strategic planning and budgeting part 1: business model and strategy
DESCRIPTION
ABF Budgeting, Forecasting and Financial Planning Conference, Feb 2009*Understanding what strategic planning is and why it is important*Clarify the difference between vision, mission statement, goals and objectives*The external environment: The need to understand the economic cycle*SWOT and PESTEL analysis*Tying the strategic plan to the budgetTRANSCRIPT
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STRATEGIC PLANNING AND BUDGETING Part 1: Business Model and StrategyCase Study, Concepts and Debatable Ideas
Kenny OngCNI Holdings Berhad
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Intro: CNI
1. 20 years old2. Core Business: MLM3. Others: Contract Manufacturing,
Export/Trading, eCommerce4. Malaysia, Singapore, Brunei, Indonesia, India,
China, Hong Kong, Philippines, Italy, Taiwan, Oman, United States, Vietnam
5. Staff force: ± 5006. Distributors: 200,0007. Products: Consumer Goods and Services
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History of Strategic Planning and Budgeting
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Planning in the “old” days
1. Budget ‘top down’ – no questions asked2. Only two budget goals – revenue, expenses3. The only planning we needed to do was “do better than
last year”4. Planning was ‘bottom up’ - compilation of plans within
set budget5. No one knew what the other was planning6. Accounting’s role was only to compile budget for
approval7. KPIs were not used8. Sales was resource priority, everything else not
important9. Assumed no major changes in market10. R&D was ‘bottom up’
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Problems from the start
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Problems from the start (1/2)
1. No money
2. Split Objectives: Sales? Share Price? Image?
3. Independent entities
4. Accounts controlling schedule
5. S&M always running over budget
6. Compounding activities
7. BOD expectations too high without proper explanation nor justification
8. Lack of Market research
9. Expenses not spent gets punished
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Problems from the start (2/2)
10.Budgeting for known, consistent, and predictable business conditions
11.Never learn from past mistakes, usually in under-budgeting (e.g. staff and PCs)
12.Wrong Business Model – blame Budgeting & Planning. Having a good planning process cannot correct a bad business model
13.Focusing on the Process (KPIs), instead of “Business”
14.Planning & budgeting treated as separate processes by businesses/functions
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Today’s Agenda
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Summary: Planning & Budgeting
Long-term Plans
Objectives
Strategies
Enablers
Resources
Also known as L.O.S.E.R.
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Summary: Today’s presentation
1. Business Model
2. Strategy
3. Alignment
4. Resources
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Assumptions 1: Audience
1. Business
2. Government
3. Non-profit
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Assumptions 2: Starting Point
1. Wanting to start proper planning & budgeting process, or
2. Wanting to improve planning & budgeting process
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1. Get the right Business Model first
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• How to fail without trying
1. Wrong Business Model
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The Roadmap to Failure
Fred Wiersema and Mike TreacyP
erf
orm
ance
Time
Clear Sailing
Today’s performance
Ad-hoc Tactics
Denial & Defense
Doom Projections
Overdue Failure
The Moment of Truth
X
Performance Freefall
Tomorrow’s actual
performance
Downpresure of Unclear Strategy
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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
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The Roadmap to Failure
Fred Wiersema and Mike TreacyP
erf
orm
ance
Time
Clear Sailing
Today’s performance
Ad-hoc Tactics
Denial & Defense
Doom Projections
Overdue Failure
The Moment of Truth
X
Performance Freefall
Tomorrow’s actual
performance
Downpresure of Unclear Strategy
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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
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The Roadmap to Failure
Fred Wiersema and Mike TreacyP
erf
orm
ance
Time
Clear Sailing
Today’s performance
Ad-hoc Tactics
Denial & Defense
Doom Projections
Overdue Failure
The Moment of Truth
X
Performance Freefall
Tomorrow’s actual
performance
Downpresure of Unclear Strategy
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“What is the moral of the story?”
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What is the Business Model?
USP
Market Discipline
Profit Model
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Intro: Market Discipline
• Mamak stall
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Intro: Market Discipline
"They are the most innovative"
"Constantly renewing and creative"
"Always on the leading edge"
"A great deal!"
Excellent/attractive price
Minimal acquisition cost and hassle
Lowest overall cost of ownership
"A no-hassles firm"
Convenience and speed
Reliable product and service
"Exactly what I need"
Customized products
Personalized communications
"They're very responsive"
Preferential service and flexibility
Recommends what I need
"I'm very loyal to them"
Helps us to be a success
Product Leadership
OperationalExcellence
CustomerIntimacy
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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: Value Disciplines
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Operational Excellence
• Competitive price
• Error free, reliable
• Fast (on demand)
• Simple
• Responsive
• Consistent information for all
• Transactional
• 'Once and Done'
Operational Excellence
• 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
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
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: Value Disciplines
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The McPlaybook*
Make it easy to eat• 50% drive-thru• Meals held in one
hand
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
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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: Value Disciplines
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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: Value Disciplines
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Intro: Market Discipline
* Treacy & Wiersema, The Discipline of Market Leaders, 1995
Product/Service Attributes Relationship Image
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Intro: Market Discipline
* Treacy & Wiersema, The Discipline of Market Leaders, 1995
Product/Service Attributes
Price
Quality
Time
Selection
√
√
Smart Shopper
Relationship Image
Operational Excellence: Quality and selection in key categories with unbeatable prices
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Intro: Market Discipline
* Treacy & Wiersema, The Discipline of Market Leaders, 1995
Product/Service Attributes
√
Brand
Time
Function
√
√
Best Product
Relationship Image
Product Leadership: Unique products and services that push the standards
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Intro: Market Discipline
* Treacy & Wiersema, The Discipline of Market Leaders, 1995
Product/Service Attributes
√
√
√
√
Service Trusted Brand
Relationship Image
Customer Intimacy: Personal service tailored to produce results for customer and build long-term relationships
Relations
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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
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Summary: Today’s presentation
1. Business Model Done2. Strategy
3. Alignment
4. Resources
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2. Set the Strategies
‘Hope’ is not a strategy
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What is Strategic Planning?
Strategic
Planning
Variables:
Research
Growth
Risks
Stakeholders
Constraints
SWOT
Misc.
Output:
Plans
Priorities
KPIs
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Before we start…
Which comes first?
1. Strategies -> KPI?
2. KPI -> Strategies?
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Step 1: Analysis
1. SWOT
2. PESTEL
3. Scenario Analysis
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SWOT: Opportunities & Threats
Opportunities
=
Taking advantage of ‘Trends’
Threats
=
Strategic Risk Management
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Downturn Trends?
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Downturn Trends?
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Downturn Trends?
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Downturn Trends?
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SWOT: General Strategic Risks
1. Industry1. Margin Squeeze2. Rising R&D/CAPEX3. Overcapacity4. Commoditization5. Deregulation6. Increased power among
suppliers7. Extreme business-cycle
volatility2. Technology
1. Shift in technology2. Patent expiration3. Process becomes obsolete
3. Brand1. Erosion2. Collapse
4. Competitor1. Emerging global rivals2. Gradual market-share gainer3. One-of-a-kind competitor
5. Customer1. Customer priority shift2. Increasing customer power3. Over reliance on a few
customers6. Project
1. R&D failure2. IT failure3. Business development failure4. Merger or acquisition failure
7. Stagnation1. Flat or declining volume2. Volume up, price down3. Weak pipeline
Adrian J. Slywotzky and John Drzik
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PESTEL and Scenarios
Scenario 1 Scenario 2 Scenario 3
Political
Economic
Social
Technology
Environment
Legal
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Business Situation vs. Focus
Upturn Flat Downturn
Fight Complacency
Sharpen Edge
Keep Momentum
Conquer
‘Change’ mgmt
Reduce Fat
Continuity
Everyone Happy
Innovation
Acquire
Profits
Build momentum
Sales
Cash Flow
Talent Mgmt
Innovation/R&D
Early wins
Slow Down HR Costs
Top Talent focus
Sales, Sales, Sales
Increase attrition
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Business Situations vs. Focus
Upturn Flat Downturn
Fight Complacency
Sharpen Edge
Keep Momentum
Conquer
‘Change’ mgmt
Reduce Fat
Continuity
Everyone Happy
Innovation
Acquire
Profits
Build momentum
Sales
Cash Flow
Talent Mgmt
Stack R&D
Early wins
Slow Down HR Costs
Top Talent focus
Stack Sales
Increase attrition
Many times, you need a different CEO/Leader/Management Team
for each business situation
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Step 2: What is your Goal?
1. Cost Reduction
2. Growth
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Strategies for Growth
1.Base Retention
2.Share Gain
3.Positioning4.Adjacent Market
5.New Business
GROWTH
“Double-Digit Growth”, Michael Treacy
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Growth
Expansion
1.Consolidate
2.Geographic
3.Distribution
4.Compensate
Transformative
1.Portfolio refocus
2.Diversification
Easier Tougher
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Growth thru Expansion
Expansion
1.Consolidate
2.Geographic
3.Distribution
4.Compensate
1.Gain Scale to compete
2. Integrated Solutions
3.Financial Growth
4.Supply (security, mix)
5.Developing markets
6.High cost of Extra Capacity
7.Private Equity
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Growth thru Expansion
Expansion
1.Consolidate
2.Geographic
3.Distribution
4.Compensate
9.De-regularization
10.Demand outstrip supply
11.Revenue Mix – Tax optimization
12.Talent
13.New, Low-cost Entrants
14.Undervalued Big Players
15.Newer Assetswww.myCNI.com.my www.OOBEY.com
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Transformative Growth
Transformative
1.Portfolio refocus
2.Diversification
1. New Business Lines
2. Selling/Spin-off non-core
3. Increase product line
4. New customers
5. New technologies*
6. Complementary Business
7. Up-down Supply Chain
8. Patent
9. Convergence anticipation
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Cross Sector Transformation
Traditional
AlternativeIncremental
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Cross Sector Transformation
Traditional Utility
AlternativeEnergy
IncrementalTechnology
New Delivery, New Sources, Existing Resources
Oil, Gas, Electricity, Coal
Biomass, Nuclear, Ethanol, Wind, Solar
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Example: Energy Sector
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Step 3: Strategy
1.Base Retention
2.Share Gain
3.Positioning4.Adjacent Market
5.New Business
GROWTH
“Double-Digit Growth”, Michael Treacy
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How Markets determine Growth Strategies (1)
• Growth Rate
Growth Rate
Strategy Why?
Fast 1. Market Positioning
2. Share Gain
3. Base Retention
•Maintain market share in strategic segments•Prepare for market decline•Competitors focus too much on getting new customers
Flat 1. Base Retention
2. Share Gain (Acquisitions)
•Lose customers slower than competitors•Create scale economics, squeeze costs
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• Churn RateChurn Rate
Strategy Why?
Low 1. Share Gain (Acquisitions)
2. Adjacent Markets
•Buying customer base is cheaper than own efforts•New products, old customers strategy
High 1. Base Retention
2. Share Gain
3. Adjacent Market
•Lose customers slower than competitors•Customers are always open to the best value and offer•Desperate to gain revenue
How Markets determine Growth Strategies (2)
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How Markets determine Growth Strategies (3)
Fast Growth,
Low Churn
1.Market Positioning
2.Share Gain (M&A)
3.Base Retention
4.Adjacent Markets (M&A)
•Example: XYZ Sector
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• Create better ‘Value’ proposition
• Neutralize competitor advantages
• Buy Market Share outright– Price Premium– Operating Model– Integration
Strategy 2: Share Gain
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Buying Market Share: Acquisition strategy
IntegrationOperating
Model
PricePremium
Buying Market Share
Net Cost per Customer < Direct Acquire
No evidence of previous company
One Kingdom
Pre-integration Blueprint
Slow Trigger, Fast Bulletwww.myCNI.com.my www.OOBEY.com
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Buying Market Share: Side notes on Funding
Preferable OK, but not preferred
1. Cash from Earnings
2. Cash from Borrowings
1. Cash from Stock sale
2. Issue more stock
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*Adapted from Warren Buffet’s acquisition strategies
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Strategy 4: Invade Adjacent Markets
Adjacent Market = Important Similarities and Large Differences in:
1. Cost Structure
2. Competitors
3. Customers
4. Critical Capabilities
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Strategy 4: Invade Adjacent Markets
Traditional
AlternativeIncremental
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Strategy 4: Invade Adjacent Markets
Traditional Utility
AlternativeEnergy
IncrementalTechnology
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Example: Energy Sector
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Strategy 4: Invade Adjacent Markets
Upstream Midstream Downstream
DistributionConversionRaw Mat
Vendors/Services
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• Is it a promising market?– Best when market is new and not stable– You must time your entry carefully– Entrenched companies usually delay
embracing new technology or process
• Can you win in this market?– Must be built on advantages that are tangible,
practical and easily implemented
Strategy 4: Invade Adjacent Markets
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• Can you match the Standards of Competition in this Market?–You do have to meet the quality level that is
common in the market–Three Standards:- Technology,
Relationships, Business-model–You must have 80 percent of the capabilities
you need to match competitor’s Standards
Strategy 4: Invade Adjacent Markets
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• Make or Buy?1. It is easier to meet the standards of
competition if you buy an existing player
2. Adjacent acquisitions must remain as a separate enterprise
3. Integrate Management Control (systems, technology)
4. Inter-transfer of management talent, knowledge and capability are important
Strategy 4: Invade Adjacent Markets
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Strategy 5: Acquire new Business
• No core advantage to bring in
• Investors mind-set vs. Managers mind-set
• Value unlocking via operational improvements
• Invest in Management/Leadership
• Premium = Combined value > stand alone
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Thank You.
soft copy of slides: www.totallyunrelatedrandomanddebatable.
blogspot.com