The Building Blocks Of High Performing Organisations

THE BUILDING BLOCKS OF HIGH-PERFORMING ORGANISATIONS Case Study, Concepts and Debatable Ideas Kenny Ong CNI Holdings Berhad www.myCNI.com.my www.OOBEY.com

Intro: CNI

19 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: 200,000

Products: Consumer Goods and Services

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

How do you recognize a high-performing organization? www.myCNI.com.my www.OOBEY.com

“… 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 www.myCNI.com.my www.OOBEY.com

High-Performance Companies?

Business is good?

People are good?

Everyone is good?

Mission is good?

Be very careful of your company’s definition of high-performance before you embark on anything

Simple, selfish and debatable definition:

What is a High-Performing Organization?

An organization that consistently achieves what it was created to do or what it set out to do

High-Performing Organizations – The Building Blocks www.myCNI.com.my www.OOBEY.com

The Building Blocks - starting from HR Succession Planning (Business Continuity) Talent Management Differentiation Performance Management System Budgeting + Planning KPIs BSC Business Model www.myCNI.com.my www.OOBEY.com

The Building Blocks - starting from HR Succession Planning (Business Continuity) Talent Management Differentiation Performance Management System Budgeting + Planning KPIs BSC Business Model The Hardware The Software www.myCNI.com.my www.OOBEY.com

Summary: Today’s presentation 1. Business Model 2. Strategy 3. Resources www.myCNI.com.my www.OOBEY.com

1. Building Block #1: Get the right Business Model first www.myCNI.com.my www.OOBEY.com

How to fail without trying

1. Wrong Business Model www.myCNI.com.my www.OOBEY.com

The Roadmap to Failure Fred Wiersema and Mike Treacy Performance Time www.myCNI.com.my www.OOBEY.com 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

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

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

“ What is the moral of the story?”

What is the Business Model? USP Market Discipline Profit Model www.myCNI.com.my www.OOBEY.com

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

Intro: Market Discipline * Treacy & Wiersema, The Discipline of Market Leaders , 1995 Product/Service Attributes Relationship Image www.myCNI.com.my www.OOBEY.com

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

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

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

Summary: Today’s presentation 1. Business Model 2. Strategy 3. Resources  Done www.myCNI.com.my www.OOBEY.com

2. Building Block #2: Set the Strategies Dangers of BSC, KPIs and other evils sold by Consultants www.myCNI.com.my www.OOBEY.com

“… 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 www.myCNI.com.my www.OOBEY.com

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

Before we start…

Moral of the story…

Innovation:

Business models

Products

Services

Market Leadership

Competitive differentiation

Get the picture? www.myCNI.com.my www.OOBEY.com

“ What is the moral of the story?”

What is Strategic Planning? Strategic Planning Variables: Research Growth Risks Stakeholders Constraints SWOT Misc. Output: Plans Priorities KPIs www.myCNI.com.my www.OOBEY.com

Before we start…

Which comes first?

Strategies -> KPI?

KPI -> Strategies?

Focus: Corporate Alignment Financial “ To satisfy our stakeholders, what Financial objectives must we accomplish?” www.myCNI.com.my www.OOBEY.com 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 www.myCNI.com.my www.OOBEY.com

Focus: Corporate Alignment Financial Learning & Growth Internal Process Customers / Distributors www.myCNI.com.my www.OOBEY.com 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 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 www.myCNI.com.my www.OOBEY.com

Sample: Other 1 st Level KPIs across industries… www.myCNI.com.my www.OOBEY.com

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 www.myCNI.com.my www.OOBEY.com Leading Lagging

Developing ‘Driver’ KPIs www.myCNI.com.my www.OOBEY.com 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) 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

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

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

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

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

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

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

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.

E3 – Department BSC Financial Perspective Budgeting www.myCNI.com.my www.OOBEY.com On Time Delivery Innovation Quality OPEX CAPEX Targets Measures Goals

Individual Performance www.myCNI.com.my www.OOBEY.com 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)

Summary: Today’s presentation 1. Business Model 2. Strategy 3. Resources  Done  Done www.myCNI.com.my www.OOBEY.com

3. Building Block #3: Resource Management The art and science of allocating, aligning, and managing Resources to strategic plans www.myCNI.com.my www.OOBEY.com

Resource Management: Some thoughts…

Two major roles of Resource Management:

Provide real-life CONSTRAINTS to strategic planning

Provide RESOURCES to realize strategic plans

Resource Management: Some thoughts…

Resource Management = Performance Management

Performance Management = Resource Management

Managing Performance www.myCNI.com.my www.OOBEY.com www.myCNI.com.my www.OOBEY.com Month 1 Performance Planning Month 12 Performance Appraisal Month 2-11 ?

Beating a Dead Horse

Most Common Desperate Performance Improvement methods

Send for more Training

Enforce more Incentives (positive/negative)

Mager and Pipe

Analyzing Performance Discrepancies

Alignment: 4-Wheels Model Culture Business Model Strategic Planning www.myCNI.com.my www.OOBEY.com Structure Person Leadership Resources

Alignment: Framework

Focus point

Alignment

Quality

Innovation & Differentiation

Risk taking

Performance Management

Corporate obsession

Decision making

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

Alignment: Framework

Org Structure

Job Design

C&B

Policies & procedures

Decision making

Job fit

Management Systems

BSC and KPIs

Decentralized & Empower

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

Strategy: Framework

Role modeling

Vision/Mission/Philosophy

Leadership Style

Delegation & Empowerment

C&B, Promotions

Sense of Urgency

Speak regularly about Performance

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

Strategy: Framework

Recognition

Recruitment

Training

Profit sharing

Values

Motivation

Self Efficacy

Awareness

Useful Competencies

Career aspirations

Attribution (control)

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

Strategy: Framework

Enablers

Technology

Equipment

Materials

Human

Intellectual Property

Partners

Property

Funding

CAPEX

OPEX

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

Alignment: 4-Wheels Model Culture Business Model Strategic Planning www.myCNI.com.my www.OOBEY.com Structure Person Leadership Resources

Product Leadership

Each Discipline Requires Different Priorities & Resources Operational Excellence Customer Intimacy Organization, jobs, skills Management systems Information and systems Culture, values, norms www.myCNI.com.my www.OOBEY.com

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

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

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’

Incentive Problems

Problem with Incentives in managing performance:

Most people are confused or unsure about compensation tools

Some people misuse compensation tools

What to Pay?

Pay for Service

Pay for Job

Pay for Performance

Pay for Competency

Performance and Incentives

Internal Equity

Internal Job Rates

Performance differentials

External Competitiveness

External Job Rates - Benchmarking

Demand & Supply

What’s the Difference?

Increment

Bonus

Promotion

Compa Ratio Table

Use this if your company:

Pays for Performance , and

Pays for Job rates

Def:

Mid-Point = Mid Point of Pay Grade

Grade E2 Min RM2,000 MID RM2,500 Max RM3,000 www.myCNI.com.my www.OOBEY.com

Compa Ratio Table www.myCNI.com.my www.OOBEY.com 1 2 3 4 5 > 1.3 ≥ 1.1 - ≤1.3 >0.9 - <1.1 ≥ 0.7 - ≤0.9 < 0.7

Compa Ratio Table www.myCNI.com.my www.OOBEY.com 1 2 5% 3 4 5 > 1.3 ≥ 1.1 - ≤1.3 >0.9 - <1.1 ≥ 0.7 - ≤0.9 < 0.7

Compa Ratio Table www.myCNI.com.my www.OOBEY.com 0 1 2 2 3 4 5% 7 9 3 7 4 9 5 > 1.3 ≥ 1.1 - ≤1.3 >0.9 - <1.1 ≥ 0.7 - ≤0.9 < 0.7

Compa Ratio Table www.myCNI.com.my www.OOBEY.com 0 0 0 2 4 1 0 1 2 4 6 2 3 4 5% 7 9 3 3 5 7 9 12 4 7 8 9 12 15 5 > 1.3 ≥ 1.1 - ≤1.3 >0.9 - <1.1 ≥ 0.7 - ≤0.9 < 0.7

Dangers of Direct Incentives

lessen internal motivation,

switch to mercenary mode,

do something and do not do something else,

bribe and fraud culture,

easier for competitors to recruit,

lessen teamwork & helpful culture,

less and less impact for same value,

mockery of base salary and employment contract,

rebellion from non-incentivised staff,

end up incentivising everyone for everything?,

Other Performance 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

Employee Distinction? 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

Employee Distinction? 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

Employee Distinction www.myCNI.com.my www.OOBEY.com 0% 1.0 0 1 ≤ 1.3 0.9% 1.8 0.5 2 > 1.3 – 2.3 2.1% 2.8 0.75 3 > 2.3 – 3.3 4.2% 3.5 1.2 4 > 3.3 – 4.1 8.4% 4.2 2 5 > 4.1 Example Increment Example Rating Multiply Factor Rating Average Rating

Employee Distinction Group I (Talent Pool) Group II (  Potential) Group III (  Performance) Group IV (Counseling) 2 3 4 5 2 3 4 5 PERFORMANCE POTENTIAL