Strategy Focused Planning System Beyond Traditional Budgeting

STRATEGY FOCUSED
PLANNING SYSTEM BEYOND
TRADITIONAL BUDGETING
Case Study, Concepts and Debatable Ideas

Kenny Ong
CNI Holdings Berhad

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

Intro: CNI

1. 20 years old
2. Core Business: MLM
3. Others: Contract Manufacturing, F&B Retail,
Export/Trading, eCommerce, Shared Services
4. Malaysia, Singapore, Brunei, Indonesia, India,
China, Hong Kong, Philippines, Italy, Taiwan,
Oman, United States, Vietnam
5. Staff force: ± 500
6. Distributors: 200,000
7. Products: Consumer Goods and Services


Introduction to Strategy


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


What’s wrong with Strategic
Planning Today?
Long-term Plans
Objectives
Strategies
Enablers
Resources

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


What’s wrong with Strategic
Planning Today?
• Biggest Threats often come from OUTSIDE your normal
industry
• Planning from the base of an ‘Existing’ organization vs.
zero-based
• Traditional Analysis (e.g. SWOT) based only on known
or existing assumptions or knowledge
• Spending too much time in market research and
analysis
• Defining the company from a Product/Service
perspective vs. Category vs. JTBD (e.g. Coca-cola)
• Wrong Benchmark – already successful vs. what made
them successful
• Implementing BSC and PMS to improve Business
Model and Strategy
• New strategy, same people


Today’s Agenda


Summary: Today’s
presentation

1. Business Model and
Strategy
2. Strategic Planning

3. Budgeting and Resources


1. Business Model and Strategy

How to fail without trying


What is the Business
Model?

•Google
•Air Asia USP

•Tata Nano

Market
Profit Model
Discipline


What is the Business
Model?

USP

Market
Profit Model
Discipline


Business Model: Profit
Model

Revenue

Assets Cost

Cash
Margin
Flow

Strategy + BSC
Financial
Revenue Cost Margin Cash Flow Asset

Customers

Internal
Process

Learning & Growth


Intro: Market Discipline

Product "They are the most innovative"
Leadership "Constantly renewing and creative"
"Always on the leading edge"

Customer
Operational Intimacy
Excellence "Exactly what I need"
"A great deal!" Customized products
Excellent/attractive price Personalized communications
Minimal acquisition cost and "They're very responsive"
hassle Preferential service and
flexibility
Lowest overall cost of Recommends what I need
ownership "I'm very loyal to them"
"A no-hassles firm" Helps us to be a success
Convenience and speed
Reliable product and
service

Strategy: Value Disciplines

Product Leadership
(best product)

Operational Excellence Customer Intimacy
(low cost producer) (best total solution)

www.myCNI.com.my Leaders, Michael Treacy & Fred Wiersema; 1995
Ref: The Discipline of Market
www.OOBEY.com


Operational Product Leadership Customer Intimacy
Excellence
• New, state of the • Management by
• Competitive price art products or Fact
services
• Error free, • Easy to do
reliable • Risk takers business with
• Fast (on • Meet volatile • Have it your way
customer needs
demand) (customization)
• • Fast concept-to-
Simple • Market segments
counter
• of one
Responsive • Never satisfied -
obsolete own and • Proactive,
• Consistent
competitors' flexible
information for
all products • Relationship and
• Transactional • Learning consultative
organization selling
• 'Once and Done'
• Cross selling

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


Strategy: Disciplines

Product Leadership
(best product)


www.OOBEY.com

Strategy: Disciplines

Apple powerful Product Leadership
products, premium (best product)
pricing, limited range

Still
Doing
well in HP well-balanced
Acer super lean 2009 portfolio, mass
cost structure,
aggressive pricing customization


www.OOBEY.com

Summary: Today’s
presentation

 Done
Strategy




‘Hope’ is not a strategy


What is Strategic Planning?

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

What is your Goal?

1. Cost Reduction
2. Growth
3. Both?


Growth Strategy

“Double-Digit Growth”, Michael Treacy

1.Base Retention

1.New Business 1.Share Gain

GROWTH

1.Adjacent Market 1.Positioning


Growth Strategy

“Double-Digit Growth”, Michael Treacy •Increase switching cost
•Customize products
1. Base Retention •Preempt Defections
•Brand

1. New Business 1. Share Gain
•Neutralize Competitor
GROWTH advantages
•Superior Value
•Promising Market? •Buy market share
•Make or Buy?

1. Adjacent Market 1. Positioning
•Spot growth opportunities
•Organized search

How Markets determine
Growth Strategies (1)
• Growth Rate
Growth Strategy Why?
Rate
Fast 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 customers
Flat 1. Base •Lose customers slower than
Retention competitors
2. Share Gain •Create scale economics, squeeze
(Acquisitions) costs

• Churn Rate
Churn Strategy Why?
Rate
Low 1. Share Gain •Buying customer base is
(Acquisitions) cheaper than own efforts
2. Adjacent •New products, old customers
Markets strategy

High 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


•Example: XYZ Sector

Fast Growth, •Market Positioning
Low Churn •Share Gain
•Base Retention
•Adjacent Markets


Side Notes on Cost
Reduction Strategy

Cost Reduction
30% 5% -
- 30%
80%
Business Operational
Model
•USP •Finance, HR, IT
•Profit Model •Supply Chain
•Market Discipline •R&D
•Invest/Divest •Sales & Marketing


Business Situation vs. Focus

Upturn Flat Downturn
Fight Complacency Innovation Sales
Sharpen Edge Acquire Cash Flow
Keep Momentum Profits
Conquer Build momentum

‘Change’ mgmt Talent Mgmt Top Talent focus
Reduce Fat Innovation/R&D Sales, Sales, Sales
Continuity Early wins Increase attrition
Everyone Happy Slow Down HR Costs


Business Situation vs. Sales

1. Optimize customers’ current
Upturn
assets
Flat Downturn
2. Offset customers’ costs
3. Focus market share
Sharpen Edge Acquire
4. CEO and Sr. Mgmt in the field Cash Flow
5. SellMomentum
Keep up the buyer chainProfits
6. Motivate troops Build momentum
Conquer
7. Add extra services
8. Control troop emotions Mgmt
‘Change’ mgmt Talent Top Talent focus
9. Specialized vs. general teams,
Reduce Fat Innovation/R&D Sales, Sales, Sales
i.e. sell support services, sell
Continuity Early wins
equipment, existing customers Increase attrition
etc. (e.g. Xerox) Slow Down HR Costs
Everyone Happy


Strategy + BSC
Financial

Customers Satisfactio
n
Base Share Gain Positioning Adjacent New
Retention Market Business

Internal
Process

Learning & Growth


Strategy: Disciplines,
Priorities, and KPIs
Product Leadership
(best product)


www.OOBEY.com

Strategy: Disciplines,
Priorities, and KPIs
Operational Product Leadership Customer Intimacy
Excellence
• New, state of the • Management by
• Competitive price art products or Fact
services
• Error free, • Easy to do
reliable • Risk takers business with
• Fast (on • Meet volatile • Have it your way
customer needs
demand) (customization)
• • Fast concept-to-
Simple • Market segments
counter
• of one
Responsive • Never satisfied -
obsolete own and • Proactive,
• Consistent
competitors' flexible
information for
all products • Relationship and
• Transactional • Learning consultative
organization selling
• 'Once and Done'
• Cross selling


• 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



• 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 + BSC
Financial

n

Internal
Process Investment
Operational Product Customer
Strategy
Excellence Leadership Intimacy

Learning & Growth


Alignment: 4-Wheels Model

Business
Person
Structure Model
Strategic
Planning
Culture
Leadership

Resources


Alignment: Framework

Culture • Focus point
• Alignment
• Quality
• Innovation & Differentiation
• Risk taking
• Performance Management
• Corporate obsession
• Decision making


Alignment: Framework

Structure • Org Structure
• Job Design
• C&B
• Policies & procedures
• Decision making
• Job fit
• Management Systems
• BSC and KPIs
• Decentralized & Empower


Strategy: Framework

Leadership • Role modeling
• Vision/Mission/Philosophy
• Leadership Style
• Delegation & Empowerment
• C&B, Promotions
• Sense of Urgency
• Speak regularly about Performance


Strategy: Framework

• Recognition
Person • Recruitment
• Training
• Profit sharing
• Values
• Motivation
• Self Efficacy
• Awareness
• Useful Competencies
• Career aspirations
• Attribution (control)


Strategy: Framework

Enablers
Resources • Technology
• Equipment
Funding
• Materials
• CAPEX
• Human • OPEX
• Intellectual
Property
• Partners
• Property


Each Discipline Requires
Different Priorities & Resources

Organization, jobs,
skills

Culture, values, Product
norms Operationa Leadership Customer
l Intimacy
Information and
systems Excellenc
e
Management
systems



Operational Excellence

Organization, • Central authority, low level of empowerment
jobs, skills • High skills at the core of the organization

• Disciplined Teamwork
Culture, values,
norms • Process, product- driven
• Conformance, 'one size fits all' mindset

Information and • Integrated, low cost transaction systems
systems • The system is the process

Management • Command and control
systems • Quality management


Product Leadership
Organization, jobs,•Ad hoc, organic and cellular
skills •High skills abound in loose-knit structures

•Concept, future-driven
Culture, values, •Experimentation and 'out of the box' mindset
norms
•Person-to-person communications systems
•Technologies enabling cooperation
Information and
systems
•Rewarding individuals' innovative capacity
•Risk and exposure management
Management •Product Life Cycle profitability
systems



Customer Intimacy

Organization, jobs,• Empowerment close to point of customer
skills contact
• High skills in the field and front-line
Culture, values,
norms • Customer-driven
• Variation and 'have it your way' mindset

Information and
systems • Strong customer databases, linking internal
and external information
• Strong analytical tools
Management
systems • Customer equity measures like life time value
• Satisfaction and share management
www.myCNI.com.my • Focus on ‘Share of Wallet’ www.OOBEY.com

Strategy + BSC
Financial

n

Internal
Process Investment
Operational Product Customer
Strategy
Excellence Leadership Intimacy

Learning & Growth

Competencies Information Motivation,
Systems empowerment,
alignment

Before we start…

Which comes first?
2. Strategies -> KPI?
3. KPI -> Strategies?


Before we start…

Which comes first?
• Strategies -> KPI?
• KPI -> Strategies?
•already know our priorities, aware of all
strategy options available
•creating something UNIQUE, INNOVATIVE
and DISRUPTIVE e.g. Air Asia
•conducting a business Turnaround e.g. MAS


Before we start…

Which comes first?
• Strategies -> KPI?
• KPI -> Strategies?
•want to find out possible strategies,
•determine our priorities first thru selection of
important KPIs;
•growing through ‘normal’ business, not a
Turnaround.


Example: Selection of KPIs
for BSC
•Customer satisfaction •Win rate (sales closed/sales contact)
•Customer loyalty •Customer visits to the company
•Market share •Hours spent with customers
•Customer complaints •Marketing cost as a percentage of sales
•Complaints resolved on first contact •Number of ads placed
•Return rates •Number of proposals made
•Response time per customer •Brand recognition
request •Response rate
•Price relative to competition •Number of trade shows attended
•Total cost to customer •Sales volume
•Average duration of customer •Share of target customer spending
relationship •Sales per channel
•Customers lost •Average customer size
•Customer retention •Customers per employee
•Customer acquisition rates •Customer service expense per customer
•Percentage of revenue form new •Customer profitability
customers •Frequency (number of sales
•Number of customers transactions)
•Annual sales per turnover

Wrong KPIs

“What is the moral of
the story?”


KPIs and Behavior

Before: “Handle Time” Per Call
• Motivated Call Centre staff to transfer callers,
getting rid of complainers, making them
someone else’s problem
• Callers at 45% chance of being transferred
• 7,000 customers each week suffered transfers 7
times or more


KPIs and Behavior

After: “Minutes Per Resolution” of a
problem
• Resolution in ONE CALL become the core goal
• Reduced probability of call transfers from 45% to
18%


Sample: Other 1st Level KPIs
across industries…
Financial Services Retail Telecommunications

•Maximize ARPU •Understand customer •Anticipate and prevent churn
•Minimize Churn behavior related to customer despite compensation
•Mutichannel customer conversion, acquisition, and •Increase number of products
retention per customer
service
•Single view of customer •Turn call center information
•Multichannel customer opportunity to up-sell and
experience cross-sell
•Personalized customer •Increase customer
experience satisfaction and loyalty
Hospitality Travel & Leisure Manufacturing
•Personalized customer •Increase customer loyalty •Single view of customers
experience and preference across supply chain
•Maximize share of wallet •Maximize customer revenue •Zero-error order capture
•Player/customer loyalty •Improve service quality and •Streamline opportunity to
•Multichannel customer efficiency cash processes
service •Capture and close sales •Leverage investment in ERP
opportunities and backoffice systems

Sample KPIs for Each
Discipline

Operational Product Customer Intimacy
Excellence Leadership

• Price • Marketing • Customer
• Selection Knowledge
• Functionality
• Convenience • Solutions Offered
• Zero Defects • # of Successes • Penetration
• Growth • # of Failures • Customer Data
• Learn from key • Customer-success
users focus
• Interdisciplinary
teams
• Pipeline


Summary: Today’s
presentation

 Done
Strategy
 Done




The art and science of allocating and
aligning Resources to strategic plans


Budgeting: Some thoughts…

Two major roles of Budgeting:
• Provide real-life CONSTRAINTS to strategic
planning
• Provide RESOURCES to realize strategic plans

Why Constraints?
2. Over aggressive unrealistic planning, usually by
Marketing/Sales need to be grounded to real life
3. Creative entrepreneurial thinking when resources are
limited
4. Enforce the need for Accountability i.e. ‘ROI’ thinking for
all Managers


E3 – Department BSC

Customer Perspective –
Marketing Department
Goals Strategies Targets CAPEX OPEX
Base
Retention
Share Gain

Budgeting


Managing Gaps between
actual and planned budgets
1. Budgeting vs. Priorities
2. Basic Budgeting policies
3. Activity Grid to determine budget priorities
4. Budgeting for Investments based on the ‘BCG
Matrix’ principles


Budgeting vs. Priorities

Priority = Time + Money


Budgeting vs. Priorities

Example: Business Situation vs. R&D Priorities
Upturn Flat Downturn
Sharpen Edge Acquire Cash Flow
Keep Momentum Profits
Conquer Build momentum
NPD Cycle Time Focused on
Improve Top 15%
‘Breakthrough’
Improve Edge revenue-generating
JV, In-source, Out- products
Extensions source
Counter Competitor
↓ R&D, ↑Sales
Eliminate bottom 20%

Basic Budgeting policies

• Flexibility to switch between line items
• Reserve Funds
• Loans/External Funding


Activity Grid to determine
budget priorities
Increase (↑) Create (+)
What are features/ What are features/
activities/services to activities/services to
increase? introduce?

Reduce (↓) Eliminate (-)
What are features/ What are features/
activities/services to activities/services to
reduce? eliminate?

1. Manage conflicts where limited resources should go
2. Solve problem of compounding activities & resources


Budgeting for Investments based
on the ‘BCG Matrix’ principles

Market
Potential

Business Performance

Budgeting in a Downturn


Budgeting in a Downturn

1. StratEx
2. CoREx


End Notes

Tying it all up


Business Situation vs. Post-
Downturn Possibilities
Deflation Inflation Stagflation
•Strong supply of •Huge amount of •Combination of
Source goods and weak money being slow growth and
demand pumped surging inflation
•CPI •CPI •Misery Index, =
Unemployment +
Indicator •Real estate •Commodity
Inflation Rates
values prices
•Savings rate •Government debt
as a % of GDP
Investment •Short-term •Pegged to •Conservative
•Technology inflation •High-quality
•Commodities growth

www.myCNI.com.my Businessweek, 22nd June 2009, “Pick Your Poison” www.OOBEY.com

10 Questions for CFOs –
post recovery
1. Recovery shape? 1. Financial resources
2. Restructured for upturn?
enough? 2. Buying talent,
3. Supply Chain marketing, R&D?
flexible? 3. New risks?
4. Acquisition targets? 4. How to sell recovery
5. Restart alliances? plan to investors?
6. Divest
underperforming
businesses?

McKinsey & Company, May 2009, “What’s Next
www.myCNI.com.my - 10 Questions for CFOs” www.OOBEY.com

Review processes

1. Result Planning schedule inc. BSC, Budget
2. Quarterly Performance Appraisals
3. Sales performance reviews
4. Non-sales performance reviews
5. Annual Appraisals
6. Specialized KPI committees
7. CAR, PAR, SCAR KPI improvements
8. Internal Audit & MSD – process problems
9. HRM & TND – people problems


Problems, problems and
more problems…
1. No serious budget to tackle key risks
2. Too much optimism or pessimism
3. Innovation vs. Results vs. Baseline
4. Investment ≠ Portfolio Management
5. Top down vs. Bottom up
6. Good to have vs. Need to have
7. Line Manager not thinking like Investors
8. Too focused on KPI and BSC
9. Budget allocation seen as ‘popularity’ vote
10. Public Listing -> pressure for short-term
budgets and results vs. long-term innovation

Problems, problems and
more problems…


Thank You.

soft copy of slides:
www.totallyunrelatedrandomanddebatable.
blogspot.com

Strategy Focused Planning System Beyond Traditional Budgeting

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