Strategic Planning And Organization Clarity

STRATEGIC PLANNING AND ORGANIZATION CLARITY Case Study, Concepts and Debatable Ideas Kenny Ong CNI Holdings Berhad

Intro: CNI

20 years old

Core Business: MLM

Others: Contract Manufacturing, Export/Trading, eCommerce

Malaysia, Singapore, Brunei, Indonesia, India, China, Hong Kong, Philippines, Italy, Taiwan, Oman, United States, Vietnam

Staff force: ± 500

Distributors: 200,000

Products: Consumer Goods and Services

"The digital watch didn't come from established watch companies, the calculator didn't come from slide rule or adding machine companies, video games didn't come from board-game manufacturers Parker Bros or Mattel, the ballpoint pen didn't come from fountain pen manufacturers, and Google didn't come from the Yellow Pages"

Bob Seidensticker, Futurehype

What’s wrong with Strategic Planning Today?

L ong-term Plans

O bjectives

S trategies

E nablers

R esources

Also known as L.O.S.E.R.

What’s wrong with Strategic Planning Today?

Biggest Threats often come from OUTSIDE your normal industry

Planning from the base of an ‘Existing’ organization vs. zero-based

Traditional Analysis (e.g. SWOT) based only on known or existing assumptions or knowledge

Spending too much time in market research and analysis

Defining the company from a Product/Service perspective vs. Category vs. JTBD (e.g. Coca-cola)

Wrong Benchmark – already successful vs. what made them successful

New strategy, same people

Today’s Agenda

Summary: Today’s presentation 1. Business Model Clarity 2. Strategy Clarity 3. Execution Clarity

What is the Business Model? USP Market Discipline Profit Model

Business Model: USP

Unique Selling Proposition (USP)

=

Targeted Customer

=

Core Buying Purpose/ Customer Value Proposition/ Job To Be Done (JBTD)

Business Model: USP

“ The Product is Not the Product”

What is the customer really buying?

What is the “Core Buying Purpose”?

What is the “Job To Be Done”?

Business Model: USP

Obstacles to JBTD:

Insufficient WEALTH

Insufficient ACCESS

Insufficient SKILL

Insufficient TIME

Business Model: Profit Model Revenue Cost Margin

Business Model: Profit Model

Profit Model Examples:

Gillette Shaver

iPod and iTunes

IBM and Lenovo

GM and GM Finance

Google and Ad Revenue

McD and Drive-thru revenue,

Subsidizing Hire Purchase Loan vs. reduce price to protect brand

Oracle Project Financing over 4 years covering even non-Oracle components

SaaS PAYU e.g. Siebel/Salesforce

Who Killed Disney ™ ?

Profit Model vs. Competition:

DVD vs. video games and online movies

car sales vs. car leasing

newspaper vs. online news

client server systems vs. SaaS

Bussinessweek, February 19 2009, “Hollywood Is Worried as DVD Sales Slow” your greatest competitor for market share is often a different profit model

Intro: Market Discipline

Mamak stall

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

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) www.myCNI.com.my www.OOBEY.com

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) HP well-balanced portfolio, mass customization Acer super lean cost structure, aggressive pricing Apple powerful products, premium pricing, limited range Still Doing well in 2009

Business Model vs. Competition

Competitor Anchoring vs. Business Model:

Air Asia vs. Busses & Trains

Tata Nano vs. Motorbikes

iPod vs. Sony BMG

Kindle (Amazon) vs. iPhone (Apple)

Google vs. Newspaper (Ads) vs. Yahoo (Search) vs. Microsoft (Software)

McD vs. Toys ‘R’ Us

Shift your Business Model, and your Competitor will change

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: Value Disciplines

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

www.myCNI.com.my www.OOBEY.com

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 www.myCNI.com.my www.OOBEY.com

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)

Business Model 1. change one, effect three 2. change one, change model

Summary: Today’s presentation 1. Business Model Clarity  Done 2. Strategy Clarity 3. Execution Clarity

2. Strategy Clarity ‘Hope’ is not a strategy

What is Strategic Planning? Strategic Planning Variables: Research Growth Risks Stakeholders Constraints SWOT Misc. Output: Plans Priorities KPIs

Before we start…

Which comes first?

Strategies -> KPI?

KPI -> Strategies?

Before we start…

Which comes first?

Strategies -> KPI?

KPI -> Strategies?

already know our priorities, aware of all strategy options available

creating something UNIQUE, INNOVATIVE and DISRUPTIVE e.g. Air Asia

conducting a business Turnaround e.g. MAS

Before we start…

Which comes first?

Strategies -> KPI?

KPI -> Strategies?

want to find out possible strategies,

determine our priorities first thru selection of important KPIs;

growing through ‘normal’ business, not a Turnaround.

Business Situation vs. Focus Upturn Flat Downturn Fight Complacency Sharpen Edge Keep Momentum Conquer ‘ Change’ mgmt Reduce Fat Continuity Everyone Happy Innovation Acquire Profits Build momentum Sales Cash Flow Talent Mgmt Innovation/R&D Early wins Slow Down HR Costs Top Talent focus Sales, Sales, Sales Increase attrition www.myCNI.com.my www.OOBEY.com

Business Situations vs. Focus Upturn Flat Downturn Fight Complacency Sharpen Edge Keep Momentum Conquer ‘ Change’ mgmt Reduce Fat Continuity Everyone Happy Innovation Acquire Profits Build momentum Sales Cash Flow Talent Mgmt Stack R&D Early wins Slow Down HR Costs Top Talent focus Stack Sales Increase attrition Many times, you need a different CEO/Leader/Management Team for each business situation www.myCNI.com.my www.OOBEY.com

What is your Goal?

Cost Reduction

Growth

Both?

Growth Strategy “ Double-Digit Growth”, Michael Treacy www.myCNI.com.my www.OOBEY.com

Base Retention

Share Gain

Positioning

Adjacent Market

New Business

GROWTH

How Markets determine Growth Strategies (1)

Growth Rate

Base Retention

Share Gain (Acquisitions)

Market Positioning

Share Gain

Base Retention

Strategy

Lose customers slower than competitors

Create scale economics, squeeze costs

Maintain market share in strategic segments

Prepare for market decline

Competitors focus too much on getting new customers

Why? Flat Fast Growth Rate

Churn Rate

How Markets determine Growth Strategies (2) www.myCNI.com.my www.OOBEY.com

Base Retention

Share Gain

Adjacent Market

Share Gain (Acquisitions)

Adjacent Markets

Strategy

Lose customers slower than competitors

Customers are always open to the best value and offer

Desperate to gain revenue

Buying customer base is cheaper than own efforts

New products, old customers strategy

Why? High Low Churn Rate

How Markets determine Growth Strategies (3)

Example: XYZ Sector

Market Positioning

Share Gain (M&A)

Base Retention

Adjacent Markets (M&A)

Fast Growth, Low Churn

Downturn Strategy

Side Notes on Cost Reduction Strategy

Cost Reduction

5% - 30% 30% - 80% Business Model

USP

Profit Model

Market Discipline

Operational

Finance and HR

Supply Chain

R&D

Sales & Marketing

Business Situation vs. Sales Upturn Flat Downturn Fight Complacency Sharpen Edge Keep Momentum Conquer ‘ Change’ mgmt Reduce Fat Continuity Everyone Happy Innovation Acquire Profits Build momentum Sales Cash Flow Talent Mgmt Innovation/R&D Early wins Slow Down HR Costs Top Talent focus Sales, Sales, Sales Increase attrition www.myCNI.com.my www.OOBEY.com

Optimize customers’ current assets

Offset customers’ costs

Focus market share

CEO and Sr. Mgmt in the field

Sell up the buyer chain

Motivate troops

Add extra services

Control troop emotions

Specialized vs. general teams, i.e. sell support services, sell equipment, existing customers etc. (e.g. Xerox)

Marketing Clarity:

Goods Return Policy

“ I don’t care if they return a Goodyear tire. If they said they paid $200, pay them $200.”

Nordstrom does not sell tires

Marketing Clarity: CNI

“ CNI is more than business.

We strongly believe that every individual has the opportunity to attain a better living through CNI.”

Marketing Clarity: Segment & Target Who? Experience Swing Former Opposition

Branding Clarity: Segment & Target

Who are you attracted to?

Branding Clarity: Basics & Differentiators Segments Targets Targets Basics Differentiators Experience = Branding

Swing Loyalty

Swing Customers are “loyal” because:

Individual Relationships

Convenience (at that point in time)

Tied-up

Product Uniqueness

Promotions

No better alternative

Downlines

No known alternative

Psychologically lazy

Swing = Best alternative at the current moment until I find another alternative

“Swing” Marketing

Increase switching costs

Mega packages

Community

Reward programs (Points)

Membership Subscription

Email communication

Newsletters

Personalized alerts

Survey

Suggestion Box

Switching Techniques (e.g. Balance Transfer of credit cards)

R&D Clarity: The “Old” Days Invent R&D Build Manufacturing Market Marketing Sell Sales

R&D Clarity: The “New” Days Invent Build Market Sell R&D Manufacturing Marketing Sales

R&D Clarity: Marketing 101 Product Promotion Pricing Place 4Ps

R&D Clarity: Marketing & R&D Features Brand Target Logistics Product Promotion Pricing Place 4Ps

R&D Clarity: Marketing & R&D Features Brand Target Logistics Price Promotion Place Product IKEA Apple Nestle Asus

R&D Clarity: RD&D

Garnier

Digi

Design Point 1: Designed to SELL Design Point 2: Before-After R&D

R&D Clarity: RD&D

CNI Waterlife

R&D Clarity: RD&D

R esearch, D evelopment & DESIGN

Features

Benefits

Differentiation

R&D Clarity: RD&D

R esearch, D evelopment & DESIGN

Function

Aesthetics

Logistics

Innovation Clarity Product/ Service Process Business Model Break-through Sub-stantial Incre-mental

Summary: Today’s presentation 1. Business Model Clarity  Done 2. Strategy Clarity 3. Execution Clarity  Done

3. Execution Clarity Accountability, Benchmarking, BSC, KPIs and other evils

“… 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

Wrong KPIs

“ What is the moral of the story?”

KPIs and Behavior

Before: “Handle Time” Per Call

Motivated Call Centre staff to transfer callers, getting rid of complainers, making them someone else’s problem

Callers at 45% chance of being transferred

7,000 customers each week suffered transfers 7 times or more

KPIs and Behavior

After: “Minutes Per Resolution” of a problem

Resolution in ONE CALL become the core goal

Reduced probability of call transfers from 45% to 18%

Why BSC?

Reason 1: Balanced

Reason 2: Cause-and-Effect

Cause and Effect 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?

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

Cause and Effect: An Example 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

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)

Example: 1 st Level BSC & KPIs Financial Learning & Growth Internal Process Customers / Distributors Profit after Tax. Revenue. Cash-to-cash cycle. Operating cash flow Average Revenue Per User (ARPU), Customer Complaints. Customer Acquisition Rate. Product Availability. Product Quality & Service. Renewal Annual Subscription. No. of Active Members. No. Retail Points. Customer Database Availability. Accuracy of Forecast Planning. Continuous Improvement. Response Time to Customer Needs. Perfect Order Fulfillment. Inventory Turnover. Number of Effective Loyalty Programs. On Time Delivery. 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

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

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

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

What is the Objective?

‘ Do-or-Die’ KPIs for CNI

Revenue

ARPU

Sponsoring

Retention

Commission Plan (BDP)

Product

Corporate Image

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)

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

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

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

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

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 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)

Sample KPIs for Each Discipline

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

Execution: 4-Wheels Alignment Culture Business Model Strategic Planning Structure Person Leadership Resources

Execution: 4-Wheels Alignment

Focus point

Alignment

Quality

Innovation & Differentiation

Risk taking

Performance Management

Corporate obsession

Decision making

Culture

Org Structure

Job Design

C&B

Policies & procedures

Decision making

Job fit

Management Systems

BSC and KPIs

Decentralized & Empower

Structure

Role modeling

Vision/Mission/Philosophy

Leadership Style

Delegation & Empowerment

C&B, Promotions

Sense of Urgency

Speak regularly about Performance

Leadership

Recognition

Recruitment

Training

Profit sharing

Values

Motivation

Self Efficacy

Awareness

Useful Competencies

Career aspirations

Attribution (control)

Person

E3 – Department BSC Financial Perspective Budgeting On Time Delivery Innovation Quality OPEX CAPEX Targets Measures Goals

Resource Alignment

Enablers

Technology

Equipment

Materials

Human

Intellectual Property

Partners

Property

Funding

CAPEX

OPEX

Resources

Product Leadership

Each Discipline Requires Different Priorities & Resources Operational Excellence Customer Intimacy Organization, jobs, skills Management systems Information and systems Culture, values, norms

Each Discipline Requires Different Priorities & Resources

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

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

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’

Budgeting in a Downturn

StratEx

CoREx

What’s In Between Planning and Execution? Succession Planning (Business Continuity) Talent Management Differentiation Performance Management System Budgeting + Planning KPIs BSC Business Model www.myCNI.com.my www.OOBEY.com

What’s In Between Planning and Execution? Succession Planning (Business Continuity) Talent Management Differentiation Performance Management System Budgeting + Planning KPIs BSC Business Model a.k.a. Business Plan Implementation a.k.a. Talent Management www.myCNI.com.my www.OOBEY.com

Performance Execution Clarity www.myCNI.com.my www.OOBEY.com Useless Poor Average Good Excellent E D C B A

Performance Execution Clarity www.myCNI.com.my www.OOBEY.com Useless Poor Average Good Excellent E D Good C B A

Performance Execution Clarity www.myCNI.com.my www.OOBEY.com Useless Poor Average Good Excellent Commit Suicide E Not Good D Good C Very Good B Excellent A

Performance Execution Clarity www.myCNI.com.my www.OOBEY.com Commit Suicide Not Good Good Very Good Excellent Unacceptable performance E Did not fully meet planned results D Achieved Planned Results C Higher than planned results B Consistently achieved 4 for 3 quarters A

Performance and Pay Clarity

Pay for Service

Pay for Job

Pay for Performance

Pay for Competency

Performance and Pay Clarity

Increment

Bonus

Promotion

Performance and Pay Clarity www.myCNI.com.my www.OOBEY.com 1 2 3 4 5 1 2 3 4 5 6 2 3 4 5% 6 7 3 4 5 6 7 8 4 5 6 7 8 9 5 > 1.3 ≥ 1.1 - ≤1.3 >0.9 - <1.1 ≥ 0.7 - ≤0.9 < 0.7

Performance and Pay Clarity www.myCNI.com.my www.OOBEY.com 0 0 0 0 0 1 0 0 1 1 1 2 3 4 5% 7 9 3 3 5 9 12 18 4 5 8 12 15 20 5 > 1.3 ≥ 1.1 - ≤1.3 >0.9 - <1.1 ≥ 0.7 - ≤0.9 < 0.7

End Notes Tying it all up

Review processes