Online, we have best practices tools, benchmarks, frameworks that drive the massive archive of research that members get great use from. This is fodder for our 24/7 supportive members. For example, on the top right, we see 4,000 unique web users per month, generating 175,000 downloads. And members are not only downloading best practices. We have over 500 management tools, 100 broad best sets of benchmarks that allow members to leverage their CEB HR memberships to avoid costly consulting engagements. Our insights are shared via in-person sessions, such as our day-long annual executive retreats and via virtual sessions, such as webinars and E-learning. We host more than 2,500 attendees in person just to get an HR practice events. And 25,000 of those members attend webinars in a year.

Lastly, our materials are the platform for our advisory conversations, either in person or phone-based. I'll bring all these pieces together, including how we are working with the SHL assets on the next page.

Here you can see the components of our end-to-end talent offer. Looking at the arrows in the center, we start with the benchmarking and setting direction, go to analyzing and deploying, and lastly, to execution. We leverage IP coming out of our HR Leadership Council programs to lead into a broader CEB talent offering. Through this, we answered critical member questions that are shown in the blue font. Members ask, upper left, "What capabilities and outcomes do we need to drive corporate performance?" And CEB delivers the best practices and decision support, I'm just taking you through. Upper right, members ask, "Do we have the right people and processes for high performance?" CEB delivers integrated talent management solutions, leveraging CEB's unique IP in that talent space, SHL's talent management solution, CEB Valtera's workforce surveys and analytics, and CEB Leadership Academies learning and development platforms. So CEB's proprietary IP further differentiates these already-great products.

The best part of this is this integrated talent management solutions build organically, from regular member conversations we have within the Leadership Council programs on the challenges that our members are facing every day. There's no better lead than one that comes organically from a conversation serving members.

Bottom middle, members ask, "How do we hardwire best practice in?" CEB delivers tools and solutions that members -- to help members get real work done without the need for those costly consulting engagements. Examples of solutions include talent acquisition solutions, so increasing the quality of new hires while reducing the costs; tools to improve employee development, better enabling succession management planning processes; and tools and support to enable leaders in transition to a new role or job. It's a pivotal career moment for a leader and one that carries great risks for the leader, their team and the company overall. We're excited of what we've been able to build upon, coming from our base of research talent in the talent space, and we're looking forward to further leveraging our abilities in an integrated management solution space and the tool spaces.

So let me recap on the last page. Six themes I covered related to how CEB delivers business value through high-value content. Executives face common challenges even as the topics and the things that they look at change; CEB taps into its network of smartest executives at the world's greatest companies to build valuable products and services; CEB's talent, network and unique research process are the core of building high-value intellectual property; CEB's always growing archive of content gives us a head start on any new research initiative. CEB brings cross-functional perspective to that helps executives drive maximum impact from across the enterprise; and CEB members avoid constantly consulting through differentiated tools and services.

Thank you for your attention. Steve Meyer is next up, and he'll take us through how CEB drives predicable growth.

Stephen J. Meyer

Thank you, Warren. Good morning, everyone. For those I've not met, I'm Steve Meyer. It's a pleasure to spend time with you over the next 15 or 20 minutes. I'd like to drill down a bit more fully into our approach to predicable growth in our business. Very simply, no surprise, we think growth is good, but predictable growth is better. And I'd just like to share with you some of the aspects of how we approach that. As context, my responsibilities at CEB, here, include overseeing our sales, service and marketing, as well as our product planning and development globally, naturally working with a variety of colleagues that you're seeing here today.

As context, I've been with CEB just over 4 years. But that said, my positive experience with the organization goes back more than a decade further, originally as a consultant, being conscious of CEB's offerings, planting some aspects of what we have done traditionally. But also, I leveraged CEB resources in multiple stages of prior life as an executive at a mid-cap software company and at a Fortune 500 tech company.

I hope that a handful of things will be apparent in the perspectives I'm going to share with you. Just to quickly summarize those, first, CEB's forward business plan is consciously centered on multiple growth opportunities, so a multiple dimension platform for growth. Secondly, in pursuing those opportunities, we, very consciously, engineer many aspects of our business for predictable growth. So most notably, among those are the markets and products in which we choose to focus our go-to-market models. So how we market, sell, serve to create a strong platform for predictably identifying member needs and delivering value and expanding our wallet share. And lastly, our marketing, specifically our branding approaches, which are becoming an increasingly important element of this model to provide increasing lift to the business. Lastly, through these areas, I think you'll see several positive ways in which our SHL acquisitions starting to factor into that equation.

So with that said, let's start with a variety of growth levers. Now I won't repeat the market size and ground covered by Tom and Kurt. But stepping back, I'd submit that one of the most foundational aspects of engineering, predicable growth, is ensuring that our growth strategy is not single-threaded. In other words, that it's got a healthy focused mix, providing a platform to pursue predicable growth. And for us, as Tom alluded, this plan is built on 3 key levers: Retaining and growing rate existing members and customers; attracting new members; and additionally, introducing new products. We continue to be excited about each one of those levers and see great opportunity in each. I could equally highlight the set of market segment level by opportunity, for example, the opportunity increasing the value and business with existing, large corporate companies and new member acquisition, the middle market and international segments.

Now in pursuing those opportunities, we've designed for predictable growth, really, on several levels, as I've mentioned. First of those really is, as Tom touched on, that the heart of what we do is delivering products and services for a set of markets that have a significant base of large recurring needs. So we serve senior executives and their teams and at multiple levels in their organizations from the C level down to through their core teams. And that work covers multiple functions, centering on the 5 pivotal functions you'd see here. The corporate core, in essence, at most any enterprise, we do that with a disproportionate focus on the enduring challenges that those executives and their teams encounter repeatedly. This enables our services to be relevant year after year. And it enables us to build scale and expertise fueled by the best practices of our members, as Warren described. Each of those decisions occurs really, first, with an eye to driving real value for members. But -- as that enables us to earn the right to do more for them, but it's also with an eye to this notion of predicable growth. Very simply, in a world where functional executives and their teams are nearly continuously being asked to do more, and to do more with less on an even shorter timeframe at shorter fuse, providing high-quality easy access to insight and decision support continues to be a reputably attractive growth opportunity.

To make this more specific, when you click down further and look at the actual mix of our business, from the standpoint of the characteristics repeatability, you can see that our business mix is highly recurring in subscription-based. Now this is very true for our CEB segment, where approximately 90% of our business is subscription-based by nature. And it's more and more true every day in the SHL segment of our business as well. You could see the estimates here as well that the value of this is pretty straightforward, I think, from a financial standpoint. It enables us to have greater financial visibility and predictability than we otherwise would. But I'm sure it's also great from an operational standpoint, enabling us to spend a disproportionate amount of our time and our energies on delivering value to existing members, which fuels renewal and then ultimately, cross-sell.

Switching gears. Let's move a bit to the go-to-market aspects of our growth model. Now those who have followed CEB for some time will recall that our go-to-market structure has transformed quite a bit in recent years to provide just a more sophisticated multichannel model. The essence of these changes has been to make it more appropriately fit to the different needs and different growth levers of different markets and segments. It's better equipped to deliver value and better equipped to smartly identify and pursue additional sales. It might be helpful to me to outline this model in a bit more detail than we've discussed previously, and that really starts with the most basic aspect of our channel alignment. So simply characterized here, CEB's channel structure for years was a very successful but very narrow model. It's designed from the product forward. For each product, there is a dedicated captive sales and renewal channel. In other words, designed with a relatively narrow focus for any given rep, which is very positive in terms of aiding product expertise and focused product expansion. This is a smart, pretty classic approach, and many companies refer to it as a transactional go-to-market model. It's a tried-and-true starting point for any company, that single-product or narrow-body portfolio.

Now like any successful company, CEB outgrew this model. What, at one stage, is brilliant becomes far less so when you add multiple different products, particularly in places where you're selling to the same buying centers. So it goes from this simple channel experience to, in essence, that model being replicated. A few of the many products and customers seeing many parties approaching them in parallel and selling in-service not organized very naturally, the leverage segment and member-specific insight across products.

So in recent years, this has been replaced by the natural next-generation go-to-market model that applies different channel structures to different segments. I'll describe it to you this way. If you think about reversing the flow and organizing around customers, by and large, and different buying and selling environments, so here, what you see is different types of channel configurations from inside sales to field sales and ranging from individual account management to small team-based key account teams, and in some cases, very specialized field sales teams. To decode a little bit how this plays out, for segments where there are lower price points or perhaps, we have somewhat narrower portfolio of offerings at this stage, our traditional sales and service model remains appropriate. With inside sales and account management professionals and our middle market areas, a really good example of this, you'll see it on the left. For various segments where we have a broader set of offerings and or larger price points, and this is, at this stage, the largest share of our business, we deploy a different model now. The segments, such as large enterprise members, in most of our practices are good examples. And in these, we have far more field-based sales professionals, generally geographically closer to our members. And we have dedicated new business development sales executives, charged with bringing in wholly new accounts, as well as account managers whose roles are structured in a fashion that spans value delivery, as well as account expansion -- account growth across a broader base of products. For example, an account manager in that middle model might sell to finance executives and their teams everything that we have across that whole domain.

Our sales professionals in this environment work to become masters of the members' functional domain or responsibility areas and the customer overall. And as a result, they're focused on that for more than simply one product. And this model enables us to more fully and predictably develop and leverage understanding of the member need and seamlessly cross-sell a broader portfolio of offerings to add value in those accounts.

For a select number, a variety of our largest accounts, for example, we deploy a variant of this model, which is key accounts, the key accounts model. Offering the full breadth of CEB segment products, it's a small team-based model that ensures continuity of account coverage and a mix of skills and super strong unified account planning across our full range of Leadership Council offerings.

Lastly, in some other situations, specifically where there are select products with very different buyers or in segments or geographic locations where the portfolio is far narrower at this point, we deploy specialist sales teams. Now our professional services or solutions teams are a good example of this at this point.

So net-net, now what we have is a multichannel, multi-geographic model built to support expansion of the type that you've heard my colleagues described. So it's, in essence, a chassis for growth across products and markets.

Now if we switch gears a little bit, I want you to understand, at a slightly deeper level, that we equip the teams within this role for success, and doubly, for success and renewability of offerings. So in a subscription-based model, predictable growth begins and ends with individual renewals. And we equip these teams with proven methodologies, approaches, tools and routines and train them to execute that successfully. So like any information services business, in our business, usage of the services matters. It's one of the most highly predictive indicators of propensity to renew a subscription year upon year. And so we spend a lot of time in analyzing the breadth, depth of usage of the services and proactively working to make sure they're used fully. But -- and also, had we moved beyond that, as you might expect from hearing some of the product evolution, to a point where we're not just focused on usage, but actually on the business value of that usage. So if you look at this pyramid on the left, it's an internal framework that helps us train and quantify this. It's moving from actual usage of features of the product up towards, at the highest level P&L impact for the clients that we serve. So in essence, what you see in between, there's the middle ground of being able to directly net how usage of a service feature actually is impacting the business, which will ultimately can be directly linked to P&L type impact. It's a very powerful notion, and it's one that our teams have found lots of energy with in taking our engagement to another level and doubly equipped for the broad mix set of products that we have.

Now this model that I'm describing also has very tight operating routines. I've listed just a few of them here. But the service planning kickoff that occurs at the beginning of a membership year, the encouraging executives of their teams to take part in some of the key features of the product, whether it's an executive retreat or webinars, et cetera, that help them get value out of the membership. And then ultimately, the routine daily, weekly, monthly tracking of what's happening there to guide our response and work with those members.

That model, wholesale, is global in nature. So over nearly 30 years, we've extended our presence with some real acceleration in recent years, as we move teams to be closer and more intimate with our members. To highlight just a few, our San Francisco and Chicago offices will celebrate their sixth anniversary this month. And in the past couple of years, we've created local presence at a totally different level in some markets, such as in Singapore and in Frankfurt. And we're very excited to expand those types of geographic presence, very materially through the family of acquisitions to CEB. So our CEB Baumgartner team in Hamburg is a great example. And naturally, SHL footprint is taking this to a new level. There are opportunities for more scale and presence across a variety of markets. But to give you a sense here, the dark blue are the only areas at this point on the slide that we don't have at least some material presence. And recognize there's a big world out there. And so while there's-- 30% of our CEB member institutions are outside of the United States and our penetration against the global indexes in those markets implies both a good foothold, but also a lot of opportunity for growth. While there's lots of opportunity in all of that, I would want to emphasize, we're very focused in how we go about doing this. So we believe that our members and CEB are well served by a focused, methodical approach in markets, building on strength in any given market. And so we segment the opportunities in focused fashion in that regard.

So what I hope you get a sense for is, on the one hand, more segmented, more global, closer to members in different markets and speaking more knowledgeably, locally to them, but offset by an operational backbone on the other hand that really is about a common flexible operating model that gives our team leverage in common sales and service approaches, methodologies, training technology leverage to do their jobs well.

In the last few minutes of my time, I'd like to just touch on one final expect of the growth model then, our marketing and our branding, and give you just a bit of an update on that. In the past several years, across the whole business, we've focused quite a bit on advancing our marketing capabilities and impact. And to a really large degree, this has been visible in the market through PR coverage, a terrific lift in the CEB press coverage and publishing of our research in a variety of leading publications. We're proud of that coverage and the high quality of work that it exposes to a broader number of people. It will continue to be a focus for us. It actually helps us with our member acquisition and cross-selling. As you might guess, our employees love it as well. But if we step back for a minute, I want you to understand a little bit broader picture. Our marketing strategy, again, is a focus in disciplined strategy. It principally continues to be about building some sales enablement out. So the 5 key pillars of these are the same as you might have seen a year ago, with one addition at the end here that I'll touch on. But our fundamental belief is that there's no better B2B marketing effort than one that helps our frontline teams to be sharp, on-point, well-informed, equipped for engagement. And when they're engaging with members very well, that has a positive effect on multiple dimensions.

That said, when we go further beyond that, with beyond equipping our teams, we're trying to provide their cover in the market and make sure, as we expand our product offerings, that we're launching new products and new generations of past products effectively into the markets. So you see some of those as other focal points.

Now with all that said, I want to click down a little bit further on our branding. As Tom alluded, it's no secret, really, that we've under branded ourselves somewhat in the market for many years. And we do believe in part that's because a service brand is defined, first and foremost, by the interactions that our people are having with customers every day. But that said, we really, historically, have not taken many steps to build a brand name in the market until just very recent years. And to be honest, we really allowed the power of our branding to be diffused a bit, amidst the entrepreneurial work within our business of building different practices and programs and the like and bringing those to market. So in the last couple of years, we've gotten more serious about improving in this area. And as we do with our work with members, we started with what are the best practices? And what we've found is simply that best practice in this area is to invest in a small number of brands, as opposed to allowing brand equity be diffused and making harder choices to drive that equity into typically a master brand to structure, offer architecture. So as we expand our offerings, the way that we present the full base of offerings in a way that enables growth, so simple intuitive groupings and making those externally logical, looking ahead to where future product growth will occur, as well as so that you can grow into that offer architecture, if you will. And additionally, to minimize the complexity by very disciplined pragmatic offer naming, to ease cross-selling in essence by having offer naming that's no-nonsense. And that's basically what we've been doing over the last 18 months, and what you'll see more of in the year ahead.

So the last year, we established CEB as our master brand, a simplified version of the traditional company branding and, in many ways, deemphasized a variety of sub brands, practices and the like in favor of the master brand that allows greater brand equity in the market. We simplified our product architecture. And I think it was at this meeting, a year ago today, that we announced the step of changing our stock exchange ticker to CEB, as just one example.

In this year and the quarters ahead, what you're going to see is expansion of that. We've been dutifully driving through a simplification of our CEB product naming to simply make it easier for any member who has one of our products to recognize the opportunity for a parallel product, the sister product, if you will, either within their own domain, their own function, or that a colleague in a parallel function now will consider buying and using. And so the cross-sell is both for members to see that opportunity and for your own people to -- is aided by that. And additionally, there's a very important effort around integration of SHL brand, and this is true as well for the other brands and companies we have acquired. But what we're doing there, really, is trying to make sure that we're building on the tremendous strength that has gone on in building SHL brands in many corners. So through defined hard work of a lot of talented people for a long period of time, the SHL brand has some terrific equity in many specific markets in -- that are very relevant. We obviously want to leverage that. But at the same time, our overarching brand strategy is to be clearly one firm, maximizing the scale and presence we have in front of members, prospects and employees, and thus, driving ever more brand equity and ability to credibly expand our business in those accounts.

Leveraging the brand equity that SHL has developed as a stand-alone entity and the huge volume of customer interactions that go on in that part of the business to drive more brand equity overall is a key strategy, and we're doing that in 2 stages. So what you see here on the right is a simple schematic of it. In essence, since the acquisition closed, we've gone to where we're presenting SHL directly with a CEB moniker around it. And this is reflective of the messaging that we have in the market as well. And what you'll see is a shift over -- I think it's cut off on the presentation, but you could see on your books, a shift over to then CEB becoming more front and center, SHL still visible. So the idea is we don't lose anyone, any folks, any key constituents along the journey. But we cross-swapped over to where it's more clearly one firm. We're excited about the platform this gives us for a better fit for the business we are now and the business we're becoming.

So in closing, let me emphasize again, we're very pleased and excited about the growth opportunities that lie ahead of us. We believe they're multi-dimensional, all of which are built on member value and have significant opportunity. We're pursuing those in a fashion that, very methodically, focuses on predictable growth. And we believe that the product, the go-to-market and the marketing approaches we've put in place provide a strong foundation to do so.

Thank you for your time. I'll hand up the baton to Rich now. He'll take us deeper into the financial aspects of our model.

Richard S. Lindahl

Okay. Thanks, Steve. And thank you, everybody. How's everybody doing, okay? Good. I've got about a 10-minute run here on the financials. And then we're going to go to a break before we continue the rest of the day.

So I'm here to talk specifically about our financial model. But I want to start by reinforcing the themes that Tom laid out for you at the beginning of the day, which are really the key drivers for why we think CEB makes for a compelling investment opportunity. As you heard from Kurt, we've had a huge market opportunity and a very big untapped potential for growth going forward. Warren shared insights into the high-value content that drives business value for our customers and gives us a differentiated and defensible competitive position in the marketplace. Steve just walked you through how we engineer predictable growth through our channel structure, service model and marketing strategy. I'm going to build on those themes now with perspectives on the financial characteristics of our economic model, which, with its emphasis on recurring revenues and high wallet retention, produces strong profits and superior cash flows.

Like I said, we'll take a break after I finish. And when we come back, you'll hear more about our future growth strategies from Robert, Paul, Haniel and Melody. So why don't we just get started here by giving you a snapshot on our global revenue base?

We've really been a global company for some time now. And we expanded our footprint with the SHL acquisition, which we completed in August of last year. If you include a full year of SHL, on a pro forma basis, we generated $762 million of revenue last year. And as you can see, that breaks out into about 68% in the Americas; 22% in the EMEA region; and the remaining 10% in Asia-Pacific. So we're well-positioned in every major market, with particularly strong footholds in the U.S. and in Northern Europe, as well as in key Asian markets. We serve clients in 111 countries around the world. And we take a disciplined investment -- approach to investing in our physical footprint, with focused investments in the most compelling markets.

A core element of our economic story is the fact that we focus on businesses that produce highly renewable revenue streams from a base of very loyal customers. You can see how that manifests from -- in our CEB segment, where Steve just told you, about 90% of our revenues come from membership subscriptions. One of the reasons we were attracted to SHL was the fact that it shares many of these same characteristics. The SHL segment also has a significant percentage of revenue from subscriptions, currently about 30% and growing. And this is a subset of the 70% of what we call reputable services from customers who are leveraging the SaaS platform and related services to measure and manage the talent in their businesses.

Earlier this morning, Warren described how we think about our business in 3 high value recurring revenue streams. In the lower left of this slide, we showed you a rough breakout of our business along these dimensions. About 60% is from best practices and decision support. This is largely our traditional businesses. About 30% is from assessment and development services, and this includes the SHL product line. And about 10% is from other management tools and solutions that improve operating performance by, as Warren said, hardwiring demonstrated best practices into our customers' organizations.

In the middle of the page, you can see the trends in Wallet retention, which have remained stable in the low 100s in the CEB segment and approached similar levels in the SHL segment. We view this metric as a reflection of the value that we consistently deliver to our customers and indicative of our ability to maintain and grow customer revenue over time.

Finally, on the right-hand side, you can see some statistics about our blue-chip customer base. We serve literally hundreds of thousands of professionals around the world at the largest companies. And those include many of the most admired ones, such as 94% of the Fortune 100, 88% of the Fortune 500, 80% of the FTSE 100 and 62% of the Dow Jones Asian Titans. Our appeal is broad, but with low customer concentration and you can see that our top 50 clients account for less than 10% of total revenue.

Now our focus on high value recurring revenues has produced consistent top line gains over the last several years. At the top of the page, you can see how our strong organic revenue growth trends produced annual growth rates of over 11% from 2010 through 2012. When you add in the contribution from SHL, that annualized growth rate, based on the outlook we shared on our May 2 earnings call, increases to about 25% through 2013, so a very solid top line growth story these past few years.

At the bottom of the page, you can see that the key leading indicators of revenue, contract value and deferred revenue, have also grown at double-digit rates, thereby, reinforcing the high visibility and predictability in our business.

Now the strategy that Tom and Warren both described of focusing on common executive challenges enables us to develop scalable solutions targeted at common problems rather than one-off issues. And you can see the economic impact of that approach reflected in a cost structure that produces adjusted EBITDA margins in the mid-20% range.

Now you can also see that our margins compare quite favorably to our peers in the industry. We've exceeded that average by about 500 basis points or more these past few years. So, as a result, more of our growth is flowing through operating income, and we also have a solid base of resources to reinvest in the business.

On the right side, you can see that as information and advisory services firm, while technology remains very important to the creation and delivery of our intellectual property, we're not very capital intensive. And historically, our CapEx-to-revenue ratio has been in the low-single digits. Now the acquisition of SHL did increase the technology content of our enterprise somewhat, but we still expect relatively modest requirements going forward to both run and expand our business over time.

Going forward, we see several opportunities to continue to expand the earnings and cash flows produced off of our platform. Of course, it all starts with healthy, sustainable revenue growth that we just discussed. But we also see several layers to expand EBITDA margins over time. First, as you'd expect, we plan to take advantage of the natural G&A leverage that we see in our business. In the upper left-hand corner, we show how G&A has declined as a percentage of revenue over the past several years.

Second, the scalable nature of our products is illustrated conceptually in the middle of the slide. Now given -- again, given our focus on creating content that can be sold to many buyers, as we add new customers onto existing platforms, we generate very attractive incremental margins which supports our need to continue to fund operating investments, as well as to expand margins over time.

And then the third element of the story relates to the SHL segment where we see the potential for better margins in the future, as that part of our business grows into the investments we are making this year and leverages the benefits of the SaaS platform there.

Now at bottom of the page, you see 2 other factors, which we expect will further support earnings growth over the next several years. As the business continues to grow and generate cash flow and we pay down debt through scheduled amortization, we expect to reduce net interest expense from current levels. We've just given a conceptual illustration of that in the lower left-hand corner as to how that can play out over time.

And as we've talked about with our more international footprint now, we have additional tax planning opportunities than we had previously. And we've already lowered our expectations on effective tax rate from about 40% to 41% before we had bought SHL to now in the 37% to 39% area. As I've said, one of the most attractive elements of our financial profile is the strong cash flow generated by our business. This feature is enabled by the strong profitability we just discussed and enhanced by the working capital benefits of our subscription model.

On this slide, we show the high correlation between adjusted net income and operating cash flow which, as you can see, has maintained a roughly 1.5x multiple over the past several years. As a result, the annualized growth rate of operating cash flow has been a very solid 20%. We also show the strong financial returns produced by the business, with return on equity at 54%; adjusted return on equity, which uses adjusted net income, of 85%; and we've also been paying out a very healthy 45% of earnings in dividends.

Now we've articulated and continued to maintain very clear priorities for how we manage our cash flow and liquidity. First, we maintain a strong financial position and the flexibility to make strategic investments. That starts with a healthy cash balance and appropriate credit availability. You can see that our total liquidity was about $165 million as we entered this year. We also pay close attention to our financial leverage as a measure of health, and we measure that by the ratio of net debt to adjusted EBITDA. We've set a long-term target for this metric of between 1x and 2x and we're on track to get into the high end of that range by the end of this year. We believe it's important to enhance current investor returns through appropriate cash distribution. We continue to focus primarily on the dividend because we think it does an excellent job of highlighting the attractive economic characteristics of our business model. And as you can see, we steadily increased our dividend payout -- our dividends per share in line with earnings and cash flow growth over the past several years.

Finally, we use stock buybacks to maintain a constant share count and offset the dilution from employee equity compensation plans. You can see that we spent about $50 million in the last 2 years, and that has allowed us to keep the share count constant at about $34 million fully diluted shares outstanding. And our board authorized a new buyback program earlier this year of $50 million that will remain in place through the end of 2014.

Now while capital allocation is very important, we remain very focused on managing the fundamentals of our business to drive shareholder value. To that point, I'll close with a summary of the multi-year targets we've established.

First, realizing organic revenue growth of 8% to 13% per year on average, taking advantage of opportunities to expand our adjusted EBITDA margins by 25 basis points or more on average per year, driving earnings growth at a faster rate than revenue growth and in a range of 12% to 20%, continuing to produce cash flows from operations at 1.5x multiple of adjusted net income and making capital investments in a range of 3% to 4% of revenue.

Okay, so that's all for me on the financial model. As I said, we're going to take a break now. We're going to go offline for about 20 minutes. I would encourage everyone who's here at Waterview to go look at the demonstrations that we have set up out in the lobby. We've got a demonstration of the SHL online platform, as well as one of our leadership councils, the Audit Directors' roundtable, the portal for that. And, of course, you can interact with us during the break as well. So we will be back at just about 10:55 to restart the webcast. Thank you.

[Break]

Robert Morgan

Well, good morning. My name is Robert Morgan. I'm the President of SHL and General Manager with CEB. I'm really pleased to be here this morning and I look forward to meeting those of you I haven't had the chance to meet already. Kurt talked a little bit about the market opportunity and the market size. Tom talked about how we're attacking the talent market. What I'd like to do is talk about how SHL creates value and how talent measurement creates value for our clients in the market.

Points I'll cover are the solutions that address the talent needs of organizations, how SHL is the largest and most scientifically sound portfolio of assessment tools, how technology enables our solutions and how they're integrated into customer workflows and systems, and how we're the world's foremost source of talent measurement and management insight and how we've embedded that into an end-to-end talent offering, as well as how we're using CEB insights to add value to the SHL offerings.

So why don't we get started with how SHL creates value for the -- for our clients. If you think about talent and organization, the areas that we focus on in the organization are the classic talent areas or the areas that deal with talent. Those areas are recruitment, selection, performance management, development, succession planning and transitioning.

So why would someone use our assessments or where do we create the value that creates the demand for our assessments? I -- it starts with the talent needs and the talent -- solving the talent problems that organizations have. So how do I hire better people at a lower cost? How do I reduce my turnover by hiring the right people for the job? How do I enhance the reputation as an employer of choice and improving -- and improve my quality of hire for the organization? How do I know what my talent looks like compared to the market and compared to my competitors? How can I benchmark that by function and industry and geography? And then once people are hired, how do I make better promotion and selection decisions within the organization? How do you engage and retain talent through appropriate development? How do you -- if I'm reorganizing and restructuring, how can I do that more successfully and retain the talent I need? And then how do I know if I had the talent to grow my business in the future? So these are the talent questions, the talent issues that we help solve for our clients. And we do this in 2 primary value propositions or go-to-market propositions.

First is, talent acquisition or pre-hire. Kurt talked about the size of the pre-hire market. And in pre-hire, we have 3 primary offerings. First is volume recruitment. And volume recruitment is where we solve a recruiting issue for a client, where they're hiring large numbers of people. So typically, this is retail or call centers or customer service centers. And typically, it's a more job-specific type of solution to help them filter and hire and select and screen very large numbers of people.

Second offering in our talent acquisition propositions is graduate or college recruitment. In here, we help organizations hire new graduates or new college graduates. So we're helping assess not only the person's cognitive ability, but their potential for future performance in that organization.

And the third area we focus on in talent acquisition or the pre-hire space is managerial and professional hire. This is where we built assessments to help organizations assess managers and professionals that they're bringing into their organization.

The second area, the second value proposition category, is our talent mobility or post-hire offering. And in this area, we have also have 3 primary offerings. First is talent audit. Talent audit is where we'll go in and audit the talent of an organization. And usually, that's against some benchmark or some desired outcome. So an organization may be going through a transition in their sales organization and changing their sales model and they want to know if they have the talent to execute that. Or the organization is looking at, "Do I have the talent to grow my business by 20%, 30% or whatever percent I need to grow my business. I know I need these kinds of skills. What does my current talent portfolio look like?" So we'll go in, do an audit, develop a gap analysis, bring it back to the organization so they know exactly where they sit and what they need to do to achieve their goals from a talent perspective.

Second area in talent mobility is employee development. In this area, we help clients focus their limited dollars that they spend on employee development in the right place. So knowing exactly, taking a more laser approach to -- versus a blanket approach to employee development. So knowing where their skill and competency deficits are, what they need to do to improve those and where -- by individual and by group in the organization. So really help them narrow in and focus on their development of their employees.

Third area is succession planning. In the succession planning area, we help companies with the predictability of performance and the predictability -- to do is not only look at past performance but look at potential in their succession planning module. So who has the potential to grow 2, 3 levels? And also what does that talent look like against the marketplace and against competition. So they're building a succession plan that's not only internally focused but externally benchmarked. So those are -- is an -- those are an overview of our offerings and how we go to market and then how we create value for our clients.

Our offerings are really differentiated in 3 primary areas. One is best-in-class client offerings. We believe and have validated that we have the best-in-class, scientifically developed solutions. We've been developing those solutions for over 35 years. We have over 1,500 tests in our portfolio. And those are supported by over 225 trained organizational psychologists that support the delivery of our offering around the world. We also have created, over the last 35 years, the largest proprietary database of performance on human -- employee performance and on competencies in the world. Flexible IP and technology. We'll talk a little bit about how, our technology, we can adopt to a client and how it's flexible for individual client cases.

Leading delivery capability is another key differentiator for us. We serve 111 countries, our tests are in over 30 languages and more importantly, we integrate with the workflow and systems, HR systems, of our clients. We have over 470 integrated clients around the world and we integrate with over 90 applicant-tracking systems around the world. So we are able to integrate into our clients' workflow so that it's a part of their process and a part of their workflow, and that's all supported by a global service center that's a 2/47 global service center.

Strong client growth platform is another key differentiator. One of the things we do when we initiate an engagement with a client is we immediately start with a demonstratable client ROI. So how is that client -- how are we going to improve the performance for that client? We have over 650 business outcome studies in our portfolio. We add to that each year. We have over 10,000 clients around the world that we can draw that experience and best practices from to take back into our offering and back to our clients and an extensive roster of blue-chip clients.

So what I thought would be helpful is to take you through a case study on how we actually do this. So Swarovski is a client that came to us with a problem, a talent problem. They had 70% turnover, they had low sales productivity and they had an employer brand that they were concerned about that didn't really represent them as a premium jeweler or premium retailer. So we went in and analyzed the jobs, looked at what good looks like, what success looks like, developed a solution for them that included a customized realistic job preview so that clients could see -- candidates could see what the job actually look like and could go through that job, so they could see if this was the job for them, helped improve their employer brand and the candidate experience. We then went through a real retail sales job-specific assessment that the candidate goes through, and we integrated that into their system and helped them with their employer branding and how they communicated to their candidate.

The results: We helped them reduce turnover by 55% in the first year, they had $22 million greater sales productivity and the new consultants hired with the SHL solutions sold as many as much as incumbents with 10-plus years of experience. So we really helped them ramp up their sales productivity. We produced a business outcome study, identified areas for improvement, incorporated those into the solution and continue to measure that process. So it's just an example of how we bring value to one of our clients and how we document and prove that value.

I'd like to talk about, just very briefly, the portfolio of products that we have. We have the broadest, deepest and most scientifically respected assessment IP in products in the industry. And they break down as 4 primary categories. First is our cognitive ability test where we measure verbal, numerical and inductive reasoning. These tests -- we developed the very first version that you could verify online, so it really helped the adoption of these tests online. Second category is our personality questionnaires. These are questionnaires that we help predict behavior. We were one of the very first assessment companies to develop a personality questionnaire for the business market and a very deep part of our portfolio. Second is taking these assessments and putting them into simulations. You may have seen some of the simulations in the demo earlier. And then the fourth category is skills and knowledge. And over the year, we'll do 30 million assessments this year in over 30 languages, which help us to continue to develop and enhance these offerings.

So I'd like to call on my colleague, Paul Levett, now who's going to come and take you through a little deeper dive on our products and our services.

Paul Levett

Thank you, Robert. Good morning, everybody. A pleasure to be here. I will just briefly introduce myself. I'm Paul Levett. I've been with SHL for 9 or 10 years now. I'm responsible for product development, product innovation -- product development, product management, innovation and also, our emerging markets, where we don't have our own offices. So a little bit of a telling the commercial side of the business as well.

Well, what I wanted to do is just sort of round down SHL's capability that Robert has already taken you through and then talk more how we're bringing our IP and assets together with CEB's to deliver incremental value to our members and customers because I think that's probably the thing that you want to hear about most.

So Robert talked a little about the different products we have. One asset that we've built, which is pretty unique, is a universal way of looking at human behavior in a business context. It's called the Universal Competency Framework. We used that word universal humbly, as I can see that you recognize. In fact, actually what this is doing is defining the critical behaviors in the work environment in a language which we can use that maps back to standard products. This allows us to do 2 things. The first one is to map onto clients' view of human behavior so they often have their own language. But it means we can use standard products, which means we can customize in a scalable and repeatable way rather than starting from scratch as many of our competitors do.

The second thing it allows us to do is map against any job model that CEB has. So we, within 90 days of the acquisition, had released an assessment that's mapped onto CEB's well-regarded sales challenge or work, which creates an opportunity for clients to select and assess their talent against the research that CEB had done. So this is a unique thing in the market. It may be slightly subtle in terms of how important it is, but what it allows us to do is essentially rapidly build against research IP that CEB develops, as well as views that our customers have.

I wanted to talk a little bit as well about the role of technology and data. So just, again, to try and bring everybody up to speed on how we do things. Robert mentioned integrations. Essentially, we have a very large, very scalable technology platform. These days, testing is done typically remotely, almost entirely remotely apart, from where we need to verify that somebody hasn't cheated. And essentially, clients have multiple ways of setting up those assessments. They can either log in to our platform on a transactional basis and pay as they go or they can buy access via our subscription to use the platform or they actually then touch our platform from an administrative perspective. It's the applicant tracking system that triggers the testing. So it's not room -- classrooms like this full of people that are actually scratching away with pencils. The 21st century way of doing it is the scientist is working out how to spot when somebody is answering truthfully. But also, it means that the whole system, from end to end, is scalable, it's automated and most importantly, I think, it's remote, which means their clients don't have the cost of assessing people in person. The candidates take assessments the time and place of their choice.

The final points, I also wanted to make about the technology is that the review that gets the results in realtime it's not just a score. It's typically against some notion of what good looks like. So we're providing insights. Select this person, this person's a benefit for this job than that person, et cetera. We've even got a patent to the approach to stack ranking candidates which uses quite a lot of deep science to do that. So that's the role of technology. The really good news about applicant tracking systems versus they embeds us in workplace that hardwired us into those ongoing processes that clients have.

I'll talk a little bit about data. So I used the word what good looks like. For any given role, there is typically the ideal profile of person, there's ideal fit the person who's going to perform the best in that role. We all know, in SHL, the people that we've met over the years are always going to beat that quota, and it's quite often this sense that you have what they like as a person. That's really how our science works.

So we can add to CEB's research which, in the talent side of things, is quite similar. A lot of looking at what good looks like, what are the talent -- what is the talent that you need to drive your business performance. We've also got something else to add to that story, which is quite unique, which a database of competitive benchmarks. So because we're assessing people almost as a byproduct of that, we're gathering data on the company's talent, who they're attracting into their recruitment process, who they're ultimately hiring. So we can deliver to a client 2 views. One is, here's what good looks like, here's how close your people are to that ideal. Then secondly, are you closer or further away from that ideal than your competition which, of course, is a much more realistic view.

I use an expression looking for the 5 legged sheep. They aren't many of them around. So it's more important that you know you're getting your fair share of that sort of top-end talent or more than your fair share of that top-end talent than it is trying to reach for the ideal all of the time.

So that just covers the assets that we've got. What I thought I'd move on to is, I mean, how we're bringing that together with CEB to deliver a real incremental value to members and clients. So if you look at its most sort of high level, the company has both have some views of what critical performance drivers are for different functions or roles. SHL does business outcome studies on a much larger scale. CEB is performing research with its members. If you bring those 2 things together, it means we've got the world's foremost insight of what good looks like.

We're then able to measure our client staff against that. Identify the gap. We're then able to show how that gap is compared to their competition. And then, as a result, we can basically solidify what the gap is and recommend corrective actions. I know when Haniel steps up, he's going to talk a lot about the sort of different assets and -- that we're building to deepen and deliver on those gaps and I'll talk -- touch a little bit on that now.

So getting a little more concrete, and Warren showed this slide earlier, our talent offer is end to end. So the CEB leadership councils provide best practices, decision support and research on what good talent looks like. SHL, in particular, will provide a measurement solution against that. And then fundamentally when we've got the gap identified, we can close it 1 of 2 ways. SHL will somewhat limit it prior to the acquisition to deploying recruitment solutions and inviting clients to recruit they're way out of the problem. I recruit better talent. CEB, obviously, with the academy side of the business, has got a lot of training and development offerings, which can help clients close the gap, as well as the recruitment. So it's a completely end-to-end offer. As we bring these 2 sets of assets together, you're going to see increasingly a number of solutions in the market which are bringing together all of these different component parts so that we can solve the whole talent issue for a client.

So where we are today? So within 90 days of the merger, I think, I may have already mentioned, we launched a selection and assessment solution focused on the sales challenger research that CEB has, so that's focused on the sales reps. Early days, but the initial feedback is good. We've also launched an offering which looks at finance. That's a set of functional capabilities that help the finance function perform best within their organizational context. And then IT, which we've just launched most recently which is focused on the 2 pivotal roles identified in the CEB research said, "If you get these roles right, then it's actually drives the most performance improvement that you can in terms of [indiscernible] that as a function and those 2 roles are project manager and business analyst, although we're working on some others.

In development, we're looking at high potentials, so identifying high potential future leaders. We're also looking at the network performance content, which Warren introduced earlier and we're also working on something for HR. So lots more to come but, hopefully, an exciting sort of demonstration. We can build stuff very quickly that's aligned to CEB research. The beginning of this journey is it's very much order and the talent acquisition types of offerings, but my ambition is to ultimately, over time, we'll go a lot further beyond that.

What I would like to close this section on is that the share quality and volume of research that we have from CEB, I think, will make a massive impact because SHL is quite often, in the Swarovski example, relied upon the client to work out -- we've got a talent issue. It's -- obviously, we've got 77% turnover. We've got poor sales performance. They call us, we build a solution. With CEB, what we're doing is, we're putting the issue right under the nose of the customer and saying, "You need people that look like this. Are you sure you have them?" Which I think is going to drive quite a lot of additional interest in our offering and services.

So just before I hand over, just to reflect again on the 5 things we wanted to cover, we have solutions addressing these at the organization's talents needs, that is. We've got the largest and most scientifically sound portfolio of assessments. And our technology-enabled solutions means that those get embedded and hardwired into our clients' processes.

Together with CEB, we form the world's foremost source of talent measurement and management insight and the CEB insight is going to add value to the SHL offerings, in particular in terms of relevance and awareness with our customers.

So thank you very much for your time. I'm going to hand over to Haniel now. He will step up and take us through a little more detail of how we're building out the offerings to add more value to customers.

Haniel Lynn

Thank you. Thanks. Thank you. Good morning. Again, my name is Haniel Lynn. I have the privilege of leading the Sales and Service, Marketing and Communications and Financial Services Practices at CEB. I've been with CEB for about 12 years now. Originally, running our new product development and strategy groups, which helps for the purposes of the presentation today.

For the next 15 or 20 minutes or so, I'll build on the presentations, so far, to talk about how we think about growing our businesses and leveraging the key assets that we have in our company to be able to do that well.

There are 3 main themes that I hope you'll take away through the time that we'll have together. First, that new product launches are important part of CEB's growth strategy and story and that as we focus on new products, our aim is to deepen support of our members in our core domain areas.

Second, CEB has a number of comparative advantages that allow us greater likelihood of success, so including privileged access to a great customer base through those relationships and through our research, a keen understanding of the value drivers and the challenges that our members company faces -- face. And then finally, a strong IP base on which develop compelling new products.

And third, our new product launches have the benefit not only of creating new revenue streams for us for CEB, but also for -- also reinforcing value to the existing CEB membership products and increasing loyalty overall.

Those of you who have followed us for many years might see that our approach and philosophy to new product development has evolved. So there are certain criteria that sustains over time and other criteria that have changed to reflect the company that we are today. Tom talked about some of those ideas and those criteria earlier in his presentation. The criteria that we use for thinking about what makes for attractive new products -- product ideas remain the same. We look for big challenges that our target buyers have, where they dedicate a significant mine share or a dollar share towards solving those problems. Beyond that, we look for problems that are shared by many companies, which not only gives us a large target market but allows us to scale our expenses and deployment, as Rich had mentioned earlier.

Finally, we look for recurring problems which helps us to establish our recurring revenue stream from the business model standpoint. With that, a strong foundation, we shifted our thinking as well in some ways, where product development 10 years ago was largely focused on new executive audiences that we hadn't served. The focus now has shifted to executives that we are already engaged with to understand ways for us to deepen our support.

That reflects a shift in product focus from what was largely stamping out a membership product formula to developing new products that serves the members or the needs of members that we know. Our focus has coincidentally shifted much more also to leveraging our body of research and content to extend our support.

Third, our products have moved from the standard membership configurations, which there basically was one standard configuration at the time, to now us being much more comfortable with integrated, higher-priced bundles with different flavors.

And finally, these new types of new products now, much to what Steve spoke about earlier, are sold through both a transactional sales channel which had existed before and also a sales -- a special sales model which has more been established much more recently.

Just to give you a sense of how these ideas play out and practice them, let me just walk you through a case in point of how we've created new products, leveraging IP that we have in one of my practice areas. In past Investor Days, we've talked -- you've heard us talk about one of our stronger pieces of IP to come out of CEB in recent history from our sales practice area. Paul mentioned it as well earlier in his presentation. You may have known of the best-selling challenger sale book, which has garnered us pretty great recognition in the marketplace. We started our research right around the downturn when our members are asking us the simple questions, "How do we sell more during these turbulent times?" Especially tricky for them was how buyers and buying companies were just making decisions differently. Clearly, they are much more conservative than they had been in the past just because of the challenging economic situation but also, their access to information online and their access to information in the marketplace just changed the way that they were buying overall. Our members were struggling with losing top lines, competed away margins, just looking to fight to turn onto growth.

A couple of ideas central to the research. On the left-hand side that you'll see, first, we went after just understanding what drives loyalty in the B2B selling environments. Loyalty, as we understand it or define it, is likelihood to buy, buy more and likelihood to recommend. Where you'd find conventional wisdom, the average person might say, "Loyalty was driven by the company, by maybe the brand, by the service, by the product." And while these are important contributors, what surprised us and over the many years that we've had conversations with heads of sales and even their CEOs is that the biggest driver of loyalty, 53%, in fact, the big bar on the left is driven by the sales interaction, driven by how the sales reps engage with the buying company. So that kind of makes sense. If you think about it in a B2B environment. Since the sales rep very much represents the face of the company, it's the central point of engagement for a lot of how our buyers are seeing values being transferred or delivered. So when we dug into what underpin successful sales interactions, what we learn with that, loyalty was driven by how much the sales rep would be able to teach the buyer something about their business or their market that they didn't know.

What we went on to study is the type of people that are successful in selling in this kind of environment. Where most of our members at times, I think, again, about 2009, they're very focused on building relationships. So you -- if you talk to the average sales lead, they might say, "People buy from people that they like." Or, "I don't care what you say. Just go out and see people." And that was what we were hearing at a time. What we learned is our members were, in fact, thinking about it completely the wrong way, the wrong way about their people, the wrong way about how to deploy those people.

In our research, we boiled down the world of sellers into 5 types of people that you see on the right-hand side, on the far right-hand side. So number one, relationship builders. Number two is service-oriented problem servers. Third, hard workers. Fourth, lone wolves, who always hit the number but you don't really love -- necessarily, love the way that they do it. And then fifth, a group of people that we call the challengers, who push back on buyers, tailor their pitches and create what we call constructive tension in the selling process. So what we found is that among the highest performers, the challenger performer showed up 5x as frequently as relationship builders which, as I was saying, was both what our members were looking for and, unfortunately for them, the worst-performing profile. In other words, our members are pretty much getting it all wrong, wasting resources and worse, losing sales as a result.

This foundational research has extended over the last several years into a pretty good depth around how companies can better leverage their channel to sell more of their product. We've broadly called this selling approach the insight selling approach and some of our members maybe more call it -- really call it and maybe interchangeably call it the challenger selling approach. And that research and all of the breadth of ideas and terrain that we have covered, as you see on this page, serves as pretty fertile ground on which to create extension products. So knowing, for example, that challengers are the key sales rep profile you want, we can help our members to train and develop those kinds of people. Or since we've been prescriptive in describing exactly the way that challengers would sell, who they sell to, how they manage their funnels, how they approach an organization, for example, we have the opportunity to create a formalized sales approach for helping them to manage that process.

In order for these front-line salespeople to be able to sell differently, we need their managers and coaches to reinforce the right behaviors and activities. But managers themselves just need to have different skills to be successful in this kind of insight selling environment. Or in order to arm our front-line sales reps with insights that they can teach their buyers and remembering that teaching their buyers something that they didn't know before is really important to driving loyalty, we would look to the marketing organization to come up with the insights and then to arm and enable the reps to use those insights.

While we've had really just great success so far with the obvious, the first question from our members is about helping them build and develop challenger reps. We know that the effective implementation of the insight-selling system requires broader commitment to many different aspects of a company's commercial system, which can complement a lot of what companies have already invested in around the reps, around the managers, around marketing, around the infrastructure of their overall commercial organization.

On this page, you can see some of the products that we have been selling out in the marketplace around this insight-selling approach. It's probably just worth mentioning, before I get started, that you likely noticed over the last year or 2 that we have largely moved away from reporting specific product launches to the investment community. Part of what you'll see as I go through this, hopefully, is that these various offerings, is that many of them are interlinked and probably more appropriately described as components of a product family rather than discrete product in and of themselves.

So with that preface, let me just give you some sense of the offerings that we have. On the left-hand side, you'll see the very successful challenger development program which helps our members to develop the front-line sales reps with the critical challenger sales skills and help those sales reps understand how to sell differently with insight selling. On the right-hand side, top right there, we've created a sales manager development program which helps our members to develop their managers both as a custom course for one company or one that is offered for companies to send their managers to a cross-company cohort, helping their -- to develop their managers around sales and business management and business leadership skills, coaching skills and deal management skills. On the bottom, there are a couple of capabilities here to support the organization as it enables front-line reps to sell differently. I'll come back and talk about the newest idea that we've recently put into the market, called the challenger opportunity manager, but we also have the challenger messaging engagement that helps our marketing members to craft their insights to teach their customers and translate them in a way to help their sales reps to sell to their buyers. We also have the selection and assessment product, which Paul had mentioned before briefly, which leverages the tools and capabilities from SHL to help a member screen for whether they have challengers to begin with and who they are, but also helps to screen them in the hiring process to ensure that they are bringing the right kinds of people, right challengers into the organization. It's been a really great way for me to see the IP of our 2 organizations, respective companies coming together.

These are just some of the offerings that we've taken to market all in the spirit of just getting closer to our members in support of their key activities in our core domain areas.

Let me do a click double-click on the challenger opportunity manager I was just speaking about. This is a capability that we have right now in beta and early test in the marketplace. We developed this in partnership with the TAS Group who provides the technology platform with software called Dealmaker that then combines with our research and our IP to create functionality that layers on top of member CRM systems to help them manage the sales process and opportunity movement and forecasting.

What we learn in our research, to give you some sense of the backdrop on this, is that there is a different way to sell, that instead of tracking selling activities, like how many calls the sales rep makes, or tracking progression in a sales funnel by measuring the things that the rep has done, so did they meet with a senior decision maker? Did they conduct a live shareholder or a stakeholder meeting? Did they submit a proposal or activities like that? We can better gauge the true progress of deals by tracking -- buying company behavior. So we call them buyer verifiers. So in other words, if the rep, after having done what they do, in response, the buyer has done something in return to honor their end of the commitment, like sharing data or participating in a diagnostic or sending back their systems requirements, for example, then we can better track that a deal is moving according to the buyer's terms, not the seller's terms. So this tool that we've created helps a company track exactly that, to help the company track the buyer verifiers as indication of buyer stage. So from an objective standpoint, this helps a company to qualify their deals sooner to make sure that their speeding sales cycle is long and then also to make sure they're focusing their very scarce resources on the right deals. It's embedded in salesforce.com, and it helps to take some of the discipline that we've researched on how to sell in this environment and hardwires it into our members' workflows to help them actually manage their sales process differently according to our best practices. And so this is a screenshot from that tool there. I wanted to show this, just to give you a sense of how far our products can go to support our members and their workflows, but also how this works to extend our research in IP to do more for our members.

With these new products and, similarly, for our new products in other domains as well, we've been able to see really great impact, really great impact in the marketplace. The kind of impact that we care the most about, of course, is the impact that we have on our members. On the left-hand side, you'll just see 3 of the many stories of tangible impact that we've had on them. I'll leave it to you and your notebooks to read all of the stories here. But if you look on the right-hand side there on results, this gives us the confidence that we're onto something really powerful, that we really are delivering ROI to our members in the marketplace. On the right-hand side, of course, we care about the value of these products that [indiscernible] as well. Beyond incremental revenue streams, of course, important, there are many other important benefits. As I mentioned, these products enable us to move closer to our members' workflows, becoming more critical to supporting their operating processes that they manage day in and day out, well, often, through the course of engagement with them, collect data on our member companies that then can feed back into our research. So the perspectives that we get for being very close up in our companies helps us to better understand the nature of the problems and challenges that they face, also fills future research and possibly new product development opportunities down the line.

Finally, one thing that we really like about these products is that there is blowback benefit to the membership products in the form of increased loyalty. Members who buy these incremental services often find that as an organization, they're better able to tap into the value of our insights and get their broader organizations to embrace our best practices ideas, which we then see in the form of higher usage, higher renewal rates of the memberships. Like the way that Warren talked about before, as you can see, the IP that's foundation to all of the work that we do then creates products that are interesting, that leads to increased usage of that IP, which then brings us back to having improved loyalty and core overall performance.

Finally and just briefly, while we spend time talking about one example of new product growth in the sales and marketing area, we are making similar pushes in all of our key domains as well. Well, certainly and obviously, we've made the greatest investments in the area of best practices and decision support that's been foundational to CEB for a number of years. We are making investments also towards creating assessment and development solutions built off of the SHL platform. We've also been creating management tools and solutions as well. We've got great running room ahead in both of these areas, in all of these areas, across all of our key domain areas and are excited about the growth path ahead.

To finish where we started, let me reiterate the key ideas from my section of the presentation. Hopefully, through our time together, I've been able to cement the 3 big ideas, that new product launches are important part to CEB's growth strategy and development efforts focus -- evolved to focus on deeper support in our key domain areas. Second, CEB leverages several comparative advantages, including privileged access to customer base, insight into drivers of business value and strength of our intellectual property on which to develop those new products. And then third, new products provide new revenue streams, as well as return value to core product offerings as we deepen support for our customers.

With that, let me hand it over to Melody to talk about how talent and technology scale to enable our work. And thanks to you for your time today.

Melody L. Jones

Good morning. For those of you I haven't had the chance to meet yet, I'm Melody Jones, the Chief Administrative Officer here at CEB. On the administrative side of the house, I look after HR, IT, legal and communications. On the product side, I oversee the professional services practice, which has our sales effectiveness, our Leadership Academies and our surveys product lines. I've been with the firm since late 2005, and prior to joining, I held Chief HR positions at both T. Rowe Price and Aon. Like Steve, in both those companies, in those positions, I used the CEB product and service side extensively to help resolve issues and to tackle strategic challenges those companies were facing. The CEB IP made me smarter, for sure, but it wasn't about being smarter per se, it was about being better, being more effective, getting better results in facing off against those business challenges. Now since joining the firm and having unlimited access to everything we offer, I obviously apply it all the time. We do drink our own champagne, and I'll talk more about that in more detail as we run through the slides.

So throughout the morning, you've heard my colleagues describe the key elements of our growth strategy and how our business model captures the significant opportunity ahead of us. I'm going to use my time with you all, maybe, to talk about the 4 things that you see on the slide here. First of all, we do invest a great deal in human capital and technology as key enablers of our growth strategy. But also very importantly, they do scale with the business growth, and we'll get into that in a little more detail. Secondly, we see our IT infrastructure as an increasing source of comparative advantage for us. Our member and customer data assets are vast, and they are constantly expanding. And we go to great lengths to ensure that the data with which we're entrusted has managed the highest standards of care and security. As I mentioned, we're also consumers of our own talent products. We do apply best practice to find great people and then make them even more effective through world-class development programs. And finally, we leverage the unique aspects of the employment value proposition at CEB within the context of the CEB culture to attract and retain top tier talent.

On the next slide, the left-hand column gives you a snapshot of our talent and technology assets. On the talent front, we've invested in staffing top decile individuals in the roles and functions that allow us to face off most effectively against our member and customer needs. And I'm going to go more deeply into both the technology and talent assets on the next couple of slides. But one thing to call out here is the point related to data storage capacity. 1.5 petabytes of storage capacity is equivalent to 1,500 terabytes. And of this available capacity, we use 8 to 10 terabytes to store member and customer data. Now to put that data asset and the overall storage capacity into better context or into perspective, the average university library stores the equivalent of 2 terabytes of text-based data. The enviable library at Harvard has the equivalent of 8 terabytes. That means that our member data asset today is the equivalent of 4 average university libraries or one Harvard, and it's growing every single day.

As Rich noted earlier, we've been able to scale our talent and technology assets over time. As you see on the right-hand side of the page, G&A expense has decreased as a percentage of adjusted revenue over the past 3 years, even as we've made these significant investments in talent and technology.

On the next slide, let me go one click deeper on the technology asset. You can see the demands on our IT infrastructure down the left-hand side of the page. Warren showed you the statistic on website visitors for the HR practice. At the overall firm level, we have more than 180,000 visitors each month to our aggregate Leadership Council websites. We distribute more than 0.5 million newsletters every week. Over 2 million assessments are completed online every month, and we have over 3,400 employees working in 21 countries globally.

Let me actually size that investment point for you. On an annual basis, as Robert noted, that's more than 30 million assessments every year. But if you take a daily view, so far, in 2013, we've had 11 days where we surpassed 100,000 assessments in a 24-hour period. That's more than 1 assessment per second for that entire day, 11x so far this year. So it's not hard to do the math and see how our data assets expanding exponentially.

Obviously, supporting all of these demands consistently and securely is a top priority. And as we think about managing and scaling our IT infrastructure, we're guided by several principles, which you see in the middle column on the slide. First, we invest for scale. Again, we always want to drive for scalability and leveraging our investments in these core functions. So we do technology investments that allow us to scale effectively.

Secondly, we have to always be mindful of creating agility and what we're putting in place so that we have the ability to quickly pivot and evolve to meet changing member and customer demands. And finally, as I said earlier, we really do treat all member and customer data with great care. We have 7 data centers around the globe, from Atlanta to Shanghai, from Arlington to Sydney.

And we're Safe Harbor-certified in our management of those data assets that we hold. Additionally, our SHL customer data on the soda platform is ISO 27001 compliant. Taken together, the demands on the infrastructure, coupled with the foundational principles that you see in the middle column, help us to define every year the set of IT investment priorities that we're going to make. You see 3 representative examples of these down the right-hand column.

In terms of technology investments in support of member and customer experience, we're in the process of enhancing our CMS and program websites so that we can customize our content that is made available to each user based on his or her preference. We understand preferences both proactively when they tell us, filling out forms online or proactively as well but with our own ability to look at what they're opening so that we can gear content specifically to what they care most about, so a customized user experience. We're also in the process of making the experience of logging on and getting access to that content seamless, whether or not you're on a desktop, a laptop or a mobile device.

It's also essential to enable our sales and service professionals to effectively support member and customer needs. An example of our ongoing focus in this area is our investment in tools and applications that allow us to capture key member information, who it is, what's the -- what are their priorities and how do they like to be served, how do they -- how would they most like to interact with us. And understanding that on an individual-by-individual basis allows us then to map our services to their specific needs as those needs evolve.

And finally, to achieve the scale benefits that I do keep coming back to, it's important that our internally facing technology systems keep up with the expansion in the breadth and the depth of our global talent footprint. So we periodically review and invest in finance and HR systems to be sure we support that appropriately.

On the next slide, we're going to turn our attention a little bit away from technology and onto the talent front. As you've seen throughout all the presentations today, we take the science of talent management quite seriously using our own best practices and solutions to increase the effectiveness of our talent acquisition and management programs. We measure and rigorously manage to the various metrics that you see on the left-hand side of the page for all of our job families in all of our geographies. Capturing this type of data helps us detect early warning signs of various retention before they become serious, and it also gives our management ranks a lot of good data with which they can manage their businesses. We also share several of these metrics and our progress and plans for talent management in general with our Board of Directors every quarter. They manage the talent metrics as closely as they manage the output financials. This rigorous attention to talent measurement helps us attract the top decile talent we need to be successful both in entry and mid and late career stages of our hires. And it gives us data that informs the structure of our ongoing development programs, both for our entry and mid-level commercial staff, as well as for our research staff members, as they learn the craft of inside creation. People are our most important asset and investment in our people, our investments in meaningful outcomes for the membership and for the customers.

And finally, I want to wrap up with just a few minutes on the unique aspects of the firm's culture. And these are the aspects of building a career with CEB that set that apart from building a career someplace else. Our culture is rooted in shared values and a compelling employment value proposition, and that allows us to leverage the culture to attract and retain top talent globally and also helps us quickly integrate staff that come onboard with us through acquisitions. Our core values, force of ideas, spirit of generosity; talent stewardship and member impact, serve as the foundational touchstones for all of our talent management processes and programs, including the development and articulation of the unique CEB EVP. Now our own research has pointed out for years the importance of articulating, publishing and living to an EVP that is unique about the unique aspects of working for your company compared to other companies. And we use our EVP as the touchstone for our recruiting, retention and development initiatives.

I'd like to unpack the 5 components of the EVP that you see down the right-hand side just a little bit further. First of all, we are an idea company. Those of you who have been with us for a short or a long time, I think, understand that deeply. And great insight is of the core of enabling individual and our corporate success, and that's how we enable member success and customer outcomes. Second, at the heart of the business model is a network of the world's greatest leaders and professionals. And our staff members, even at very junior levels of their careers with us, have the ability to influence and interact with those global leaders. Third, we are committed to hiring the best of the best. Talent for every job at every level in every geography throughout the country comes from the very best pools that we can find. Fourth, teamwork really is central to our success. It's not just lip service. The best outcomes that we achieve are always the result of great minds sitting around a table working on great ideas and pushing those great ideas ever farther. And finally, our aspiration, our ability to continuously grow and expand the business means that we're able to offer continuous growth and expansion possibilities to our staff members, again, at every stage of their career, from bottom to top.

We do pay a great deal of attention to these components of the EVP, and we see the impact of that attention in our employee engagement scores, in our offer acceptance rates and in our attrition metrics. Our [indiscernible] attrition for the past many quarters has been at or below our targets, which are pretty aggressive for [indiscernible] attrition. So we're pleased about that.

You can see an example of our culture and action not just in the statistics, on our Global Service Day, which is our full day of service that we do annually in all of our communities globally, but also in the video on the Global Service Day. It's playing out in the experience area outside, and I encourage you to [indiscernible] short, and I encourage you all to take a look at it. We just did this win for 2013 last month.

So finally, let me end where I started. Talent and technology are fundamental enablers of the growth strategy. We invest in and manage them carefully and rigorously. We apply our own IP and our own tools as often as we can. And we have been able to scale our investments in a leveraged way to support firm growth.

So I'm now going to hand the podium back to Rich. We're going to do a little bit of setup for the Q&A and then transition to that portion of the day. Thank you.

Thomas L. Monahan

So if I had been holding a hand-held video camera when we broke this morning, the room sort of filed out and was confronted with 2 options to choose between -- one was a deep dive into the administrator module for the online selection platform, the other was the security and controls application wizard for internal audit. And you could sort of see the look on people's faces, which is, "Okay. What's behind door #3? Please tell me there's coffee somewhere." We run businesses generally only nerds could love, that if you're a Head of HR, Head of internal audit, that's shark week. That is really exciting and powerful stuff that helps you do your job better. But I'm mindful that it doesn't -- it lacks some of the raw electric excitement of consumer technology businesses, but it's pretty powerful for the people we serve.

[indiscernible] this is kind of the reality show from hell. You've got the management team here. [indiscernible] is going to open it up for Q&A. One thing that struck me is I was -- I'll be the Tony Parker in distributing the ball as we run the place here. One thing that struck me is I was trying to think who has the least history with our business of this group because your people introduced themselves and folks up here came to the business in one of two ways, either into CEB as researchers or sales leaders, et cetera, as leaders to help us build the business, where they came to the business's customers. So some of us have 14, 15, 16 years inside the business. Others, Robert, Melody, Steve and Rich, have 14, 15, 16 years of experience as customers outside of the business. So you've got closing in on 130 collective years of experience in this business, around this business, which isn't bad for a company that's only about 20 years old. So if you want to play, stomp the management team, this will be a tough group to beat.

But let me open it up for questions. One favor to ask, if you can wait for the microphone to arrive, that way, folks on the webcast can hear your question. Let's just open it up. Gary.

Question-and-Answer Session

Gary E. Bisbee - Barclays Capital, Research Division

Gary Bisbee at Barclays. I guess the question, can we get an update on the tools and product extensions outside of the core subscription programs? And what I'm really curious about, are they driving revenue? Or is it more enhancing the product that allows you to get the price increases you got? And I heard one or two references to higher-priced bundles. I guess, is that reality today? Or is this still like a work in progress pretty early?

Thomas L. Monahan

It's definitely a reality. We go first -- maybe, Warren, you can talk a little bit about, let's say, RED and how we -- the unfortunate answer to your first question is, is this about strengthening the core subscription product? Or is it about enhanced product platforms? And Rich will bundle the answer to both. Maybe RED is a good example in how we run that. And then maybe Haniel can talk a little bit about -- a little more about the sales effectiveness suite and how broadly adopted that is.

Warren Thune

Yes. For those of you who are with us last year, we talked about RED, which is in our recruiting program, and it's a way of looking at a quality of hire and assessing the quality of hire you've got of candidates coming in, as well as your recruiting team. That is a part of the CEB recruiting Leadership Council program. Members can then customize that, tweak it from things along the line of changing languages to getting special reports, which would be an add-on service. So it goes both ways on that front. Last year, we also talked about Roadmap Builder. That is a stand-alone, separate program. So every time that somebody has access to Roadmap Builder, they are paying incrementally for that service. So, again, to Tom's point, it'll go both different ways, depending on the products that we have and how they fit into the Leadership Council value proposition.

Haniel Lynn

And then on the sales side picture, with circles that describe the various offerings before, almost all -- I think all of those are sold as independent dispute outside of the bundles.

Gary E. Bisbee - Barclays Capital, Research Division

And then just a follow-up to it, how do we think about incremental profitability? Are these lower margin somewhat less scalable than the core subscription program? Or how do we think about that?

Thomas L. Monahan

It really depends because the mix, even -- let's pick on sales for a minute, the mix that Haniel showed you had some stuff that had higher variable cost. So if you say, look, I want you to come in every year, and I get my 10 new sales from Andrew who's ready to lead in this environment, that is going to have some online components, it's going to have some offline components, and depending at how you can figure this customer could have higher variable cost. The opportunity manager, on the other hand, is a heavy technology-based thing. So it's built in the marginal cost, and that's pretty low. I think, on balance, we probably see a little more variable cost in some of those bundles than you would in the core subscription product, but that could change pretty quickly just depending on adoptions of solutions within the bundle. It's very undemocratic. [indiscernible], it's coming your way [indiscernible].

Timothy McHugh - William Blair & Company L.L.C., Research Division

So Tim McHugh, William Blair. I guess, first, I just want to ask, SHL, you talked about kind of a onetime step-up in investment, as well as, more specifically, the sales force in North America. Can you size that? And what's the frame for return on that investment? How long do you think that will take to ramp up before we see debt mature?

Thomas L. Monahan

Rob, do you want to start? Rich can talk a little bit about the contours of them.

Robert Morgan

Yes. Okay. So we've started that investment across the board, especially North America, this year. We've been pretty successful in bringing that talent on board. We expect to see -- we're already seeing results from that new talent in the business this year, but obviously, I expect to see more at the end of this year going into next year. But we've been really pleased with, a, the quality of talent we've attracted and also the quantity we've been able to bring on board in a short period of time.

Richard S. Lindahl

Yes. And as we've talked about, as I mentioned in my presentation, I mean, that's one of the things we expect is going to help with margin improvement going forward is. As the business grows into that investment, we should see that improvement coming out of this year and into next year and beyond.

Timothy McHugh - William Blair & Company L.L.C., Research Division

But can margins -- I mean, is it 2 to 3 years before SHL's margins are back to normal? Or is this kind of a 1-year policy?

Richard S. Lindahl

It depends on a number of different factors. I would say, unlikely, they're going to get all the way back there by next year, but we'll provide updated guidance at the end of the year.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay. And then one more on SHL, if I could. Just the new products, I realize they're still relatively new. But the joint products, based on CEB's research, how much of a cannibalization is it with some sales you might have done? I imagine you sold -- you had some sales product before. You have some finance and IT products. So as you start marketing this, how much of this is -- are you replacing existing kind of sales that you might have done before versus penetrating entirely new areas?

Thomas L. Monahan

Maybe Rob or Paul, do you guys want to take that one?

Robert Morgan

Yes. It's really not a cannibalization because what we've been able to do is we've been able to get into a different audience because of the deep functional expertise. So we had some sales tools, really didn't have any finance- and IT-specific tools of that level. So they're neutrals for us in a new -- really, a new platform for us to play on because of the research we've been able to put into the product development. Paul, I don't know if you'd add to that.

Paul Levett

Yes. No, I think that's right. I think -- if you look at the products, they're actually -- there's a subtlety to them. We've done talent audits before, but they're quite face-to-face low volumes of people. What we're trying to do is bring the way of doing post-hire, sort of gap analysis assessment, which is much more scalable, and by putting the issue on the table, triggering business that we wouldn't have won. So, I mean, they will be the odd one. I mean, for sure, over time, it isn't that way, but the vast majority of them, I think, will be incremental.

David Ridley-Lane - BofA Merrill Lynch, Research Division

All right, time for me. David Ridley-Lane, Bank of America Merrill Lynch. Over the last 2 years, we've seen 2 investor days, I should say, seeing software demos. Maybe that's just a coincidence. But maybe the SHL acquisition, you're giving more -- another foot in the software line. So how does this change kind of the complexity and cost of delivery, probably shipping fewer Xerox copies and things? But -- and also, are you building this kind of in-house or you tend to partner? And then maybe if you have a guess of what percentage of revenues are now running through those software-like products?

Thomas L. Monahan

I'll take it. We don't use the word software ever, I don't think. We are a content business full stop, and we activate that content with technology in lots of different ways. We use technology to link the workflows. We use our content to sit on top of systems record and add intelligence to them. We use our analytic constructs to help people manipulate and understand data, all that. We don't -- a visitor would say, "Hey, are you guys in a software business?" We'd say, "No, no. We were in the rich-content business." And in this day and age, that requires a lot of technology to make it great. And in this day and age, it's also a lot less expensive than they used to be. I'd say we last -- every now and then, we do a mass mailing of something or other, but we largely -- the primary means of consuming our products fall really into 2 categories, that every day online usage that both Warren and Melody talked about in the organization is the lifeblood of the business. It's how people interact with our data sets, it's how people walk through best practices to get them implemented. And then there's an overlay of a CFO who's thinking about changing the reporting segments. We may have a huge database of SEC reporting filings that have been cut so they can see how they can look at that. They may have MD&A structures that they can look. They're going to call and talk to somebody. They're going to call and say, "All right. Talk to one of our IR experts and say, how should I do this? How should I think about it?" No matter how good and rich the tools are, that is a place where the CFO is going to pick up the phone and call someone or Kurt or Steve. There's a set of questions where we know that no matter how good the technology is, somebody is going to want to talk to a top IR expert, a really smart HR expert, one of our best [indiscernible]. So it's an interesting hybrid business in that sense. Yes, if you look across our 3 buckets of business, roughly, Rich, 60 percent-ish falls in BDPs and decision support as a business area. 30% is assessment development solutions, and 10% is tools and solutions. We find technology in all of them, probably more exclusive technology in the latter 2 buckets.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Maybe just one follow-up. Good to review the change in the sales organization and moving more towards relationship, away from transactional. But as you've gone through that transformation yourself, have you discovered other things that you can do to better get at the cross-sell, which is the largest opportunity in front of it -- in front of you?

Thomas L. Monahan

Steve?

Stephen J. Meyer

Sure. The short answer is yes. I think that the -- that job is never done, and we keep discovering new ways we can unlock more of that value. But the foundation of it really is having the right people with the right skills aligned against the right situations and engaging in ways that are understanding the members' needs more fully as a basis to be able to then map our offerings. And I almost felt Haniel elbowing me on a challenger note of it being relationship-oriented. It's actually not in the classic sense of the challenger. It's not relationship-oriented. It's actually very growth-oriented in its nature. And the way we've trained our people and how we're equipping them, one of the insights for ourselves, as well as our members, has been that it really can be that way. To give you a sense of some of the things we're doing that are -- unlock more of that opportunity, building on what's now several years of successive expansion of not just structural alignment, which I talked about, but incentive alignment, training curriculum build-out and tools, enablement tools, that give them information to understand the hotspots or opportunities for better -- for the very best cross-sell opportunities. Melody alluded to new applications that are around in more structured fashion, capturing the critical information that our very best people happen to be asking, but making that be a core competency that if we're more fully capturing the right information from our members, it allows us to build intelligence into every one of our sales professionals proposing the right things and, in fact, even in some ways, complementing the sales force with direct marketing or research team support around those things. That's a whole another example on another avenue that's opened up for us for the year -- a year or 2 ahead.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Joe Foresi from Janney Montgomery. I was hoping to start with SHL. When you ended [ph] the investments and you build up the North America sales force, are you running that sales for separately from the CEB sales force? And are there any plans to combine that sale and then go to market?

Robert Morgan

Yes. We are running that sales force separately. We've incorporated a lot of the best practices that CEB's used over the years and how we build up that sales force from demand generation to process that we're rolling out to the organization now. But we're running those sales force separately. There's probably some opportunity to jointly account manage some large accounts that we're exploring now, but our intent is to keep those sales forces separate from now.

Thomas L. Monahan

Some of that is the -- as we look at it, the SHL sale is a different sales cycle. And much like our CEB Valtera business or some other specialist businesses, you've got a person covering the account who invites in or creates a referral for the specialist. Just given their different products, there's more configuration. We found there's real lever in some of our more complex products than having the specialist, and that's what more the SHL platform looks like. We will find ways to get people -- I'd say people, organically, are doing a good job working together, probably as we now thinks that the people out doing business with the customers, they may be ahead of the people sitting here talking to you in finding new ways to working with, find the most compelling ones and build against them. But we found in our other businesses, I think it's likely to be true here that there are certain products that require more specialist footprint. And this is -- the suite suggests there's a lot of that there.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

As you change the model from just direct sell to sort of multi-touch points with a client, I was wondering, how much have you changed the compensation structure for the sales force? Has that changed at all? And are there 2 different compensation structures for an SHL sell versus a core CEB?

Stephen J. Meyer

We've changed compensation quite a bit over the years. As you might expect, we've changed. Even if we have a lot of the same people still here, there's a lot of new people that have been brought into the sales team for the skill -- for skill fit for where we're going and how the models evolve. But even as the people who have been here through both generations of that have grown and evolved quite a bit over 4 or 5 years. So I'm starting, not with compensation, but with the profiles and skills we need. But on average, that represents more mature sales professionals facing off with opportunities. And as a result, our compensation on that basis alone has some characteristics that we've built in, in the years. We found efficiencies in other places, obviously, to support that. Additionally, there are some other attributes I mentioned that if you can have just the most fundamental changes, the roles I described in that earlier go-to-market model, where there were very few people who were responsible for both renewal and expansion. It was pure sales and renewal. Just by creating account manager roles in recent years, where there's a broader set of challenges that they're responsible for, we don't need wholly different compensation plans to appropriately motivate them and reward them for great performance. And that gives you a flavor at least. It's been -- particularly in the first couple of years of that rollout. Melody and I and the team spent a lot of time together on doing what was a pretty significant revamp of those plans. And now we've been more on the tweaking and honing mode.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Has it moved more towards commission or salary? I'm just trying to get a sort of a feel for how that would evolve along the process.

Stephen J. Meyer

There's not been a radical shift in that regard overall. Depending on the model, the portion of the model we're talking about, there's likely different attributes, as you might expect, on how steep incentive curves are or what the profiles are if you're selling many hundred thousand dollar deals versus somewhat smaller sales. They just, by nature, need to have somewhat different attribute. But we haven't radically had to transform that, that you're describing.

Melody L. Jones

I think one of the things that is really important that we figure out a way to add in without increasing the cost was with 4 roles and profiles. The continuity was particularly important. We were able to add in a multi-year component. That is a component of account management, account leaders, plans that reinforces doing a good job, doing a good job over multiple time horizons.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Okay. And last question for me. You're now controlling a lot of data, it looks like, within the HR function at least. Can you talk about maybe in the unified platforms or specific programs that your -- or initiatives you're working on to kind of capitalize on that data now that you have SHL's part of the mix as well?

Thomas L. Monahan

Sure, we can go lots of places. Warren, why don't you talk a little bit about some of the work we're doing in and around the HR space where we have some of the richest datasets?

Warren Thune

Yes. So we're taking all the different pieces of data that we have and aligning it the best we can. So you've got different characteristics of data that you could use to align it so that we there's a much richer analysis you could do within that. We've been working on that almost since the week after the acquisition. As you can imagine, pretty complicated because the datasets were created differently, and so you need to find those unique identifiers and those unique characteristics that would allow you to put them together. But we've been working with that from day one.

Thomas L. Monahan

I would say and affirm with closing it on a couple of thousand researchers, the challenge has been as much about keeping them focused. Because imagine that CEB's research teams and SHL's research teams suddenly get the keys to another candy store, and the first week or 2 are people walking around and going, "Wow, I can measure." But what's exciting is we're doing R&D, where we had sort of a dataset based on SHL that was relevant to R&D executives just even for the core product. We're finding applications well outside of HR.

Kurt Reisenberg

And the information flow and insight flow goes both ways. So SHL had quite a robust dataset, R&D professionals that they had done through institutional-wide surveys and also on just broad concepts like innovation, which are very important to R&D executives. We have a lot of the members that are also contributing functional data. We are able to combine some of their data, ask questions on top of that, and the result is pretty interesting. So more recently, we actually surveyed about 100 companies around the globe, got around 2,000 data points of R&D executives looking for hallmarks of innovation, predictive hallmarks of innovation, kinds of things that you could look for in resumes or test for in interviews that would be good markers of potential to be more innovative. And not just in the inventor way of thinking about things, I create lots of things, but actually being able to take those concepts and drive them to completion and commercialization. So we probably wouldn't -- that probably would have taken a lot longer had we not had the benefit of SHL's experience and data. But we're also able to build on that and go further.

Steven Shui - Stifel, Nicolaus & Co., Inc., Research Division

Stephen Shui with Stifel. You guys were previously tracking towards the middle of your revenue guidance range. I know currency has kind of moved a tad away from you guys. Can you give us an update on where you're tracking now, and also what areas you're kind of seeing some strength and weakness?

Richard S. Lindahl

Yes. We don't provide mid-quarter updates on guidance or certainly on the quarter itself. I will go back and tell you that the guidance we gave in May presumed the biggest influences the ratio of the dollar to the pound, and that presumed a $1.55 exchange rate, so...

Thomas L. Monahan

You can talk a little bit about trends in the business through Q1, just pockets of relative -- and talk about a couple of pockets of relative strength that we missed.

Unknown Executive

Sure. In general, I think relative to a Q1 relative to prior quarters, go back over the prior 3 or 4 in general, we've seen a settling of the market in a positive sense and that there is less uncertainty. There's certainly some puts and takes in that as you pick up any newspaper and it reflects it. You almost can't avoid the U.S. government chop that continues to go on, and we haven't been immune from that. A fair amount of uncertainty in process change and how volumes are occurring in that arena over the near term at least. On other fronts, the European markets, while not nearly as choppy as a year ago, continue to be an area of sort of relative moderate certainty in terms of buying patterns and the like. So well, I think at the end of Q4 last year, we saw some uptake where that looked like that was getting a fair amount better in Q1 that looked to moderate a little bit, so it wasn't kind of wishful thinking on suddenly that's a more vibrant market again. I don't know that really that bore through in Q1. And North America has been stable, and so that'd be my quick summary at the very high level. I don't know if you'd add anything, Tom.

Thomas L. Monahan

I live in Europe long term, but we have a hard time imagining it would contribute. It won't be a drag on the overall corporate growth rate for the near term.

Steven Shui - Stifel, Nicolaus & Co., Inc., Research Division

And just one more question. As you guys increased marketing and efforts, how should we think about that in terms of a step-up in costs?

Thomas L. Monahan

Yes. I'll let Stephen talk about that a little bit. I profess some deep personal disappointment that I remember years ago talking with Steve about marketing when he first came on board and I kept saying, "So this means we get a master's tent, right? This means we get a blimp, a ballgame." And Steve said, "No, it means better collateral in the hands of salespeople." I was like, "Oh, come on, one ballgame, even one of the crappy ones? Come on." Let me then comment on it, but we think of it as a core operating expense that flows through in a lot of ways. [indiscernible] how it shows up, and, Rich, maybe overall guidance.

Stephen J. Meyer

Yes. My marketing team would have me correct that we're not limiting just to sales. There's more -- there's some something inspiring, interesting stuff the teams are doing that I think really enabled the teams more broadly. But we're stopping short of the master's tent so far.

By and large, as you might expect, the cost, the expenses we've -- and really the talent we're putting into marketing has expanded in each of the last several years and probably will continue to expand in terms of absolute dollar amounts. But it's not focused in areas that tend to be, for many companies in marketing, the biggest dollar consumer. So when you start doing broad sale advertising or -- a master tent actually is not that much, but if you're doing big event-based strategies and sponsorships that's covering that type of place, then you get to much bigger dollars, and those haven't been our focus to date. Having very talented people, partnering with our product and sales teams in very sharply articulating the opportunities, the offerings, the differentiation, equipping our teams to succeed in selling, and then in the market in very focused fashion, building platforms to express that. To be present where our members are present has been a big part of it. Maybe to draw that contrast further, for us, when we talk about our marketing, it's less about casting huge net into the ocean. And it's must much more spearfishing with the companies by and large that we're trying to sell to. The teams, the executives are in the 100,000 range, not the millions and millions range in terms of number of people that are in our strike zone of most important near-term targets. And so that just leads to different equation in terms of economically what you need to do from a marketing standpoint. In terms of the total cost, I'll defer to Rich a little bit, but I'll tell you overall what we -- the way we fund that by and large as we talk about total commercial productivity. A lot of what we're doing as opposed to just marketing spend, so a lot of what we're doing is the go-to-market model I described, the channel structures I described have some different efficiency attributes to them. Marketing is an enabler within that. It's a more important enabler in the new model we've put in place in recent years, and what we're trying to do is drive continuous overall commercial productivity year-on-year while we raise our game.

Richard S. Lindahl

Yes. And the overall backdrop is still that sales and marketing expense is going to be the most variable piece of our cost structure. We'll vary -- we'll grow roughly in line with revenues. You definitely get some efficiencies from more tenured salespeople from some of the other cumulative investments we've made in marketing or other enablers. That gets offset by new sales capacity that we introduce into the system every year, which is less productive out of the gate. So the expectation should still be that, that's going to remain mostly variable expense.

Thomas L. Monahan

Digital helps us here, too. Steve's team has great confidence year around. If you think about -- we're not trying to create -- to his point about spearfishing, we're not trying to create a digital presence around home mortgages or something that requires just a lot of muscle to spend money on. But if you think of the niche-y type things we all looked at during the break and the very specific questions that people are likely to have, they go online looking for those things. We can own that space and pull them right into us. So digital does help us be very efficient here, too.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Tobey Sommer with SunTrust Robinson Humphrey. I had a question for you how you may increase the repeatability of the SHL business. I think you alluded to the opportunity in the post-hire marketplace, but I was wondering if there are other levers that you could accomplish that goal.

Thomas L. Monahan

The business is 70% repeatable already, but I'm sure you'd take 71%, 72%, you could march right up that[indiscernible].

Robert Morgan

Yes, couple of ways. One is we've increased our presence of subscription sales. So we've converted our business more and more into subscription sales, which is by definition is a repeatable business. And we've done that not only in the pre-hire but starting to do that in the post-hire space. So as we expand the subscription footprint, that'll increase the percentages [indiscernible] of people business we have.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Is it as simple as changing the sale? What are the obstacles to taking that from 70% to some higher numbers?

Robert Morgan

It's 2 things. One is changing the sale to changing someone from a PAYGO or from a buying back project to a broader subscription and verting that into their process. Secondly, it's selling multiple solutions. So if you think about the 6 propositions we talked about, there's an opportunity to sell additional propositions to a client. So on average, a client buys about 1.5 propositions, so there's opportunity to expand within the client to grow that subscription deal and to grow the value of that business.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Okay. Just one follow-up, with respect to the pre-hire versus post-hire services, what is the difference that allows the post-hire to be sort of more scalable and potentially more profitable?

Paul Levett

Pre-hire at the moment is the most scalable because it's the most automated. And the -- I was talking about was actually, before we started with the, I think homestead, we post-hire the moment you got quite a lot of spend going into projects related to change. And then you got the sort of beginnings of the automation with the post-hire work program that is trying to penetrate that space, although it's mostly in the U.S. rather than in other countries. I think we have a challenge to say what does objective assessment empowered post-hire repeatable process look like. So we talked about this a lot in terms of how can you make something the people are doing in response to a need more repeatable. I think we've got all of the assets, if you like, to put together. We haven't actually done the work yet. So insight is one of them. So if you need to -- if you can put change under the nose of your client all the time, you need to change, you need to think about your people differently, then they're going to go want to order that stuff more repeatedly. So I think we do have some work to do to make post-hire, if you like, as an SHL assessment solution more scalable. But I think the insight that CEB brings, the technology skills that we've got as a combined business I think is going to get us there. But we're still working on a plan for this as part of our planning process of SHL.

Thomas L. Monahan

There's some wonderful repeating -- a really tangible example of something that we encountered prior to the acquisition is, in each one of our businesses, we have something called the Leadership Academy, where the CIO or the CFO subscribes to a program where they send somewhere between 5 and in some cases 50 of their highest potential hires every year, highest potential emerging stars every year to go to a quick run to get them ready to take on broader leadership roles. We like that business for 2 pretty obvious reasons. One is it's a recurring need they have. They always have people who are emerging, and it obviously propagates generations of users of our product, gives us a chance to get the next 10 divisional CFOs acclimated onto CEB tools and methods. But it's not uncommon in that business for us to get a CFO all excited about doing this and say, "Yes, I totally want to do this. 10 a year. That's fabulous. I can't wait to do it." And they get a callback a week later saying, "I'm still totaling in. I have no idea who to send." And so that process of every year being able to say, "Okay, this is the next cadre of emerging leaders. Here, the development programs you should be putting into." That is an everyday question that we see the back end of right now that we're going to be able to help them any way in the front end as one of dozens of post-hire applications we see.

Kurt Reisenberg

As you think about some of the HR workflows that are post-hire in nature, the performance management -- performance review process or the succession management process, they're extremely repeatable. In fact perhaps more repeatable than pre-hire processes. We don't necessarily know when you're going to hire. You need to hire people [indiscernible] coming up in review times, so...

Thomas L. Monahan

Yes, this is -- we look from the outside in, we have a lot of tools that support succession management, the process level. It's an annual process at every company, probably front and center for Kurt, what you're going through right now internally, where every year across 4 weeks, we go up and down the organization reviewing people against a predetermined set of criteria. It's as recurring a workflow as you can possibly imagine. It goes all the way up to the board. So it's one of probably 5 or 6 things we're looking at instrumenting right now. We ended up just passing the microphone, but let's go over to the center. Yes?

Adan Wiesel

Adam Wiesel from North Bay Capital. I was thinking about the comment that was kind of mid-slide deck about retention being driven by usage and the process that you went through in '08 and '09 to shed the low-utility programs and also try to get further embedded in workflows and maybe a little more recurring customer engagement. And so I was hoping you could talk to some KPIs about usage now compared to then, and how much improvement you see, and maybe focused on the bottom side of the utility right now. So we can get a sense of the risk in recessionary scenarios or an idea of the cyclicality.

Thomas L. Monahan

You can talk a little bit about this because we have -- we manage this stuff daily now, so I don't even know that we could compare usage, and Melody's laughing, but if I -- usage now versus usage 5, 6 years ago, if you look at the data sets we manage now.

Haniel Lynn

A way to think about it is the folks that we might engage with throughout the organization, from the senior person down through staffs of the organization. And so when we think about engaging with the CMOs, it might show up in the form of them coming to our meetings. It might show in the form of our advisory teams engaging with them through delivery of the business value and the framework that Steve talked about before at the top, and delivering business value there towards the bottom. It might be access to our web platform, access to webinars, access to a whole host of other offerings that we would have in our membership products. And what I think you'd find when you look under there is you'd see a pretty good step-up in terms of broad-base of engagement more broadly across the organization. So the numbers of people coming, going onto the website, number of people coming back to the website, that I think you'd see consumption going up overall. I think we're also much more engaged through our advisory system and network to see the CMOs person and focus on delivering business value that has I think also improved over time.

Thomas L. Monahan

Really important that those 2 don't get untethered because if we're simply mindlessly stimulating usage but we're not tightly aligned with what the CIO wants to get done. CIO looks at it and says, "Okay, this is great. Lots of mileage usage, but I can't point to any outcome that all this usage related to." So it's -- even just a 20-minute call between one of our key account managers and one of our advisory staff, we get -- bring down the CIOs and says, "The 3 things I've got to get done are this, this and this." That allows us to go shape the usage in a way that they come back and say, wow. Yes. Hundreds of usage incidents, but more importantly 3 ways you rang the bell for me economically. So we end up managing that pretty carefully on both sides, but we manage usage volumes daily, weekly, monthly. We have predictive tools that sit on top of them. So if you're an account manager, you say, "Okay, your North Bay Capital was healthy until a month ago." And suddenly some things go -- usually it's indicator of leadership transition. There's a transition happening we don't understand, but that gives the account manager the ability to reach out and say, "Hey, you guys were active users." As to what happens in the next recession, we have 3 data points that line up terribly, so I can't draw a line through them. We have our first recession as a public company, '01, '02, second in the global financial crisis in '08, '09. In the last couple of years have been cruddy economically, and that gives us some sense at least under some economics stress how we hold up. We fared very differently in all 3. But if you take the most extreme scenario, the '08, '09 scenario and you say "How -- what happens next time something like that hits, knock on wood, hopefully many, many, many years into the future?" But we think we made the business much more recession-resistant. Certainly, some of the wound there was self-inflicted. We took about 10% of the revenue off the board ourselves. Peak to trough, I think we're down 20%, largest annual drop. The annual drop is about 20% of revenues, so 1/2 of that was self-inflicted. I'd like to think we made it somewhat more recession-resistant through that cycle. It's never going to be recession-proof. If we have a severe global financial crisis, there will be CFOs who will say to us, "I used 5 of your tools last year, and this year, I'm using 4." And hopefully, we can minimize those conversations, but that was the theme last time. And as much as we've embed ourselves in workflow, there will be some difficult decisions if another global financial crisis on the scale of '08, '09 hit.

Flip side, we're seeing in subsequent years pretty tough economy. In a lot of markets where we operate, we've been able to generate good solid organic growth. So even if it's not a huge tailwind but stable or down a little bit, we can compete very effectively. It seems to me the huge stress scenario that we want to be guarded against.

Adan Wiesel

One of the gentlemen I was talking to out in the hallway was talking about how there's different red flags depending on the practice and the I guess the function of the person sits in there. And maybe you could just talk a little bit about, I don't know, how long you've been on that system where the red flags are popping up. But since you've been on, how much improvement you've seen in terms of the number of red flags popping into the system?

Thomas L. Monahan

I'll summarize that it goes down. Just as you measure it in your -- I don't think we've ever found any business problem, or frankly, any personal problem given this lineup that we haven't tried to assemble a data set and automate predictive tools on top of. So we run out of milk at home, we're like, " I've got to build a data set. I've got to build a predictive tool that tells me what drives milk shortages at home." It turns out it's weekends, and cereal versus pancakes. So no surprise. We've got very serious about driving usage. We create red flags that pop up. And that really helps the account managers do their jobs. That helps them lean in sooner so that we understand what's happening. Certainly, there's when you start managing this business, steady incidents going down because we're managing it, we're watching it, and most importantly, we've given our people's tool. It's one thing to manage it retroactively and have a summit at the end of the year and call people up and say, "You did a good job, you did a bad job," sort of than give them the tools to manage it personally, so that they're looking at a predictive algorithm, and that's where we put our time and energy. So I think it's moved in the right direction. It can always be better. I don't think anyone of us feels either our personal nook procurement algorithm or the algorithm for predicting member usage and renewals. We see lots of room to improve, but it gets better every day.

Unknown Analyst

Just a follow-up. You've shown us this top 200 contract value from customer. It's grown really nicely the last couple of years. Obviously, price is one component. But can you give us a sense outside of price what's driving it. Is it -- especially interesting in light of a couple of years before that word [indiscernible] right? So is it more cross-sell adding new full subscription programs? Is it more increasing revenue and probably does the stickiness with the existing executives you're doing business with? What's that mix? And looking forward, how confident are you that this wasn't just a snapback after a weak period, but there's sustainability or the ability to grow with these top 200?

Thomas L. Monahan

Yes. I think, Rich, the answer's going to be incredibly disappointing, which is it's all of the above. We certainly are realizing pricing. It starts with their keeping what they have. When you look at the whole dynamic and you say it starts with a good wallet retention rate. Because if you're not doing a good job there, you can sell as much as you want, but it doesn't matter. So it starts with great retention, then through to pricing. And then I do think these are the folks who tend to adopt the more complicated bundle sooner. They have more needs. If you look at those solutions that Haniel was talking about, these are the people who have, not dozens of salespeople, but hundreds if not thousands of salespeople in the same room, okay? I need to put this on these many desktops. I need to get this many managers going through. And since it's priced a little bit more by the usage and breadth, there's probably a little more opportunity to capture that. I think there are also balances in companies with more sophisticated corporate staffs, deeper benches, who are pulling us in because they themselves are trying to run their business with more science. Yes, they're sitting there saying, "Boy, I've got 20 years of automation, 20 years of data collected, how do I apply intelligence stat to run the organization?" So not dissimilar from the rest of our entire corporate history. We tend to see adoption at the top of the market first and then find ways to package it and drive it down. But I think it's all of the above, and I wouldn't underestimate the importance of just great execution day to day in front of these customers, earning the opportunity to have that next conversation. Nothing goes well until that happens.

Unknown Attendee

And then the last one for me. I appreciate the new cut-it addressable market and the customer size and top 100 versus everyone else. Do you have a sense or have you looked at the profile of the top 100 in the core large customer market in North America versus the rest of the 22 45 you have or even versus the 400 or 500 you don't have? Does it skew such that applying that top 100 CV to all of them really is an unfair comparison?

Thomas L. Monahan

We bring a lot of science here, and I invite Steve and Kurt to talk a little bit about this. But the same predictive algorithms that we use on usage assume we've got them for membership growth that gave us a sense. But I don't think, as you guys look at the data, I don't think there's any indicator.

Kurt Reisenberg

One of the reasons why I gave those 2 examples of smaller companies in the top 100 is it doesn't skew towards size as much as you think, so that's one thing that we look for that we expected that we didn't actually really see.

Stephen J. Meyer

I'd say more broadly [indiscernible] slice and dice quite a few ways. There is an initial filter on that data that rolled out whole subsegments that we found a natural fit to even consider addressable in them. As you might expect within -- even within the addressable, there's a whole bunch of algorithmic approaches around who are the easiest, most natural, most natural fit. And so there's a continuum there, no doubt, but there's pretty good filter on that to begin with. And so a lot of it is over time execution and aligning ourselves against successive tiers in those markets and getting after them. I think that's what you've seen us doing and what we'll continue to do.

Unknown Attendee

So another cut at that, you had a statistic at 94 of the Fortune 100 customers. So is it safe to say that a lot of those are actually outside of the top 100, and there's big opportunity to harness that market in addition to smaller companies?

Thomas L. Monahan

We see opportunity up and down. Obviously, a Fortune 100 company can purchase more, given their size, given the sophistication. But I would say, one of our biggest miscalculations across the past 8 years was, we radically underestimated the purchasing power of the middle market in terms of price, in terms of size, in terms of their sophistication and usage. I think that means -- I think it's highly unlikely that it turns out there's a gap between the Fortune 100 company and the biggest one. There's a lot of capacity and interest in that entire market, and we see -- we think we've got a sense industry. By industry indicators of potential buying, but, boy, even setting that all aside, we can tell you that the next sales visit to customer A versus B is worth a little bit more. I think a bigger point is they're both valuable. Let's go do them both, all right?

Richard S. Lindahl

All right, Tom, I think we've hit our time limit.

Thomas L. Monahan

Okay, all right. Well, thank you. We have -- we're going to be around for lunch. Lunch is -- it can only be in 1 of 2 directions, so it's either out that door, out that door. Thanks everybody for being here live and calling in or logging in.

Richard S. Lindahl

Thank you all.

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