Statragic controlling

www.pwc.at/sustainability

Day 2

“Strategic controlling”

Mag. Philipp Gaggl, BA

Vietnam University of Commerce
Hanoi, 10.4. – 14.4.2013

IV - Tools and instruments for
strategic control
External:
portfolio, potential, benchmarking, sector structure, client
satisfaction

Internal:
value chain, life cycle, learning curve, company culture

Strategy formulation:
scenario analysis, gap analysis, SWOT analysis
strategic controlling, Philipp Gaggl, Hanoi April 2013
PwC Slide 2

Welcome to the second day!

Repeating what we learned yesterday:
• What is a strategy?
• What is controlling?
• What are the main functions of strategic controlling?
• How is strategic controlling different from operational controlling?
• What are the six elements of the strategic controlling cycle?
• What value provides strategic controlling to management?

PwC Slide 3

IV - Tools and instruments for strategic control
Tools in relation to control areas
Area tools
Financial controlling
Market • Portfolio analysis • Benchmarking
• Peer group analysis • Stakeholder analysis
• Sector structure analysis (five
forces)
Clients • ABC-analysis • Client satisfaction analysis
• Target group analysis

Products • Life cycle analysis • Conjoint analysis
• Substitution analysis • Quality function deployment

Processes • Value chain analysis (Porter) • Six-sigma analysis

Ressources • Company culture analysis • Resource portfolio analysis
• Core competency analysis • Human resource portfolio analysis
• Technology portfolio analysis

Operational controlling
Financials • Cost structure analysis (target costing) • Brand-equity analysis
• GAP analysis • PIMS analysis
• Learning curve analysis
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Tools in relation to functions

portfolio product life cycle
analysis analyis

assess prevent
strategic
experience curve
gap analysis gap

control
potential
analysis
target costing

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External opportunities & risks vs. internal strengths and
weaknesses
external

internal
+
opportunities strengths

weaknesses
risks
-

Team work:
What are the external opportunities and risks and internal strengths
and weaknesses in your company?
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SWOT – BMW

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SWOT – P&G

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SWOT – India

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IV - Tools and instruments for
strategic control - external
External:
portfolio, potential, benchmarking, sector structure, client
satisfaction

PwC Slide 10

IV - Tools and instruments for strategic control - external
Portfolio analysis / BCG matrix
Once a company is following a diversification strategy, the challenge arises, how to distribute the
company resources in the best possible way.
In the second half of the 70s the Boston Consulting Group (BCG) developed the “growth share
matrix” or “BCG matrix”.
Goal of this tool is to balance the resources invested in capital demanding and capital generating
business units.

Key value:
• Provides analysis and evaluation of strategic business units or products
• Allows to see the balance of a product or service portfolio
• Highlights how many new and emerging products need to be developed to achieve a profitable
business (how many question mark products are needed per cash cow)

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Basic structure:
The BCG matrix is based on a two dimensional representation of success potentials of a strategic
business unit

The first dimension is the one of market-growth:
• Assumption is that all risks and opportunities of a company environment can be shown through a
market-growth rate
• Strong growing markets are an opportunity
• Declining markets are a risk

The second dimension is the one of relative market share:
• The relative market share includes the cumulated production amount
• Thus also the cost structure and the competitive advantage versus the competitors are included

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high low
relative market share
(comparison to strongest competitor)
2 1.5 1 0,5 0
+20 %
star question mark
high
D
+10 %
C
market growth

0%
cash cow dog

low -10 % A cash-flow
B
typical life cycle
- 20 %
PwC Slide 13

Key elements of the BCG matrix:
Following four areas can be identified by the matrix and inform strategic decisions:

Question marks: Cash cows:
• Relatively low market share in a strong • Business units with a very high relative
growing market market share in a stagnating or slow
growing market
• Often an unused opportunity

Stars: Dogs:
• Business units with a relatively high • Low relative market share in a
market share in a growing market stagnating market
• They have a high gross cash flow

PwC Slide 14

success own sales sales volume of relative market market % of total sales
objects volume in Mio strongest share growth in % volume
US$ competitor
product XY 1. 2. 3. = 1. / 2. 4. 5. = sum / 1.
product A 10 7 1,42 -10 % 24 %
product B 20 80 0,25 -13 % 48 %
product C 7 20 0,35 +10 % 17 %
product D 4 3,2 1,25 +18 % 9,7 %
sum 41 110 100 %
(comparison to strongest competitor) Market share: Market growth:
2 1.5 1 0,5 0

• The competitors value is always 1 • The market growth is always
+20 %
star question mark

D the real market growth of the
+10 % • The business unit value is always
C business unit
relative to this one
market growth

0% • The competitors market growth
cash cow dog • Own sales volume / competitors
is not put in relation
-10 % A sales volume = relative market
B share I(between 0 and 2)
- 20 %
PwC Slide 15

Steps towards a BCG matrix:
The following steps build the basic information to create a BCG matrix
1. Definition of the business units
Products and groups of products are defined in business units
2. Definition of market growth
The growth or decline of the specific sales volume versus the past year, indicates the attractiveness
of the market
3. Definition of the market share
The turnover of a specific business unit in relation to the turnover of the strongest competitor,
defines the market share.
4. Definition of the performance of a business unit
The level of turnover per business unit defines the performance. In the graph this is represented by
the size of the circle per business unit.
5. Analysis based on the four-fields-matrix
Both dimensions – market growth and market share – are combined in a portfolio overview
6. Development of norm strategies
On basis of the matrix, startegies for each business unit can be derived

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Norm strategies:
The following overview shows which startegies are usually taken respective to the four elements of
the matrix:
2 1 0

+20 % Growth strategy: Investment
strategy:
• Strong growing
market • High need for cash
• High investment need • Gain market share as
• Secure competitive long as market
market growth

advantage expands
0% > Invest > In or out

Skimming strategy: De-investment
strategy:
• High cash flows
• Hard to gain more • Low cash flow
market share • Saturated market
> Keep and skim > De-invest
- 20 %

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Portfolio analysis / BCG matrix - pharma

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Portfolio analysis / BCG matrix - Apple

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Portfolio analysis / BCG matrix - KFC

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Group work:
• Choose a company of your liking (your own, other one) and describe
its main products/services in the BCG matrix.
• Invent numbers and calculate them with the matrix formula
• Establish the matrix with size and position of bubbles
• How would a recommended strategy look like

Time: 15 min

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Competitive potential – GE/McKinsey matrix
Key goals:
Comparison of the two basic dimensions in one matrix of
• market attractiveness
• competitive strengths
This matrix has been developed by the consulting company McKinsey and is thus called McKinsey
matrix. The matrix provides a tool for diversified companies to invest the internal resources most
effectively in certain products or business units.

The main differences to the BCG matrix are the comparison of the market attractiveness instead of
the market growth and the competitive strengths instead of the market share. The McKinsey matrix
offers a more differentiated picture of the situation, as there are more factors included and instead of
the four quadrants of the BCG matrix, the McKinsey matrix has nine.
• Competitive strength: internal strengths and weaknesses
• Market attractiveness: external opportunities and risks

PwC Slide 22

Key steps to develop a McKinsey matrix:
1. Definition of the influence factors for market attractiveness and competitive strengths:
There are several internal and external influence factors – which need to be derived from the PIMS
analysis.
Exemplary factors are: internal factors external factors

• market share • market volume and market
• image growth rate
• sales staff • inflation
• product portfolio • regulatory framework
• marketing • market cycles
• quality / reliability • availability of human resources
• client satisfaction • competitive structure
• research and development • social issues
• management competency • market entry barriers
• client management • environmental issues
• financial resources • profitability of sector
• cost situation • political issues
• production potential • technology availability
• sales • legal issues

competitive strengths market attractiveness
PwC Slide 23

2. Evaluation of the characteristics of the market strengths and market attractiveness:
• In a second step the influence factors of the basic dimensions need to be weighted to see
their relative importance.
• This is done by weighting the influence factors on a scale (e.g. 0- 10)
• This is done separately for the market attractiveness and the competitive strengths
An example weighting scheme looks like this:
0 – 1 -2 -3 -4 – 5- 6 -7 -8 -9 -10 weighting weighted value weighted value
factor product A product B
product portfolio 0,15 0,3 0,9
marketing 0,1 0,5 0,5
client satisfaction 0,25 2 0,75
client management 0,2 1,4 0,8
financial resources 0,15 1,05 0,9
cost situation 0,15 0,9 0,45

total 1 6,15 4,3

PwC Slide 24

3. Representation of the business areas in a matrix:
In this last step the positioning of a product or business unit is derived. The values calculated
through the weighting of the influence factors are the basis. There are nine areas highlighted
which influence strategic decision making.
The following graph represents such a matrix:

10
• Each product is assessed by its
high weighted internal influence
market attractiveness

factors and weighted external
6,6
area of binding influence factors e.g product A
resources values market attractiveness 4
medium and competitive strength 9.
area of freeing • this would translate to a
3,3 resources position in quadrant medium
attractiveness and high
low strength

0 low 3,3 medium 6,6 high 10 • Thus a investment strategy to
bind resources to the product
competitive strength needs to be done
PwC Slide 25

Strategy implications of matrix product positioning:

10 Investment and growth strategy

high
market attractiveness

6,6
area of binding
resources Selective strategy
medium

area of freeing
3,3 resources

low Skimming or de-investment
strategy
0 low 3,3 medium 6,6 high 10

competitive strength

PwC Slide 26

Application in practice:
• The McKinsey matrix is less relevant in practical use, as it was over the course of the years not
possible to derive some universally valid success and influence factors. Thus the assessment is very
subjective.
• Nevertheless the matrix is still in use especially in companies with divisional character.

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Question:
• Where do you see the advantage and disadvantage of the
GE/McKinsey matrix to the BCG matrix?
• In which situations would you prefer which tool?

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Benchmarking
Benchmarking is the continuous process to assess products, services and practices against the
strongest competitor.
Even 500 years before Christ Sun Tzu, the Chinese general said “You don’t have to fear the outcome
of even 100 battles, if you know your enemy well”.
Today's form of benchmarking has been developed in the second half of the 70s by the Xerox
company. Xerox analyzed the product value and functional abilities of it Japanese competitors
copying machines. Reason was that Xerox copiers where more cost intensive than the Japanese
pendant. On basis of the benchmarking results strategic decision were taken which put Xerox in a far
better competitive position afterwards.

Typical areas for benchmarking analysis are:
• business practices, products, services, processes, functions of products etc.

PwC Slide 30

Benchmarking
Types of benchmarking:
Product benchmarking:
• Functions, value offering, performance and other elements for a product positioning are analyzed
• It is the aim to highlight the key aspects of performance difference of the own products to the ones
of the competition
Process benchmarking:
• The processes needed to generate the products or services are in focus
• It is important to structure, define and quantify the processes to be able to compare them
• Aim is to draw key insights how the own processes can be improved to increase the value of the
products and services
Administrative benchmarking:
• Focus are processes that only have a supportive function in the development of products or
services
• Examples are processes in human resource management, sales, marketing etc.
• Aim is to improve the supporting processes to be a more effective organization
PwC Slide 31

Benchmarking
Operative benchmarking:
• Processes that are explicitly focused on producing a product or service
• Examples are the technological process in using raw material, the automated process in packaging
a product etc.
• Aim is to highlight areas for operative improvement and adapt processes accordingly
Strategic benchmarking:
• The long term orientation of a company in respect to the positioning on the market is in focus
• Examples are the strategic positioning of the own products in respect to client satisfaction,
environmental pollution, or overall product portfolio
• Aim is to get insights how to improve ones positioning on the market

Which benchmarking “partners” are to be analyzed?
It is key and often difficult to choose the right benchmarking partner. It is not necessary that the
partner is from the same industry sector but a company that is likely to have better processes etc.
than the own and is considered best in class in the analyzed aspects. Key to successful benchmarking
is the availability of data.
PwC Slide 32

Benchmarking
Exemplary benchmarking overview:

Company product value product price product market best practice
availability presence to analyse
A high high medium medium value, price

B medium high medium low price

C low low low medium presence

own medium low high high availability

Of a range of analyzed companies and competitors – usually those where data is available / accessible –
the areas of best practice for further in depth analysis are highlighted.
The detailed benchmarking analysis is mostly resulting in a strengths and weaknesses profile.

PwC Slide 33

Benchmarking
Steps towards a benchmarking analysis:
There are different processes to do a benchmarking but in most cases it follows the following cycle:

1. Preparation:
• Definition which aspects are to be benchmarked
Preperation in which depth
• Definition of benchmarking goals – what is
expected outcome
• Definition of benchmarking team, time frame and
Conclusion Implementation resources (e.g. budget for external benchmarking)
• Definition of benchmarking objects e.g. products,
services, processes, organizational structures
• Assessment of the own performance and
Analysis positioning in respect to the benchmarking
objects (creation of a reference point)
• Selection of key performance indicators which
describe the benchmarked performance
PwC Slide 34

Benchmarking
2. Implementation:
• After defining the benchmarking objects the benchmarking partners need to be defined
• If it is an internal benchmarking, partners can be other functional units or subsidiaries
• If it is an external benchmarking partners are sector or non-sector competitors, or companies which
are globally best in class in the analyzed aspects
• Key is to always select companies that are better than the own organization in the benchmarked
aspects
• There are often sector specific benchmarking organizations, which – being a neutral third party – get
access to data and information of the sector competitors. They then sell their benchmarking results to
the market
• If no direct data is available one has to work with publicly available data

PwC Slide 35

Benchmarking
3. Analysis:
• With the benchmarked data and information it is possible to highlight areas of performance
improvement
• Also it is thus possible to see the gap between the own company versus the analyzed best practice
• In an ideal benchmarking these aspects are shown by quantitative data points
• The analysis results in a strengths and weaknesses profile comprising of the analyzed benchmarking
objects
• Also it is important to highlight the best practices to learn from these and if directly applicable adopt
them in the own organization

PwC Slide 36

Benchmarking
4. Conclusion:
• The last phase of the benchmarking process aims at implementing the learnings from the
benchmarking process in the own organization
• Existing processes are adapted or changed and best practice practices are implemented
• It is important to communicate the reason and value of this organizational change, as often the
organization and its employees are resistant to changes
• A plan of implementing the changes contains of the specification of the specific activities, the sequence
of implementation, the resources allocated, the time allocated, the responsibilities and the expected
results
• The results of the successful implementation need to be communicated as well and participating
employees need to be thanked to keep the motivation for future changes

Benchmarking in practice:
Benchmarking is a continuous process, rather than a one off activity. Thus it should be done frequently to
keep up with changes and improvements in processes and best practices.
Ultimate result is the improvement of the competitive positioning.

PwC Slide 37

Benchmarking - example
company report communication memberships management key issues
systems
Peer-Group Kein NB • kurzes Kapitel über NH Mitgliedschaft bei Keine Mitarbeitergesundheit,
A im Geschäftsbericht respACT und dem Informationen Corporate Governance,
2009 – NH-Subsite auf Unternehmensnetz- Umgang mit Älteren,
Unternehmenswebsite werk „Verantwortung Transparenz
zeigen!“
Peer-Group NB 2009 (A+), • Hohes Level der NH UN Global Compact, EMAS, „audit Produktverantwortung,
B geprüft , Bericht Kommunikation ÖGUT, Transparency beruf und familie“ Entwicklungshilfe,
seit 2006 • Verankerung in International, respACT Menschen-rechte,
Geschäftsstrategie Transparenz, Diversität,
• Stakeholderdialoge Gleichberechtigung,
Umweltschutz
Peer-Group Kein eigener NB in • NH in Geschäfts- ÖGUT, Cabernet, ÖVA, Keine Mitarbeiterzufrieden-
C AUT, sondern im strategie verankert UNEP FI, ÖNORM, UN Informationen heit/ -gesundheit,
Unicredit-Verbund • vielfältige Global Compact, Klimaschutz,
(B+) geprüft von Informationen respACT Emissionsreduktion,
Wirtschaftsprüfer auf österreichischer Diversity-Management,
Website Sponsoring

Peer-Group CSR Report 2009 • Ausführliche Website respACT, UN Global EMAS-Einführung Transparenz,
D (+CoP), nicht zum Thema NH Compact, Global geplant Sponsoring,
geprüft, seit 2008 • Transparenter NHB Compact Netzwerk Produktverantwortung,
Österreich Compliance, Abfall,
Energieverbrauch,
Menschenrechte

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Group work:
• Select your own or a fictional company (define goal, purpose, product
and industry) to benchmark it with the peer-group and best in class.
• Go through the preparation and as much as possible through the
implementation phase
• Think of what you want to benchmark, which data sources are
available, what KPIs can measure the gap etc.

PwC Slide 41

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