the building blocks of high performing organisations

THE BUILDING BLOCKS OF HIGH-PERFORMING ORGANISATIONSCase Study, Concepts and Debatable Ideas

Kenny OngCNI Holdings Berhad

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

Intro: CNI

1. 19 years old2. Core Business: MLM3. Others: Contract Manufacturing,

Export/Trading, eCommerce, F&B Retail4. Malaysia, Singapore, Brunei, Indonesia, India,

China, Hong Kong, Philippines, Italy, Taiwan5. Staff force: ± 5006. Distributors: 200,0007. Products: Consumer Goods and Services

How do you recognize a high-performing organization?

“…in the past 18 months, we have heard that profit is more important than revenue,

quality is more important that profit, people are more important than profit,

customers are more important than our people, big customers are more important than small customers, and that growth is the key to our success. No wonder our

performance is inconsistent"CEO, Anonymous

High-Performance Companies?

1. Business is good?2. People are good?3. Everyone is good?4. Mission is good?

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

Simple, selfish and debatable definition:

What is a High-Performing Organization?

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

High-Performing Organizations – The Building Blocks

The Building Blocks - starting from HR

Succession Planning (Business Continuity)

Talent Management

Differentiation

Performance Management System

Budgeting + Planning

Business Model

The Building Blocks - starting from HR

Succession Planning (Business Continuity)

Talent Management

Differentiation

Performance Management System

Budgeting + Planning

Business Model

The Hardware

The Software

Summary: Today’s presentation

1. Business Model

2. Strategy

3. Resources

1. Building Block #1: Get the right Business Model first

• How to fail without trying

1. Wrong Business Model

The Roadmap to Failure Fred Wiersema and Mike Treacy

Clear Sailing

Today’s performance

Ad-hoc Tactics

Denial & Defense

Doom Projections

Overdue Failure

The Moment of Truth

XPerformance

Freefall

Tomorrow’s actual

performance

Downpresure of Unclear Strategy

Denial and Defense

• “It’s not really good value our competitor is offering, because it doesn’t include a lot of our features.” - ABC vs Air Asia

• “It’s good value but not in our preferred customer market.” - ABC vs Toyota

• “Sure they’re hurting us, but with their unfair advantage, what can we do?” – ABC vs MILO

• “The rules we are playing by have always worked before” – AMEX vs VISA

Clear Sailing

Ad-hoc Tactics

Denial & Defense

Doom Projections

Overdue Failure

The Moment of Truth

XPerformance

Freefall

Tomorrow’s actual

performance

Ad Hoc Tactics• Selectively hold discounts to hold business that has

started to go elsewhere• Introduce new promotions, terms, conditions, and offers to

confuse and cloud the market• Beef up customer service by adding people to fix mess-

ups and quicken delayed shipments• Delay capital investments and adjust accounting methods

to portray quarterly financial results more favorably• Introduce “new and improved” products that are new in

form, but not in substantive ways that are of consequence to purchasers

• Introduce Balanced Scorecards and Performance Management Systems

Clear Sailing

Ad-hoc Tactics

Denial & Defense

Doom Projections

Overdue Failure

The Moment of Truth

XPerformance

Freefall

Tomorrow’s actual

performance

“What is the moral of the story?”

What is the Business Model?

Market DisciplineProfit Model

Intro: Market Discipline

• Mamak stall

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

"A great deal!"Excellent/attractive priceMinimal acquisition cost and hassleLowest overall cost of ownership

"A no-hassles firm"Convenience and speedReliable product and service

"Exactly what I need"Customized productsPersonalized communications

"They're very responsive"Preferential service and flexibilityRecommends what I need

"I'm very loyal to them"Helps us to be a success

Product Leadership

OperationalExcellence

CustomerIntimacy

* Treacy & Wiersema, The Discipline of Market Leaders, 1995

Product/Service Attributes Relationship Image

Product/Service Attributes

Quality

TimeSelection

√√

Smart Shopper

Relationship Image

Operational Excellence: Quality and selection in key categories with unbeatable prices

TimeFunction

√√

Best Product

Relationship Image

Product Leadership: Unique products and services that push the standards

Service Trusted Brand

Relationship Image

Customer Intimacy: Personal service tailored to produce results for customer and build long-term relationships

Relations

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)

Strategy: Disciplines

1. Business Model

2. Strategy

3. Resources

2. Building Block #2: Set the Strategies

Dangers of BSC, KPIs and other evils sold by Consultants

“…in the past 18 months, we have heard that profit is more important than revenue,

quality is more important that profit, people are more important than profit,

customers are more important than our people, big customers are more important than small customers, and that growth is the key to our success. No wonder our

performance is inconsistent"CEO, Anonymous

Before we start…

In the old days of HR…• Average training hours per staff• % of staff attending training• # of training programs• % of training programs conducted• Training needs analysis conducted• Competency models developed• Training budget as % of payroll

What’s wrong with this picture?www.myCNI.com.my www.OOBEY.com

Before we start…

Moral of the story…1. Innovation:

– Business models– Products– Services

2. Market Leadership3. Competitive differentiation

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

“What is the moral of the story?”

What is Strategic Planning?

Strategic

Planning

Variables:

Research

Growth

Stakeholders

Constraints

Output:

Priorities

Before we start…

Which comes first?1. Strategies -> KPI?2. KPI -> Strategies?

Financial

“To satisfy our stakeholders, what Financial objectives must we accomplish?”

Internal Process

“To satisfy our customers, in which internal business processes must we excel?"

Customer

“Who are our target customers?

What is our value proposition?”

Learning & Growth

“What capabilities and tools do our employees require to help them execute our strategy?

Focus: Corporate Alignment

Revenue Growth

Base Retention

Share Gain Positioning Adjacent Market

New Business

Operational Excellence

Product Leadership

Customer Intimacy

Competencies Information Systems

Motivation, empowerment,

alignment

Financial

Learning & Growth

Internal Process

Customers

Investment Strategy

Productivity Market Value

Linking BSC to Strategy

Financial

Learning & Growth

Internal Process

Customers / Distributors

Revenue Growth ProductivityMarket Value

Department Operations

Supplier & Alliances

External Involvement

Target Markets

Products/ Services

Channel Strategies

Human Resources

Technology

Information & IntelligenceSystems &

Processes

Focus: Corporate Alignment

Example: Selection of KPIs for BSC

•Customer satisfactionCustomer loyaltyMarket shareCustomer complaintsComplaints resolved on first contactReturn ratesResponse time per customer requestPrice relative to competitionTotal cost to customerAverage duration of customer relationshipCustomers lostCustomer retentionCustomer acquisition ratesPercentage of revenue form new customersNumber of customersAnnual sales per turnover

•Win rate (sales closed/sales contact)•Customer visits to the companyHours spent with customersMarketing cost as a percentage of salesNumber of ads placedNumber of proposals madeBrand recognitionResponse rateNumber of trade shows attendedSales volumeShare of target customer spendingSales per channelAverage customer sizeCustomers per employeeCustomer service expense per customerCustomer profitabilityFrequency (number of sales transactions)

Financial

Learning & Growth

Internal Process

Customers / Distributors

Example: 1st Level BSC & KPIs

Profit after Tax. Revenue. Cash-to-cash cycle. Operating cash flow

Customer Complaints. Customer Acquisition Rate. Product Availability. Product Quality & Service. Renewal Annual Subscription. Distributor Rank Achievement. No. of Active Distributor. No. DC/Regional Sales. Distributor with commission

Customer Database Availability. Accuracy of Forecast Planning. Continuous Improvement. Response Time to Customer Needs. Perfect Order Fulfillment. Inventory Turnover. Number of Effective Sponsoring Program. On Time Delivery. No. of Effective Training. Number of Effective A&P

% of staff evaluated on Core Competency Framework. % of staff with Career Development Plans. No. of training hours completed per staff. % of staff with access to strategic information. Q12 Index. % staff evaluated on Culture alignment

Sample: Other 1st Level KPIs across industries…

Financial Services Retail Telecommunications

•Maximize ARPU•Minimize Churn•Mutichannel customer service

•Understand customer behavior related to customer conversion, acquisition, and retention•Single view of customer•Multichannel customer experience•Personalized customer experience

•Anticipate and prevent churn despite compensation•Increase number of products per customer•Turn call center information opportunity to up-sell and cross-sell•Increase customer satisfaction and loyalty

Hospitality Travel & Leisure Manufacturing

•Personalized customer experience•Maximize share of wallet•Player/customer loyalty•Multichannel customer service

•Increase customer loyalty and preference•Maximize customer revenue•Improve service quality and efficiency•Capture and close sales opportunities

•Single view of customers across supply chain•Zero-error order capture•Streamline opportunity to cash processes•Leverage investment in ERP and backoffice systems

Lagging and Leading KPIs

Lagging

Leading

Historical, Outcome, Results, 1st Level, Usually Financial or tangible, Quarterly and Annually

Current, Indicators, Drivers, 2nd Level onwards, usually non-financial or intangible, Weekly, Monthly and Quarterly

Developing ‘Driver’ KPIs

Customer Retention % Lagging, 1st Level

Customer Satisfaction Index

Leading, 2nd Level

On time delivery

Time to market for new products

Defect levels, warranty claims

Leading, 3rd Level onwards

What is the Objective?

‘Do-or-Die’ KPIs for CNI• Revenue• ARPU

• Sponsoring• Retention

• Commission Plan (BDP)• Product• Corporate Image

Strategy: Disciplines, Priorities, and KPIs

The McPlaybook*

Make it easy to eat• 50% drive-thru• Meals held in one

Make it easy to prepare• High Turnover• Tasks simple to learn

& repeat

Make it quick• “Fast Food”• Tests new products

for Cooking Times

Make what customers want• Prowls market for new

products• Monitored field tests

*Adapted from: Businessweek , Februrary 5th 2007

• Competitive price

• Error free, reliable

• Fast (on demand)

• Simple

• Responsive

• Consistent information for all

• Transactional

• 'Once and Done'

Customer Intimacy

• Management by Fact

• Easy to do business with

• Have it your way (customization)

• Market segments of one

• Proactive, flexible

• Relationship and consultative selling

• Cross selling

Product Leadership

• New, state of the art products or services

• Risk takers

• Meet volatile customer needs

• Fast concept-to- counter

• Never satisfied - obsolete own and competitors' products

• Learning organization

Strategy: Disciplines, Priorities, and KPIs

• Operational Excellence• Move know-how from top performing

units to others• Benchmark against best in class• Ensure operations training for all

employees• Use disciplines like TQM for continuous

learning to reduce costs and improve quality

Strategy: Value Disciplines

• 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

Sample KPIs for Each Discipline

• Price• Selection• Convenience• Zero Defects• Growth

Customer Intimacy

• Customer Knowledge

• Solutions Offered• Penetration• Customer Data• Customer-success

Product Leadership

• Marketing• Functionality• # of Successes• # of Failures• Learn from key

users• Interdisciplinary

teams• Pipeline

MBO – Sources of KRAs and KPIs, Targets

1. Department Scorecard [E3], 2. Employee’s Job Description, 3. Department SOP, 4. Department Quality Objectives, 5. Corrective Action Requests (CAR), 6. Preventive Action Requests (PAR), or 7. Special Projects relevant to the employee.

E3 – Department BSC

Financial Perspective

Goals Measures Targets CAPEX OPEXQuality

Innovation

On Time Delivery

Budgeting

Individual Performance

1.0 Key Results

Area (Max 6)

2.0 Goals and

Targets for Q1

3.0 Achievements and

Efforts for Q1

4.0 Merit* 5.0 Rating (Merit x Weight)

6.0 Appraiser

Overall Comments/ Feedback

1. Business Model

2. Strategy

3. Resources

3. Building Block #3: Resource Management

The art and science of allocating, aligning, and managing Resources to

strategic plans

Resource Management: Some thoughts…

Two major roles of Resource Management:1. Provide real-life CONSTRAINTS to

strategic planning2. Provide RESOURCES to realize strategic

Resource Management: Some thoughts…

1. Resource Management = Performance Management

2. Performance Management = Resource Management

Managing Performance

Month 1

Performance Planning

Month 12Performance Appraisal

Month 2-11?

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

• Beating a Dead Horse

Most Common Desperate Performance Improvement methods

1. Send for more Training2. Enforce more Incentives (positive/negative)

Mager and Pipe

• Analyzing Performance Discrepancies

Alignment: 4-Wheels Model

Culture

Business

ModelStrategic Planning

StructurePerson

Leadership

Resources

Alignment: Framework

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

Culture

Alignment: Framework

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

Structure

Strategy: Framework

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

Leadership

Strategy: Framework

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

Person

Strategy: Framework

Enablers• Technology• Equipment• Materials• Human• Intellectual

Property• Partners• Property

Resources

Funding • CAPEX• OPEX

Alignment: 4-Wheels Model

Culture

Business

ModelStrategic Planning

StructurePerson

Leadership

Resources

Customer Intimacy

Product Leadership

Organization, jobs,skills

Management systems

Information and systems

Culture, values,norms

Each Discipline Requires Different Priorities & Resources

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

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

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

•Command and control•Quality management

Organization, jobs, skills

Management systems

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

•Concept, future-driven•Experimentation and 'out of the box' mindset

•Person-to-person communications systems•Technologies enabling cooperation

•Rewarding individuals' innovative capacity•Risk and exposure management•Product Life Cycle profitability

Management systems

Customer Intimacy

•Empowerment close to point of customer contact•High skills in the field and front-line

•Customer-driven•Variation and 'have it your way' mindset

•Strong customer databases, linking internal and external information

•Strong analytical tools

•Customer equity measures like life time value•Satisfaction and share management•Focus on ‘Share of Wallet’

Incentive Problems

Problem with Incentives in managing performance:• Most people are confused or unsure about

compensation tools• Some people misuse compensation tools

What to Pay?

• Pay for Service• Pay for Job• Pay for Performance• Pay for Competency

Performance and Incentives

1. Internal Equity1. Internal Job Rates2. Performance differentials

2. External Competitiveness1. External Job Rates - Benchmarking2. Demand & Supply

What’s the Difference?

• Increment

• Bonus

• Promotion

Compa Ratio Table

Use this if your company: • Pays for Performance, and • Pays for Job rates

Def:Mid-Point = Mid Point of Pay Grade

Grade E2

Min RM2,000

MID RM2,500

Max RM3,000

Compa Ratio Table

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

Compa Ratio Table

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

Compa Ratio Table

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

3 9 7 5% 4 3

Compa Ratio Table

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

5 15 12 9 8 7

4 12 9 7 5 3

3 9 7 5% 4 3

2 6 4 2 1 0

1 4 2 0 0 0

Dangers of Direct Incentives

1. lessen internal motivation, 2. switch to mercenary mode, 3. do something and do not do something else, 4. bribe and fraud culture, 5. easier for competitors to recruit, 6. lessen teamwork & helpful culture, 7. less and less impact for same value, 8. mockery of base salary and employment

contract, 9. rebellion from non-incentivised staff, 10.end up incentivising everyone for everything?,

Other Performance Review processes

1. Result Planning schedule inc. BSC, Budget2. Quarterly Performance Appraisals3. EMC – sales performance4. QMS – non-sales performance5. Divisional meetings6. Annual Appraisals7. Specialized KPI committees8. CAR, PAR, SCAR KPI improvements9. Internal Audit & MSD – process problems10. HRM & TND – people problems11. Supervisor Induction – PM training12. Talent Management

Employee Distinction?

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

5 9 8 7 6 5

4 8 7 6 5 4

3 7 6 5% 4 3

2 6 5 4 3 2

1 5 4 3 2 1

Employee Distinction?

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

5 20 15 12 8 5

4 18 12 9 5 3

3 9 7 5% 4 3

2 1 1 1 0 0

1 0 0 0 0 0

Employee Distinction

Average Rating

Rating Multiply Factor

Example Rating

Example Increme

nt> 4.1 5 2 4.2 8.4%

> 3.3 – 4.1 4 1.2 3.5 4.2%

> 2.3 – 3.3 3 0.75 2.8 2.1%

> 1.3 – 2.3 2 0.5 1.8 0.9%

≤ 1.3 1 0 1.0 0%

Employee Distinction

Group I(Talent Pool)

Group II( Potential)

Group III( Performance)

Group IV(Counseling)

2 3 4 5

EPOTENTIAL• Identify

Curse of the Bell Curve

‘A’ Staff

‘B’ Staff

‘D’ Staff

‘E’ Staff

‘C’ Staff

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