strategic business growth—day 2 2013.09

Proprietary and Confidential

UNI Strategic Strategic Business Growth

Kuala Lumpur, Malaysia September 23-24, 2013

2 Proprietary and Confidential UNI Strategic

Agenda—Day 2

Agenda Item Time

Session #5—Pursuing Inorganic Growth 09:00—10:40

Refreshments & Networking Break 10:40—11:00

Session #6—Developing a Business Growth Strategy 11:00—12:45

Luncheon 12:45—14:00

Session #7—Organizational Readiness & Implement. 14:00—15:30

Refreshments & Networking Break 15:30—15:50

Session #8—Measuring and Tracking 15:50—17:00

*Times are approximate—Sessions may cut across breaks


Content

! Session #1—Overview of Business Growth Strategy

! Session #2—Conducting a Current State Assessment

! Session #3—Articulating a Business Growth Vision

! Session #4—Driving Organic Growth

! Session #5—Pursuing Inorganic Growth

! Session #6—Developing a Business Growth Strategy

! Session #7—Organizational Readiness & Implementation

! Session #8—Measuring and Tracking


Pursuing Inorganic Growth

#5—Pursuing Inorganic Growth

“Go for a business that any idiot can run—because sooner or later any idiot probably is going to run it.”

—Peter Lynch


Inorganic Growth—Framework


Existing Products to Existing Customers

Growth Strategies

Organic Strategies

Entering New Industries

New Products & Services

Existing Products to New Customers

Takeover/Acquisition Mergers

Joint Venture

Strategic Alliance

Horizontal

Vertical

Conglomerates

New Business Models

Vertical Horizontal Unrelated

New to Company

New to World

New Geographies

New Channels

New Segments

Inorganic Strategies


1) Strategic Alliances


! A strategic alliance is an agreement between two or more parties to pursue a set of agreed upon objectives while remaining independent organizations. This form of cooperation lies between Mergers & Acquisition and organic growth

•  Allowing each partner to concentrate on their competitive advantage

•  Learning from partners and developing competencies that may be more widely exploited elsewhere

•  Adequate suitability of the resources and competencies of an organization for it to survive

•  To reduce political risk while entering into a new market

•  Risk of losing control over proprietary information, especially regarding complex transactions requiring extensive coordination and information sharing

•  Coordination difficulties due to informal cooperation settings and highly costly dispute resolution

•  Agency costs: As the benefit of monitoring the alliance’s activities effectively is not fully captured by any firm, a free rider problem arises

•  Influence costs because of the absence of a formal hierarchy and administration within the alliance

Pros Cons

Source: wiki.com


1) Strategic Alliances—Examples


•  Pharmaceutical giant Eli Lilly has been forming alliances for nearly a century and was the first in their industry to establish an office devoted to alliance management

•  Lilly currently has over one hundred partnerships around the world devoted to discovery, development, and marketing

•  Lilly partners with the Belgium-based company Galapagos to develop treatments for osteoporosis and Canada's BioMS medical group in a licensing and development agreement for a novel treatment for multiple sclerosis

•  In Japan, Lilly is partnering with Kyowa Hakko Kogyo Co., Ltd., to bring a targeted cancer treatment to market

•  Hewlett-Packard and Disney have a long-standing alliance, starting back in 1938, when Disney purchased eight oscillators to use in the sound design of Fantasia from HP founders Bill Hewlett and Dave Packard

•  When Disney wanted to develop a virtual attraction called Mission: SPACE, Disney Imagineers and HP engineers relied on HP's IT architecture, servers and workstations to create Disney's most technologically advanced attraction


Research & Development

2) Joint Ventures


! Traditionally the various forms of integration—vertical, horizontal, lateral—have been predominant; now joint ventures are becoming more significant and commonplace

Fully Integrated

Production & Marketing Purchasing Networking Domestic &

International A fully integrated joint venture closely resembles a merger. In this arrangement, firms integrate all of their functions, from manufacturing to sales. They may integrate functions in just one area of business, such as a particular product line, or all areas.

In research and development joint ventures, firms pool their skills, knowledge or equipment to develop better products, services or production methods. Each firm's area of expertise may benefit the other, allowing the firms to develop these outputs more efficiently.

Firms may either produce goods or services together, or market them together. In some cases they do both. Combining their facilities, equipment and methods can allow firms to produce goods more efficiently. They may jointly produce a product, or produce their own products using combined resources.

An agreement to purchase goods together gives both firms more marketing power. They typically purchase goods at a lower rate by purchasing them in larger amounts, which they divide between each other. Firms can also reduce costs by storing goods together and sharing the administrative staff.

In some industries, joint ventures between firms create a network that better serves customers. The telecomm, banking and transportation industries are examples of networking joint ventures. Banks use large networks to process credit card transactions and allow customers access to their funds via ATMs.

Any of the above joint ventures can take place between two firms within the same country, or two firms from different countries. Firms from different countries often join together to broaden their market bases.

Source: wiki.fool.com


2) Joint Ventures—Hulu & Sony-Ericsson


•  Video streaming site Hulu is a joint venture of News Corp (owns Fox ), Disney (owns ABC) and Comcast (owns NBC) that has been extremely successful

•  The companies compete with one another on the TV airwaves but recognized that combining their programs for an online video service would be more powerful than launching individual products. It’s been a good bet - potential suitors to purchase Hulu have lined up with bids that approach $1 billion

•  Sony-Ericsson is a 2001 joint venture by Japanese consumer electronics company Sony Corp. and Swedish telecommunications company Ericsson to make mobile phones that helped turn around Sony's struggling mobile business and gave its phones a strong international presence

•  With the sudden rise of smartphones, Sony wanted to better integrate platforms to provide a consistent experience across phones, TVs, tablets and PCs

•  In 2012 Sony purchased Ericsson’s share of joint venture and turned the company into a subsidiary - Sony Mobile Communications


3) Mergers & Acquisitions


! Mergers and acquisitions are closely related, but it is important to separate the two because there are some meaningful distinctions


3) Mergers & Acquisitions—Creating Value


! While M&A activity has drawn its fair share of criticism over the years, there are proponents who are convinced of their value-creation benefits

Mergers can increase shareholder value by:

! Reducing costs by combining departments, operations, and trimming the workforce

! Increasing revenue by absorbing a major competitor and winning more market share

! Cross-selling products or services

! Creating tax savings when a profitable company buys a money-loser

! Diversifying to stabilize earning results and boost investor confidence

Source: www.accenture.com


3) Mergers & Acquisitions—What’s the Motivation?


Source: www.tutor2u.net


3) Mergers & Acquisitions—Keys to Successful Integration


! To increase chances of success, acquirers need to perform rigorous due diligence before the purchase to verify the company's stand-alone value and uncover potential problems

•  Setting integration priorities based on the merger's strategic rationale and goals

•  Articulating and communicating the deal's vision by merger leaders

•  Designing the new organization and operating plan

•  Customizing the integration plan to address specific challenges: Act quickly to capture economies of scale

•  Refine a business model and sacrifice speed to get the model right, such as understanding brand positioning and product growth opportunities

•  Aggressively implement the integration plan: by Day 100, the merged company should be operating and contributing value

Conducting Due Diligence:


3) Mergers & Acquisitions—Google


•  In 2006 Google acquired 19-month old YouTube for $1.65 billion in a stock-for-stock transaction

•  Google executives confirmed that the company bought YouTube in part to better position itself for getting into the business of selling traditional television advertising

•  At the time of the takeover, there was concern that Google would destroy the fast-growing video-sharing site – it seems the pessimists were wrong!

•  YouTube now generates annual revenues for Google of $3.6b per year (Google's total revenues in 2012 were around $33m) and viewership grew by 50% in 2012 alone

•  Google’s preferred growth strategy is Mergers & Acquisitions because it allows them to quickly adopt to new technologies and process rather than trying to develop them internally •  YouTube, Android, Motorola



4) Mergers & Acquisitions—Vertical Mergers


! A vertical merger is between two companies producing different goods or services for one specific finished product; one firm acquires either a customer or a supplier

•  This type of merger eliminates competition between the two firms

•  Most often the logic behind the merger is to increase synergies created by merging firms that would be more efficient operating as one

•  By directly merging with suppliers, a company can decrease reliance and increase profitability

•  An example of a vertical merger is a car manufacturer purchasing a tire company, thereby reducing cost of tires for the automaker and potentially expand business to supply tires to competing automakers


4) Vertical Mergers—Apple Inc. (4-in-1)


Apple Inc. is vertically integrated because it is essentially four companies in one, thereby controlling all the major critical parts of the supply chain used to make and sell its products:

! It is a hardware company (it designs its own hardware)

! A software company (it owns, develops and optimizes its software)

! A services company (it equips its products with services such as the iTunes and iCloud)

! A retail company (it provides consumers with a unique retail experience)

•  As opposed to other computer, tablet or smartphone companies that only design or make the hardware, and rely on other suppliers for the operating system and related applications, and to sell the product


4) Vertical Mergers—High-profile Examples


In 1991 Disney outsourced the production of 3D animated films to Pixar because there was a lot of uncertainty around the potential of 3D animation. By 2006, vertical integration became necessary because Pixar was taking advantage of Disney’s dependence to constantly renegotiate contracts

! Some of the best known examples of vertical integration have been in the oil industry. In the 1970s and 1980s, many companies that were primarily engaged in exploration and the extraction of crude petroleum decided to acquire downstream refineries and distribution

Companies such as Shell and BP came to control every step involved in bringing oil from its North Sea or Alaskan origins to a vehicle's fuel tank

In 2000 internet provider America Online combined with media conglomerate Time Warner. Time Warner supplied content to consumers through properties like CNN and Time Magazine, while AOL distributed such information via its internet service


5) Horizontal Mergers


! A horizontal merger occurs between companies in the same industry. It is a business consolidation that occurs between firms who operate in the same space, often as competitors offering the same good or service

•  Mergers of equals are said to protect the interests of the acquired firm

•  The acquired firm is integrated into the structure of the acquiring firm

•  Usually one of the goals is to achieve savings by eliminating redundancy

•  Sound business principles prescribe that the best facilities and the most highly qualified personnel be retained regardless of the previous company affiliation

•  The elimination of redundancies and leveraging of shared best practices, leadership, processes, and technology position the combined company better for achieving growth and productivity


5) Horizontal Mergers—ExxonMobil


The merge of Exxon and Mobil achieved a greater economy of scale as the union resulted in increased sales within a larger geographic expansion

•  This decision also allowed ExxonMobil to have a magnified presence or power within the oil industry

•  The merger of Exxon and Mobil could have ended with negative results which would have threatened the value and reputation of the newly established organization

•  A merger such as this could conclude with a bad public reaction causing the organization to lose their customer base

•  Many times the public shows loyalty with the organization, product, and service they choose associate themselves with

•  When the organization is altered due to a merge or acquisition, the public can then correlate this act with a change and feel the organization they dealt with initially has altered in some way

Going-in Concerns


5) Horizontal Mergers—Microsoft & Skype


Microsoft purchased Skype for $8.5 billion on May 10, 2011. Skype was already synonymous with consumer video chatting when Microsoft scooped it up in the largest acquisition in company history

•  Microsoft integrated Skype into its Xbox platform, ditched Windows Live Messenger for Skype's messaging offering, and spread the service across smartphone operating systems

•  Acquiring Skype had a strategic – and competitive – benefit. It put Microsoft into the middle of communication between people, unobtrusively

•  Skype's market share in international calls grew from 13% to 34% since the Microsoft acquisition, and its number of simultaneous users grew from 27 million to more than 50 million in roughly the same time frame

•  Skype’s 2013 sales are expected to hit $2 billion, up from $800 million two years ago

Source: www.engadget.com


5) Horizontal Mergers—InBev & Anheuser Busch


In 2008 Anheuser-Busch Cos. agreed to be acquired by Belgian brewer InBev, creating the world’s largest brewer, in a $52 billion deal

•  InBev’s management quickly instituted strict cost-saving initiatives, divested non-core assets and looked for other ways to pare back expenses in Anheuser-Busch’s operations

•  Once acquired, management has been able to integrate these businesses, while still achieving various synergies and increasing economies of scale

•  The company has expanded profit margins, while bolstering its cash flows over time - the 2010 annual dividend of $0.50 more than tripled to $1.56 in 2012 in addition to a double digit EBITDA growth rate and almost 30% growth in earnings per share

•  AB InBev remains the largest brewer in the U.S., with its market share accounting for close to half of all beer sales



A pure conglomerate merger is one where the merging

companies are doing businesses that are totally unrelated to each

other

6) Conglomerates


! Conglomerates gained popularity in the 1960s as companies that generally engaged in one line of business began diversifying their business models through leveraged buyouts and mergers and acquisitions

In mixed conglomerate mergers, the companies that are merging are doing so to

gain access to a wider market and client base

Mixed Pure


6) Conglomerates—ITT


The original International Telephone & Telegraph was created in 1920 building the first interconnected telephone lines and grew quickly, through strategic acquisitions, to a major international telecom provider

•  From 1960 to 1977 ITT acquired more than 350 companies — at one time securing deals at the rate of one acquisition per week

•  The portfolio included well-known businesses such as Sheraton hotels, Avis Rent-a-Car, Hartford Insurance and Continental Baking

•  ITT grew from a medium-sized business with $760 million in sales to a global corporation with $17 billion in sales

•  From 1979 to 1995 continuous restructuring, through strategic divestures and acquisitions, resulted in more manageable segments

•  In 2011, ITT split into 3 independent publicly traded companies: -  Water-related businesses to be spun off as a standalone water

technology company -  Defense segment to be spun off as a standalone, diversified defense

technology and information solutions company -  ITT Corporation to continue as a standalone, highly engineered

industrial company Source: www.itt.com


6) Conglomerate—The Rise and Fall


! Conglomerates gained popularity in the 1960s as companies that generally engaged in one line of business began diversifying their business models through leveraged buyouts and mergers and acquisitions

•  The value placed on diversification during the 1960s and 1970s led to the establishment of new multinational conglomerate entities

•  The most recognized theory for the rise in conglomerate merger activity during the 1960s and 1970s was that the merger wave was a response to government antitrust action against a number of large vertical and horizontal mergers

•  While the ‘60s were a move to unrelated diversification, the 80’s moved to consolidation, specialization and “hostile takeovers” in response to the the 60s diversification, which produced inefficient conglomerates and entrenched managers

•  The current trends toward corporate focus reverse the diversification trend of the late 1960s and early 1970s

•  Conglomerate mergers have been relatively rare since many unsuccessful deals were dismantled in the 1980s

•  Newer ideas have emerged focusing on a company’s core competency, sticking to what it’s good at rather than trying to create and manage diverse businesses


M&A Activity Likely To Pick Up Soon


! However, many experts predict that M&A activity will increase in the coming years, driven by a number of interrelated factors

•  A Bain & Company worldwide research analysis of 1,600 public companies and 18,000 deals from 2000 through 2010 concluded that M&A activity should pick up again soon

•  The slowdown in M&A since 2007 was triggered by the financial crisis, and will reverse itself as the world economy recovers

•  Pent-up demand since the financial crisis is a prime reason for this conclusion

•  Additionally, the surplus of cash accumulated over the past few years "will turbocharge the deal-making renaissance” to meet investors’ expectations

The Case for Increased M&A Activity:

Source: Bain & Company, CFOs to Focus More on Inorganic Growth


Landscape for Increased M&A


! In general, there are several factors that make the commercial and economic environments ripe for M&A

Favorable Conditions for M&A Activity:

•  Low interest rates have put financial executives on the hunt for higher returns

•  Although many companies’ wallets are fat, organic growth alone won’t be sufficient to generate the returns expected by investors

•  The report estimates that about $300 trillion in global financial holdings is available for investment. Therefore, chief financial officers should use the money they have to hand and focus more on inorganic growth

•  M&A can help you enter new markets and product lines, find new customers and develop new capabilities, which translates into both higher earnings and growth

•  However, the report cautions acquisitions are not suitable for every business model. If core business is weak, the study shows M&A will not help

•  Therefore, companies should follow a “balanced strategy that successfully combines full potential organic growth with well-conceived and executed acquisitions”

Source: Bain & Company, CFOs to Focus More on Inorganic Growth


Content










Developing a Business Growth Strategy

#6—Developing a Business Growth Strategy

“The essence of strategy is choosing what not to do.”

—Michael Porter


Developing a Business Growth Strategy—Components


! Following is a high-level process for combining content from the previous sessions in pursuit of developing a comprehensive business growth strategy

Determine Risk/Reward

Position

Create Business

Case Articulate Value

Proposition

Explore Growth

Scenarios Conduct Market

Research


1) Determine Risk/Reward Position


! A critical first step in the business growth strategy development process is to determine your company’s risk/reward position

Source: Ivey Business Journal


2) Explore Growth Scenarios


! Growth scenarios are rich, data-driven stories about tomorrow that can help you make better decisions today

Source: Monitor, Global Business Network


2) Explore Growth Scenarios—Overview


! Scenario planning can be a very powerful technique in helping explore, evaluate and ultimately craft a business growth strategy


Scenario Planning—Key Concepts & Definitions


2) Explore Growth Scenarios—Process


Orient

Explore

Synthesize

Act

Monitor

Interviews & Focal Issues

Predetermineds & Uncertainties

Scenario Framework & Scenarios

Implications & Options

Early Indicators & Monitoring System Growth

Scenarios

! Below is a simple process for identifying and exploring business growth scenarios



2) Explore Growth Scenarios—Options


! The following represent some of the more commonly used techniques for exploring and validating business growth opportunities

Strategy Decision Trees Business Simulations War Gaming


2) Explore Growth Scenarios—Strategy Decision Trees


! A decision tree is a decision support tool that uses a tree-like graph or model of decisions and their possible outcomes—including chance event outcomes, resource costs, and utility—to help identify a strategy most likely to reach a goal


2) Explore Growth Scenarios—Business Simulations


! Business strategy simulation games simulate real-world events using algorithms, as well as the close tying of players' actions to expected or plausible consequences and outcomes

Source: www.simventure.co.uk


2) Explore Growth Scenarios—War Gaming


! Business war games are strategy games that “role play” various strategic alternatives to help determine the optimal strategic direction to pursue

Source: Kappa West


3) Conduct Market Research—Overview


Primary Secondary

Qualitative Quantitative


3) Conduct Market Research—Qualitative


What Is It’s Purpose? What Is It Used For? Types & Techniques

•  To understand the subconscious patterns that lead people to different decisions

•  To identify the scope of projects to research the views, opinions and attitudes of target groups

•  To explore in depth how consumers reach a decision in the buying process

•  To establish hypotheses to be tested through quantitative research

•  Competitive Intelligence

•  Market Access

•  Market Assessment

•  Pricing

•  New Product Development

•  Concept Testing

•  Message Development

•  Name, Trademark & Logo Testing

•  Product/Brand Positioning

•  Focus Groups

•  In-depth Interviews (IDIs)

•  Dyads/Triads

•  Ethnography

•  Observation

•  Shop-along

•  Diaries/Journals

•  Role Play

•  Elicitation & Projection Techniques

•  Neuro-linguistic programming (NLP)


3) Conduct Market Research—Quantitative


What Is It’s Purpose? What Is It Used For? Types & Techniques

•  To produce formal, statistically valid data to support business decisions

•  To measure, track, assess, and predict changes in customer attitudes, satisfaction, commitment and loyalty

•  To project market size, share, penetration, and growth rates

•  To segment markets, and to uncover "drivers" for product preference

•  Benchmarking •  Brand equity tracking •  Competitive Intelligence •  Market Pricing •  Forecasting •  Identifying market

opportunities •  Market segmentation •  Optimizing product

development •  Perceptual mapping of

competing products •  Predicting new product

uptake •  Product positioning

•  Bi-variate Analysis

•  Cluster Analysis

•  Conjoint Analysis

•  Discreet Choice Modeling (DCM)

•  Data Mining

•  Factor Analysis

•  Hierarchical Bayes

•  Latent Class Analysis

•  MaxDiff Scaling (MDS)

•  Perceptual Maps

•  Structural Equation Modeling (SEM)


Pros Cons

Qualitative Research

•  Allows one to explore topics in more depth and detail than quantitative research

•  Is often less expensive than quantitative research, because you don't need to recruit as many participants

•  Offers flexibility in location and timing because you don't need to interview a large number of people at once

•  It cannot quantify, making it extremely difficult to create any type of solid statistic

•  You cannot generalize your findings

•  Does not allow you to use your findings as a basis for a broader audience or the public in general

Quantitative Research

•  Data can be collected and analyzed quickly •  Using statistically valid random samples, a

survey can quickly be generalized to the entire population

•  A trusted set of statistics can give confidence when making future plans

•  Can also be anonymous, which is useful when dealing with sensitive topics

•  It allows you to generalize your findings beyond the participant group

•  Limited ability to probe answers

•  People who are willing to respond may share characteristics that don't apply to the audience as a whole, creating a potential bias in the study

•  Research experiments can be costly

3) Conduct Market Research—Qualitative vs. Quantitative


! Both qualitative and quantitative research can be useful in assessing and validating potential business growth opportunities


3) Conduct Market Research—Primary vs. Secondary


! Similarly, both primary and secondary research can be useful in assessing and validating potential business growth opportunities

Pros Cons

Primary Research

•  Can aim questions directly at your research objective

•  Latest information from the marketplace

•  Can assess the psychology of the customer

•  Expensive •  Risk of questionnaire and

interviewer bias •  Research findings may

only be usable if comparable back-data exists

Secondary Research

•  Often obtained without cost •  Good overview of a market •  Usually based on actual sale

figures, or research on large samples

•  Data may not be updated regularly

•  Not tailored to your own needs

•  Expensive to buy reports on many different marketplaces


3) Conduct Market Research—Illustrated


! Below is an example of how Discrete Choice Modeling (DCM) was used to build a fact based for selecting from potential growth opportunities


3) Conduct Market Research—Illustrated


! The research results then fed into an Excel-based simulator that helped predict the market potential for various growth opportunities


4) Create Business Case—Outline


Strategic Context

Analysis & Recommendation

Viable Options

Justification & Recommendation

Management & Capacity

Strategic Environment •  Org. Overview •  Business Need •  Change Drivers •  Bus. Outcomes

Strategic Fit

Business Need •  Problem/

Opportunity •  Prioritized

Requirements •  Assumptions •  Constraints •  Dependencies

Scope •  Boundaries •  Stakeholder

Analysis

Evaluation Criteria Possible Options Status Quo Option Descriptions Screening of Options Rationale for Options

Alignment •  Strategic Alignment •  Bus. Need Alignment Costs Cost-Benefit Analysis Implementation Considerations •  Procurement •  Schedule/Approach •  Impact •  Capacity

Risk •  Option Summary •  Risk Register

Benchmark Policy & Standards Pros/Cons/

Comparison Summary Preferred Option •  Recommendation •  Deciding Factors •  Costs •  Risks •  Implementation Plan Justification & Recommendation Summary

Governance & Oversight Project Mgmt. Strategy •  Project Review

Strategy Outcome Mgmt. Strategy Risk Mgmt. Strategy Change Mgmt. Strategy Performance Mgmt. Strategy

Source: Her Majesty the Queen in Right of Canada


4) Create Business Case—Multiple Methodologies


! There are several different financial approaches that can be employed in developing a business case, including:

Cash Flow •  Free cash flow is the cash a business generates to re-invest in the business, pursue

new opportunities, pay employees and pay investors

Discounted Cash Flow (DCF) •  DCF is what someone is willing to pay today in order to receive an anticipated cash flow

in future years. To value an investment, we “discount” future cash flows at an interest rate that reflects the perceived riskiness of the cash flows

•  The discount rate reflects both the time value of money and the risk premium investors demand to compensate for the risk that expected cash flows may not materialize

Cost of Capital •  There are multiple ways to evaluate the returns from investment, including IRR, NPV,

Payback Period, EVA, Real Option Value, etc. •  To prioritize, companies often use a hurdle rate that is higher than the cost of capital


5) Articulate Value Proposition


! When it comes to defining a business growth strategy, value proposition is perhaps one of the most misunderstood and commonly misused terms

What it is NOT

•  A new name

•  A unique selling point

•  Another word for “product” or “service” or “offering”

•  A corporate positioning statement

•  An elevator pitch

•  A communication message

•  A list of benefits

What it IS


5) Articulate Value Proposition—Template


! Consistent with the definition on the previous page, below is a framework that can be used to develop a value proposition for a new business growth opportunity

1 Market

2 Value Experience

3 Offerings

6 Proof

5 Differentiation

4 Benefits

The specific group of customers you are targeting

Benefits minus costs, as perceived by the customer

The product/service mix you are selling

How your offering delivers clear customer value

How you are different from and better than alternatives

Substantiated credibility and believability of your offering

Value Proposition

Source: Greener Consulting


5) Articulate Value Proposition—Alternate Model


! Another popular framework/model for value proposition is one put forward by Kevin Lane Keller of the Tuck School of Business at Dartmouth University

Points of

Preference

Points of Difference

Points of Entry

EE. Provides best overall value

C. Continuously innovates

N. Leading co. that provides environ-friendly chemicals

U. Provides self-service tools & support

W. Provides training for your employees

F. Products tailored to industry

M. Offers products that use less water,

energy, labor

0.32

0.30 0.29

0.35 0.36

0.31

0.35

0.37

0.34

0.31

S. Makes buying process easier thru

simplified prod. range


5) Articulate Value Proposition—Disguised Example


Understanding & Industry Expertise

BB. Gets to know your business DD. Provides deep application expertise thru its dist partners

Leveraging our in-depth understanding of your business and our industry-leading expertise, we collaborate with you to innovate and develop the right solutions that deliver superior performance

Collaboration

V. Sales team recommends best for you W. Provides training for your employees

Superior Performance

H. Better cleaning results thru integrated chem, serv, equip EE. Provides best overall value D. Enhances results thru tools & accessories

Innovate Right Solutions C. Continuously innovates I. Offers products to differentiate your business F. Products tailored to industry U. Provides self-service tools & support

Points of Difference

Points of Entry

Channel Partnerships

CC. Has strong distribution partners AA. Distributors recommend

Green Offerings

N. Leading co. that provides environ-friendly chemicals M. Offers products that use less water, energy, labor

Simplicity T. Makes it easier to purchase chems, serv, equip from one source S. Makes buying process easier thru simplified product range E. Provides dosing and dispensing

Compliance / Risk Mitigation

Q. Reduces liability risks O. Provides expertise for compliance

Point of Preference


Practical Exercise #3—Building a Value Proposition


For an existing business/product/service within your organization, how would you articulate the following components of a value proposition?

! What is the Market the business/product/service currently serves

! How would you characterize the Value Experience the business/product/service provides to the Market?

! How would you describe the specific/tangible Offering(s) for the business/product/service?

! What specific End Benefits do your customers derive as a result of the business/product/service?

! In what ways is your business/product/service Differentiated vis-à-vis the competitive set? How sustainable is this source of competitive differentiation?

! What are some tangible “Proof Points” that lend credibility to the Benefit provided and/or the source of Differentiation?


Content










Organizational Readiness & Implementation

#7—Organizational Readiness & Implementation

“Success is readiness for instant action when the opportune moment arrives.”

—Newell D. Hillis


Organizational Readiness—Frame of Reference


! Organizational readiness is a critical link in the business growth strategy chain. Without it, even the greatest strategic plan will fail

Current State

Assessment

Articulating a Business

Growth Vision

Driving Organic Growth

Pursuing Inorganic Growth

Developing a Business

Growth Strategy

Organizational Readiness & Implementation

Measurement &

Tracking


Make Changes to Structure

Building Blocks of an Implementation Program


! There are four building blocks executives can use to ensure strategy and execution are inextricably linked

1 2 3 4 Clarify

Decision Rights

Design Information

Flows

Continually Monitor the

Plan


Management Selection &

Development Corporate

Culture Leadership Style

Organizational Structure

Information Systems

Incentive Systems

Organization Processes

Strategic Planning Systems

Control Systems

1) Make Changes to Structure

! As always, organizational and functional structure must be aligned and consistent with the business growth strategy—or any business strategy for that matter

Source: Harvard Business Review, The Secrets to Successful Strategy Execution



2) Clarify Decision Rights


! Research shows that actions having to do with decision rights and information are twice as effective as improvements made to the other two building blocks, emphasizing the critical importance of organizational structure

Source: Strategy Formulation & Implementation, Richard Daft


3) Design Information Flows


! Above all else, the business must communicate strategy clearly and regularly to employees. When the CEO and top management demonstrate the link between business strategy and specific business decisions, front-line staff are encouraged to think strategically too


4) Monitor the Plan

•  Challenge underlying assumptions

•  Create a champion for every strategy and action

•  Stay committed

•  Conduct short-term strategy reviews

•  Expand skills

•  Target sales

•  Set strategic plan milestones


! Review progress on a monthly or quarterly basis, depending on the level of activity and time frame of the strategic plan

Guiding Principles:


Performance Gaps

•  Where are we now?

•  Where do we want to be?

•  How will we get there?

•  When will we get there?


! There are four important and frequent questions a business should ask itself as it prepares to implement a strategy

Source: www.learnmarketing.net


Performance Gap Closure—OGSM


! The OGSM process forces a company to clearly define its objectives, identify key strategies and initiatives, and assign accountabilities and deadlines

Objectives Goals Strategies Measures

Description

Long term, broad statements outlining a desired state Usually to be accomplished over the next 2-3 years

Quantitative targets of the objectives with respective timeframes Usually include overall factors : !  Share !  Revenue !  Profit

Structured approaches to pursue the objectives Strategies force choice among competing key priorities and focus areas to build the competitive advantage necessary to achieve desired goals.

Numerical evaluations indicating progress towards milestones, goals, and objectives

Questions Addressed

What do we want to achieve as a company and/or business unit / region?

What specific targets should be delivered? Answers typically include targets: !  Share !  Revenue !  Profit

How will we achieve our goals and objectives? What will be done? How will resources – people, capital, and dollars – be invested?

How is the business performing? How will we know if our strategies are effective in pursuing our goals and objectives?

Nature of Component QUALITATIVE QUANTITATIVE QUALITATIVE QUANTITATIVE


OGSM—Disguised Example (Partial)


Strategy Initiatives Metric Function(s) Impacted SPA Timeline Status

S1: Enable distributor and other channel partners to succeed

I1: Offer end-user training tools for distributors to utilize in on-site customer visits

M1: Develop questionnaire to regularly measure effectiveness of training by QX 200X

M1: Conduct XX number of forums with distributor sales reps to develop or refine training tools

! Marketing ! Sales

! SSE

I2: Provide marketing materials to enhance distributor rep selling capabilities

M1: Conduct XX number of training sessions with distributor reps by QX 200X

! Marketing ! Sales

! SSE

S2: Offer alternative points of access to meet varied channel needs

I1: Develop online forum to provide application tips, Q&A support, and other easy to navigate informational materials

M1: Develop/enhance IT infrastructure to support online interactions, e.g.. information sharing, customer support, ordering, etc. by QX 200X

M2: Drive website traffic and measure unique site visits with goal to increase by XX% annually

! IT

OBJECTIVE: O7 Channel partnerships - Leverage strong distributor relationships to ensure timely and adequate delivery of products and solutions

GOAL: ! Increase distributor satisfaction ratings by XX% ! Achieve annual improvement of X points up to a 4 out of 5 score on customer survey for “Likelihood to recommend JD products”

! The example below demonstrates the breadth and level of specificity that can and should go into an OGSM effort


Potential Options to Improve Strategy-Execution Capabilities

Establish individual performance measures

Improve field-to-headquarters information flow

Define and distribute operating metrics to the field

Clarify and streamline decision making at each operating level

Focus corporate staff on supporting business unit decision making

Create cross-functional teams

Broaden spans of control

Institute lateral moves and rotations

Assign process owners to manage activities spanning functions

Introduce differentiating performance awards

Focus headquarters on important strategic questions


Source: Harvard Business Review, The Secrets to Successful Strategy Execution



•  Inability to “just say no”

•  Lack of communication

•  Losing sight of the big picture

•  "Bolt-on" syndrome

•  Continuing “business as usual”

•  Wimping out

•  Using the wrong scoreboard

•  No yardstick

•  The be-all and end-all

•  Confusing terminology and language

! Strategic planning entails risks. The goal is not to allow current operating problems to dictate or deter long-range strategic planning. Common implementation mistakes include:

Avoid Common Strategic Plan Implementation Mistakes

Source: www.mondaq.com


How Do You Know When You’ve Nailed It?

•  Everyone has a solid understanding of the decisions and actions for which he or she is responsible

•  Important information about the competitive environment gets to headquarters quickly

•  Once made, decisions are rarely second-guessed

•  Information flows freely across organizational boundaries

•  Field and line employees have the information they need to understand the bottom-line impact of their day-to-day choices


Key Tenets of Successful Implementation:


Royal Mail—Communication Is Vital In Delivering Change


UK’s Royal Mail has a clear strategic vision and a small number of focused strategic priorities, seeing parcel delivery as the main revenue/profit growth driver whereas letter volumes are expected to decline

•  Royal Mail's change management has been costly and complex, as would be expected for a business with tens of thousands of employees, deeply-entrenched working methods, culture and the need to invest heavily in automation

•  A key challenge is to persuade employees to view Royal Mail as a parcels rather than letters business…a very different operating model

•  “Our people are key to our transformation and, in particular, the successful delivery of our strategic priorities…..We are redoubling our efforts to communicate with our people about the challenges we face and our strategy to address them. We have provided managers with tools and support to help with action planning, allowing members of teams to feel more engaged in the business’ future. Alongside our broader engagement program, we are undertaking a series of ‘town hall’ events, where members of our senior management team will address as many as 1,000 colleagues at a time.”



Time Warner & AOL—What Were They Thinking?


In 2001, America Online merged with Time Warner in a deal valued at $350 billion. It was then, and is now, the largest merger in American business history

•  In 2009, Time Warner decided to spin off AOL as its own company again, ending their ill-fated relationship now referred to as the “worst transaction in history”

•  Culture clash was widely blamed for the failure

•  “I remember saying…that life was going to be different going forward because they’re very different cultures, but…I underestimated how different… It was beyond certainly my abilities to figure out how to blend the old media and the new media culture” -Richard Parsons, president of Time Warner

•  While they had a clear strategic vision, Time Warner and AOL failed to get buy-in from executives within the organization and divisions continued to work as disparate entities rather than a unified organization

•  In a LinkedIn poll, 80% believed the merger failed due to the companies’ inability to generate the synergies expected

Source: www.nytimes.com


Practical Exercise #4—Organizational Readiness Considerations


With your organization/business unit in mind—and obviously not knowing yet what your ultimate business growth strategy will be—how would you answer the following questions?

! How would you assess your organization’s leadership team in terms of its capacity for change management? (Consider factors such as its ability to articulate a vision, consistently communicate a vision, stay with a vision even when times are challenging, reinforce its commitment to a vision through establishing the right incentives, etc.)

! In what ways is your current organizational structure conducive to growth and in what ways could it potentially get in the way of growth? (Consider factors such as the size of your organization, whether reporting structures are flat or hierarchical, important business functions you may not currently have in-house, etc.)

! In what ways could your organization’s culture impact business growth? (Consider factors such as tenure/longevity of leaders and key managers, level of camaraderie/cohesiveness among employees, overall receptivity and openness to change, etc.)

! How effective is your organization in establishing and adhering to processes? To what extent will it be able to effectively manage the base business while it readies itself for growth?


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Business Metrics

#8—Metrics & Tracking

“However beautiful the strategy, you should occasionally look at the results.”

—Winston Churchill


Business Metrics


“What gets measured, gets managed.”

—Peter Drucker Management Consultant, Educator, Author


Business Metrics—Defined


! It's important to remember that metrics are a means to an end, not an end unto themselves. Measuring a metric is not always enough—you need to use that metric to guide business decisions and to ensure your business is on the right track

Purpose/Use: ! Every department in your business should be monitoring key metrics—whether that’s

your sales force and marketing team or your financial aid and inventory operations. Smart organizations strengthen business metrics by combining raw values with additional insight as comparative values, anecdotal information, and objectives

Examples: ! Return on Investment (ROI) ! Employee and Customer Churn Rates ! Revenues ! EBITDA

Definition: Business Metric—Any type of measurement used to gauge some quantifiable component of a company's performance. A business metric is a raw measurement of a business process


Business Metrics—Objectives


! Business metrics should be both diagnostic and prescriptive. It is not enough to provide data and information…metrics need to inform a course of action

x Business Building Activities

u Business Performance

Metrics

v Actual Business Performance

w Course Corrections


Business Metrics—Types


How do customers respond to your business/organization?

Brand Awareness 7

Are customers aware of your brand (company), and is it relevant to them?

How is your brand (company) perceived in the marketplace?

What impact is your business having in the marketplace?

Brand Funnel

Brand Image

Relationship/ Loyalty

Business Impact

13

12

11

10

14

15

16

17 Brand Consideration 8

Behavior Metrics Perception Metrics Performance Metrics

Brand Trial 9

Culture Reinforcing

Market Manifestation

What are you doing to reinforce desired behaviors and ideal culture?

What tangible activities are being demonstrated in the market?

What you do How you’re viewed What you achieve

Town Hall Meetings 1

Awards & Incentives 2

Rotational Assignments 3

Articles & White Papers 4

Sponsorships & Donations 5

Proprietary Products/IP 6 18

Brand Attributes

Brand Personality

Organizational Associations

Unit Sales/ Revenue

Margin/ Profitability

Market Share

Customer Acquisition

Customer Retention

Customer Satisfaction

Type

s K

ey Q

uest

ion

Exam

ples

C

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s


Business Metrics—KPI Dashboard


! It is often useful to weight metrics based on their importance to the business, as well as rate the company’s performance against them

Importance

Performance


Business Metrics—Illustrative Dashboard


! Below is a business metrics dashboard for a major U.S.-based international airline

Strategy Dashboard


Business Metrics—Guiding Principles


! The following represents a list of guidelines to keep in mind when developing a business metrics system and dashboard

•  Measure before you manage

•  Choose the right metrics

•  Avoid common metrics pitfalls

•  Invest in tools that deliver real-time feedback

•  Share metrics with employees

•  Remember that accountability starts at the top

•  Continually question, reevaluate, and refine

Business Metrics Guiding Principles:


Practical Exercise #5—Identifying Business Growth Metrics


As you consider future growth opportunities for your business, what types of metrics do you think it would be beneficial to track to ensure you achieve performance goals?

! Behavior Metrics •  Culture Reinforcing—What desired behaviors would you envision tracking to achieve

the “ideal culture?” •  Market Manifestation—What tangible activities could you track that would

demonstrate your commitment to the external market?

! Perception Metrics •  Brand Funnel—What “funnel” metrics would be important for your organization to track

(e.g., awareness, purchase intent, repurchase, loyalty)? •  Brand Image—What image-related attributes would be important for your organization

to track (e.g., quality, convenience, efficiency, price/value, premium, dependability)?

! Performance Metrics •  Relationship/Loyalty—What customer relationship/loyalty metrics would be important

for your organization to track? •  Business Impact—What business impact metrics would be important for your

organization to track (e.g., revenue, profit, margin, market share)?

Proprietary and Confidential UNI Strategic

Contact Information

Mitch Duckler Managing Partner FullSurge +1 (312) 239-8985 [email protected]

strategic business growth—day 2 2013.09

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