Aligning Budgeting To Corporate Planning - ABF Conference on Corporate Budgeting

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ALIGNING BUDGETING TO CORPORATE PLANING …

ALIGNING BUDGETING TO CORPORATE PLANING
*How budgeting and strategic planning fit together in the overall business plan
*Aligning KPIs with business objectives and the budget
*Effectively identifying leading and lagging KPIs in the budget
*Identifying the gaps between the actual and the budget figure to enable allocation of resources for corporate plan
*Resolving the variances between the actual vs the budget figures
*Effective strategies to resolve the gaps to drive the strategic direction of the organisation

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  • 1. ALIGNING BUDGETING TO CORPORATE PLANNING CNI’s Journey, Mistakes, and Lessons Learned Kenny Ong CNI Holdings Berhad
  • 2. Intro: CNI
    • 18 years old
    • Core Business: MLM
    • Others: Contract Manufacturing, Export/Trading, eCommerce, F&B Retail
    • Malaysia, Singapore, Brunei, Indonesia, India, China, Hong Kong, Philippines, Italy, Taiwan
    • Staff force: ± 500
    • Distributors: 250,000
    • Products: Consumer Goods and Services
  • 3. Our History of Strategic Planning and Budgeting
  • 4. How “Planning” got started Succession Planning (Business Continuity) Talent Management Differentiation Performance Management System Budgeting + Planning KPIs BSC Business Model
  • 5. How “Planning” got started Succession Planning (Business Continuity) Talent Management Differentiation Performance Management System Budgeting + Planning KPIs BSC Business Model Today’s focus
  • 6. Planning in the “old” days
    • Budget ‘top down’ – no questions asked
    • Only two budget goals – revenue, expenses
    • The only planning we needed to do was “do better than last year”
    • Planning was ‘bottom up’ - compilation of plans within set budget
    • No one knew what the other was planning
    • FAC’s role was only to compile budget for approval
    • KPIs were not used
    • Sales was resource priority, everything else not important
    • Assumed no major changes in market
    • R&D was ‘bottom up’
  • 7. Problems from the start (1/2)
    • No money
    • Split Objectives: Sales? Share Price? Image?
    • Independent entities
    • FAC controlling schedule
    • S&M always running over budget
    • Compounding activities
    • BOD expectations too high without proper explanation nor justification
    • Lack of Market research
    • Expenses not spent gets punished
  • 8. Problems from the start (2/2)
    • Budgeting for known, consistent, and predictable business conditions
    • Never learn from past mistakes, usually in under-budgeting (e.g. staff and PCs)
    • Wrong Business Model – blame Budgeting & Planning. Having a good planning process cannot correct a bad business model
    • Focusing on the Process (KPIs), instead of “Business”
    • Planning & budgeting treated as separate processes by businesses/functions
  • 9. Today’s Agenda
  • 10. Summary: Planning & Budgeting
    • L ong-term Plans
    • O bjectives
    • S trategies
    • E nablers
    • R esources
    Also known as L.O.S.E.R.
  • 11. Summary: Today’s presentation 1. Business Model 2. Strategy 3. Resources
  • 12. Assumptions 1: Audience
    • Business
    • Government
    • Non-profit
  • 13. Assumptions 2: Starting Point
    • Wanting to start proper planning & budgeting process, or
    • Wanting to improve planning & budgeting process
  • 14. 1. Get the right Business Model first
  • 15.
    • How to fail without trying
    1. Wrong Business Model
  • 16. The Roadmap to Failure Fred Wiersema and Mike Treacy Performance Time Clear Sailing Today’s performance Ad-hoc Tactics Denial & Defense Doom Projections Overdue Failure The Moment of Truth X Performance Freefall Tomorrow’s actual performance Downpresure of Unclear Strategy
  • 17. Denial and Defense
    • “ It’s not really good value our competitor is offering, because it doesn’t include a lot of our features.” - ABC vs Air Asia
    • “ It’s good value but not in our preferred customer market.” - ABC vs Toyota
    • “ Sure they’re hurting us, but with their unfair advantage, what can we do?” – ABC vs MILO
    • “ The rules we are playing by have always worked before” – AMEX vs VISA
  • 18. The Roadmap to Failure Fred Wiersema and Mike Treacy Performance Time Clear Sailing Today’s performance Ad-hoc Tactics Denial & Defense Doom Projections Overdue Failure The Moment of Truth X Performance Freefall Tomorrow’s actual performance Downpresure of Unclear Strategy
  • 19. Ad Hoc Tactics
    • Selectively hold discounts to hold business that has started to go elsewhere
    • Introduce new promotions, terms, conditions, and offers to confuse and cloud the market
    • Beef up customer service by adding people to fix mess-ups and quicken delayed shipments
    • Delay capital investments and adjust accounting methods to portray quarterly financial results more favorably
    • Introduce “new and improved” products that are new in form, but not in substantive ways that are of consequence to purchasers
    • Introduce Balanced Scorecards and Performance Management Systems
  • 20. The Roadmap to Failure Fred Wiersema and Mike Treacy Performance Time Clear Sailing Today’s performance Ad-hoc Tactics Denial & Defense Doom Projections Overdue Failure The Moment of Truth X Performance Freefall Tomorrow’s actual performance Downpresure of Unclear Strategy
  • 21.
    • “ What is the moral of the story?”
  • 22. What is the Business Model? USP Market Discipline Profit Model
  • 23. Intro: Market Discipline
    • Mamak stall
  • 24. Intro: Market Discipline
    • "Exactly what I need"
    • Customized products
    • Personalized communications
    • "They're very responsive"
    • Preferential service and flexibility
    • Recommends what I need
    • "I'm very loyal to them"
    • Helps us to be a success
    "They are the most innovative" "Constantly renewing and creative" "Always on the leading edge" "A great deal!" Excellent/attractive price Minimal acquisition cost and hassle Lowest overall cost of ownership "A no-hassles firm" Convenience and speed Reliable product and service Product Leadership Operational Excellence Customer Intimacy
  • 25. Intro: Market Discipline * Treacy & Wiersema, The Discipline of Market Leaders , 1995 Product/Service Attributes Relationship Image
  • 26. Intro: Market Discipline * Treacy & Wiersema, The Discipline of Market Leaders , 1995 Product/Service Attributes Price Quality Time Selection √ √ Smart Shopper Relationship Image Operational Excellence : Quality and selection in key categories with unbeatable prices
  • 27. Intro: Market Discipline * Treacy & Wiersema, The Discipline of Market Leaders , 1995 Product/Service Attributes √ Brand Time Function √ √ Best Product Relationship Image Product Leadership: Unique products and services that push the standards
  • 28. Intro: Market Discipline * Treacy & Wiersema, The Discipline of Market Leaders , 1995 Product/Service Attributes √ √ √ √ Service Trusted Brand Relationship Image Customer Intimacy: Personal service tailored to produce results for customer and build long-term relationships Relations
  • 29. Strategy: Disciplines Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders , Michael Treacy & Fred Wiersema; 1995 Product Leadership (best product) Customer Intimacy (best total solution)
  • 30. Summary: Today’s presentation 1. Business Model 2. Strategy 3. Resources  Done
  • 31. 2. Set the Strategies Dangers of BSC, KPIs and other evils sold by Consultants
  • 32.
    • “… in the past 18 months, we have heard that profit is more important than revenue, quality is more important that profit, people are more important than profit, customers are more important than our people, big customers are more important than small customers, and that growth is the key to our success. No wonder our performance is inconsistent"
    CEO, Anonymous
  • 33. Before we start…
    • In the old days of HR…
    • Average training hours per staff
    • % of staff attending training
    • # of training programs
    • % of training programs conducted
    • Training needs analysis conducted
    • Competency models developed
    • Training budget as % of payroll
    What’s wrong with this picture?
  • 34. Before we start…
    • Moral of the story…
    • Innovation:
      • Business models
      • Products
      • Services
    • Market Leadership
    • Competitive differentiation
    Get the picture?
  • 35.
    • “ What is the moral of the story?”
  • 36. What is Strategic Planning? Strategic Planning Variables: Research Growth Risks Stakeholders Constraints SWOT Misc. Output: Plans Priorities KPIs
  • 37. Before we start…
    • Which comes first?
    • Strategies -> KPI?
    • KPI -> Strategies?
  • 38. Focus: Corporate Alignment Financial “ To satisfy our stakeholders, what Financial objectives must we accomplish?” Internal Process “ To satisfy our customers, in which internal business processes must we excel?" Customer “ Who are our target customers? What is our value proposition?” Learning & Growth “ What capabilities and tools do our employees require to help them execute our strategy?
  • 39. Linking BSC to Strategy Revenue Growth Base Retention Share Gain Positioning Adjacent Market New Business Operational Excellence Product Leadership Customer Intimacy Competencies Information Systems Motivation, empowerment, alignment Financial Learning & Growth Internal Process Customers Investment Strategy Productivity Market Value
  • 40. Focus: Corporate Alignment Financial Learning & Growth Internal Process Customers / Distributors Revenue Growth Productivity Market Value Department Operations Supplier & Alliances External Involvement Target Markets Products/ Services Channel Strategies Human Resources Technology Information & Intelligence Systems & Processes
  • 41. Example: Selection of KPIs for BSC
    • Customer satisfaction
    • Customer loyalty
    • Market share
    • Customer complaints
    • Complaints resolved on first contact
    • Return rates
    • Response time per customer request
    • Price relative to competition
    • Total cost to customer
    • Average duration of customer relationship
    • Customers lost
    • Customer retention
    • Customer acquisition rates
    • Percentage of revenue form new customers
    • Number of customers
    • Annual sales per turnover
    • Win rate (sales closed/sales contact)
    • Customer visits to the company
    • Hours spent with customers
    • Marketing cost as a percentage of sales
    • Number of ads placed
    • Number of proposals made
    • Brand recognition
    • Response rate
    • Number of trade shows attended
    • Sales volume
    • Share of target customer spending
    • Sales per channel
    • Average customer size
    • Customers per employee
    • Customer service expense per customer
    • Customer profitability
    • Frequency (number of sales transactions)
  • 42. Example: 1 st Level BSC & KPIs Financial Learning & Growth Internal Process Customers / Distributors Profit after Tax. Revenue. Cash-to-cash cycle. Operating cash flow Customer Complaints. Customer Acquisition Rate. Product Availability. Product Quality & Service. Renewal Annual Subscription. Distributor Rank Achievement. No. of Active Distributor. No. DC/Regional Sales. Distributor with commission Customer Database Availability. Accuracy of Forecast Planning. Continuous Improvement. Response Time to Customer Needs. Perfect Order Fulfillment. Inventory Turnover. Number of Effective Sponsoring Program. On Time Delivery. No. of Effective Training. Number of Effective A&P % of staff evaluated on Core Competency Framework. % of staff with Career Development Plans. No. of training hours completed per staff. % of staff with access to strategic information. Q12 Index. % staff evaluated on Culture alignment
  • 43. Sample: Other 1 st Level KPIs across industries…
    • Single view of customers across supply chain
    • Zero-error order capture
    • Streamline opportunity to cash processes
    • Leverage investment in ERP and backoffice systems
    • Increase customer loyalty and preference
    • Maximize customer revenue
    • Improve service quality and efficiency
    • Capture and close sales opportunities
    • Personalized customer experience
    • Maximize share of wallet
    • Player/customer loyalty
    • Multichannel customer service
    Manufacturing Travel & Leisure Hospitality
    • Anticipate and prevent churn despite compensation
    • Increase number of products per customer
    • Turn call center information opportunity to up-sell and cross-sell
    • Increase customer satisfaction and loyalty
    • Understand customer behavior related to customer conversion, acquisition, and retention
    • Single view of customer
    • Multichannel customer experience
    • Personalized customer experience
    • Maximize ARPU
    • Minimize Churn
    • Mutichannel customer service
    Telecommunications Retail Financial Services
  • 44. Lagging and Leading KPIs Historical, Outcome, Results, 1 st Level, Usually Financial or tangible, Quarterly and Annually Current, Indicators, Drivers, 2 nd Level onwards, usually non-financial or intangible, Weekly, Monthly and Quarterly Leading Lagging
  • 45. Developing ‘Driver’ KPIs Customer Retention % Lagging, 1 st Level Customer Satisfaction Index Leading, 2 nd Level On time delivery Time to market for new products TNA % Defect levels, warranty claims Leading, 3 rd Level onwards
  • 46. What is the Objective?
    • ‘ Do-or-Die’ KPIs for CNI
    • Revenue
    • ARPU
    • Sponsoring
    • Retention
    • Commission Plan (BDP)
    • Product
    • Corporate Image
  • 47. Strategy: Disciplines, Priorities, and KPIs Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders , Michael Treacy & Fred Wiersema; 1995 Product Leadership (best product) Customer Intimacy (best total solution)
  • 48. The McPlaybook*
    • Make it easy to eat
    • 50% drive-thru
    • Meals held in one hand
    • Make it easy to prepare
    • High Turnover
    • Tasks simple to learn & repeat
    • Make it quick
    • “ Fast Food”
    • Tests new products for Cooking Times
    • Make what customers want
    • Prowls market for new products
    • Monitored field tests
    *Adapted from: Businessweek , Februrary 5 th 2007
  • 49.
    • Product Leadership
    • New, state of the art products or services
    • Risk takers
    • Meet volatile customer needs
    • Fast concept-to- counter
    • Never satisfied - obsolete own and competitors' products
    • Learning organization
    Strategy: Disciplines, Priorities, and KPIs
    • Operational Excellence
    • Competitive price
    • Error free, reliable
    • Fast (on demand)
    • Simple
    • Responsive
    • Consistent information for all
    • Transactional
    • 'Once and Done'
    • Customer Intimacy
    • Management by Fact
    • Easy to do business with
    • Have it your way (customization)
    • Market segments of one
    • Proactive, flexible
    • Relationship and consultative selling
    • Cross selling
  • 50.
    • Operational Excellence
        • Move know-how from top performing units to others
        • Benchmark against best in class
        • Ensure operations training for all employees
        • Use disciplines like TQM for continuous learning to reduce costs and improve quality
    Strategy: Value Disciplines
  • 51. Strategy: Value Disciplines
    • Customer Intimacy
        • Capture knowledge about customers
        • Understand customer needs
        • Empower front line employees
        • Ensure that everyone knows the customer
        • Make company knowledge available to customers
  • 52.
    • Product Leadership
        • Reduce time to market
        • Commercialize new products fast
        • Ensure that ideas flow
        • Reuse what other parts of the company have already learned
        • Ensure there are multiple sources of funding
    Strategy: Value Disciplines
  • 53. Strategy: Value Disciplines Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders , Michael Treacy & Fred Wiersema; 1995 Product Leadership (best product) Customer Intimacy (best total solution)
  • 54. Strategy: Value Disciplines Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders , Michael Treacy & Fred Wiersema; 1995 Product Leadership (best product) Customer Intimacy (best total solution)
  • 55. Sample KPIs for Each Discipline
    • Operational Excellence
    • Price
    • Selection
    • Convenience
    • Zero Defects
    • Growth
    • Customer Intimacy
    • Customer Knowledge
    • Solutions Offered
    • Penetration
    • Customer Data
    • Customer-success focus
    • Product Leadership
    • Marketing
    • Functionality
    • # of Successes
    • # of Failures
    • Learn from key users
    • Interdisciplinary teams
    • Pipeline
  • 56. MBO – Sources of KRAs and KPIs, Targets
    • Department Scorecard [E3],
    • Employee’s Job Description,
    • Department SOP,
    • Department Quality Objectives,
    • Corrective Action Requests (CAR),
    • Preventive Action Requests (PAR), or
    • Special Projects relevant to the employee.
  • 57. E3 – Department BSC Financial Perspective Budgeting On Time Delivery Innovation Quality OPEX CAPEX Targets Measures Goals
  • 58. Individual Performance 2.0 Goals and Targets for Q1 6.0 Appraiser Overall Comments/ Feedback 5.0 Rating (Merit x Weight) 4.0 Merit* 3.0 Achievements and Efforts for Q1 1.0 Key Results Area (Max 6)
  • 59. Summary: Today’s presentation 1. Business Model 2. Strategy 3. Resources  Done  Done
  • 60. 3. Budgeting The art and science of allocating and aligning Resources to strategic plans
  • 61. Budgeting: Some thoughts…
    • Two major roles of Budgeting:
    • Provide real-life CONSTRAINTS to strategic planning
    • Provide RESOURCES to realize strategic plans
  • 62. Alignment: 4-Wheels Model Culture Business Model Strategic Planning Structure Person Leadership Resources
  • 63. Alignment: Framework
    • Focus point
    • Alignment
    • Quality
    • Innovation & Differentiation
    • Risk taking
    • Performance Management
    • Corporate obsession
    • Decision making
    Culture
  • 64. Alignment: Framework
    • Org Structure
    • Job Design
    • C&B
    • Policies & procedures
    • Decision making
    • Job fit
    • Management Systems
    • BSC and KPIs
    • Decentralized & Empower
    Structure
  • 65. Strategy: Framework
    • Role modeling
    • Vision/Mission/Philosophy
    • Leadership Style
    • Delegation & Empowerment
    • C&B, Promotions
    • Sense of Urgency
    • Speak regularly about Performance
    Leadership
  • 66. Strategy: Framework
    • Recognition
    • Recruitment
    • Training
    • Profit sharing
    • Values
    • Motivation
    • Self Efficacy
    • Awareness
    • Useful Competencies
    • Career aspirations
    • Attribution (control)
    Person
  • 67. Strategy: Framework
    • Enablers
    • Technology
    • Equipment
    • Materials
    • Human
    • Intellectual Property
    • Partners
    • Property
    • Funding
    • CAPEX
    • OPEX
    Resources
  • 68. Alignment: 4-Wheels Model Culture Business Model Strategic Planning Structure Person Leadership Resources
  • 69.
    • Product Leadership
    Each Discipline Requires Different Priorities & Resources Operational Excellence Customer Intimacy Organization, jobs, skills Management systems Information and systems Culture, values, norms
  • 70. Each Discipline Requires Different Priorities & Resources
    • Operational Excellence
    • Central authority, low level of empowerment
    • High skills at the core of the organization
    • Disciplined Teamwork
    • Process, product- driven
    • Conformance, 'one size fits all' mindset
    • Integrated, low cost transaction systems
    • The system is the process
    • Command and control
    • Quality management
    Organization, jobs, skills Management systems Information and systems Culture, values, norms
  • 71.
    • Product Leadership
    • Ad hoc, organic and cellular
    • High skills abound in loose-knit structures
    • Concept, future-driven
    • Experimentation and 'out of the box' mindset
    • Person-to-person communications systems
    • Technologies enabling cooperation
    • Rewarding individuals' innovative capacity
    • Risk and exposure management
    • Product Life Cycle profitability
    Each Discipline Requires Different Priorities & Resources Organization, jobs, skills Management systems Information and systems Culture, values, norms
  • 72. Each Discipline Requires Different Priorities & Resources Organization, jobs, skills Management systems Information and systems Culture, values, norms
    • Customer Intimacy
    • Empowerment close to point of customer contact
    • High skills in the field and front-line
    • Customer-driven
    • Variation and 'have it your way' mindset
    • Strong customer databases, linking internal and external information
    • Strong analytical tools
    • Customer equity measures like life time value
    • Satisfaction and share management
    • Focus on ‘Share of Wallet’
  • 73. Managing Gaps between actual and planned budgets
    • Budgeting vs. Priorities
    • Basic Budgeting policies
    • Activity Grid to determine budget priorities
    • Budgeting for Investments based on the ‘BCG Matrix’ principles
  • 74. Budgeting vs. Priorities
    • Priority = Time + Money
  • 75. Budgeting vs. Priorities Upturn Flat Downturn Fight Complacency Sharpen Edge Keep Momentum Conquer NPD Cycle Time Improve Edge Extensions Counter Competitor Innovation Acquire Profits Build momentum Sales Cash Flow Focused on ‘Breakthrough’ JV, In-source, Out-source Eliminate bottom 20% Improve Top 15% revenue-generating products ↓ R&D, ↑ Sales Example: Business Situation vs. R&D Priorities
  • 76. Basic Budgeting policies
    • Flexibility to switch between line items
    • Reserve Funds
    • Loans/External Funding
  • 77. Activity Grid to determine budget priorities Eliminate (-) What are features/ activities/services to eliminate? Reduce (↓) What are features/ activities/services to reduce? Create (+) What are features/ activities/services to introduce? Increase ( ↑) What are features/ activities/services to increase?
  • 78. Budgeting for Investments based on the ‘BCG Matrix’ principles CNI’s Performance Market Potential
  • 79. How to maximize Budget?
    • Align budget to priorities
    • Integration of businesses and functions for teamwork
    • Do practical, implementable stuff that bring real results (hard work)
  • 80. Way back in 2004…
    • Thomas Cup, Indonesia
  • 81. Now in 2007…
    • CNI ‘Beemax’ Factory Visit, China
    • Top Leaders
    • Product Development
    • Media
  • 82. Planning, Budgeting, Schedules, Processes Tying it all up
  • 83. The Planning & Budgeting Process Nov-Jan
    • Presentation of Group Budget and Planning summary & distribution
    • Communication of Highlights to the field and staff
    5. Communication and Cascading Oct-Nov
    • BSC & Budget to CEOs, followed by BOD
    • Revised and Finalized Plans and Budgets
    4. Formal Results Planning Sep - Oct
    • BSC & Budget preparation by HODs to HODivs
    3. Functional Strategy and Budgets Sep
    • High-level strategy of Group Corp Plan.
    • Circulation of Main Budget simulation to all departments
    2. High-level Group Strategy and Targets July - Sep
    • Current ½ yr budget & revision
    • Next yr options and budgets required
    1. Pre-Planning Analysis & Brainstorming Month Output Stages
  • 84. Review processes
    • Result Planning schedule inc. BSC, Budget
    • Quarterly Performance Appraisals
    • EMC – sales performance
    • QMS – non-sales performance
    • Divisional meetings
    • Annual Appraisals
    • Specialized KPI committees
    • CAR, PAR, SCAR KPI improvements
    • Internal Audit & MSD – process problems
    • HRM & TND – people problems
    • Supervisor Induction – PM training
    • Talent Management
  • 85. Problems still existing
    • No serious budget to tackle key risks
    • Too much optimism or pessimism
    • Innovation vs. Results vs. Baseline
    • Investment ≠ Portfolio Management
    • Top down vs. Bottom up
    • Good to have vs. Need to have
    • Line Manager not thinking like Investors
    • Too focused on KPI and BSC
    • Budget allocation seen as ‘popularity’ vote
    • Public Listing -> pressure for short-term budgets and results vs. long-term innovation
  • 86. Alignment: 4-Wheels Model Culture Business Model Strategic Planning Structure Person Leadership Resources
  • 87. Thank You. soft copy of slides: www.totallyunrelatedrandomanddebatable.blogspot.com