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Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
Growth strategy presentation
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Growth strategy presentation

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This presentation is a growth strategy report of a major kitchen supplier in Australia. …

This presentation is a growth strategy report of a major kitchen supplier in Australia.

To achieve its growth objectives, the company has engaged a major consulting firm to:
- define and articulate the business strategy that will deliver its growth and profit targets
-identify the business model and capabilities the company will need to realise this strategy, and
- assess what investment in time, effort and money will be called for to execute the strategy (including two alternative roll-out plans)

The deck has 49 slides. Download at gazhoo.com

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  • 1. XYZ Growth Strategy Final Report Date
  • 2. Our objective was to assist XYZ in defining & articulating its strategy for dramatic growth in the Australian kitchen renovation market. Growth Strategy – Objective & Scope  XYZ’s vison is to dramatically increase its share of the Australian kitchen renovation market to 15%—generating sales of $120m (EBIT $12–18m)—by end2004  To achieve this, we undertook to: − assist XYZ to define and articulate the business strategy that will deliver its growth and profit targets − identify the business model and capabilities XYZ will need to realise this strategy, and − assess what investment in time, effort and money will be called for to execute the strategy (including two alternative roll-out plans) 1
  • 3. The project team has completed the planned scope of work within the timeframe. Phase 1 – Project Plan Stage 1 (Week 1) Stage 2 (Week 2) Stage 3 (Week3) Operating Strategy Development Strategic Direction Diagnosis • Define the business context • • Develop projected market data to year end 2004 Generate potential strategic options • Identify first-cut business models and capabilities • Define best 11 strategic opportunities Plan • Define appropriate operating strategy to execute the best options • Group similar and compatible profit improvement opportunities for: • Identify the performance gap • Stage 4 (Week 3) • Sales & Marketing Select the two best options • Supply Chain • Operating Costs • Information Technology • • 2 Align business architecture to execute the strategy Assess what time, effort and money will be required to realise the best options • Plan transition from current state to new state
  • 4. From our analysis we have identified the most promising growth opportunity for XYZ  We have targeted the 5 major cities as the focus for growth  We have reviewed the multiple sales channel choices available into three potential go forward options  Further evaluation and costing of these options has brought us to two strategic alternatives  We have identified the business model and capabilities XYZ will need to realise the preferred strategies  We have assessed what investment in time, effort and money will be called for to execute the strategies (including two alternative roll-out plans) 3
  • 5. Based on market size, Australia’s largest cities initially present the best opportunities for growth. Initial Focus Population–Australia’s Largest Cities, 1997(6) Annual Spend on Kitchens – Top Five vs. The Rest, 1997(5) Gold Sunshine Coast (4) Coast (4) Canberra 2% 1% Cairns 1% 2% Newcastle 3% Other VIC 4% Other SA(2) Other WA(2) 3% 2% 6% Other QLD(6) 31% 10% Adelaide Sydney 33% 12% Other NSW (5) 11% Perth 7% Brisbane Melbourne 12% 27% 5 Perth 4 Brisbane 8% Total = 12.5 million Notes: 1 Sydney (1) Excludes ACT, NT and Tasmania. (2) Assuming 75% of spend is accounted for by capital cities. (3) Includes Newcastle which could be assessed as a second tier growth opportunity. (4) Includes Gold Coast and Sunshine Coast which could be assessed as second tier growth opportunities. 4 3 Adelaide 2 Melbourne 17% 8% Total = $1.9 billion(1) The 5 largest cities equate to 73% of annual Kitchen spend in Australia Sources: (5) BIS Shrapnel, Kitchen Renovations, 1997. (6) ABS, 1997.
  • 6. Melbourne and Sydney are the most attractive markets. Market Attractiveness – Large Australian Cities(1) Criteria Sydney Melbourne Brisbane Adelaide Perth Population Population Growth GDP per Capita Share of Kitchen Renovation Spend Growth in Building Commencements Growth in Renovations Number of Competitors Industry Concentration Average Price of Kitchens Installed Overall Attractiveness Attractiveness Note: (1) See appendix 1 for rating scale. See appendices 2 & 3 for data, analysis notes, assumptions & sources. 5 Low High
  • 7. We have assessed XYZ’s ability to compete in the five largest cities. It is highest in Sydney and Adelaide. Ability to Compete – Large Australian Cities(1) Criteria Sydney Melbourne Brisbane Adelaide Perth Relative Market Share Market Knowledge Distribution Network Sales Force Effectiveness Distribution Costs Marketing Effectiveness Brand Strength Overall Attractiveness Ability to Compete Low Note: (1) See appendix 5 for rating scale. See appendices 6 & 7 for data, analysis notes, assumptions & sources. 6 High
  • 8. We have combined market attractiveness and ability to compete to assess the overall opportunity for growth in each market. Overall, Sydney presents the best opportunity for growth. Market Opportunity Assessment – Large Australian Cities High Melbourne Sydney 1% 3% Build Capabilities Target For Growth Target For Growth Immediately Brisbane <1% • Size of circle represents $ value of kitchen market(1) • % represents XYZ’s market share by value(1) Relative Market Attractiveness Perth <1% Transfer Capabilities Trial New Channels Leave For Now Adelaide 3% Low Low Note: Sources: Relative Ability to Compete (1) Assumes 25:75 rural/urban split for WA and SA. BIS Shrapnel, 1997; XYZ Management Report, December, 1999. 7 High
  • 9. Based on the pricing point distribution of Nobby sales in Sydney versus BIS Shrapnel market data, the low cost end of kitchen renovation market has not been exploited by XYZ. Adjusted SYD XYZ vs BIS Distribution of Price Points XYZ Sydney 6 months Direct Kitchen Volume BIS Annual Kitchen Volume % 300 250 200 20 Low end kitchen sales ($2000$5000) not currently exploited by XYZ 18 16 14 12 150 10 8 100 6 4 50 2 0 0 10001999 20002999 30003999 ‘Bits and Pieces’ sales Note: XYZ Sydney raw data: Deducted 8% appliance costs. Added installation and appliances at industry cost Source: BIS Shrapnel 1997, p75, Cost of Renovations by cupboards purchased XYZ Sydney 6 month order reports 1999 40004999 50005999 60007999 Price Points $ 8 80009999 1000014999 >15000 XYZ BIS
  • 10. Based on the pricing point distribution of XYZ sales in Adelaide versus BIS Shrapnel market data, the low cost end of kitchen renovation market has not been exploited by XYZ. Appendix 6: Adjusted XYZ ADELAIDE vs BIS Distribution of Price Points Wallspan Kitchen BIS Annual Volume Kitchen Volume % 300 60 Low end kitchen sales ($1500$3000) not currently exploited by XYZ in Adelaide 250 200 50 40 150 30 100 20 50 10 0 0 <1000 ‘Bits and Pieces’ sales 1000-2999 3000-5999 Price Points $ Note: XYZ raw data doesn't include appliances. Installation and appliances added at industry costs. Source: BIS Shrapnel 1997, p120, Cost of kitchen renovations by item installed; XYZ Wallspan order Reports, 6 months to Dec 1999. 9 6000+ XYZ BIS
  • 11.  We have targeted the 5 major cities as the focus for growth  We have reviewed the multiple sales channel choices available into three potential go forward options  Further evaluation and costing of these options has now brought us to two strategic alternatives  We have identified the business model and capabilities XYZ will need to realise the preferred strategies  We have assessed what investment in time, effort and money will be called for to execute the strategies (including two alternative roll-out plans) 10
  • 12. We have filtered and consolidated our initial set of 11 concepts into three strategic options for consideration. Three Strategic Options 1. The One-Stop-Shop 2. Retail Showroom Focus 1 Kitchen Renovators Superstore 2 Multi-channel, Multi-Brand Retailer 6 Supply direct to trade (ex-factory) with orders made through trade outlets (e.g. Tradelink), phone, fax or Internet 3 Kitchens on-line 6 Wholesale supplier to trade & commercial 3. Hardware Multiple Focus 7 Hardware multiples focus (e.g. Bunnings, BBC) 8 Selected expansion of branded showrooms - Direct to trade (ex-factory) with orders made through trade outlets, phone, fax or Internet - No commercial channel development - Supply commercial property developers (e.g. Mirvac, Multiplex) 4 Supplier of choice to kitchen industry 10 Backward integration 11 Forward integration 5 Ref: Final Report Appendix for detailed descriptions of concepts 1-11 Utilise across options as core enablers in the value chain Expanded modular furniture range Non Core Distributor Model Retail Outlets Considered as approach to implementation across all options 9 11
  • 13. Strategic Option 1 – “The One-Stop-Shop”– is a kitchen superstore concept with a separate trade-direct channel. Option 1 – One-Stop-Shop Channel Market Segment Price Point(1) Product Home Owner Builder/ Renovator Budget Home Renovator • Low to Medium Price Range ($3K-$6K) • Supports Standard Kitchens • Value Added Services • Showroom service • Measure • CAD Design • Installation DIY enthusiast World-Class Manufacturing Capability • Medium to High Price • Supports Custom Kitchens Range ($5K-$9K) • Value Added Services • Showroom service • Measure and consult • CAD Design • Finance • Project Coordination • Installation • Appliance/ Accessories dealerships • Low Price Range ($1.5K-$4K) • No Fuss Standard Flat Pack Range • Best Value (Price/Quality) • Standard “Easy to Use’ Range • Off-Shelf Availability Every Time • Loyalty incentives Kitchen Superstore in key locations ILE AG FR ILE AG FR ILE AG FR Trade Channel (ex-factory/warehouse direct to trade outlet or site) Note: (1) Includes cabinetry price only. ILE AG FR Tradesman/Installer Small Builder 12
  • 14. Strategic Option 2 – “Retail Showroom Focus” – is a multi-channel, multibrand retail strategy. Option 2 – Retail Showroom Focus Channel Market Segment Home Owner Builder/ Renovator Brand Stores (Nobby’s & Wallspan) Kitchen Barns (Cash & Carry) Budget Home Renovator DIY Enthusiast ILE AG FR ILE AG FR eKitchens Direct (24hr Delivery) World-Class Manufacturing Capability ILE AG FR ILE AG FR Tradesman/Installer Price Point(1) • Medium to High • Supports Custom Kitchens Price Range ($4K- • Value Added Services $10K) • Showroom service • Measure and consult • CAD Design • Finance • Project Coordination • Installation • Appliance/ Accessories dealerships • Low to Medium Price Range ($3K-$6K) • Supports Standard Kitchens • Value Added Services • Showroom service • Measure • CAD Design • Installation • Low Price Range ($1.5K-$5K) • Standard Flat Pack & UniBlock Range + Wardrobes • Best Value(Price/Quality) • Standard “Easy to Use’ Range • Off-Shelf Availability Every Time • Loyalty incentives • Trade discounts Small Builder Budget Home Renovator Furniture Multiples ILE AG FR ILE AG FR ILE AG FR ILE AG FR Product DIY enthusiast ILE AG FR Factory Direct Note: (1) Includes cabinetry price only. ILE AG FR ILE AG FR ILE AG FR • Contract based Kitchen Companies & Commercial Developers 13 • Contract based
  • 15. Kitchen Barns are a low-range kitchen warehouse outlet. Kitchen Barn Store Concept • Warehouse design • 750 - 1000 sq. metres • Located in 5 largest cities • 1 store/ 500K population • Cash & carry flatpacks/uniblocks and short leadtimes for assembled Target Customers • DIY • Budget-conscious renovator (low-mid socio-economic segment) • Tradespeople 14 Product/Service Offer • Kitchens in $1,500$7,000 price range -assembled - flatpack • Accessories • Appliances • Uniblock • Benchtops • CAD stations • Trade recommendation service
  • 16. Strategic Options 3 – “Hardware Multiple Focus” – primarily involves targeting volume through hardware multiples and, in addition, growing the number of branded showrooms. Option 3 – Hardware Multiple Focus Channel Market Segment Price Point(1) • Low Price Range ($1.5K-$4K) • No Fuss Standard Flat Pack & Uni-Block Range • Best Value (Price/Quality) • Standard “Easy to Use’ Range • Off-Shelf Availability Every Time • Loyalty incentives • Low to Medium Price Range ($3K-$6K) • Supports Standard Kitchens • Value Added Services • Showroom service • Measure • CAD Design • Installation • Medium to High Price Range ($5K-$9K) DIY enthusiast • Supports Custom Kitchens • Value Added Services • Showroom service • Measure and consult • CAD Design • Finance • Project Coordination • Installation • Appliance/ Accessories dealerships ILE AG FR ILE AG FR ILE AG FR Hardware Multiples (Bunnings & BBC HardwareHouse) World-Class Manufacturing Capability ILE AG FR Tradesman/Installer Small Builder Budget Home Renovator Brand Stores (Nobby’s & Wallspan) Home Owner Builder/ Renovator Note: (1) Includes cabinetry price only. Product 15
  • 17.  We have targeted the 5 major cities as the focus for growth  We have reviewed the multiple sales channel choices available into three potential go forward options  Further evaluation and costing of these options has now brought us to two strategic alternatives  We have identified the business model and capabilities XYZ will need to realise the preferred strategies  We have assessed what investment in time, effort and money will be called for to execute the strategies (including two alternative roll-out plans) 16
  • 18. We have developed six configurations from the three strategic options for financial consideration. Configurations Considered Channels Flagship stores, Flagship stores, Nobbys & Nobbys & Hardware multiples Kitchen Barns Retail Flagship stores   Nobbys & Kitchen Barns   Kitchen Barns Hardware Multiples Trade   Nobbys & Hardware multiples   Branded stores Superstores & Kitchen Barns  Superstores Superstores & Hardware multiples   eKitchens Factory Direct (including Commercial)    eKitchens and the factory direct channel can be added as a ‘bolt-on’ at a later date 17
  • 19. The financial projections are based on several key assumptions. Key Assumptions1  The financial projections do not include costs and revenues associated with XYZ’s existing Commercial and wardrobe business  Outlets opened during the year are assumed to have 50% of the sales volume of established outlets (i.e. outlets opened in prior years)  Funding requirements are met by debt and equity in equal proportions  Interest on debt assumed at 10%  No dividends are paid during the period under review  Tax rate assumed at 30% and tax is paid one year in arrears  Efficiency improvements on materials (2% on cost of goods sold), labour (1%) and variable overheads (2%) are realised on an annual basis Notes: (1) See Appendix for detailed assumptions 18
  • 20. We have prepared projections for each of the configurations. Configurations Evaluated Flagship stores, Flagship stores, Branded Stores Branded Stores & & Kitchen Hardware multiples Barns Superstores & Hardware multiples Superstores & Kitchen Barns Branded Stores & Hardware multiples Branded Stores & Kitchen Barns Number of outlets1 68 47 51 30 82 61 Volume of kitchens (000s)1 21 26 25 31 17 23 Revenue ($million)1 106 145 124 163 89 128 EBITDA ($million)1 12 14 14 16 11 12 EBIT1 9 10 11 12 8 9 86% 78% 104% 94% 82% 74% 4 13 10 19 4 13 Medium Medium High High Low Medium ROCE (%)2 External funding req’d ($million) Relative Risk Notes: (1) Based on projections for FY 2004 (2) Return on capital employed (EBIT divided shareholders funds plus debt) for FY 2004 19
  • 21. The two preferred options are Branded Stores with either Hardware Multiples or Kitchen Barns, as they generate the best return relative to XYZ’s capabilities. Evaluation of Configurations High Configurations 1 Flagship, branded stores and hardware multiples 2 Flagship, branded stores and Kitchen Barns 3 Superstores and hardware multiples 4 Superstores and Kitchen Barns 5 Branded stores and hardware multiples 6 Branded stores and Kitchen Barns Relative Size of Return1 4 3 2 6 1 Low 5 High Low Relative Capability Fit2 Notes: Source: (1) EBIT used as a measure of return (2) Assessment of capabilities available and capabilities required ABC analysis 20
  • 22.  We have targeted the 5 major cities as the focus for growth  We have reviewed the multiple sales channel choices available into three potential go forward options  Further evaluation and costing of these options has now brought us to two strategic alternatives  We have identified the business model and capabilities XYZ will need to realise the preferred strategies  We have assessed what investment in time, effort and money will be called for to execute the strategies (including two alternative roll-out plans) 21
  • 23. We have developed a business architecture blueprint which maps the capabilities required for XYZ to achieve its growth strategy. Context  XYZ is seeking to dramatically increase its share in the Australian kitchen renovation market to 15% (EBIT $12–18m) within 4 years (end-2004). XYZ is considering a short-list of two retail-centric strategies: branded showrooms & hardware multiples, or, branded showrooms & kitchen barns).  To successfully execute either of these strategies, XYZ must develop its IT, organisational and process capabilities.  We have assessed XYZ’s capabilities against a generalised business blueprint. XYZ’s performance metrics, and our interviews and analysis have identified capability gaps which must be bridged for XYZ to achieve its vision.  We have developed a high-level blueprint of the capabilities required to support XYZ’s strategic vision. This blueprint will be a key input into XYZ’s implementation plan. 22
  • 24. XYZ’s growth strategy is built on a vision of becoming a multi-channel kitchen retailer in a number of large Australian markets. Operating Vision – Multi-Channel, Multi-Market Retailer Retail Channels AKI Target Segments • Mid to high-income home owner (builder or renovator) 32 branded showrooms in large cities World-class supply chain capability 41 hardware multiples in large cities(1) • • • • DIY enthusiast Tradespeople Small builders Budget buyers Product/Service Offer(2) • Mid to high-priced ($4– 10K) assembled kitchens • Customised range • Appliances & accessories • Showroom consultation • CAD services • Measure & quote • Finance packages • Installation coordination • Low-priced ($1.5–4K) flatpack kitchens • Uni-Block range • Standardised range • Off-the-shelf availability • Easy-to-assemble instructions Note: (1) A “kitchen barn” concept – low-end, XYZ-owned kitchen warehouses – will be rolled out if hardware multiples do not perform as a growth engine. An eKitchens Direct channel will be attached to the kitchen barns. 23 (2) Price points include caninetry only.
  • 25. XYZ will require an aggressive, but pragmatic growth strategy to achieve this vision. Strategy Aggressive... …But Pragmatic  Expand geographic presence through multiple retail outlets in large Australian cities  Leverage existing relationships with hardware multiples and expertise in branded showroom sales  Develop distinct value propositions for customer segments in each city – e.g. different product/service packages, branding, location & merchandising  Improve existing demand & supply chain planning capabilities  Roll-out sustainable retail offer in ‘bite-size chunks’ to balance investment risk against returns  Leverage synergies across the national supply chain network to drive cost-efficiencies in procurement, manufacturing & distribution 24
  • 26. To assess XYZ’s capability requirements, we have used a business blueprint model which maps the components required for XYZ to become a successful multi-channel, multi-market retailer. Business Blueprint Culture Organisation Competency Relationships Performance Information Technology Facilities Processes 25
  • 27. XYZ’s performance metrics, and our interviews and analysis have identified capability gaps which must be bridged for XYZ to achieve its vision. Business Capability Gap Assessment Capability Component Current Relationships • Ad hoc purchasing agreements with suppliers • Building relationships with multiples • Sales-focussed customer relationships Processes • Ad hoc sales & marketing processes • Limited planning & forecasting • High degree of customisation • Minimal process performance management Information Technology Organisation Future • Acquisition of, or alliance with, suppliers • Value-sharing relationships with multiples & other distributors • Data-driven, lifecycle customer relationship management • Formal sales & marketing processes • IT-enabled performance management & planning • Process standardisation • Non-core processes outsourced • Extended use of current ERP • Sound management of functionality applications delivery to • Geographic extension of intranet support business • eCommerce-enabled customer & • ERP functionality meets current business requirements supplier relationships (Internet) • Separate regional networks in • Out-sourced management & supply of technology components Adelaide & Sydney • Minimal analytical support • Two-region structure • Resources stretched over a number of functional areas • Functional roles Change Required Impact on Performance • Shift from transactional relationships to collaborative partnerships • Value propositions driven by IT-enabled understanding of segment values & behaviours Very High • Training in Scala functionality • Sales & marketing process design • Development of performance High management framework • Implement supply/demand chain planning • Significant investment in: – training (current & new applications) – software licences & hardware High – network infrastructure & maintenance • Formalise security & disaster recovery • Rationalisation of CAD systems • Channel & process-specific roles • Recruitment of • Specialised functional expertise – specialised expertise in supply • 5-region sales structure with chain centralised supply chain & – channel managers, regional shared services managers & sales force • Analytical support for supply – analytical support chain & S&M(1) planning – HR & IT management expertise Source: ABC client experience; interviews with XYZ business representatives; analysis of XYZ key performance indicators. 26 Note: S&M = sales and marketing function. High
  • 28. XYZ’s performance metrics, and our interviews and analysis have identified capability gaps which must be bridged for XYZ to achieve its vision. Business Capability Gap Assessment (Cont’d) Capability Component Competency Culture Facilities Performance Current • Operational skills & knowledge • Focus on internal, crossfunctional decision-making • Lack of analytical & strategic skills • Location-specific • Operations-driven • Based on origins as family business • Based on personal relationships • Two manufacturing sites • Showrooms in Sydney, Melbourne & Adelaide • Limited distribution through multiples in large cities • East & West regional Offices • Factory-based warehousing Future Change Required • Analytical & strategic skill-base • Improved front-line sales capability • Third-party management & negotiation skills • Point skills in IT, S&M(1) & supply chain planning • Customer-centric • Performance-driven • Corporatised (one-national identity) • Channel-specific • Competitive & innovative • Recruitment & training of sales force • Recruitment of strategic & analytical support in marketing • Training in, and recruitment of, supply chain planning & Scala systems expertise • Pro-active development of corporate identity & channelspecific sales cultures • Development of performancedriven culture through performance tracking & incentives • Manufacturing in Sydney • 5 regional DCs • 5 regional offices (in showrooms) • More showrooms (32) & multiples(40) in capital cities • Consolidation of manufacturing capability • Significant growth in retail outlets • Expanded administrative infrastructure • Expanded distribution network • • Few performance measures defined • Few performance targets • • Ad hoc process performance measurement • • Incentives not aligned to KPIs Comprehensive set of process performance measures & targets in place KPIs aligned with roles & incentives KPIs aligned with business strategy & vision • Development of comprehensive performance management framework • Systems/reports configured to enable performance measurement • Shift towards performance driven culture & behaviours Source: ABC client experience; interviews with XYZ business representatives; analysis of XYZ key performance indicators. Note: S&M = sales and marketing function. Impact on Performance 27 High Medium Very High High
  • 29. We have developed a high-level blueprint of the capabilities required to support XYZ’s strategic vision. Capability Blueprint  Developing more collaborative, IT-enabled partnerships with suppliers & customers will be critical to XYZ achieving world-class manufacturing status and capturing market share.  Integrating supply and demand-side processes and extending processes across business boundaries will enable effective and efficient operations.  Expanding the network infrastructure will enable supply and demand-chain management to be coordinated across regions.  Expanding retail & support facilities in large Australian cities will give XYZ access to new markets.  An expanded, process-driven organisation structure will enable XYZ to effectively manage operational performance.  Enhanced competencies in sales & marketing, supply chain management and enterprise management will be crucial to planning & executing a successful growth strategy.  To achieve the future operating vision, XYZ will require a customer-centric, ‘can do’and performance-driven culture.  To meet its growth targets, XYZ needs to implement a rigorous, organisation-wide performance management framework. 28
  • 30. Developing more collaborative, IT-enabled partnerships with suppliers & customers will be critical to XYZ achieving world-class manufacturing status and capturing market share. Business Relationships Suppliers ILE AG FR ILE AG FR ILE AG FR ILE AG FR Customers Strategic Ownership Value-Sharing Partnership End Consumers Hardware Multiples ILE AG FR ILE AG FR ILE AG FR ILE AG FR Transactional Agreement Manufacturing Retail Indirect Sales & Marketing XYZ Direct Customer Relationship Management ILE AG FR ILE AG FR ILE AG FR ILE AG FR End Consumers Strategic Alliance Product Flows IT-enabled information flows Source: ABC client experience; interviews with XYZ business representatives. 29
  • 31. Integrating supply and demand-side processes and extending processes across business boundaries will be critical to achieving XYZ’s operating vision. Business Process Alignment Manage Performance Core Processes Procure Process Attributes • Collaborative – based on long-term supplier relationships • Joint forecasting with suppliers • Backward integration (acquisition of key suppliers) • Vendor-managed inventories where possible • Fact-based, performance-driven supply agreements • Formal noncompliance & return policies Manufacture • Tight controls on Kanban process • Orders routed by MTO & MTS • Demand planning done collaboratively with trade & XYZ • Product versions controlled • Product standardisation & design for postponement • Increased ITenablement of inventory, materials requirements & production planning Distribute • Transport network optimised • Warehousing & transportation outsourced • 3rd-party kitting/installation considered • Performance-driven, 3rd-party SLAs • Regional DCs in place • IT-enabled factoryDC-store replenishment process • Formal allocation process developed Note: DC = distribution centre, MTO = made-to-order, MTS = made-to-stock. Source: ABC client experience; interviews with XYZ business representatives. 30 Market • Marketing processes driven by customer insight/research • Centralised, channel specific marketing function • Analysis & performance-driven marketing planning • Segment specific value propositions & brand strategies • Marketing strategies developed by crossfunctional teams (including trade partners) Sell • Formal channelspecific sales processes • Channel-specific sales training programs rolled out • EDI and Internetenabled sales/order processes developed • Rigorous channelspecific performance measures in place Serve • Regional or centralised customer service (based on cost/benefit analysis) • Formal, segmentspecific customer service processes • Customer service KPIs tracked and used to improve process • Development of inhouse installation service considered (based on cost/benefit analysis)
  • 32. Expanding the network infrastructure will enable supply and demand-chain management to be coordinated across regions. IT Functionality & Architecture Future IT Architecture(1) Required Functionality Sydney LAN (Head Office, Manufacturing, Warehouse) E-Mail SCALA CITRIX EDI File Gateway Server Server Server Servers Technology Component Scala CAD Office Applications Email Internet/ EDI CAD Interface • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • PCs / Printers Network ISP / Management Radius (security authentication) Website Servers Router/ Firewall PC / Scanners Router Internet Frame Relay WAN E-Mail Gateway Router Adelaide, Brisbane, Melbourne, Perth (Regional Offices/Showrooms) File Servers E-Mail Gateway Telstra Dial Connect Modem Source: ABC client experience; interviews with XYZ business representatives. Note: (1) See appendices for comparison of current and future IT architecture. PCs (CITRIX) / Printers 31 PCs (CITRIX) / Scanners Modem • Customers • Suppliers • XYZ Remote staff / home access • Suppliers (large) • Retail Outlets
  • 33. Expanding retail & support facilities in large Australian cities will give XYZ access to new markets. Facilities Sydney Melbourne Brisbane Adelaide Perth Other Manufacturing 1 0 0 0 0 0 Warehouses/DCs 1 (factory-based) 1 1 1 1 0 4,16 8,6 6,11 5,2 5,4 4,2 1 (head-office) 1 1 1 1 1 Retail Outlets (showrooms, multiples) Regional Offices (attached to showroom) Source: ABC client experience; interviews with XYZ business representatives. 32
  • 34. An expanded, process-driven organisation structure will enable XYZ to effectively manage operational performance. INDICATIVE High-Level Organisation Structure(1) Chief Executive Officer Supply Chain Director Manufacturing Manager Quality Production Production Assurance Engineer Supervisor Engineer Shared Services Director Logistics Manager Recruitment & Training Manager Planning & Materials & Procurement Scheduling Inventory Manager Manager Manager IT Manager IT Supportx4 Note: (1) Analytical & administrative support will be required across all functions. Source: ABC client experience; interviews with XYZ business representatives. 33 Sales & Marketing Director Management Financial Accountant Accountant Payroll x2 Accounts Payable x4 Product Development Manager Accounts Receivable x3 Channel Manager (showrooms) Channel Manager (multiples) Regional Managers x5 Regional Managers x5
  • 35. Enhanced competencies in sales & marketing, supply chain management and enterprise management will be crucial to planning & executing a successful growth strategy. Competency Model Sales & Marketing Skills Knowledge Aptitude • • • • • • • • • • • • • • • Behaviours • • • • • Management of third parties Research interpretation & analysis Financial analysis Third-party negotiation Effective communications Customer empathy Research methods & techniques Strategic marketing frameworks ‘Best-practice’ sales & marketing processes Customer value & behaviour-drivers Product/service attributes Co-ordinate resources & budgets Plan & manage projects/campaigns Drive marketing initiatives from analysis & insight Build relationships with consumers & the trade Performance-driven Customer insight-seeking Coaching & team building Developing solutions & ideas intuitively & analytically Meeting customer needs Supply Chain • • • • • • • • • • • • • • • • • • • • • Strategic relationship building Numerical analysis & modelling Third-party negotiation Supply & demand chain planning Network management & optimisation Procurement, manufacturing & distribution processes Service-level agreements Quality & safety standards Supply chain performance indicators Supply chain systems functionality Customer needs & value-drivers Co-ordinate resources & budgets Plan & manage projects Rapid, fact-based decision-making Build relationships with key suppliers Coordinate micro and macrocomplexity across supply chain Performance-driven Facilitating collaborative decisionmaking with other business functions Informed & balanced decision-making Responsive to customer needs Building effective teams Source: ABC client experience; interviews with XYZ business representatives. 34 Enterprise Management • • • • • • • • • • • • • • • • • • • • • • Strategic relationship management Strategic planning Financial/performance analysis Decision making Effective communications Leadership Business strategy & vision Key business performance indicators Business processes Employee & customer satisfaction Organisation structure Customer & competitor value drivers Analysing business performance & identifying opportunities Coordinating resources & budgets Motivating & leading organisation with clear vision & strategy Building strategic relationships Results/value-driven Prioritising business initiatives Resolving business problems Building ownership & commitment Building business capability Communicating clear vision & direction
  • 36. To achieve the future operating vision, XYZ will require a customer-centric, ‘can do’, performance-driven culture. Culture Model Enterprise Management • Consultative • Decisive • Relationship-building • Value-seeking • Pragmatic-visionary • Knowledge-sharing Sales & Marketing • Customer-driven • Channel-specific • Committed • Energetic & creative • Analysis-driven • Collaborative (i.e.work with trade) XYZ-Wide • Reliable • Fast & flexible • Corporatised (one XYZ identity) • Competitive • Customer-centric • Innovative • Performance-driven Source: ABC client experience; interviews with XYZ business representatives. 35 Supply Chain • Cost & quality conscious • Disciplined • Collaborative (with supply-chain partners) • Team-based • Cross-functional • Self-directing & accountable • Safety-conscious
  • 37. To meet its growth targets, XYZ needs to implement a rigorous, organisationwide performance management framework. Performance Management Framework ILLUSTRATIVE What is our Vision? What are our strategic objectives? What are the critical success factors? What are the critical measurements? Organisation Vision & Strategy To My Shareholders Financial Perspective To My Customers Customer Perspective With My Internal Management Processes With My Ability to Innovate & Grow Internal Business Perspective Growth & Learning Perspective Examples • Profitability • Cash management • Sales revenues Examples • Customer satisfaction • Trade satisfaction Examples • Forecast/plan accuracy • Marketing effectiveness Examples •Employee productivity •Supply chain efficiency Examples • EBIT • EVA Examples • Referrals • Satisfaction scores Examples • Marketing spend/sales • Deviation from forecast Examples • Units per head • Delivery accuracy Performance Reporting Source: ABC client experience; interviews with XYZ business representatives. 36
  • 38.  We have targeted the 5 major cities as the focus for growth  We have reviewed the multiple sales channel choices available into three potential go forward options  Further evaluation and costing of these options has now brought us to two strategic alternatives  We have identified the business model and capabilities XYZ will need to realise this strategies  We have assessed what investment in time, effort and money will be called for to execute the strategies (including two alternative roll-out plans) 37
  • 39. The Branded Stores and Hardware Multiple option (Option 5) is an expansion of the existing core business, with clear potential for further upside improvement. Branded Stores and Hardware Multiple Option Upside Potential Key Assumptions  30 Nobbys / Wallspan outlets and 14 hardware multiple stores opened in the five largest cities, plus Canberra and Newcastle  Increase Nobbys / Wallspan selling prices  Nobbys / Wallspan outlets sell 4 kitchens per week  Import appliances and include wholesale margin in projections  Hardware multiple stores sell 3 kitchens per week in 2000-01, and 4 kitchens per week from 2001  Sell appliances through hardware multiples  Additional kitchen sales per outlet  Offer installation service  Nobbys / Wallspan outlets sell appliances with 50% of kitchens sold (no appliances sold through hardware multiples)  Expand the trade channel through hardware multiples and / or through a separate channel  Installation revenue / margin excluded from projections  Brand strategy and repositioning  Project Homes / property developments  Funding profile assumes $4 million is required in year 1 (FY2001) 38
  • 40. Our sensitivity analysis around the base case indicates that the upside potential is significant. Branded Stores and Hardware Multiple Option Base Case1 Additional Volume Branded Stores2 Key Figures Number of outlets Sensitivities Additional Volume Hardware Multiple2 Price Increase3 Additional Volume Branded Stores2 and Price Increase3 82 82 82 82 82 Volume of kitchens 17,056 19,240 19,136 19,240 19,240 Revenue ($000) 89,024 105,040 95,264 91,208 107,770 EBITDA ($000) 10,596 16,256 12,071 12,421 18,538 EBIT($000) 8,348 14,007 9,822 10,172 16,289 Return on sales (%) 9.4% 13.3% 10.3% 11.2% 15.1% Return on capital employed (%)4 82% 140% 96% 101% 166% 4,194 2,251 3,180 2,213 1,218 Funding requirement ($000) Notes: (1) See Appendix for details of business case and assumptions (2) Volume increased by 1 kitchen to 5 kitchens per week for branded stores, and to 4 kitchens per week for hardware multiples in FY2001 (5 kitchens per week from FY 2002) (3) Increase in average selling price of $250 (approximately 2.5%) for cabinetry only for the same cabinetry configuration - relates to branded stores only (4) Return on capital employed (EBIT divided shareholders funds plus debt) for FY 2004 39
  • 41. The Branded Stores and Hardware Multiple option breaks-even in FY2001, with 54 outlets and a revenue of $42 million. Branded Stores and Hardware Multiple Option Key Volume / Revenue / Profit Figures1 BASE CASE FY2001 FY2002 FY2003 FY2004 54 69 82 82 8,216 12,792 15,704 17,056 Revenue ($000) 41,491 64,927 81,484 89,024 EBITDA ($000) 1,460 5,158 8,236 10,596 (59) 2,889 5,553 8,347 (0.1)% 4.4% 6.8% 9.4% (1)% 22% 45% 82% Number of outlets Volume of kitchens EBIT($000) Return on sales (%) Return on capital employed (%)2 Notes: (1) See Appendix for details of business case and assumptions (2) Return on capital employed (EBIT divided shareholders funds plus debt) for FY 2004 40
  • 42. The Branded Stores and Hardware Multiple option has a peak funding requirement of $4.2 million in FY2001, and is cash positive in FY2003. Branded Stores and Hardware Multiple Option Cash Flow ($000)1 BASE CASE FY2001 FY2002 FY2003 FY2004 (59) 2,889 5,553 8,347 Add back depreciation 1,519 2,269 2,682 2,249 EBITDA 1,460 5,158 8,236 10,596 (3,570) (4,480) (2,085) (250) Interest (paid) / received (706) (706) (98) 818 Tax (paid) / recovered (848) 229 (655) (1,637) Working capital (531) 23 (17) 81 (4,194) 225 5,381 9,608 EBIT Capital expenditure Funds (required) / generated Notes: (1) See Appendix for details of business case and assumptions 41
  • 43. The Branded Stores and Kitchen Barn option (Option 6) assumes that XYZ can capture the low to medium price segment of the kitchen renovation market. Branded Stores and Kitchen Barn Option Upside Potential Key Assumptions  Additional 30 Nobbys / Wallspan outlets and 19 Kitchen Barns are opened in the five largest cities, plus Canberra and Newcastle  Increase Nobbys / Wallspan selling prices  Nobbys / Wallspan outlets sell 4 kitchens per week  Import appliances and include wholesale margin in projections  Kitchen Barns sell 14 kitchens per week  Offer installation service  Both Nobbys / Wallspan outlets and Kitchen Barns sell appliances with 50% of kitchens sold  Up-selling opportunities from Kitchen Barns to Nobbys / Wallspan outlets  Installation revenue / margin excluded from projections  Include the Trade channel as a ‘bolt-on’ (through Kitchen Barns or factory direct)  Funding profile assumes $8 million in FY2001 and $4 million in FY2002  Internet channel through Kitchen Barn format  Additional kitchen sales per outlet  Brand strategy and repositioning  Retail wardrobes through Kitchen Barns 42
  • 44. Our sensitivity analysis around the base case indicates that this option also has significant upside potential. Branded Stores and Kitchen Barn Option Base Case1 Additional Volume Branded Stores2 Key Figures Number of outlets Sensitivities Additional Volume Kitchen Barn2 Additional Volume Price Branded Stores2 and Increase3 Price Increase3 61 61 61 61 61 22,568 24,752 23,556 22,568 24,752 Revenue ($000) 128,037 144,053 132,607 130,221 146,783 EBITDA ($000) 12,520 18,180 13,881 14,345 20,462 EBIT($000) 9,215 14,876 10,577 11,041 17,158 Return on sales (%) 7.2% 10.3% 8.0% 8.5% 11.7% Return on capital employed (%)4 74% 122% 85% 90% 143% 12,676 7,695 12,308 10,668 5,295 Volume of kitchens Funding requirement ($000) Notes: (1) See Appendix for details of business case and assumptions (2) Volume increased by 1 kitchen to 5 kitchens per week for branded stores, and 15 kitchens per week for Kitchen Barns (3) Increase in average selling price of $250 (approximately 1.7%) for cabinetry only for the same cabinetry configuration - relates to branded stores only (4) Return on capital employed (EBIT divided shareholders funds plus debt) for FY 2004 43
  • 45. The Branded Stores and Kitchen Barn option achieves profitability in FY2003. Branded Stores and Kitchen Barn Option Key Volume / Revenue / Profit Figures1 BASE CASE FY2001 FY2002 FY2003 FY2004 29 46 61 61 5,564 12,220 19,188 22,568 Revenue ($000) 36,492 73,267 110,273 128,037 EBITDA ($000) (1,353) 1,711 7,018 12,520 EBIT($000) (3,126) (1,173) 3,280 9,215 Return on sales (%) (8.6)% (1.6)% 3.0% 7.2% Return on capital employed (%)2 (27)% (8)% 21% 74% Number of outlets Volume of kitchens Notes: (1) See Appendix for details of business case and assumptions (2) Return on capital employed (EBIT divided shareholders funds plus debt) for FY 2004 44
  • 46. The Branded Stores and Kitchen Barn option has a peak funding requirement of $12.7 million in FY2002, and is cash positive in FY2004. Branded Stores and Kitchen Barn Option Cash Flow ($000)1 BASE CASE FY2001 FY2002 FY2003 FY2004 (3,126) (1,173) 3,280 9,215 1,773 2,884 3,738 3,305 EBITDA (1,353) 1,711 7,018 12,520 Capital expenditure (4,843) (6,283) (4,488) (250) Interest (paid) / received (913) (1,131) (1,032) 180 Tax (paid) / recovered (848) 1,211 691 (674) Working capital (223) (6) (15) 97 (8,180) (4,496) 2,175 11,872 EBIT Add back depreciation Funds (required) / generated Notes: (1) See Appendix for details of business case and assumptions 45
  • 47. If the Branded Stores and Hardware Multiple option fails to deliver the expected returns, then Option 6 — Branded Stores and Kitchen Barns — can be progressively rolled out. Roll-Out of Options Yes Continue existing business model (Option 5- branded stores and hardware multiples) Is the hardware multiple option achieving the required returns? No 46 Continue existing business model (Option 5 - branded stores and hardware multiples) Roll-out Kitchen Barn (Option 6) concept and gradually exit from the hardware multiples
  • 48. The way forward into implementation will impact all areas of the business and will require strong program management and a structured implementation approach to integrate all components of the plan. Phase 1 Definition Phase 2 Detailed Design Phase 3 Implementation Program, Organisational Change and Business Case Management Generate Demand Process Development Capability Development Develop Operations (Showroom) Strategy Develop Marketing Strategy Develop Branding Strategy Option 5 Go / No Go Decision Develop Communications Strategy Develop Integrated Planning Capability (including processes and IT) Fulfil Demand Process Development Identify Strategic Suppliers Develop Partnership with Strategic Suppliers Determine optimum manufacturing processes Implement and Refine Determine optimum distribution processes Execute and Evaluate Process Recruit HR Manager Resource Development Develop HR Processes (forecasting, recruiting, inducting, rewarding, appraising, training, career development, outplacement Recruit New Personnel Determine CAD Software / EDI Requirements Capacity & Scalability Development IT Development Acquire Hardware & Build Interfaces Execute IT Training Modules Develop IT Training Modules Determine Internet & Network Requirements Develop Operational & Service Level Agreements Identify and Select Location for Outlets, Refit Existing Outlets Physical Infrastructure Configuration Develop Manufacturing Strategy Confirm Supply Chain Configuration Develop Relocation Plan and Resourcing Requirements Ascertain Optimal Network Select 3PL Partner Business Intelligence & Performance Management Capability 47 Roll-Out
  • 49. Our recommended Program Management structure will perform the critical integration role to align all projects and change to the objectives of the program. Program Management Structure Program Sponsor Executive Steering Committee Program Quality Assurance Supply Chain Subject Experts Program Management Change Management & Communication Financial Control Program Control Issue / Scope Management Business Case Management Performance Management Generate Demand Process Development Fulfil Demand Process Development Resource Development IT Configuration 48 Infrastructure Configuration
  • 50. Our detailed assessments and working documents have been compiled as an appendix Appendices  1. Opportunity Assessment  6. Implementation Plan  2. Initiative Generation  7. Case Studies  3. Initiative Prioritisation  8. Board Paper  4. Business Case Analysis  9. KPI Analysis  5. Business Architecture Blueprint 49

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