MICG - Strategy and Risk Management for MTU Services

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MICG ENTERPRISE RISK MANAGEMENT 2012
November 2012

Strategy and Risk Management
• Strategic Risks in the New World
• The Most Important Risk of All: Business Model vs. Risk (Choosing the wrong Business Model)
• M&A Risk (Pre- and Post- Acquisition Risks)
• People Risk (Succession Planning and Business Continuity)
• Fraud Risk
• Growth Risk (Growth methods and their associated risks including Benchmarking Risk)
• Reputational Risk (Brand and PR)
• R&D Risk
• How To: The 4-Wheels Operating Model and Strategic Risk Management Checklist

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MICG - Strategy and Risk Management for MTU Services

  1. 1. STRATEGY AND RISKMANAGEMENTMICG Enterprise Risk Management Seminar2012 for MTU ServicesKenny OngTakaful IKHLAS Sdn Bhd 1
  2. 2. THE NEW WORLD 2
  3. 3. The World Today… 13th April 2009 •Two Domino’s employees •YouTube •Apology from Domino’s after 48 hours •1 million hits •Twitter: questions on silence •LinkedIn: suggestions by users in forum 3 BusinessWeek, May 4, 2009
  4. 4. TAKAFUL IKHLAS CORPORATE PROFILE• Shareholder : MNRB Holdings Berhad (100%)• Established Date : 18 September 2002• Operational since : 2 July 2003• Takaful Model : Al-Wakalah• Business Portfolio : General and Family Takaful• Number Products : More than 90• Number of Participants : More than 1,800,000• Number of Agents : More than 6,000• Number of Staff : 490• Regional Offices : 11• Paid Up Capital : RM295 million 4
  5. 5. IKHLAS Customized Healthcare Solutions Smart PartnershipsMedical WellnessAdvisory Program Board Cost Flexible Management 5
  6. 6. "The digital watch didnt come from established watch companies, the calculator didnt come from slide rule or addingmachine companies, video games didnt comefrom board-game manufacturers Parker Brosor Mattel, the ballpoint pen didnt come from fountain pen manufacturers, and Google didnt come from the Yellow Pages" Bob Seidensticker, Futurehype 6
  7. 7. What’s wrong with Strategic Planning Today?Long-term PlansObjectivesStrategiesEnablersResourcesAlso known as L.O.S.E.R. 7
  8. 8. What’s wrong with Strategic Planning Today?1. Biggest Threats often come from OUTSIDE your normal industry2. Planning from the base of an ‘Existing’ organization vs. zero-based3. Traditional Analysis (e.g. SWOT) based only on known or existing assumptions or knowledge4. Spending too much time in market research and analysis5. Defining the company from a Product/Service perspective vs. Category vs. JTBD (e.g. Coca-cola)6. Wrong Benchmark – already successful vs. what made them successful7. Implementing BSC and PMS to improve Business Model and Strategy8. New strategy, same people 8
  9. 9. Finance Today… $19.90 10
  10. 10. Contents1. The Biggest Risk of All2. Growth Risks3. Reputational Risks4. R&D Risks5. People Risks6. How To… 11
  11. 11. THE MOST IMPORTANT RISKOF ALL 12
  12. 12. Strategic RiskExternal events and trends that can destroy a companys growth course and shareholder value: 1.Industry 5.Customer 2.Technology 6.Project 3.Brand 7.Stagnation 4.Competitor 13A. Slywotzky & J. Drzik, Harvard Business Review, April 2005
  13. 13. So, what is the biggest risk of all? IRRELEVANCE 14
  14. 14. Irrelevance Risk = Business Model Risk• Business Model Risk – Business Model – Industry 15
  15. 15. The Business ModelThe biggest and most holistic consideration 16
  16. 16. The McPlaybook* Make it easy to eat Make it easy to prepare • 50% drive-thru • High Turnover • Meals held in one • Tasks simple to learn hand & repeat Make it quick Make what customers want • “Fast Food” • Prowls market for new • Tests new products products for Cooking Times • Monitored field tests*Adapted from: Businessweek , Februrary 5th 2007 20
  17. 17. What is the Business Model?•Google•Tata Nano UVP Cash-Flow Market Model Discipline 21
  18. 18. Business Model: UVP Unique Value Proposition (USP) = Targeted Customer =Core Buying Purpose/ Customer Value Proposition/ Job To Be Done (JBTD) 22
  19. 19. Business Model: UVP“The Product is Not the Product”• What is the customer really buying?• What is the “Core Buying Purpose”? 23
  20. 20. Business Model: UVP1. Insufficient WEALTH2. Insufficient ACCESS3. Insufficient SKILL4. Insufficient TIME 24
  21. 21. Business Model: Cash-Flow Model RevenueAssets Cost Cash Margin Flow 25
  22. 22. Business Model: Cash-Flow Model Cash-Flow Model Examples: Revenue 1. Gillette ShaverAssets Cost 2. IBM and Lenovo 3. GM and GM Finance Cash Margin Flow 4. Google and Ad Revenue 5. McD and Drive-thru revenue 6. SaaS PAYU e.g. Siebel/Salesforce 7. Facebook and Investors 8. Courts and Instalments 9. Kindle Fire and e-Books 10.Celcom and MVNOs 11.Kenya and M-Pesa 12.Banks and Non-Fees vs. Fees 26
  23. 23. What is the Business Model? UVPCash-Flow Market Model Discipline 27
  24. 24. Market Discipline • Features, "They are the most innovative" Product Leadership Benefits "Constantly renewing and creative" • Limited "Always on the leading edge" Range Customer Operational Intimacy Excellence "Exactly what I need""A great deal!" Customized products Excellent/attractive price Minimal acquisition cost and • Solutions Personalized communications "Theyre very responsive" hassle • Preferential service and Customization • Cost Lowest overall cost of • Breadth & flexibility • Convenience ownership Depth Recommends what I need • firm""A no-hassles TCO "Im very loyal to them" Convenience and speed Helps us to be a success Reliable product and service 28
  25. 25. Market Discipline Product "They are the most innovative" •LV Leadership "Constantly renewing and creative" "Always on the leading edge"•Air Asia Operational •Ramly Customer Intimacy Excellence "Exactly what I need""A great deal!" Customized products Excellent/attractive price Personalized communications Minimal acquisition cost and "Theyre very responsive" hassle Preferential service and Lowest overall cost of flexibility ownership Recommends what I need"A no-hassles firm" "Im very loyal to them" Convenience and speed Helps us to be a success Reliable product and service 29
  26. 26. Alignment & Consistency: Market Disciplines Product Leadership (best product) Operational Excellence Customer Intimacy (low cost producer) (best total solution) 30Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995
  27. 27. Alignment & Consistency: Market Disciplines Product Leadership (best product) Operational Excellence Customer Intimacy (low cost producer) (best total solution) 31Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995
  28. 28. Alignment & Consistency: Market Disciplines Product Leadership (best product) Operational Excellence Customer Intimacy (low cost producer) (best total solution) 32Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995
  29. 29. Alignment & Consistency: Disciplines, Priorities, and KPIsOperational Product Leadership Customer Intimacy Excellence • New, state of the • Management by• Competitive price art products or Fact services• Error free, reliable • Easy to do • Risk takers business with• Fast (on demand) • Meet volatile • Have it your way• Simple customer needs (customization)• Responsive • Fast concept-to- • Market segments• Consistent counter of one information for all • Never satisfied - • Proactive, flexible• Transactional obsolete own and • Relationship and competitors• Once and Done consultative products selling • Learning • Cross selling organization 33
  30. 30. Each Discipline Requires Different Priorities & ResourcesOrganization, jobs,skillsCulture, values,norms Operational Product Customer Excellence Leadership IntimacyInformation andsystemsManagementsystems 34
  31. 31. Each Discipline Requires Different Priorities & Resources Operational ExcellenceOrganization, •Central authority, low level of empowermentjobs, skills •High skills at the core of the organizationCulture, values, •Disciplined Teamworknorms •Process, product- driven •Conformance, one size fits all mindsetInformation and •Integrated, low cost transaction systemssystems •The system is the processManagement •Command and controlsystems •Quality management 35
  32. 32. Each Discipline Requires Different Priorities & Resources Product LeadershipOrganization, jobs, •Ad hoc, organic and cellularskills •High skills abound in loose-knit structuresCulture, values, •Concept, future-drivennorms •Experimentation and out of the box mindsetInformation and •Person-to-person communications systemssystems •Technologies enabling cooperationManagement •Rewarding individuals innovative capacitysystems •Risk and exposure management •Product Life Cycle profitability 36
  33. 33. Each Discipline Requires Different Priorities & Resources Customer IntimacyOrganization, jobs, •Empowerment close to point of customer contactskills •High skills in the field and front-lineCulture, values, •Customer-drivennorms •Variation and have it your way mindsetInformation and •Strong customer databases, linking internal andsystems external information •Strong analytical toolsManagement •Customer equity measures like life time valuesystems •Satisfaction and share management •Focus on ‘Share of Wallet’ 37
  34. 34. Alignment & Consistency Product Leadership (best product)Operational Excellence Customer Intimacy (low cost producer) (best total solution) 38
  35. 35. Alignment & Consistency Apple powerful Product Leadership products, premium (best product) pricing, limited range Still Doing well in HP well-balanced Acer super lean 2009-2011 portfolio, mass cost structure, aggressive pricing customizationOperational Excellence Customer Intimacy (low cost producer) (best total solution) 39
  36. 36. Where are your Key Risks? RISK? UVPRISK? RISK? Cash-Flow Market Model Discipline 40
  37. 37. Where are your Key Risks? RISK? RISK? RISK?Organization, jobs,skillsCulture, values,norms Operational Product Customer Excellence Leadership IntimacyInformation andsystemsManagementsystems 41
  38. 38. Market Disciplines and Risk Mitigation Focus• 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 42
  39. 39. Market Disciplines and Risk Mitigation Focus• 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 43
  40. 40. Market Disciplines and Risk Mitigation Focus• 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 44
  41. 41. Industry Risk 45
  42. 42. Financial Product Innovation fromNon-Traditional Financial Players • M&A: bar code readers, inventory tracking, location- based deals • App: loyalty card, coupon, NFC, mobile payment at restaurants and cafés • the largest holder of personal savings in the world: $2.1 trillion of assets in yū-cho savings accounts, $1.2 trillion of assets in kampo life insurance services, ¥140 trillion of government bonds. • eWallet (soon) • eWallet – in collaboration with Citibank, MasterCard, Sprint Nexus 4G • Raised $32,000,000 - $10 at a time, via TEXT for the Haiti earthquake 2010 46
  43. 43. Industry Risks 47The A.T. Kearney Strategy Chessboard, June 2011
  44. 44. Guess Who?
  45. 45. Strategic Risk Other Industry Risks – Margin Squeeze – Rising R&D / capital expenditure costs – Overcapacity – Commoditization – Deregulation – Increased power among suppliers – Extreme business-cycle volatility 50A. Slywotzky & J. Drzik, Harvard Business Review, April 2005
  46. 46. GROWTH RISK 51
  47. 47. Growth Risk• Growth Risk – Growth Model selection – Competitor – Customer – Benchmarking 52
  48. 48. Growth Model Selection 1.Base Retention5.New Business 2.Share Gain GROWTH 4.Adjacent Market 3.Positioning 53 “Double-Digit Growth”, Michael Treacy
  49. 49. Growth Model Selection •Increase switching cost •Customize products 1. Base Retention •Preempt Defections •Brand5. New Business 2. Share Gain •Neutralize Competitor GROWTH advantages •Superior Value•Promising Market? •Buy market share•Make or Buy? 4. Adjacent Market 3. Positioning •Spot growth opportunities •Organized search 54 “Double-Digit Growth”, Michael Treacy
  50. 50. Growth Model Selection: Risks RISK? 1.Base RetentionRISK? RISK?5.New Business 2.Share Gain GROWTH RISK? RISK? 4.Adjacent Market 3.Positioning 55 “Double-Digit Growth”, Michael Treacy
  51. 51. Growth Model Selection: Risk Mitigation • Growth RateGrowth Strategy Why?RateFast 1. Market •Maintain market share in strategic Positioning segments 2. Share Gain •Prepare for market decline 3. Base •Competitors focus too much on Retention getting new customersFlat 1. Base •Lose customers slower than Retention competitors 2. Share Gain •Create scale economics, squeeze (Acquisitions) costs 56
  52. 52. Growth Model Selection: Risk Mitigation How Markets determine Growth Model Selection: Risk Mitigation Growth Strategies (2)• Churn RateChurn Strategy Why?RateLow 1. Share Gain •Buying customer base is (Acquisitions) cheaper than own efforts 2. Adjacent •New products, old customers Markets strategyHigh 1. Base •Lose customers slower than Retention competitors 2. Share Gain •Customers are always open to 3. Adjacent the best value and offer Market •Desperate to gain revenue 57
  53. 53. Growth Model Selection: Risk Mitigation•Example: XYZ SectorFast Growth, 1.Market PositioningLow Churn 2.Share Gain 3.Base Retention 4.Adjacent Markets 58
  54. 54. Other Growth-related RisksCompetitor – Emerging global rivals – Gradual market-share gainer – One-of-a-kind competitorCustomer – Customer priority shift – Increasing customer power – Over reliance on a few customers 59A. Slywotzky & J. Drzik, Harvard Business Review, April 2005
  55. 55. Dangers of Best Practice and Benchmarking… high zero Perfor Company mancePerformance Trend line low low ‘Best Practice’ high theories 60“Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005
  56. 56. Dangers of Best Practice and Benchmarking… Trend high line zero Perfor Company mancePerformance low low ‘Best Practice’ high theories 61“Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005
  57. 57. Dangers of Best Practice and Benchmarking…Selection Bias:1. Success Traits = Failure Traits2. Successful Cases + Failure Cases3. Worst effects in ‘Old’ industries4. Overvalue ‘best practice’ theories5. Current accomplishments unfairly magnified by past achievements6. Reverse Causal 62
  58. 58. Dangers of Best Practice and Benchmarking…Also known as ‘Beware of Consultants’:1. Selection Bias2. Big vs. Small company3. Selective success stories4. Correlation vs. Causal5. Survey problems6. Practical vs. Glamour-to-have 63
  59. 59. Other Growth-related RiskStagnation – Flat or declining volume – Volume up, price down – Weak pipeline 64A. Slywotzky & J. Drzik, Harvard Business Review, April 2005
  60. 60. R&D RISK 65
  61. 61. R&D Risk• R&D Risk – R&D – Innovation – Research/Information 66
  62. 62. Basic R&D Risks…1.Top Down – Process problem2.Because I can - Competency problem3.Poor business value – Ignorance problem4. No Budget - Alignment problem5.Not-Invented-Here – Ego problem 67
  63. 63. The “Old” DaysInventR&D Build • Manufacturing Market • Product Dev. Marketing Sell Sales 68
  64. 64. The “New” Days Invent R&DManufacturing Build Marketing Market Sales Sell 69
  65. 65. Marketing 101 PlaceProduct 4Ps Pricing Promotion 70
  66. 66. Marketing & R&D Logistics/ Place TechnologyFeatures TargetProduct 4Ps Pricing Promotion Brand 71
  67. 67. Marketing & R&D Target Price FeaturesBrand Promotion Product IKEA Apple Place Nestle Logistics/ Asus Technology 72
  68. 68. R&D Today → RD&D• Garnier• Digi Design Point 1: Designed to SELL Design Point 2: Before-After R&D 73
  69. 69. R&D Today → RD&D• Research, Development & DESIGN 1. Features 2. Benefits 3. Differentiation 74
  70. 70. R&D Today → RD&D• Research, Development & DESIGN 1. Function 2. Aesthetics 3. LogisticsDesign Point 1: Designed to SELLDesign Point 2: Before-After R&D 75
  71. 71. Retail Adaptation: McDonald’s MenuProduct Variation: – 80% Global, 20% Local – home-style meals (Boston Market)  – burritos (Chipotle)  – coffee (McCafé)  – DVD rentals (Redbox)  – Premium menu items (snack wraps, sweet tea Frappes)  76
  72. 72. Retail Adaptation: McDonald’s Design$2.4 billion to:•redo at least 400 domestic outposts,•refurbish 1,600 restaurants abroad,and•build another 1,000
  73. 73. Business Situation vs. R&D Upturn Flat DownturnFight Complacency Innovation SalesSharpen Edge Acquire Cash FlowKeep Momentum ProfitsConquer Build momentumNPD Cycle Time Focused on Improve Top 15% ‘Breakthrough’ revenue-generatingImprove Edge products JV, In-source, Out-Extensions sourceCounter Competitor ↓ R&D, ↑Sales Eliminate bottom 20% 78
  74. 74. Potential Tools for Innovation in the Financial Services sector• Social Networks - new financial services, increase interaction with customer, collect new ideas from outside• Dedicated “Innovation Department” or “R&D Department”• Think broadly about what their target customers are trying to get done• New technologies – Mobile, Social, Cloud, GeoMarketing etc.• Under-served Markets, New Segments on Value-Chain, Micro Niche segments• Academia partnership• Corporate venture capital fund 79
  75. 75. Location-based example 80
  76. 76. Future of Financial Services Sector• Just take an image of the front and back of the check.• No annoying deposit slip required• Immediate confirmation of deposit transaction.• It’s Free 81
  77. 77. Future of Financial Services Sector• Just slide the Money Bar to transfer funds between accounts. 82
  78. 78. Research/Information Risk“In business after business, 60% to 80% of lost customers reported on a survey just prior to defecting that they were satisfied or very satisfied.” HBR March/April 1996 83
  79. 79. ‘Input’ Filters and Associated Risks Mkt Rsc R&DMarketing Filter Filter Filter Research Filter Development 84
  80. 80. Information Drifts (1/2)1. Availability Drift: Looking for convenience • You give more weight to information that’s more readily available to you.2. Experience Drift: Influenced by personal prejudice • You tend to see things in terms of your personal or professional interest.3. Conflict Drift: Struggling with beliefs • Your natural tendency is to reject information that conflicts with your beliefs.4. Recall Drift: Trusting your memory • You more easily recall information about things familiar to you. 85
  81. 81. Information Drifts (2/2)5. Selectivity Drift: Picking your priorities • You screen out information and observations about things that do not interest you.6. Anchoring Drift: Weighing answers too heavily • If you lack experience in a specific area, you hang on to or anchor to the first information you hear.7. Recency Drift • You place greater emphasis on what has just happened to you.8. Favorability Drift • You are more likely to look harder for information that supports your beliefs rather than input that is obvious in front of you. 86
  82. 82. REPUTATIONAL RISK 87
  83. 83. Reputational Risk• Reputational Risk – Branding – Public Relations – Crisis Management 88
  84. 84. Strategic RiskBrand – Erosion – Collapse 89A. Slywotzky & J. Drzik, Harvard Business Review, April 2005
  85. 85. What is the purpose of Marketing & Branding?Ultimate Objective of Marketing:“Get more people, to buy morethings, more frequently, at higherprices.”“Retention and Loyalty are useless ifNo Conversion is happening.” Sergio Zyman 90
  86. 86. What is the purpose of Marketing & Branding?“Retention and Loyalty are useless ifNo Conversion is happening.”“Communication is useless if NoConversion is happening.” 91
  87. 87. What is the Objective?1.Comm = Relationship (something like Dating)2.Comm ≠ Media glitz3.Comm ≠ ATL/BTL/BwTL/ArTL/FTL4.Comm ≠ CSR5.Comm = Get more people, to buy more, more frequently, at higher prices 92
  88. 88. Brand Erosion “Get more people, to buy more things, more frequently, at higher prices.”“Less people, buying less things,less frequently, at lower prices.” 93
  89. 89. What does the Customer want? Product/Service Attributes Relationship Image 94* Treacy & Wiersema, The Discipline of Market Leaders, 1995
  90. 90. What does the Customer want? Operational Excellence: Quality and selection in key categories with unbeatable prices Product/Service Attributes Relationship Image Price Time √ Smart Selection √ Shopper Quality 95* Treacy & Wiersema, The Discipline of Market Leaders, 1995
  91. 91. What does the Customer want? Product Leadership: Unique products and services that push the standards Product/Service Attributes Relationship Image √ Time √ Best Function √ Product Brand 96* Treacy & Wiersema, The Discipline of Market Leaders, 1995
  92. 92. What does the Customer want? Customer Intimacy: Personal service tailored to produce results for customer and build long-term relationships Product/Service Attributes Relationship Image √ √ Service Trusted √ Brand √ Relations 97* Treacy & Wiersema, The Discipline of Market Leaders, 1995
  93. 93. Public Relations and Reputational Risk 98
  94. 94. Why is PR important to Business Value?1. Funds2. Brand3. Intelligence4. Business 99
  95. 95. Why is PR important to Business Value?1. Funds Communication2. Brand to bring in the3. Intelligence Funds4. Business 100
  96. 96. Why is PR important to Business Value?1. Funds Communication2. Brand to bring in the3. Intelligence Sales4. Business 101
  97. 97. Importance: BrandPR is a key component of corporate Branding due to its direct influence on:1. Multiple parties (Investors)• These parties are either our Branding targets or has influence on our branding targets2. Brand Story 102
  98. 98. Challenges of Public Relations1. Stake- vs. Share-holder* 7. What to do with2. Public Opinions Excessive Cash?3. Indirect Stakeholders – 8. Superficial changes vs. NGOs, Community Fundamental Changes Activists, Online 9. Investors depend on Networks ‘hearsay’ vs. ‘facts’4. Increasing focus on 10. Share Price ≠ Market ecological, social, ethical 11. R&D/M.S./HR vs. issues Investor Expectations5. Diverged expectations 12. Opposing ‘Expert’ views for same issue 13. Operational Risk ->6. Web 2.0 Reputational Risks 103
  99. 99. PR Challenges“Good news for stockholders can be bad news for other stakeholders.” Gregory Miller, Assoc. Prof., Harvard Business School. 104
  100. 100. Audiences – Good News? Bad News?• money saved by tough bargaining with a union• announcing a dividend: to employees• announcing a dividend: to environmentalists• setting up Diversified business 105
  101. 101. Audiences InstitutionalFund Managers Financial (Loans) Gov VCs Corporations JV Partners Supply ChainSovereign Funds M&A Government VCs Social VCs PFI NGOs Holding Co. Competitors Non-Profit Org HQ (MNC) Franchisees 106
  102. 102. AudiencesIndividualsInvestors CustomersEmployees DistributorsShareholders Management 107
  103. 103. How do External Parties get their ‘INFO’? (1/2)Gov./Politics Suppliers Customer s NewsletterSpokespersons AnalystsAnnual Institutional DueReport Diligence Media Internet* Economic s AGM Fund Market NGOs Managers Research 108
  104. 104. How do External Parties get their ‘INFO’? (1/2)Gov./Politics Suppliers Customer s NewsletterSpokespersons AnalystsAnnual Institutional DueReport Diligence Media Internet Economic s AGM Fund Market NGOs Managers Research 109
  105. 105. How do External Parties get their ‘INFO’? (2/2) Employee Newsletter Customer Bloggers Gov./ s Public Politics Analysts EventsAnnual Mgmt Individuals RelativesReport Action s Pasar Media Internet* Malam Economic s Ads AGM Fund Employees Friends Managers 110
  106. 106. How do External Parties get their ‘INFO’? (2/2) Employee Newsletter Customer Bloggers Gov./ s Public Politics Analysts EventsAnnual Mgmt Individuals RelativesReport Action s Pasar Media Internet Malam Economic s Ads AGM Fund Employees Friends Managers 111
  107. 107. What topics interest External Parties? Acquisition Crisis CSR- target related Strategy Layoffs Alignment Cost Topics? PoliticsCutting New Economics Mgmt Treatment Ecology of Profits Consistency 112
  108. 108. What topics interest External Parties? Acquisition Crisis CSR- target related Strategy Layoffs Alignment Cost Topics? PoliticsCutting New Economics Mgmt Treatment Ecology of Profits Consistency 113
  109. 109. What Events impact External Parties? Share- drop New Politics Plans Financial M&AAnnouncementsShareholding Events? Competitor changes Moves Structure Crisis Accidents Economic 114
  110. 110. What Events impact External Parties? Share- drop New Politics Plans Financial M&AAnnouncementsShareholding Events? Competitor changes Moves Structure Crisis Accidents Economic 115
  111. 111. Good News vs. Controllability Can Control Cannot Control InternalAttribution   ExternalAttribution ?  116
  112. 112. Bad News vs. Controllability Can Control Cannot Control InternalAttribution   ExternalAttribution   117
  113. 113. Stakeholders vs. Reputation Communications Consumer Media Sharehold Regulators Civil s, Partners ers, Society, Investors, NGOs AnalystsKey Issues KeyQuestions asked Actions 118
  114. 114. Media-specific Reputation Communications Media Key Issues •Big business as negative •Lack in-depth reporting for balanced viewKey Questions •Limited, usually telecons with IR/CC asked Actions •Websites •Press Release •Management Press •Sells-side Analyst calls and reports •Industry Reports 119
  115. 115. Crisis Management 120
  116. 116. What is a Crisis1. cannot be predicted,2. they always bring about change— often for the worse, and3. affects reputation, management, brand or market share. 121
  117. 117. Goal of Crisis Management “to contain and/or prevent the impact on the various audiences that corporations must recognize”these audiences are customers, employees, communities, government, and of course, the shareholder/ investment community. 122
  118. 118. Board’s Role in Crisis Management1. Understanding types of Crisis Risk2. Effective Crisis Plans3. Good Communications Strategy 123
  119. 119. Type of Crisis - CorporateEntire organization is put at risk:• Failure of Corporate Governance• Changing the shape of structure or organization• Failure of strategy• Government regulations 124
  120. 120. Type of Crisis – SitePart of organization is put at risk:• Major fire• Explosion• Dangerous leaks and spills• Physical damage• Physical harm to staff• Theft of dangerous materials• Natural disasters 125
  121. 121. Type of Crisis – Product• Process failure contamination• Direct and indirect Raw material problems• Mischief or extortion• Counterfeiting• Poor distribution 126
  122. 122. Type of Crisis – Employee• Criminal acts• Sabotage• Drugs• Money-laundering• Lawsuits• Defection• Loss of key staff 127
  123. 123. Type of Crisis – Competitor-initiated• Media attack• Prevent a deal• Dismantle barriers to entry 128
  124. 124. Crisis Planning• Vulnerabilities Audit• Business Recovery Planning• Disaster Recovery Plan• Crisis Communication Plan 129
  125. 125. Crisis Management PlanBusiness Function Crisis: Before During After (readiness for (sound crisis (profiting and crisis) management) learning)Policy and PlanningProcess Owner:[dept. accountable]CommunicationsLogistics & Info Systems 130
  126. 126. Crisis Communication Plan• Crisis Communication Team (to determine small or BIG for communications purposes)• Crisis Media Plan – Media Management – Media Centre – Crisis Spokesperson & Interview – Press Release 131
  127. 127. PEOPLE RISK 132
  128. 128. People Risk• People Risk – Succession Planning and Business Continuity – Fraud 133
  129. 129. Practical succession planning 134
  130. 130. Right vs. Wrong SP Method Succession Planning asper Job Positions Succession Planning asper Leveling 135
  131. 131. Risk and Succession Planning Succession Planning =Business Continuity Plan 136
  132. 132. What’s your SP goal? Succession Planning Personal Business Estate Legacy Planning Business Continuity 137
  133. 133. Principles and Objectives Principles Company’s Needs1. Succession Planning of Key Leaders – Founding Directors (perpetual business theory)2. Retention of Key Staff – especially younger ones3. Transform into a Performance-based organization 138
  134. 134. Principles and ObjectivesPrinciples HR Philosophy 1. Equal / Fair 2. Happy / Productive 3. Hire Low, Train High 4. Performance vs Potential 5. Retention / Engagement 139
  135. 135. The Wrong Approach 140
  136. 136. The Better Approach P/P Grid, SP Table, PDP, Premium, SelectionP/P Grid, Q12,PA, SDP, SP Business Evaluation Development Strategy OJT, Mentoring, Big-5, LP, PDP, Motivation SDP, Projects, Q12, C&B, ACDP, SCL, Transfers, Events 141
  137. 137. Targeting: Identify and Attract• Identify POTENTIAL 2 3 4 5PERFORMANCE 5 Group I (Talent Pool) 4 3 2 142
  138. 138. Targeting: Identify and Attract• Identify POTENTIAL 2 3 4 5PERFORMANCE Group II Group I 5 ( Potential) (Talent Pool) 4 Group IV Group III 3 (Counseling) ( Performance) 2 143
  139. 139. Succession Planning Table: Example Succession PlanBusiness-Critical Ready Now 1-2 years > 2 yearsPosition 1 (Year estimated)Head of Sales 1. Ramli Bakar 1. Rebecca Ganaraj 1. Irene Soo 2. Joseph Wan 2. Abu Hassan 2. Fatimah Ibrahim 3. Selina Chan 3. Lee Tai How 3. Kan Weng TaiBusiness-Critical Ready Now 1-2 years > 2 yearsPosition 2 (Year estimated)Head of Operations 1. Wong Wai Chun 1. Abu Hassan 1. Khoo Tien Wee 2. Selina Chan 2. Syed Kamil 2. - 3. - 3. Jessica Lee 3. -Business-Critical Ready Now 1-2 years > 2 yearsPosition 3 (Year estimated)Head of R&D 1. Michael Wong 1. - 1. Khariul Nizam 2. - 2. - 2. Jessica Lee 3. - 3. - 3. Wong Lai Sun 144
  140. 140. Advanced Career Development Plan: Example9. PERSONALITY PROFILE: 10. LEADERSHIP STYLE: 11. RELOCATABLE: 12. PERFORMANCE/POTENTIAL RECORDS Within Country Within Region Globally Year Performance Potential Performance/ Rating Rating Potential Grid Exceptions:13. SHORT RANGE CAREER GOALS: 14. LONG RANGE CAREER GOALS:State goals for the next 1-2 years State Career goals for the 3-5 years15. CAREER PLAN Next Position Option 1 Readiness for Next Next Position Option 2 Readiness for Next Position Option 1 Position Option 2 Next Position Option 3 Readiness for Next Next Position Option 4 Readiness for Next Position Option 3 Position Option 4 145
  141. 141. Advanced Career Development Plan: Example9. PERSONALITY PROFILE: 10. LEADERSHIP STYLE: 11. RELOCATABLE: Within Country Within Region Globally Exceptions:13. SHORT RANGE CAREER GOALS: 14. LONG RANGE CAREER GOALS:State goals for the next 1-2 years State Career goals for the 3-5 years15. CAREER PLAN Next Position Option 1 Readiness for Next Next Position Option 2 Readiness for Next Position Option 1 Position Option 2 146
  142. 142. Advanced Career Development Plan: Example 12. PERFORMANCE/POTENTIAL RECORDSGlobally Year Performance Potential Performance/ Rating Rating Potential Grid 147
  143. 143. Advanced Career Development Plan: Example15. CAREER PLAN Next Position Option 1 Readiness for Next Next Position Option 2 Readiness for Next Position Option 1 Position Option 2 Next Position Option 3 Readiness for Next Next Position Option 4 Readiness for Next Position Option 3 Position Option 4 148
  144. 144. SCL: Specialist Career Ladder •Telco, •Outsourcing,Principal Consultant (1) •Aerospace, Consultant (4) •Biotech, •Digital media, Specialist (4) •Animation, •M&A •Financial forensicsAssociate Specialist (2) 149
  145. 145. Last Note about Succession Planning“He has 20 years experience: 1 year of bad experience repeated 20 times” 150
  146. 146. Fraud 151
  147. 147. No Business, No Risks.• Ironically, success is the cause of risk• More success, more money, more fraud• Easiest way to reduce fraud is to reduce business• Don’t laugh. This is what most Finance and HR people do, unintentionally 152
  148. 148. Fraud Risk Mitigation?Standard Fraud definition:What is Fraud?1. Someone is Lying2. Someone is BenefitingBoth Conditions must be met in order to be considered Fraud. 153
  149. 149. Where are the Risks?Suppliers/Vendors Industry Management Retail Front Staff Frontline 154
  150. 150. Real Fraud, Real Risks1. Distributor Fraud 10.Ghost Staff2. Staff Fraud 11.Ghost Distributor3. Management Fraud 12.Financial Reporting4. Distributor 13.Theft5. Credit Loss 14.Sales Staff6. Undercutting 15.eCommerce7. Purchasing 16.Share manipulation8. Credit Card 155
  151. 151. Fraud Root Causes• Policy problem• People problem• Unavoidable problem 156
  152. 152. Possible Psychological Root Causes for Fraud1. "Everyone does it."2. "It was small potatoes."3. "They had it coming." – the revenge syndrome4. "I had it coming." – the equity syndrome 157
  153. 153. GENERAL STRATEGIES AND POLICIES• B1. Classification of Behaviors – B1.1 Disrespectful Workplace Behavior – B1.2 Progressive Discipline – B1.3 Zero Tolerance 158
  154. 154. GENERAL STRATEGIES AND POLICIES• B2. Recruitment and Selection• B3. Exit• B4. Employee Assistance Program• B5. Anonymous Hotline• B6. Communication and Feedback• B7. Training and Education• B8. Formal Complaint and Grievance 159
  155. 155. GENERAL STRATEGIES AND POLICIES• B9 Leadership – 1. Leaders act as role models whether consciously or unconsciously – 2. Leaders determine the working environment 160
  156. 156. GENERAL STRATEGIES AND POLICIES• B9 Leadership – 1. Educate – 2. Involve – 3. Teach – 4. Eliminate 161
  157. 157. SPECIFIC STRATEGIES AND POLICIES• C1. Theft and Fraud – Root Causes – 68.6% - no prior criminal record. – Struggling financially or large purchases • difficult time in their lives • gets out of hand – Merger and acquisition or reorganization activity. • ‘I don’t have a career here’ attitude. 162
  158. 158. SPECIFIC STRATEGIES AND POLICIES• C1. Theft and Fraud - Prevention – Background checks – Duties segregated – Anonymous hotline – Share the wealth – Communicate successes – Make a big noise when discovered – Video surveillance equipment 163
  159. 159. SPECIFIC STRATEGIES AND POLICIES• C2. Violation of confidentiality or security of company information - Prevention – a. ICT Security Policies – b. Ownership of Intellectual Property – c. Inside Information and Trading of shares 164
  160. 160. *ICT Security and Fraud (1/3)Biggest ICT risks• E-mails• Portable drives• Social Media• Cloud services• Mobile devices• Laptops 165
  161. 161. *ICT Security and Fraud (2/3)The following are threats faced from ‘inside’ the company:• Current Employees,• On-site Contractors,• Former Employees,• Vendors/Suppliers,• Strategic Partners, and• OEMs 166
  162. 162. *ICT Security and Fraud (3/3)ICT Security, Backup, and Continuity Strategies:1. Web browsing and 8. Physical Internet Access 9. PCs and laptops2. Username and 10.Remote access passwords 11.Servers, routers, and3. Instant Messaging switches4. E-Mail 12.Internet / external5. File access permissions network6. Backups 13.Wireless7. Crisis management, 14.PDA and cell phone Disaster recovery and 15.Documentation and Business Continuity change management 167
  163. 163. Mistakes and Lessons Learned on Fraud Cases1. Price to Pay for Fraud/Risk Mitigation => Business Flexibility2. Control vs. Growth3. Rules vs. Humanity/Motivation4. Not tackling the root cause i.e. Motive + Opportunity i.e. Humans5. Focus on Finance vs. Sales/Marketing => who has control?6. Relationship Role vs. Enforcement Role e.g. Sales vs. Credit Control vs. Retail Audit 168
  164. 164. HOW TO… 169
  165. 165. • How To… – 4-Wheels Model – Checklists – Insurance/Takaful 170
  166. 166. Risk Mitigation Strategies Mitigation ResourcesStructure Identified Fraud Risks Culture Leadership Person 171
  167. 167. Alignment: FrameworkStructure • Org Structure • Job Design – C.Fraud.O. • Policies & procedures • Governance, Internal Controls • Management Systems, SOPs • Central • Special Task Force • Internal Audit, Surprise Audit, Regular Audit (Surveillance) • Levels of Authority, Power Balancing* 172
  168. 168. *Power Balancing1. Initiate2. Propose3. Approve4. Monitor 173
  169. 169. Alignment: FrameworkResources • Tools • ICT Systems • Rules detection • Whistle Blower • PED • Profiling/Assessment Tools • Budget for Investigation, Litigation 174
  170. 170. Strategy: FrameworkLeadership • PED • Involuntary Role Modeling • Personal accountability and Commitment • Values • Watch out: Current people promoted to Key Positions • Promotional criteria 175
  171. 171. Alignment: Framework • New Employee BackgroundPerson checks • Willingness to Punish • Root Cause Analysis (Mager & Pipe) • Rotation • PED • Fraud Detection & Analysis Competency • High Risk Jobs • IT breaches through Frontline 176
  172. 172. Strategic Risk Map Expected timing ChangingType of in years probability Risk Risk Rating 1 2 3 4 5 over time 177 A. Slywotzky & J. Drzik, Harvard Business Review, April 2005
  173. 173. End Notes 178
  174. 174. Which Company?American Customer Satisfaction Index (ACSI)• 64 out of100-point scale: lower than IRS (Tax)• 2nd last among 30 companies surveyed• Lowest 5% among 223 companies surveyed• Bottom 5% of all measured private sector companies• 500 million customers 2010 American Customer Satisfaction Index (ACSI) E-Business Report 179
  175. 175. Which Company?American Customer Satisfaction Index (ACSI)• 64 out of100-point scale: lower than IRS (Tax)• 2nd last among 30 companies surveyed• Lowest 5% among 223 companies surveyed• Bottom 5% of all measured private sector companies• 500 million customers 2010 American Customer Satisfaction Index (ACSI) E-Business Report 180
  176. 176. Popularly Unpopular Popularity ≠ Affection 181
  177. 177. Thank You. soft copy of slides:http://totallyunrelatedrandomanddebatable. blogspot.com/

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