aligning budgeting to corporate planning - abf conference on corporate budgeting
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ALIGNING BUDGETING TO CORPORATE PLANNINGCNI’s Journey, Mistakes, and Lessons Learned
Kenny OngCNI Holdings Berhad
Intro: CNI
1. 18 years old
2. Core Business: MLM
3. Others: Contract Manufacturing, Export/Trading, eCommerce, F&B Retail
4. Malaysia, Singapore, Brunei, Indonesia, India, China, Hong Kong, Philippines, Italy, Taiwan
5. Staff force: ± 500
6. Distributors: 250,000
7. Products: Consumer Goods and Services
Our History of Strategic Planning and Budgeting
How “Planning” got started
Succession Planning (Business Continuity)
Talent Management
Differentiation
Performance Management System
Budgeting + Planning
KPIs
BSC
Business Model
How “Planning” got started
Succession Planning (Business Continuity)
Talent Management
Differentiation
Performance Management System
Budgeting + Planning
KPIs
BSC
Business Model
Today’s focus
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. FAC’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’
Problems from the start (1/2)
1. No money
2. Split Objectives: Sales? Share Price? Image?
3. Independent entities
4. FAC 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
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
Today’s Agenda
Summary: Planning & Budgeting
Long-term Plans
Objectives
Strategies
Enablers
Resources
Also known as L.O.S.E.R.
Summary: Today’s presentation
1. Business Model
2. Strategy
3. Resources
Assumptions 1: Audience
1. Business
2. Government
3. Non-profit
Assumptions 2: Starting Point
1. Wanting to start proper planning & budgeting process, or
2. Wanting to improve planning & budgeting process
1. Get the right Business Model first
• How to fail without trying
1. Wrong Business Model
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
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
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
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
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
“What is the moral of the story?”
What is the Business Model?
USP
Market Discipline
Profit Model
Intro: Market Discipline
• Mamak stall
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
Intro: Market Discipline
* Treacy & Wiersema, The Discipline of Market Leaders, 1995
Product/Service Attributes Relationship Image
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
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
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
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
Summary: Today’s presentation
1. Business Model
2. Strategy
3. Resources
Done
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?
Before we start…
Moral of the story…
1. Innovation:– Business models– Products– Services
2. Market Leadership
3. Competitive differentiation
Get the picture?
“What is the moral of the story?”
What is Strategic Planning?
Strategic
Planning
Variables:
Research
Growth
Risks
Stakeholders
Constraints
SWOT
Misc.
Output:
Plans
Priorities
KPIs
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
TNA %
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
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, Priorities, and KPIs
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
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: 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
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
Strategy: Value Disciplines
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
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
Sample KPIs for Each Discipline
Operational Excellence
• Price• Selection• Convenience• Zero Defects• Growth
Operational Excellence
• Price• Selection• Convenience• Zero Defects• Growth
Customer Intimacy
• Customer Knowledge
• Solutions Offered• Penetration• Customer Data• Customer-success
focus
Customer Intimacy
• Customer Knowledge
• Solutions Offered• Penetration• Customer Data• Customer-success
focus
Product Leadership
• Marketing• Functionality• # of Successes• # of Failures• Learn from key
users• Interdisciplinary
teams• Pipeline
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 OPEX
Quality
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
Summary: Today’s presentation
1. Business Model
2. Strategy
3. Resources
Done
Done
3. Budgeting
The art and science of allocating and aligning Resources to strategic plans
Budgeting: Some thoughts…
Two major roles of Budgeting:
1. Provide real-life CONSTRAINTS to strategic planning
2. Provide RESOURCES to realize strategic plans
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
Operational Excellence
Operational Excellence
Customer Intimacy
Customer Intimacy
Product Leadership
Product Leadership
Organization, jobs,skills
Management systems
Information and systems
Culture, values,norms
Each Discipline Requires Different Priorities & Resources
Operational Excellence
•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
Operational Excellence
•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
Information and systems
Culture, values,norms
Each Discipline Requires Different Priorities & Resources
Organization, jobs,skills
Management systems
Information and systems
Culture, values,norms
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
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
Each Discipline Requires Different Priorities & Resources
Organization, jobs,skills
Management systems
Information and systems
Culture, values,norms
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’
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’
Each Discipline Requires Different Priorities & Resources
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
Upturn Flat Downturn
Fight Complacency
Sharpen Edge
Keep Momentum
Conquer
NPD Cycle Time
Improve Edge
Extensions
Counter Competitor
Innovation
Acquire
Profits
Build momentum
Sales
Cash Flow
Focused on ‘Breakthrough’
JV, In-source, Out-source
Eliminate bottom 20%
Improve Top 15% revenue-generating products
↓ R&D, ↑Sales
Example: Business Situation vs. R&D Priorities
Basic Budgeting policies
• Flexibility to switch between line items• Reserve Funds• Loans/External Funding
Activity Grid to determine budget priorities
Increase (↑)What are features/
activities/services to increase?
Create (+)What are features/
activities/services to introduce?
Reduce (↓) What are features/
activities/services to reduce?
Eliminate (-)What are features/
activities/services to eliminate?
Budgeting for Investments based on the ‘BCG Matrix’ principles
CNI’s Performance
Market Potential
How to maximize Budget?
1. Align budget to priorities
2. Integration of businesses and functions for teamwork
3. Do practical, implementable stuff that bring real results (hard work)
Way back in 2004…
• Thomas Cup, Indonesia
Now in 2007…
CNI ‘Beemax’ Factory Visit, China
1. Top Leaders
2. Product Development
3. Media
Planning, Budgeting, Schedules, Processes
Tying it all up
The Planning & Budgeting ProcessStages Output Month
1. Pre-Planning Analysis & Brainstorming
•Current ½ yr budget & revision•Next yr options and budgets required
July - Sep
2. High-level Group Strategy and Targets
•High-level strategy of Group Corp Plan. •Circulation of Main Budget simulation to all departments
Sep
3. Functional Strategy and Budgets
•BSC & Budget preparation by HODs to HODivs
Sep - Oct
4. Formal Results Planning
•BSC & Budget to CEOs, followed by BOD•Revised and Finalized Plans and Budgets
Oct-Nov
5. Communication and Cascading
•Presentation of Group Budget and Planning summary & distribution•Communication of Highlights to the field and staff
Nov-Jan
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
Problems still existing
1. No serious budget to tackle key risks2. Too much optimism or pessimism3. Innovation vs. Results vs. Baseline4. Investment ≠ Portfolio Management5. Top down vs. Bottom up6. Good to have vs. Need to have7. Line Manager not thinking like Investors8. Too focused on KPI and BSC9. Budget allocation seen as ‘popularity’ vote10.Public Listing -> pressure for short-term
budgets and results vs. long-term innovation
Alignment: 4-Wheels Model
Culture
Business
ModelStrategic Planning
StructurePerson
Leadership
Resources
Thank You.
soft copy of slides: www.totallyunrelatedrandomanddebatable.
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