Strategic Planning And Budgeting Part 1: Business Model and Strategy

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ABF Budgeting, Forecasting and Financial Planning Conference, Feb 2009

*Understanding what strategic planning is and why it is important
*Clarify the difference between vision, mission statement, goals and objectives
*The external environment: The need to understand the economic cycle
*SWOT and PESTEL analysis
*Tying the strategic plan to the budget

Published in: Business

Strategic Planning And Budgeting Part 1: Business Model and Strategy

  1. 1. STRATEGIC PLANNING AND BUDGETING Part 1: Business Model and Strategy Case Study, Concepts and Debatable Ideas Kenny Ong CNI Holdings Berhad
  2. 2. Intro: CNI <ul><li>20 years old </li></ul><ul><li>Core Business: MLM </li></ul><ul><li>Others: Contract Manufacturing, Export/Trading, eCommerce </li></ul><ul><li>Malaysia, Singapore, Brunei, Indonesia, India, China, Hong Kong, Philippines, Italy, Taiwan, Oman, United States, Vietnam </li></ul><ul><li>Staff force: ± 500 </li></ul><ul><li>Distributors: 200,000 </li></ul><ul><li>Products: Consumer Goods and Services </li></ul>
  3. 3. History of Strategic Planning and Budgeting
  4. 4. Planning in the “old” days <ul><li>Budget ‘top down’ – no questions asked </li></ul><ul><li>Only two budget goals – revenue, expenses </li></ul><ul><li>The only planning we needed to do was “do better than last year” </li></ul><ul><li>Planning was ‘bottom up’ - compilation of plans within set budget </li></ul><ul><li>No one knew what the other was planning </li></ul><ul><li>Accounting’s role was only to compile budget for approval </li></ul><ul><li>KPIs were not used </li></ul><ul><li>Sales was resource priority, everything else not important </li></ul><ul><li>Assumed no major changes in market </li></ul><ul><li>R&D was ‘bottom up’ </li></ul>
  5. 5. Problems from the start
  6. 6. Problems from the start (1/2) <ul><li>No money </li></ul><ul><li>Split Objectives: Sales? Share Price? Image? </li></ul><ul><li>Independent entities </li></ul><ul><li>Accounts controlling schedule </li></ul><ul><li>S&M always running over budget </li></ul><ul><li>Compounding activities </li></ul><ul><li>BOD expectations too high without proper explanation nor justification </li></ul><ul><li>Lack of Market research </li></ul><ul><li>Expenses not spent gets punished </li></ul>
  7. 7. Problems from the start (2/2) <ul><li>Budgeting for known, consistent, and predictable business conditions </li></ul><ul><li>Never learn from past mistakes, usually in under-budgeting (e.g. staff and PCs) </li></ul><ul><li>Wrong Business Model – blame Budgeting & Planning. Having a good planning process cannot correct a bad business model </li></ul><ul><li>Focusing on the Process (KPIs), instead of “Business” </li></ul><ul><li>Planning & budgeting treated as separate processes by businesses/functions </li></ul>
  8. 8. Today’s Agenda
  9. 9. Summary: Planning & Budgeting <ul><li>L ong-term Plans </li></ul><ul><li>O bjectives </li></ul><ul><li>S trategies </li></ul><ul><li>E nablers </li></ul><ul><li>R esources </li></ul>Also known as L.O.S.E.R.
  10. 10. Summary: Today’s presentation 1. Business Model 2. Strategy 3. Alignment 4. Resources
  11. 11. Assumptions 1: Audience <ul><li>Business </li></ul><ul><li>Government </li></ul><ul><li>Non-profit </li></ul>
  12. 12. Assumptions 2: Starting Point <ul><li>Wanting to start proper planning & budgeting process, or </li></ul><ul><li>Wanting to improve planning & budgeting process </li></ul>
  13. 13. 1. Get the right Business Model first
  14. 14. <ul><li>How to fail without trying </li></ul>1. Wrong Business Model
  15. 15. 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
  16. 16. Denial and Defense <ul><li>“ It’s not really good value our competitor is offering, because it doesn’t include a lot of our features.” - ABC vs Air Asia </li></ul><ul><li>“ It’s good value but not in our preferred customer market.” - ABC vs Toyota </li></ul><ul><li>“ Sure they’re hurting us, but with their unfair advantage, what can we do?” – ABC vs MILO </li></ul><ul><li>“ The rules we are playing by have always worked before” – AMEX vs VISA </li></ul>
  17. 17. 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
  18. 18. Ad Hoc Tactics <ul><li>Selectively hold discounts to hold business that has started to go elsewhere </li></ul><ul><li>Introduce new promotions, terms, conditions, and offers to confuse and cloud the market </li></ul><ul><li>Beef up customer service by adding people to fix mess-ups and quicken delayed shipments </li></ul><ul><li>Delay capital investments and adjust accounting methods to portray quarterly financial results more favorably </li></ul><ul><li>Introduce “new and improved” products that are new in form, but not in substantive ways that are of consequence to purchasers </li></ul><ul><li>Introduce Balanced Scorecards and Performance Management Systems </li></ul>
  19. 19. 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
  20. 20. <ul><li>“ What is the moral of the story?” </li></ul>
  21. 21. What is the Business Model? USP Market Discipline Profit Model
  22. 22. Intro: Market Discipline <ul><li>Mamak stall </li></ul>
  23. 23. Intro: Market Discipline <ul><li>&quot;Exactly what I need&quot; </li></ul><ul><li>Customized products </li></ul><ul><li>Personalized communications </li></ul><ul><li>&quot;They're very responsive&quot; </li></ul><ul><li>Preferential service and flexibility </li></ul><ul><li>Recommends what I need </li></ul><ul><li>&quot;I'm very loyal to them&quot; </li></ul><ul><li>Helps us to be a success </li></ul>&quot;They are the most innovative&quot; &quot;Constantly renewing and creative&quot; &quot;Always on the leading edge&quot; &quot;A great deal!&quot; Excellent/attractive price Minimal acquisition cost and hassle Lowest overall cost of ownership &quot;A no-hassles firm&quot; Convenience and speed Reliable product and service Product Leadership Operational Excellence Customer Intimacy
  24. 24. 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
  25. 25. <ul><li>Product Leadership </li></ul><ul><li>New, state of the art products or services </li></ul><ul><li>Risk takers </li></ul><ul><li>Meet volatile customer needs </li></ul><ul><li>Fast concept-to- counter </li></ul><ul><li>Never satisfied - obsolete own and competitors' products </li></ul><ul><li>Learning organization </li></ul>Strategy: Value Disciplines <ul><li>Operational Excellence </li></ul><ul><li>Competitive price </li></ul><ul><li>Error free, reliable </li></ul><ul><li>Fast (on demand) </li></ul><ul><li>Simple </li></ul><ul><li>Responsive </li></ul><ul><li>Consistent information for all </li></ul><ul><li>Transactional </li></ul><ul><li>'Once and Done' </li></ul><ul><li>Customer Intimacy </li></ul><ul><li>Management by Fact </li></ul><ul><li>Easy to do business with </li></ul><ul><li>Have it your way (customization) </li></ul><ul><li>Market segments of one </li></ul><ul><li>Proactive, flexible </li></ul><ul><li>Relationship and consultative selling </li></ul><ul><li>Cross selling </li></ul>www.myCNI.com.my www.OOBEY.com
  26. 26. The McPlaybook* <ul><li>Make it easy to eat </li></ul><ul><li>50% drive-thru </li></ul><ul><li>Meals held in one hand </li></ul><ul><li>Make it easy to prepare </li></ul><ul><li>High Turnover </li></ul><ul><li>Tasks simple to learn & repeat </li></ul><ul><li>Make it quick </li></ul><ul><li>“ Fast Food” </li></ul><ul><li>Tests new products for Cooking Times </li></ul><ul><li>Make what customers want </li></ul><ul><li>Prowls market for new products </li></ul><ul><li>Monitored field tests </li></ul>*Adapted from: Businessweek , Februrary 5 th 2007 www.myCNI.com.my www.OOBEY.com
  27. 27. 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
  28. 28. 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
  29. 29. Intro: Market Discipline * Treacy & Wiersema, The Discipline of Market Leaders , 1995 Product/Service Attributes Relationship Image
  30. 30. 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
  31. 31. 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
  32. 32. 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
  33. 33. 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)
  34. 34. Summary: Today’s presentation 1. Business Model  Done 2. Strategy 3. Alignment 4. Resources
  35. 35. 2. Set the Strategies ‘Hope’ is not a strategy
  36. 36. What is Strategic Planning? Strategic Planning Variables: Research Growth Risks Stakeholders Constraints SWOT Misc. Output: Plans Priorities KPIs
  37. 37. Before we start… <ul><li>Which comes first? </li></ul><ul><li>Strategies -> KPI? </li></ul><ul><li>KPI -> Strategies? </li></ul>
  38. 38. Step 1: Analysis <ul><li>SWOT </li></ul><ul><li>PESTEL </li></ul><ul><li>Scenario Analysis </li></ul>
  39. 39. SWOT: Opportunities & Threats <ul><li>Opportunities </li></ul><ul><li>= </li></ul><ul><li>Taking advantage of ‘Trends’ </li></ul>Threats = Strategic Risk Management
  40. 40. Downturn Trends?
  41. 41. Downturn Trends?
  42. 42. Downturn Trends?
  43. 43. Downturn Trends?
  44. 44. SWOT: General Strategic Risks <ul><li>Industry </li></ul><ul><ul><li>Margin Squeeze </li></ul></ul><ul><ul><li>Rising R&D/CAPEX </li></ul></ul><ul><ul><li>Overcapacity </li></ul></ul><ul><ul><li>Commoditization </li></ul></ul><ul><ul><li>Deregulation </li></ul></ul><ul><ul><li>Increased power among suppliers </li></ul></ul><ul><ul><li>Extreme business-cycle volatility </li></ul></ul><ul><li>Technology </li></ul><ul><ul><li>Shift in technology </li></ul></ul><ul><ul><li>Patent expiration </li></ul></ul><ul><ul><li>Process becomes obsolete </li></ul></ul><ul><li>Brand </li></ul><ul><ul><li>Erosion </li></ul></ul><ul><ul><li>Collapse </li></ul></ul><ul><li>Competitor </li></ul><ul><ul><li>Emerging global rivals </li></ul></ul><ul><ul><li>Gradual market-share gainer </li></ul></ul><ul><ul><li>One-of-a-kind competitor </li></ul></ul><ul><li>Customer </li></ul><ul><ul><li>Customer priority shift </li></ul></ul><ul><ul><li>Increasing customer power </li></ul></ul><ul><ul><li>Over reliance on a few customers </li></ul></ul><ul><li>Project </li></ul><ul><ul><li>R&D failure </li></ul></ul><ul><ul><li>IT failure </li></ul></ul><ul><ul><li>Business development failure </li></ul></ul><ul><ul><li>Merger or acquisition failure </li></ul></ul><ul><li>Stagnation </li></ul><ul><ul><li>Flat or declining volume </li></ul></ul><ul><ul><li>Volume up, price down </li></ul></ul><ul><ul><li>Weak pipeline </li></ul></ul>Adrian J. Slywotzky and John Drzik
  45. 45. PESTEL and Scenarios Legal Environment Technology Social Economic Political Scenario 3 Scenario 2 Scenario 1
  46. 46. 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
  47. 47. 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
  48. 48. Step 2: What is your Goal? <ul><li>Cost Reduction </li></ul><ul><li>Growth </li></ul>
  49. 49. Strategies for Growth “ Double-Digit Growth”, Michael Treacy www.myCNI.com.my www.OOBEY.com <ul><li>Base Retention </li></ul><ul><li>Share Gain </li></ul><ul><li>Positioning </li></ul><ul><li>Adjacent Market </li></ul><ul><li>New Business </li></ul>GROWTH
  50. 50. Growth <ul><li>Expansion </li></ul><ul><li>Consolidate </li></ul><ul><li>Geographic </li></ul><ul><li>Distribution </li></ul><ul><li>Compensate </li></ul><ul><li>Transformative </li></ul><ul><li>Portfolio refocus </li></ul><ul><li>Diversification </li></ul>Easier Tougher www.myCNI.com.my www.OOBEY.com
  51. 51. Growth thru Expansion <ul><li>Expansion </li></ul><ul><li>Consolidate </li></ul><ul><li>Geographic </li></ul><ul><li>Distribution </li></ul><ul><li>Compensate </li></ul><ul><li>Gain Scale to compete </li></ul><ul><li>Integrated Solutions </li></ul><ul><li>Financial Growth </li></ul><ul><li>Supply (security, mix) </li></ul><ul><li>Developing markets </li></ul><ul><li>High cost of Extra Capacity </li></ul><ul><li>Private Equity </li></ul><ul><li>Expanding Sovereign Funds </li></ul>www.myCNI.com.my www.OOBEY.com
  52. 52. Growth thru Expansion <ul><li>Expansion </li></ul><ul><li>Consolidate </li></ul><ul><li>Geographic </li></ul><ul><li>Distribution </li></ul><ul><li>Compensate </li></ul><ul><li>De-regularization </li></ul><ul><li>Demand outstrip supply </li></ul><ul><li>Revenue Mix – Tax optimization </li></ul><ul><li>Talent </li></ul><ul><li>New, Low-cost Entrants </li></ul><ul><li>Undervalued Big Players </li></ul><ul><li>Newer Assets </li></ul>www.myCNI.com.my www.OOBEY.com
  53. 53. Transformative Growth <ul><li>Transformative </li></ul><ul><li>Portfolio refocus </li></ul><ul><li>Diversification </li></ul><ul><li>New Business Lines </li></ul><ul><li>Selling/Spin-off non-core </li></ul><ul><li>Increase product line </li></ul><ul><li>New customers </li></ul><ul><li>New technologies* </li></ul><ul><li>Complementary Business </li></ul><ul><li>Up-down Supply Chain </li></ul><ul><li>Patent </li></ul><ul><li>Convergence anticipation </li></ul>www.myCNI.com.my www.OOBEY.com
  54. 54. Cross Sector Transformation www.myCNI.com.my www.OOBEY.com Traditional Alternative Incremental
  55. 55. Cross Sector Transformation New Delivery, New Sources, Existing Resources Oil, Gas, Electricity, Coal Biomass, Nuclear, Ethanol, Wind, Solar www.myCNI.com.my www.OOBEY.com Example: Energy Sector Traditional Utility Alternative Energy Incremental Technology
  56. 56. Step 3: Strategy “ Double-Digit Growth”, Michael Treacy www.myCNI.com.my www.OOBEY.com <ul><li>Base Retention </li></ul><ul><li>Share Gain </li></ul><ul><li>Positioning </li></ul><ul><li>Adjacent Market </li></ul><ul><li>New Business </li></ul>GROWTH
  57. 57. How Markets determine Growth Strategies (1) <ul><li>Growth Rate </li></ul>www.myCNI.com.my www.OOBEY.com <ul><li>Base Retention </li></ul><ul><li>Share Gain (Acquisitions) </li></ul><ul><li>Market Positioning </li></ul><ul><li>Share Gain </li></ul><ul><li>Base Retention </li></ul>Strategy <ul><li>Lose customers slower than competitors </li></ul><ul><li>Create scale economics, squeeze costs </li></ul><ul><li>Maintain market share in strategic segments </li></ul><ul><li>Prepare for market decline </li></ul><ul><li>Competitors focus too much on getting new customers </li></ul>Why? Flat Fast Growth Rate
  58. 58. <ul><li>Churn Rate </li></ul>How Markets determine Growth Strategies (2) www.myCNI.com.my www.OOBEY.com <ul><li>Base Retention </li></ul><ul><li>Share Gain </li></ul><ul><li>Adjacent Market </li></ul><ul><li>Share Gain (Acquisitions) </li></ul><ul><li>Adjacent Markets </li></ul>Strategy <ul><li>Lose customers slower than competitors </li></ul><ul><li>Customers are always open to the best value and offer </li></ul><ul><li>Desperate to gain revenue </li></ul><ul><li>Buying customer base is cheaper than own efforts </li></ul><ul><li>New products, old customers strategy </li></ul>Why? High Low Churn Rate
  59. 59. How Markets determine Growth Strategies (3) <ul><li>Example: XYZ Sector </li></ul>www.myCNI.com.my www.OOBEY.com <ul><li>Market Positioning </li></ul><ul><li>Share Gain (M&A) </li></ul><ul><li>Base Retention </li></ul><ul><li>Adjacent Markets (M&A) </li></ul>Fast Growth, Low Churn
  60. 60. <ul><li>Create better ‘Value’ proposition </li></ul><ul><li>Neutralize competitor advantages </li></ul><ul><li>Buy Market Share outright </li></ul><ul><ul><li>Price Premium </li></ul></ul><ul><ul><li>Operating Model </li></ul></ul><ul><ul><li>Integration </li></ul></ul>Strategy 2: Share Gain www.myCNI.com.my www.OOBEY.com
  61. 61. Buying Market Share: Acquisition strategy No evidence of previous company One Kingdom Pre-integration Blueprint Slow Trigger, Fast Bullet www.myCNI.com.my www.OOBEY.com Integration Operating Model Price Premium Buying Market Share Net Cost per Customer < Direct Acquire
  62. 62. Buying Market Share: Side notes on Funding www.myCNI.com.my www.OOBEY.com *Adapted from Warren Buffet’s acquisition strategies <ul><li>Cash from Stock sale </li></ul><ul><li>Issue more stock </li></ul><ul><li>Cash from Earnings </li></ul><ul><li>Cash from Borrowings </li></ul>OK, but not preferred Preferable
  63. 63. Strategy 4: Invade Adjacent Markets <ul><li>Adjacent Market = Important Similarities and Large Differences in: </li></ul><ul><li>Cost Structure </li></ul><ul><li>Competitors </li></ul><ul><li>Customers </li></ul><ul><li>Critical Capabilities </li></ul>www.myCNI.com.my www.OOBEY.com
  64. 64. Strategy 4: Invade Adjacent Markets www.myCNI.com.my www.OOBEY.com Traditional Alternative Incremental
  65. 65. Strategy 4: Invade Adjacent Markets www.myCNI.com.my www.OOBEY.com Example: Energy Sector Traditional Utility Alternative Energy Incremental Technology
  66. 66. Strategy 4: Invade Adjacent Markets Upstream Midstream Downstream Distribution Conversion Raw Mat Vendors/Services www.myCNI.com.my www.OOBEY.com
  67. 67. <ul><li>Is it a promising market? </li></ul><ul><ul><li>Best when market is new and not stable </li></ul></ul><ul><ul><li>You must time your entry carefully </li></ul></ul><ul><ul><li>Entrenched companies usually delay embracing new technology or process </li></ul></ul><ul><li>Can you win in this market? </li></ul><ul><ul><li>Must be built on advantages that are tangible, practical and easily implemented </li></ul></ul>Strategy 4: Invade Adjacent Markets www.myCNI.com.my www.OOBEY.com
  68. 68. <ul><li>Can you match the Standards of Competition in this Market? </li></ul><ul><ul><li>You do have to meet the quality level that is common in the market </li></ul></ul><ul><ul><li>Three Standards:- Technology , Relationships , Business-model </li></ul></ul><ul><ul><li>You must have 80 percent of the capabilities you need to match competitor’s Standards </li></ul></ul>Strategy 4: Invade Adjacent Markets www.myCNI.com.my www.OOBEY.com
  69. 69. <ul><li>Make or Buy? </li></ul><ul><ul><li>It is easier to meet the standards of competition if you buy an existing player </li></ul></ul><ul><ul><li>Adjacent acquisitions must remain as a separate enterprise </li></ul></ul><ul><ul><li>Integrate Management Control (systems, technology) </li></ul></ul><ul><ul><li>Inter-transfer of management talent, knowledge and capability are important </li></ul></ul>Strategy 4: Invade Adjacent Markets www.myCNI.com.my www.OOBEY.com
  70. 70. Strategy 5: Acquire new Business <ul><li>No core advantage to bring in </li></ul><ul><li>Investors mind-set vs. Managers mind-set </li></ul><ul><li>Value unlocking via operational improvements </li></ul><ul><li>Invest in Management/Leadership </li></ul><ul><li>Premium = Combined value > stand alone </li></ul>www.myCNI.com.my www.OOBEY.com
  71. 71. Thank You. soft copy of slides: www.totallyunrelatedrandomanddebatable.blogspot.com

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