change and uncertainty in china - all lectures
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Dr. Marcus Schuetzmarcus@mcschuetz.com
Uncertainty and Change Managementin China
Hong Kong University- PMBA 2266 -
(2006/2007, Module 3)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Dr. Marcus Schuetzmarcus@mcschuetz.com
Introductory roundWho is who?
Tell us in 1 Minute: Who are you?Name
Educational background
Professional background
Why do you do an MBA?
What is your professional perspective?
Why did you choose this course?
Dr. Marcus Schuetzmarcus@mcschuetz.com
Welcome to PMBA 2266You have chosen a “hardcore course” on China Strategy
This is a toolbox and case based course in which you will learn …
• How to handle uncertainty and change in real life conditions• How to act in different phases of a China Venture• How to get things really done beyond “strategy blabla”• How to act when you touch the “dark side”
Wha
t to
lear
n he
re?
I will boost skills of students, who …
• Are heading for a senior management position in China• Are heading for a top management consulting company• Want to get an insight into realities for Private Equity applications• Want to go deep behind the headlinesW
ho s
houl
dbe
her
e?
You will pass this course if you …
• Think and act to understand and solve problems in a professional way• Analyze, solve and present three cases in teams (3 x 25 % each = 75 %)• Contribute in terms of quality, not quantity (25 %)• Are not missing a class without appropriate reasonPerf
orm
ance
requ
ired
Dr. Marcus Schuetzmarcus@mcschuetz.com
Chat and house rules
Let us agree on some chat and house rules first …
• Confidential company case information will not leave the class room
• All life case discussions and evaluations on current or recent Manager’s decisions, successes and failures are strictly limited to the classroom
• We have boardroom discussion manners
• Quality before quantity: Know what you say, but don’t say all you know
• It is better to be dead than to be late
• Any mobile phone going off will be destroyed on the spot
• No eating in class
Dr. Marcus Schuetzmarcus@mcschuetz.com
“A Wall Street Banker,an Englishman,an ex-Red Guard …
… and $418.000.000disappearing day by day”
Recommended bedtime reading
Dr. Marcus Schuetzmarcus@mcschuetz.com
Agenda: “Change and Uncertainty Management in China” (PMBA 2266)
123456
789101112
-
Phase 1: Market Entry in China
Phase 2: Setting up in China
Phase 3: Change Management in Chinese Companies (Part 1)
Phase 3: Change Management in Chinese Companies (Part 2)
Phase 4: The Chinese Company in a Crisis
Phase 5: Exit Strategies from China
Strategic Scenario Techniques
Statistical Tools and methods evaluating Strategic Scenarios
Quantitative Forecasting in Business
Game and Decision Theory in Practice
Strategy implementation (Part 1)
Strategy implementation (Part 2)
Christmas Break
4.12.2006
7.12.2006
11.12.2006
14.12.2006
18.12.2006
21.12.2006
4.1..2007
8.1.2007
11.1.2007
15.1.2007
18.1.2007
22.1.2007
Dr. Marcus Schuetzmarcus@mcschuetz.com
What are we going to do?5 Phases of a China Venture / Entering Phases 1 and 2
Phase 1: Market entry in China“The 1.3 Billion Chinese customersstory and its truth”
• Market and Trend Scouting in China• How to plan and execute a “Fact finding tour”• Market Segmentation and Volume Scenarios• Competitor Analysis
Phase 2: Setting up in China“…. and 420 Million US $ disappearing day by day”
• Setting up an operation in China• Due diligence of target companies• The Joint Venture• Sourcing and supply chain• Sales and Distribution in China• “San Bao”
Chapters Material & Action
• 4C, 5F and other ideas• Sigma Sensor• Profiler Methods• Life case: “Swan Lake”• Business Case: Dell• Blackberry in China• …
• What to do in China?• Business License• Due Diligence Check List• JV Partner Evaluation• JV Contracts• Supplier Quality Audit• Retail and Branding• Warranty issues• Business case: Wal-Mart• Business case: Wu-Mart• …
1
2
Dr. Marcus Schuetzmarcus@mcschuetz.com
What are we going to do?5 Phases of a China Venture / Changing Phase 4
Phase 3: Change Management in Chinese Companies
“Why the dinosaurs were extinguished”
• Understanding the changing environment• Convincing the Management Team and the Shareholders• Reworking the strategy• Understanding your “Brand” and its potential historical
implications• Defining change Topics and forming cross-functional
projects• Setting Management targets and “doing homework”• Monitoring and reporting systems• Increasing the management competence• Internal and external communication• Touching “Symbols” and “Holy Cows”• Human Resources
Chapter Material & Action
• Shanghai Volkswagen: Time for a radical shift of gears
• Live Case: ShanghaiVolkswagen,BaseZero
• Shanghai Textile• Voigtlaender Cameras• …
3
Dr. Marcus Schuetzmarcus@mcschuetz.com
What are we going to do?5 Phases of a China Venture / Crises and withdrawal
Phase 4: The Chinese company in a crisis“Turn around without turning away”
• The War Declaration• Setting up the reporting and order structure• Forming the Management Team• The support of the Trade Union and the Communist Party• The potential value of an external Consultant• Value Chain SWOT-Analysis• Cash Analysis• Process re-engineering• Re-organization• In- and Outsourcing• Handling a headcount problem
Phase 5: Exit strategies from the Chinese Market“Coffin or suitcase”
• How to decide on a withdraw• Setting up an Execution Team• Due Diligence and Asset Sales Strategy• The role of the local government• Contractual Obligations
Chapters Material & Action
• Crisis checklist• Consultant’s briefing• Consultant’s role• Analyzing proposals• Outsourcing analysis• Insourcing analysis• Laying off people• Rescue companies setup
• …
• Pack list• Sales process checklist• …
4
5
Dr. Marcus Schuetzmarcus@mcschuetz.com
What are we going to do?Technical Toolboxes
Strategic scenario technique
• Impact factor analysis• Impact mapping and quantifying techniques• Factor Analysis and data reduction• Working out consistent scenarios• Cluster Analysis to derive scenario groups• Visualizing scenarios
Statistical tools and Methods in evaluatingstrategic scenarios“It is better to be luck than to be good”
• Basic statistical tools (Testing, Correlation, Regression, Cluster- and Factor Analysis, Time series, Trend and Pattern Analysis)
• Data Mining in a Nutshell• Setting up an experiment• Analyzing experimental data• Stochastic Modeling• Quantitative Forecasting
Chapters Material & Action
• Example and Exercise on the future of automotive industry in China• …
• Excel• SPSS• STATISTICA• …
6
7
Dr. Marcus Schuetzmarcus@mcschuetz.com
What are we going to do?Technical Toolboxes
Quantitative Forecasting in Business
• Qualitative Modeling techniques• Quantitative Modeling• Tools in stochastic modeling• Tools in deterministic Modeling• “The rule of thumb”• Understanding the past• Forecasting the future using quantitative models
Game and decision theory in practice
• Transferring real life into a strategy game• The rules of the game• The impact of probability • Statistical toolbox and rules of thumb• Decision Matrices and Trees• Changing the rules of the game
Chapters Material & Action
• Excel• SPSS• STATISTICA• …
• Prisoner’s dilemma• Casino Royale• Brinkmanship games• Visualization tools
8
9
Dr. Marcus Schuetzmarcus@mcschuetz.com
What are we going to do?Technical Toolboxes
Chapters Material & Action
• MBO Templates• Scorecards
Strategy implementation
• Vision, Mission, Strategy• Setting up a strategy workshop• Deriving business targets• Management by Objectives• Score cards• Monitoring strategy implementation
10
Dr. Marcus Schuetzmarcus@mcschuetz.com
Before we start, let’s remember some macro
frameworkabout China
Dr. Marcus Schuetzmarcus@mcschuetz.com
China is one of the fastest growing economies in the world
China’s average growth rate was about 10 %over the last 15 years
Forecast polls see this tocontinue in 2007
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Chinese GDP is regionally not evenly distributedThe highest GDP is reached in the Eastern Provinces
Dr. Marcus Schuetzmarcus@mcschuetz.com
The income disparity in China is in the mid range and comparable to the US
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Gini Coefficient is a Parameter for the Income Disparity1 = no disparity, 0 = max. disparity
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Gini Coefficient has been shooting up fast in Chinaduring the growth of the economy
Dr. Marcus Schuetzmarcus@mcschuetz.com
To small to read here, but good to know: Economic and Financial Indicators of Emerging Countries
Economic Indicators Financial Indicators
The Economist 11/2006
Dr. Marcus Schuetzmarcus@mcschuetz.com
Public dept is under controlThe growth is focussing on export
Public dept is falling The growth is export driven
Dr. Marcus Schuetzmarcus@mcschuetz.com
Agenda: “Change and Uncertainty Management in China” (PMBA 2266)
123456
789101112
-
Phase 1: Market Entry in China
Phase 2: Setting up in China
Phase 3: Change Management in Chinese Companies (Part 1)
Phase 3: Change Management in Chinese Companies (Part 2)
Phase 4: The Chinese Company in a Crisis
Phase 5: Exit Strategies from China
Strategic Scenario Techniques
Statistical Tools and methods evaluating Strategic Scenarios
Quantitative Forecasting in Business
Game and Decision Theory in Practice
Strategy implementation (Part 1)
Strategy implementation (Part 2)
Christmas Break
4.12.2006
7.12.2006
11.12.2006
14.12.2006
18.12.2006
21.12.2006
4.1..2007
8.1.2007
11.1.2007
15.1.2007
18.1.2007
22.1.2007
Dr. Marcus Schuetzmarcus@mcschuetz.com
Before you go to China think what you want to do there and why you go
Post-debt cash flow
Free cash flow
Debt EquityRevenue
Interest expense
Retire debt
Buy back
shares
Issue new debt
Issue new equity
Asset growth
Marketingstrategy
Operations strategy
Financialstrategy
Expense
Depreciation
Market Assets
Dr. Marcus Schuetzmarcus@mcschuetz.com
“Rule of Thumb”: Value Chain ElementsWhat do you want to do (in China) and why?
Sell a Productor Service
Source Material
Produce
Assemble
Source a Product
Design
Develop
Recruit
Others
Dr. Marcus Schuetzmarcus@mcschuetz.com
Think beyond the obvious: What is the full picture of launching a new car in China for Volkswagen
Sell a Productor Service
Source Material
Produce
Assemble
Source a Product
Design
Develop
Recruit
Others
Dr. Marcus Schuetzmarcus@mcschuetz.com
“Rule of Thumb”: Porter’s five Forces
Degree of Rivalry
Threat ofSubstitute
Barriers of Entry
Supplier Power
Buyer Power
Dr. Marcus Schuetzmarcus@mcschuetz.com
Assume the Canadian company Research in Motion wants to launch Blackberry in China …
Degree of Rivalry
Threat ofSubstitute
Barriers of Entry
Supplier Power
Buyer Power
Dr. Marcus Schuetzmarcus@mcschuetz.com
We will focus on the Market Entry first in terms of that you want to sell your products in China
Post-debt cash flow
Free cash flow
Debt EquityRevenue
Interest expense
Retire debt
Buy back
shares
Issue new debt
Issue new equity
Asset growth
Marketingstrategy
Operations strategy
Financialstrategy
Expense
Depreciation
Market Assets
Dr. Marcus Schuetzmarcus@mcschuetz.com
What is the market size and the market potential?
Two Market researchers are sent to Africa to make a survey finding out the market size of shoes
The first one comes back and reports:
• “Nobody wears shoes in Africa.• Nobody needs them.• So, there is no market for shoes.”
The second one comes back and reports:
• “Nobody wears shoes in Africa• Everybody needs them.• So there is a large market for shoes.”
Dr. Marcus Schuetzmarcus@mcschuetz.com
Remember: What is Marketing?
“Marketing consists of building and maintaining company sales in the broadest sense …
• learning what the customer wants• providing it better than the competitors• making sure that the product is known …• … and accessible to the consumers”
Messinger, 1997
Dr. Marcus Schuetzmarcus@mcschuetz.com
“Rule of Thumb”: 4 P and 4 C
Product Price Promotion Place
Consumer
Competitors
Company
Community
Consumer
Competitors
Company
Community
Consumer
Competitors
Company
Community
Consumer
Competitors
Company
Community
Consumer
Competitors
Company
Community
Dr. Marcus Schuetzmarcus@mcschuetz.com
Let’s change direction: What does it mean for Zhonghua to enter the German car market?
Product Price Promotion Place
Consumer
Competitors
Company
Community
Consumer
Competitors
Company
Community
Consumer
Competitors
Company
Community
Consumer
Competitors
Company
Community
Consumer
Competitors
Company
Community
Extensive equipment: AC, electric windows, central
locking, CD radio with 8 speaker system, ABS, driver
& passenger airbag, …
Sophisticated creation in collaboration of star
designer Pininfarina and BMW
Sedan of 4,88 m length with a maximum speed
of 200 km/h
Two adapted Mitsubishi engines 2.0l with 129 hp
and 2.4l with 136 hp respectively
Extremely competitive pricing with top model
priced for less than 20.000 €
Dr. Marcus Schuetzmarcus@mcschuetz.com
Example: Market Segments can be defined from the demand and from the competitors side
“New Entrepreneurs”
Annual Household income 500.000 – 1.000.000 (spendable)
Age: 35 – 50 years old
• Status oriented• Strong orientation in social pier groups• Fashion follower• Low to medium education• Preferring tax deductible “private” spendings• …
Value orientation
• “Extroverted conformist”• Conservative basis but “trying the limits”• “Trophy spouse relationships”• …
“Mobile E-Mail for Business Applications”
Pull and push technology devices andservices for mobile e-mail communication
Market elements
• Handheld devices (PDA, Smartphone, Blackberry etc.)
• Connection Network services (GPRS, CDMA,3G)
• Mailbox services
Customer Segment Product Segment
Dr. Marcus Schuetzmarcus@mcschuetz.com
As a result of a multidimensional Factor Analysis Roland Berger defines a “Brand Battlefield” in “Profiler”
Dr. Marcus Schuetzmarcus@mcschuetz.com
For example the German Social Groups form eight patterns of Consumer Market Segments
Dr. Marcus Schuetzmarcus@mcschuetz.com
Uncertainty and Change Managementin China
Hong Kong University- PMBA 2266 -
(2006/2007, Module 3)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Dr. Marcus Schuetzmarcus@mcschuetz.com
Agenda: “Change and Uncertainty Management in China” (PMBA 2266)
123456
789101112
-
Phase 1: Market Entry in China
Phase 2: Setting up in China
Phase 3: Change Management in Chinese Companies (Part 1)
Phase 3: Change Management in Chinese Companies (Part 2)
Phase 4: The Chinese Company in a Crisis
Phase 5: Exit Strategies from China
Strategic Scenario Techniques
Statistical Tools and methods evaluating Strategic Scenarios
Quantitative Forecasting in Business
Game and Decision Theory in Practice
Strategy implementation (Part 1)
Strategy implementation (Part 2)
Christmas Break
4.12.2006
7.12.2006
11.12.2006
14.12.2006
18.12.2006
21.12.2006
4.1..2007
8.1.2007
11.1.2007
15.1.2007
18.1.2007
22.1.2007
Dr. Marcus Schuetzmarcus@mcschuetz.com
Investing and operating in Restricted Industries in China
Restriction is based on• Kind of industry• Maximum foreign share held
Restricted industries are, e.g.
• Telecommunication services• Automotive Manufacturing• Aerospace Industries• Pharmaceutical Industries• Defense Industries• …
Updated lists on sectors and regulations are available at:http://www.fdi.gov.cn/pub/FDI_EN/Economy/Sectors/default.htm
Dr. Marcus Schuetzmarcus@mcschuetz.com
Four steps to obtain a business license in the case of a Foreign-Chinese JV
Prepare and apply for project proposal On the knowledge of both partners’ business area and financial status, the Chinese side is supposed to produce a project proposal to be submitted to the State or local development and reform department, or the technological renovation department for examination and approval. If approved, the Chinese side shall go to register the joint venture for protecting the company name and trademark.
Prepare and apply for feasibility studyOnce the first step is finished, you and your Chinese partner are supposed to work jointly on a feasibility study which involves markets, capital, planned site, craftsmanship, technology, facilities, environment protection, raw material sales and purchases, economic yielding, proportion of local currency and foreign currency injection, infrastructure…etc. to be submitted to the State or local Development and Reform department, or the Technological Renovation department for examination and approval. Concurrently both you and your Chinese partner can prepare to discuss and sign a contract and other legal documents such as articles of associations.
Obtain a certificate of approvalAfter the feasibility study is approved, you can submit the signed contract and the articles of associations to the Ministry of Commerce or local trade and economic bureaus for examination and approval. Once the approval is granted, a certificate of approval for the joint venture is issued.
Apply for Business LicenseStarting from the date of receiving the certificate of approval for the set-up of a joint venture, you and your Chinese partner shall apply to the industrial and commercial department for registration to get a business license. The date of the license is the date of the establishment of the joint venture.
1
2
3
4
Dr. Marcus Schuetzmarcus@mcschuetz.com
Documents to be submitted to the commercial authorities in setting up a Sino-foreign joint venture
Application form for reporting for record for setting up a foreign-funded projectAgreement, contract and articles of associationNotification of approval for name registrationName list of the board of directorsBusiness licenses of each party Evaluation license procedures related to city plan, land usage, environment protection and water resources and flood protection;Project application reportOther documents promulgated by laws and regulations
Dr. Marcus Schuetzmarcus@mcschuetz.com
Documents to be submitted to set up a fully foreign owned company in China
Application form for setting up a foreign-funded project
Articles of association of the wholly foreign-funded enterprises
Notification of approval for name registration
Name list of the legal agent
Certifications on the foreign investor's legal status and financial &credit standing
The written reply from the county level or above government which the foreign-funded enterprise will be located
Project application report
Evaluation license procedures related to city plan, land usage, environment protection and water resources and flood protection
Other documents promulgated by laws and regulations
Dr. Marcus Schuetzmarcus@mcschuetz.com
• Limited time period of e.g. 30-50 years, especially when technicaltransfer is involved
• Profit and risk sharing is proportional to the equity shares
• Penalties for breaching the contract have to be fixed
• Any transfer of shares need government approval (regulators aremoving in the direction that the board of directors can transfershares autonomously)
• Investors are restricted to withdraw capital during the life period ofthe JV
• Either party can hold the position of the MD
• The minimum share of a foreign investor is 25 % (Chinese investorshave no minimum share regulated)
• Preferably foreign exchange acounts are offset againt the JVsexports before the difference is repatriated
Framework of Joint Venture (JV) regulations in China
Dr. Marcus Schuetzmarcus@mcschuetz.com
• Equity can include cash, buildings, equipment, materials, intellectual propertyrights, and land-use rights
• Equity does not include labor• The value of any equipment, materials, intellectual property rights, or land
use rights must be approved by government authorities before the jointventure can be approved
• After a joint venture is registered, the entity is considered a Chinese legalentity and must abide by all Chinese laws
• As a Chinese legal entity, a joint venture is free to hire Chinese nationalswithout the interference from government employment industries as long asthey abide by Chinese labor law
• Joint ventures are also able to purchase land and build their own buildings
Framework of Equity Rules in China
Debt + Equity
US$ 3 Mio.US$ 3-10 Mio.
US$ 10-30 Mio.US$ > 30 Mio.
Equity share ofTotal invest
70 %50 %40 %30 %
Dr. Marcus Schuetzmarcus@mcschuetz.com
More complex structures in regulated industries in China: an example (just for illustration!)
$ (shared Dividend)
Parts
Licenses and rights
$
Licenses
$
Dr. Marcus Schuetzmarcus@mcschuetz.com
Homework: “Dell: Selling directly, globally”
Dell established the model of build to order PCs in an exceptional lean and competitive way. What are additional potentials for Dell coming up from China’s development?
Task: Propose a China Strategy for Dell
Form groups of 3-5 students
Prepare a 5-6 slide Strategy Document
Sending in Deadline: December, __th, 2006
Present the your Strategy in 15 Minutes (including discussion) on December, __th, 2006 in the course
Dr. Marcus Schuetzmarcus@mcschuetz.com
Uncertainty and Change Managementin China
Hong Kong University- PMBA 2266 -
(2006/2007, Module 3)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Dr. Marcus Schuetzmarcus@mcschuetz.com
Agenda: “Change and Uncertainty Management in China” (PMBA 2266)
123456
789101112
-
Phase 1: Market Entry in China
Phase 2: Setting up in China
Phase 3: Change Management in Chinese Companies (Part 1)
Phase 3: Change Management in Chinese Companies (Part 2)
Phase 4: The Chinese Company in a Crisis
Phase 5: Exit Strategies from China
Strategic Scenario Techniques
Statistical Tools and methods evaluating Strategic Scenarios
Quantitative Forecasting in Business
Game and Decision Theory in Practice
Strategy implementation (Part 1)
Strategy implementation (Part 2)
Christmas Break
4.12.2006
7.12.2006
11.12.2006
14.12.2006
18.12.2006
21.12.2006
4.1..2007
8.1.2007
11.1.2007
15.1.2007
18.1.2007
22.1.2007
Dr. Marcus Schuetzmarcus@mcschuetz.com
Saving Titanic Scratching the IcebergLessons from turning around aChinese-Foreign Joint Venture
Dr. Marcus SchuetzDirector Strategic Planning and Change ManagementShanghai Volkswagen Automotive Limited (Shanghai)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Shanghai Volkswagen was seen as the “unsinkable Titan in Chinese Automotive Industry” …
Founded in 1984. Joint Venture between Volkswagen AG and Shanghai Automotive Industry Corporation (SAIC)
Symbol of the most successful Sino-German Joint Venture ever in history
“Shanghai Volkswagen stands for the beginning of modern industrialization in China. Who buys a car today from our competitor has to remember that he only has the money to do so because we started this venture here together with our Chinese friends” (Bernd Engelstaedter, 2004)
Pioneers in China
Dr. Marcus Schuetzmarcus@mcschuetz.com
The day the Titan struck the iceberg
The Central Government enforced a necessary regulation to cool down the Auto-Market and the amount of non performing car loans laying heavily on the banks by reducing the access to car credits.
What happened on April the 1st 2004?
What happened to Shanghai Volkswagen just after this?• Slowed down market growth could not overcompensate the market share loss any more• Customers had lower budgets and decided for cheaper products.• Sales figures collapsed• The “order” to defend 20 % market share was given by the German shareholder• Production rate was kept up to fulfill the 20 % market share target• Heavy overproduction and overstocking• Stock clearance by pushing into the market at the end of the year 2004• Dealerships started collapsing economically
Dr. Marcus Schuetzmarcus@mcschuetz.com
The end of 2003 marked an end of a dream but also a historical chance to reach real competitive advantage
0
50
100
150
200
250
300
350
400
450
2000 2001 2002 2003 2004 2005 2006
Ann
ual S
ales
(uni
ts)
Est.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Chinese car market & SVW share
But the problems of Shanghai Volkswagen go deeper: it can not compete in the open market any more
Mercer
1994 1996 1998 2000 2002 2004 2006 2008 2010
47%51%
47%
35%
25%
14%
9%7% 7%
0,25 0,37 0,50 0,631,22 2,51
3,84
5,13
7,41
6,99
4,40
CSFB
Passenger Car Market[in Mio. Units]
SVW Market Share[in %]
Forcasts
Phases of the sinking Titanic
Dr. Marcus Schuetzmarcus@mcschuetz.com
2
Agenda
“Shanghai Volkswagen – Time for a radical shift ofgears” …
Lessons learned from turning around a Sino-GermanAutomotive Joint Venture
Strengths and Weaknesses of Chinese State OwnedEnterprises
Don’t feed the Zombies
1
3
4
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Outer Framework and the Change Programs at Shanghai Volkswagen and the Volkswagen Group China
2003 2004 2005 2006 2007 2008
Drastic loss of market share,still overcompensated by booming market
The Government cools down the boomby cutting loans to purchase cars
Huge overstocking and capacity anddramatic price drops of -15 %
SVW launches a 2nd round in price war
Heavy restructuring SVW’s of sales networkand its performance
Dramatic procurement cost reductionOverhead cost and labor cost cut, BPR
Launch “Product firework” for Olympic Program“Product cost workshop campaign”
Launch Passat “Lin Yu”
“BaseZero”“Olympic Program”
Prog
ram
sTh
e SV
W S
tory
in a
nut
shel
l
Dr. Marcus Schuetzmarcus@mcschuetz.com
Speed and impact of a Change Management Team are not a linear relation
Impa
ct o
n th
e or
gani
satio
n
Speed
If you loose them, you are lost!Keep the grip
Impactwindow
Impactwindow
Beware of the threshold that might detach you from the Organization. Stay in the “Impact window”.
Increase the size of the impact window by communication and HR decisions
There is no “Revolutionary Change”, only “enhanced Evolution”
Dr. Marcus Schuetzmarcus@mcschuetz.com
95 Topics 23 Projects
Konzeption Neuaufstellung MD-Office und UmsetzungSpielregeln EXCOM-Sitzung umsetzenDetaillierte Aktionspläne auf Basis PR-Ziele erarbeitenLeistungsbeurteilungssystem umsetzenMaterialwirtschaft optimierenSingle Part OrderingFahrzeug-DistributionNeues Vergütungssystem einführenEinführung flexible Arbeitszeit Entwicklung von Organisation u. UnternehmenStellenbewertung einführenOptimierung der VertriebsprozesseOptimierung Organisationsstrukturen VertriebVerbesserung der ProduktionsprozesseAufbau von RSSC und Trainingszentren für VertriebZusammenfassung ISO 9000Revidierung der Verfahrensanweisung der Vertragsverwaltung...
After Sales sanierenArbeitszeitmodelleCar Plant 4Controlling optimierenDV-SystemeEngine Plant 3EntscheidungsprozesseExportstrategieIntegration SalesLogistik optimierenLokalisierungMarketingMultifunktionsgebäudeOrder ManagementOrganisation (generell)PersonalentwicklungPKOPR aufbauenRevision sanierenSales optimierenShared ServicesStrategieUnternehmenskultur
1Spielregeln EXCOMOptimierung VertriebsprozesseOptimierung RSSC-Struktur
2
3
Media Planning erarbeitenRevision sanierenUnternehmensleitlinien
Einführung flexible ArbeitszeitenVerbesserung ProduktionsprozesseOptimierung SET-Arbeit
Summarize Delete ProjectDefinitionEvaluate
Lfd Nummer Bereich Projektname Projekt-
relevanzWichtigkeit / Bedeutung
Erfolgs-wahr-schein-
PL MC Intern
PL MC Extern
Ist ein konkretes
Projekt
Welche Bedeutung/Wichtigkeit hat
Wird das Projekt aus
heutiger Sicht
LfdNummer Bereich Teilprojekt Projektrelevanz Wichtigkeit Erfolgswahrsc
heinlichkeit PLIntern PLExtern
1 MO Konzeption Neuaufstellung MD-Office und Umsetzung J 6,5 6 Xu Min
2 MOMO-Formularwesen straffen (integriert in Neuaufstellung MD-Office)
IA 1,8 9 Xu Min
3 MO Spielregeln EXCOM-Sitzung umsetzen Offen 10 5 Xu Min
4 PR Media Planning erarbeiten J 8,5 6 Zeng
5 PR Detaillierte Aktionspläne auf Basis PR-Ziele erarbeiten J 8 6 Zeng
6 TL Neue Organisation umsetzen IA 2 9 Goransch
7 TL Leistungsbeurteilungssystem umsetzen J 5 7 ?
8 HR
Personal-Entwicklungsplanung umsetzen (u.a. Spezialistenwege und Experten /Nachwuchs aufbauen)
J 7 8Hr. Song
Haibo, Hr. Zhang Yu
9 TL Kosten Management System Logistik umsetzen J 3 8 ?
10 TL Materialwirtschaft optimieren J 3,3 8 ?11 TL Single Part Ordering J 9 5,5 ?12 TL Vorserienlogistik optimieren J 2,7 8 ?13 TL Outsourcing 1 (Anji-TNT) J 9 6,5 Vetter
14 TL Outsourcing 2 (Home Parts /Engine Parts) J 7,5 5 Vetter
15 TM/HR/TL Car Plant 4 - Lin Gang J 9,5 8 Vetter
16 TL Industriepark J 2 3 Vetter
17 TL Logistik-Kooperation J 1 2 Vetter
18 TL Fahrzeug-Distribution J 6 2 Vetter
19 TM/TL Engine Plant III Lou Tang J 9 8 Vetter
20 TL Markt-Strategie Südost-Asien – CKD Export / Export-Strategie J 8 3 Vetter
21 TL CKD-DL-Konzept POLO J 7 2 Vetter
22 TL Gruene Wiese Logistik Lastenheft IA 0 9 Vetter
23 HR Leiharbeiter J 2 7 Hr. Chen Liang
24 HR Personalwesen in den alten Standorten ausbauen J 5 8
Hr. Jiang Guofeng
(Hr. Wang Yifei)
25 HR Neues Vergütungssystem einführen J 9 7 Hr, Wang
Yifei
26 HR Einführung flexible Arbeitszeit J 5,5 7 Ling Yougen
27 HR Outsourcing für Personal-Services J 3 5 Wang Qiqi
28 HR Optimierung des HR-Ablaufs und der Organization J 3 9 Huang
Yuyin
Wer sind die Projekt-Verantwortlichen?
Projektplan
ProjektzielErstellung ei ner leistungsgerechten Bewertung der Angestellten
ProjektteamDr. Schütz ProjektleiterZhao Min LogistikCao Ian Allgemeine Aufg.
Projektplan
ProjektzielErstellung ei ner leistungsgerechten Bewertung der Angestellten
ProjektteamDr. Schütz ProjektleiterZhao Min LogistikCao Ian Allgemeine Aufg.
Projektplan
ProjektzielErstellung ei ner leistungsgerechten Bewertung der Angestellten
ProjektteamDr. Schütz ProjektleiterZhao Min LogistikCao Ian Allgemeine Aufg.
The first Phase is to collect topics and define and form projects …
Dr. Marcus Schuetzmarcus@mcschuetz.com
Number ofActivities
Success Probability
123
StrategieLokalisierung
Order management
ExportstrategieRevisionsanieren
Multifunktions-gebäude
Marke-ting
Integration Sales
Logistik optimieren
SharedServices
DV-Systeme
PRaufbauen
Arbeitszeit-modelle
Organisation(generell)
Controllingoptimieren
Salesopti-
mieren
Unternehmenskultur
Impo
rtan
ceof
Pro
ject After
Salessanieren
Diverses
Personal-entwicklung
PKO
Car Plant 4
EnginePlant 3Entschei-
dungs-pro-zesse
… then priorities are set and projects are selected.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Org Redesign
Current structure
Lean structureM C S T
M C S T
… …
Implement new Org
Define guidelines & principlesDefine target orga & processesImplement new orga & process
Reorganize Staff
HR reduction toolsIdentify staffTransfer staff
Service Company
Business caseLegal frameworkStart operations
Implementation
The restructuring of the company runs in three phases
Process
M
C
InterviewsMappingWorkdshopsNew documentation…
Dr. Marcus Schuetzmarcus@mcschuetz.com
Foundation Service Company as Rescue Company
SVWIdentify potential businessfields for Service CompanyIdentify appropriatemanagement and staff and transfer to Service Company
Major business fields: Services to SVW & external clientsTrain staff and reintegrate staff into SVW
Business fields in detail to be defined in first project phaseCoach and train employees
External ClientsTo be defined:
Potential client groupsServices to be offered to external clients
Serv
ice
Fee
Serv
ice
Fee
Rein
tegr
ateS
taff
Prem
ium
redu
ndan
t St
aff
Service Company takes over redundant staff in a socially-reconcilable way
Dr. Marcus Schuetzmarcus@mcschuetz.com
Categorizing the projects running in terms of the 4C-Model shows a shift in focus over time
0%10%20%30%40%50%60%70%80%90%
100%
III/20
03I/2
004
II/200
4III/
2004
IV/2004
I/200
5II/2
005
III/20
05IV/20
05I/2
006
Competence
Commitment
Culture
Communication
% o
f pro
ject
s ru
nnin
gfo
cusi
ng o
n
Communication: Project focusing on communication, interface and taxonomyCommitment: Project focusing the decision processes, responsibilities and personal motivationCompetence: Project targets knowledge increase and exchange of incompetent staffCulture: Project focusing on company culture improvement and leadership
4C
Dr. Marcus Schuetzmarcus@mcschuetz.com
Monitoring categories of staff attitudes in a “5F-Model”
0%10%20%30%40%50%60%70%80%90%
100%
III/20
03I/2
004
II/200
4III/
2004
IV/2004
I/200
5II/2
005
III/20
05IV/20
05I/2
006
FortuneFun
F-xxx Frustration
Fear%
of a
nsw
ers
Fortune = “I feel that this crises is a chance for SVW”Fun = “I enjoy coming to work”F-xxx = “I am neutral to the future of SVW”Frustration = “I feel frustrated”Fear = “I am fearing for my job and the future of the company”
5F
Dr. Marcus Schuetzmarcus@mcschuetz.com
Different functions in the company reflect in different Social Milieus of the Staff and Management
“Lost Generation”
“Career fighter”
“Deng’sGrandchildren”
“Comrade Li”
“Philosopher”
“New MiddleClass”
“New rich”
HR Admin.
R&D
S&M
Company Milieus
A large operation segregates different Milieus in different roles and functions.
An analysis shows critical issues in the value systems and behavioral patterns.
Multidimensional Factor Analysis of social value systems and behavioral patterns in a Chinese Automotive SOE (2005).
Dr. Marcus Schuetzmarcus@mcschuetz.com
Uncertainty and Change Managementin China
Hong Kong University- PMBA 2266 -
(2006/2007, Module 3)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Dr. Marcus Schuetzmarcus@mcschuetz.com
Agenda: “Change and Uncertainty Management in China” (PMBA 2266)
123456
789101112
-
Phase 1: Market Entry in China
Phase 2: Setting up in China
Phase 3: Change Management in Chinese Companies (Part 1)
Phase 3: Change Management in Chinese Companies (Part 2)
Phase 4: The Chinese Company in a Crisis
Phase 5: Exit Strategies from China
Strategic Scenario Techniques
Statistical Tools and methods evaluating Strategic Scenarios
Quantitative Forecasting in Business
Game and Decision Theory in Practice
Strategy implementation (Part 1)
Strategy implementation (Part 2)
Christmas Break
4.12.2006
7.12.2006
11.12.2006
14.12.2006
18.12.2006
21.12.2006
4.1..2007
8.1.2007
11.1.2007
15.1.2007
18.1.2007
22.1.2007
Dr. Marcus Schuetzmarcus@mcschuetz.com
Choice of the contract and working language
Chinese is the language which has to used in any legal cases
Contracts and minutes can be written in other Languages than Chinese. The JV-Contract itself should make this language then the binding in case of disagreement
Be aware that in case of legal argument the documents have to be translated by a certified and independent translator
Dr. Marcus Schuetzmarcus@mcschuetz.com
020
406080
100
120140
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
*
Source: IFC, The World Bank (2005)*) Estimation
SOE
Wor
kfor
ce (M
illio
ns)
The Chinese SOEs are undergoing a deep changein shareholding and structure
MBOMergerJoint VenturePublic offeringInternal restructuringBankruptcy andreorganizationEmployeeshareholdingOpen SalesLeasing
Options of changing theshareholder structure Reduction of workforce in SOEs
Dr. Marcus Schuetzmarcus@mcschuetz.com
State Owned Companies are strongly embedded into the Regional Development and have high Social Responsibility
Anting “Anting Automotive City”
The City of Anting in the North-Eastern Suburbs of Shanghai is developing a huge “New Automotive City, including R&D facilities, a University Campus of TongjiUniversity, Automotive Supplier plants, conference Center and a large residential development. This investment is highly dependent on SVW’sfuture.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Strengths and Weaknesses of Chinese SOE Companies
Governmental relationsRelations to traditional customersCapability of market protectionAccess to capitalAccess to licensesLegal securityPressure on suppliers
Low private customer penetrationWeak brands and low appealLow product innovation“Investment” in political issues OvercapacityLow productivityConfuse shareholder structuresIntransparencyLow management competenceLow technical competenceLow motivation of managementLow motivation of workforce
Stengths Weaknesses
Dr. Marcus Schuetzmarcus@mcschuetz.com
Structure of Central Government Control Mechanisms for SOEs
Cen
tral
Bei
jing
SASA
C o
f Cen
tral
G
over
nmen
t SO
Esof
Cen
tral
Gov
ernm
ent (
168)
State/Government Trade UnionCPC
Hu JintaoGeneral Secretary CPC
Standing Committee CPC
Political Bureau/Central Secretariat of CPC
Hu JintaoPresident
State Council
Party Secretary
Party CommitteeVice Secretary/Committee Member
General Manager
Wang ZhaoguoPresident ACFTU
President
Wen JiabaoPremier
President
Li RongrongParty Secretary
Li RongrongChairman
Cadre on two positions
Party CommitteeVice Secretary/Committee MemberVice Chairman
General Manager
SASAC: State-owned Assts Supervision and Administration Commission of the State CouncilACFTU: All China Federation of Trade Unions
Dr. Marcus Schuetzmarcus@mcschuetz.com
Prov
ince
/M
unic
ipal
itySA
SAC
of l
ocal
go
verm
ent
SOEs
of lo
cal
gove
rnm
ent
Local Government Trade UnionCPC
Party Secretary CPC
Standing Committee CPC
Committee CPC
Party Secretary
Party CommitteeVice Secretary/Committee Member
General Manager
Party Secretary
Director of local SASAC
President
President
Mayor/Governor
Party CommitteeVice Secretary/Committee Member
President
General Manager
Cadre on two positionsSASAC: State-owned Assts Supervision and Administration Commission
Structure of Control Mechanisms for SOEs that are not under direct Control of the Central Government
Dr. Marcus Schuetzmarcus@mcschuetz.com
The world of Corruption 2005
Source: Transparency International (2006)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Ask: “Is it right that GM needs so urgently cash that they offer their share of SGM (Shanghai GM) to Volkswagen? Is this true?” … and …
Internal SVW (C)
SAIC
CPC
SASAC
VW Headquarter
SGM (C)
GM
Day 1 2 3 4
Reconf.
Probing
Evidence found
Reconfirmation
Reconfirmation
Evidence found
DementedReconf.
Reconf. Demented
Information and mal-information flow patterns of a “corporate rumor” (only for illustration)
Dr. Marcus Schuetzmarcus@mcschuetz.com
1756 Foundation by Johann Voigtlaender in Vienna1763 Protection Decreed by Queen Maria Theresia1805 Cesarean privilege for Opera Binoculars1840 Objectives by Prof. Petzval, first metal camera1930 BESSA1931 BRILLIANT1953 VITESSA (35 mm)… Various product innovations
1965 Foundation of Zeiss Ikon/Voigtlaender Sales Company1972 Carl Zeiss Group stops consumer cameras due to Japanese competition1973 Rollei takes over Voigtlaender and transfers part of production to
Singapore1982 With bankruptcy of Rollei, Voigtlaender is sold to Plusfoto GmbH & Co.1997 RINGFOTO GmbH & Co ALFO Marketing KG buys Voigtlaender1999 “Relaunch” of Classical Camera Models2006 250th anniversary
Example: The Rise and Fall of the Voigtlaender Optical Works
Historical overview on Voigtlaender Optical Works
Dr. Marcus Schuetzmarcus@mcschuetz.com
Example: The Shanghainese Textile Industry undertook a huge effort to survive Competition
Planned Economy Phase1
Phase2
Phase3
Pull MarketLow technical and innovationLow product innovationNPLHeadcount (1.2 Mio red. until 1990)
Reduction of overcapacityFurther headcount reduction
Location move outside ShanghaiPrivatizationForeign investAdvanced technologyProduct innovations
Design
1990 1998 2000 2004
…
Dr. Marcus Schuetzmarcus@mcschuetz.com
Learning from the Japanese development of the late 90s and the American “Chapter 11”: “Don’t feed the Zombies”
Caballero, R. & Hoshi, T & Kashiyap, A. (2006): Zombie lending and depressed re-structuring in Japan. NBER working paper, III/2006.
A “Zombie” is a company that receives fresh bank loans at cheaper interest rates than the risk warrants (e.g. a subsidized credit)
Disordered Japanese banks were pumping fresh money into ZombiesZombie-contaminated industries were loosing the fewest jobs because they kept people in unproductive jobsThe entering threshold for competition was kept high(market protection)Prices declined, made the industry unattractive andnew companies did not invest
Banks do not lend money in a disordered way,but Chapter 11 bankruptcy protection has similareffects subsidizing unproductive operationsChapter 11 companies can go on driving downproductivity and prices of whole industries
Def.
Japa
nU
S
Dr. Marcus Schuetzmarcus@mcschuetz.com
Uncertainty and Change Managementin China
Hong Kong University- PMBA 2266 -
(2006/2007, Module 3)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Dr. Marcus Schuetzmarcus@mcschuetz.com
Agenda: “Change and Uncertainty Management in China” (PMBA 2266)
123456
789101112
-
Phase 1: Market Entry in China
Phase 2: Setting up in China
Phase 3: Change Management in Chinese Companies (Part 1)
Phase 3: Change Management in Chinese Companies (Part 2)
Phase 4: The Chinese Company in a Crisis
Phase 5: Exit Strategies from China
Strategic Scenario Techniques
Statistical Tools and methods evaluating Strategic Scenarios
Quantitative Forecasting in Business
Game and Decision Theory in Practice
Strategy implementation (Part 1)
Strategy implementation (Part 2)
Christmas Break
4.12.2006
7.12.2006
11.12.2006
14.12.2006
18.12.2006
21.12.2006
4.1..2007
8.1.2007
11.1.2007
15.1.2007
18.1.2007
22.1.2007
Dr. Marcus Schuetzmarcus@mcschuetz.com
Cash+ Short Term Receivables
-Short Term Payables
< 0
* Short Term = one year
Red Alert!You will be bankrupt in one year if
nothing happens!
What can be done now?
When are you heading for serious trouble?
Dr. Marcus Schuetzmarcus@mcschuetz.com
Cash+ Short Term Receivables
-Short Term Payables
< 0
* Short Term = one year
Red Alert!You will be bankrupt in one year if
nothing happens!
What can be done now?
• Inform your shareholders• Get the trade Union at the table• Cut cost, cut cost, cut cost!• Check inventory for obsolete material and sell it off• Check on Asset Productivity and sell unproductive assets
• Agree on other payment terms• Agree with banks to shift to longer term credits• Try to negotiate higher credit lines
• …
When are you heading for serious trouble?
Dr. Marcus Schuetzmarcus@mcschuetz.com
What is bankruptcy and what does it mean?
Bankruptcy is a legal status declared by the company (debtor) to
• relieve the debtor of most debts• repay creditors in an orderly manner to the extent that the debtor has the means available for payment
During pending bankruptcy case
• The debtor is protected from any obligations outside the bankruptcy case• The creditor is not allowed to continue law suits• The creditor is not allowed to raise penalties• The creditor is not allowed to contact the debtor to ask for payment
After the bankruptcy the debtor will be released from most financial obligations
Dr. Marcus Schuetzmarcus@mcschuetz.com
Potential misuse of bankruptcy
“Strategic bankruptcy” is a general term where a bankruptcy process is used to get freed from dept and obligations. Strategic bankruptcy in itself is not criminal.
Bankruptcy fraud is a criminal offence.
This typically involves:
• Misevaluation of assets• “Hiding” of assets• Conflicts of interest• False claims• Redistribution arrangements• Falsifications on bankruptcy forms
Dr. Marcus Schuetzmarcus@mcschuetz.com
The general process of a bankruptcy (liquidation of the company)
Debtor applies for bankruptcyand case is taken on formally
Bankruptcy Trustee is defined and set to duty
First Creditor’s meeting
Selling of assets or trying a “rescue act”
Payment of creditors by all means available
Filing the case in the situation of being insolvent declaring all assets of the company
• Review filing• Prepare creditor payment order (“the less equity, the earlier …”)• Call for first creditor chair meeting
• Confirm the appointed trustee or provide substitute• Confirm the payment order• Appoint inspectors• Advice the trustee on asset situation and open books
Trustee sells the assets on behalf of the creditors and ensures no illegal impact of creditors on the debtor
Payment of liquidation sum to the creditors by payment order and agreed scheme
Dr. Marcus Schuetzmarcus@mcschuetz.com
Footnote on “Chapter 11” of the United States Bankruptcy Code
A “Chapter 11-Filing” is an attempt to stay operational and find an alternative to the liquidation of the company (Chapter 7-Filing)
Originally the reason behind is that the debts heavily exceeds the assets and a chance is seen to rescue the company which could be a result of unsecured loans (or the multiple use of assets to secure loans).
During this period the Bankruptcy Court is supervising the reorganization of the company and a trustee can be put in charge of managing the debtor's business
The bankruptcy court can concert a Chapter 11 filing into a Chapter 7 filing
The company will usually be de-listed from Stock Exchange (NASDAQ will be labeled by “Q”). In case trading resumes, the stocks are qualified as OTC. Usually after a positive emerging of a company from Chapter 11 Procedure the OTC stocks will be nullified.
Dr. Marcus Schuetzmarcus@mcschuetz.com
D’Long: the largest financial case in the history of the New China
Four brothers set up a film processing shop wich grew into US$5bn business empire ranging from tomato paste to heavy truck engines to financial services, acquiring companies from the US and Europe.
In an Environment of Privatisation D’Long found “creative shortcuts” to capital
D’Long bought controlling shares of three domestic banks that then funnelled money to D’Long’s affiliates. Company officials still refuse to outline the complex company structure.
In 2004 investigation started chaired by China’s Central Bank – People’s Bank of China. and Huarong Asset Management Corporation, was ordered to take over assets of D’Longunder its custody. In December, Tang Wanxin was arrested. Debts of 30 bn Yuan were covered by only 20 bn assets
In Apr. 2006, the main D’Long criminal case was closed
The owner was sentenced by a court in Wuhan to 8 years in prison and fined RMB800,000 for illegal banking and stock price manipulation.The convicts netted 9.86bn yuan (about 1.23bn US$) from share price manipulation since March 1997. The major companies he owned, i.e. D'long International Strategic Investment Co., Ltd. and Xinjiang-based D'long Co.,Ltd. were each fined 5bn Yuan (about 625m US dollars) for share price manipulation. Shanghai Youlian Management Research Centre Co., Ltd. was fined 300m Yuan (about 37.5m US dollars) for illegally taking huge deposits from the public.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Exercise: Geely Limited
• Geely runs an Automotive OEM• Very competitive pricing• Emerging from motor scooter business• Export knowledge and infrastructure from scooter business
Exercise:
•Take the provided Financial statement of the Geely Group•Form groups of approx. 3 students•Analyze the financial data in terms of risk of a cash crisis here in class until __ h•Prepare a quick statement and present to class in a few sentences and arguments
Dr. Marcus Schuetzmarcus@mcschuetz.com
Homework: “Wal-Mart. Every day low prices in China”
Wal-Mart entered the Chinese Market confident that their business model would be fully applicable in China. Compared with Carrefour it looks like they had a bad start. Also local Chinese retailers of their format are emerging and seem very successful (e.g. Wu-Mart, starting in Beijing).
Task: Propose a strategy for Wal-Mart in China under the given situation as if you are presenting to the Wal-Mart Management.
Form groups of 3-5 students
Prepare a 5-6 slide Strategy Document
Sending in Deadline: January, 4 th, 2006
Present the your Strategy in 15 Minutes (including discussion) on December, __th, 2006 in the course
Dr. Marcus Schuetzmarcus@mcschuetz.com
Uncertainty and Change Managementin China
Hong Kong University- PMBA 2266 -
(2006/2007, Module 3)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Dr. Marcus Schuetzmarcus@mcschuetz.com
Agenda: “Change and Uncertainty Management in China” (PMBA 2266)
123456
789101112
-
Phase 1: Market Entry in China
Phase 2: Setting up in China
Phase 3: Change Management in Chinese Companies (Part 1)
Phase 3: Change Management in Chinese Companies (Part 2)
Phase 4: The Chinese Company in a Crisis
Phase 5: Exit Strategies from China
Strategic Scenario Techniques
Statistical Tools and methods evaluating Strategic Scenarios
Quantitative Forecasting in Business
Game and Decision Theory in Practice
Strategy implementation (Part 1)
Strategy implementation (Part 2)
Christmas Break
4.12.2006
7.12.2006
11.12.2006
14.12.2006
18.12.2006
21.12.2006
4.1..2007
8.1.2007
11.1.2007
15.1.2007
18.1.2007
22.1.2007
Dr. Marcus Schuetzmarcus@mcschuetz.com
What can go wrong when the largest German DIY Retailer enters the Chinese Market?
?
Dr. Marcus Schuetzmarcus@mcschuetz.com
The timeline of OBI’s Expansion to China and it’s Withdrawal
• Franchise DIY Chain of Obi Holding in Wermelskirchen (Germany)• Founded 1970 by Emil Lux and Manfred Maus• Revenue of about 6.3 bn Euros (2005), 4th largest DIY Group• 62 % shares belong to Tengelmann Group• Predominant activities in Europe (not France), and Eastern EuropeB
ackg
roun
d
• First OBI Store in Wuxi in 2000
• Establishment of Obi Asia Holding with Headquarter in Shanghai
• Fast Expansion of DIY and Garden Centers in East China
• 13 Stores opened in 2005
• 5 further stores to be opened in 2005
• April 2005, Obi Asia Holding is sold to Kingfisher
• Kingfisher operated 2005 already 22 stores + 18 ex-OBI
• Obi stores fully integrated in B&Q
Tim
elin
e 20
00 -
2005
Dr. Marcus Schuetzmarcus@mcschuetz.com
OBI’s reasons to enter the Chinese Market in 2000
Boom of building and construction industry in the residential segment
Upcoming middle class which is typically a customer of OBI stores
Suburban locations were cheap and at the same time residential developments were booming in these Location
Sourcing also for European Stores already in China
Suppliers are known and price benefits can be realized
OBI’s Location in Shanghai (North)Reasons to come
Dr. Marcus Schuetzmarcus@mcschuetz.com
Exodus of Japanese Mobile Handset Manufacturers from China in 2005 and 2006
NEC, Toshiba, Panasonic, Mitsubishi and Alcatel (French) withdraw from China
Stiff competition, overcapacities and price decline are pressing the margins in the mobile phone handset market to
a minimum
Many manufacturers started to re-evaluate the cost of their market share
gain efforts in China
Dominant position of Motorola and Nokia is stronger than ever before and the re-entry barriers increased
Dr. Marcus Schuetzmarcus@mcschuetz.com
Siemens lost a strategic project bit against competitors and withdrew from Chinese IPTV Market (7/2006)
Project bidding to build up the infrastructure of IPTV in Shanghai
Siemens lost bidding of IPTV Project in which also UTStarcom, ZTE, Alcatel Shanghai Bell, Huawei and Microsoft
were involved
Siemens dismissed the IPTVTeam located in Beijing and withdrewExpats to their home base in 11/2006
Siemens stays open for new projects and opportunities and will relay on
know how gained in the bidding
Dr. Marcus Schuetzmarcus@mcschuetz.com
Thames Water sells their shares of a JV to their partner Shanghai Waterworks Shibei Ltd. in 2006
Thames Water is a British Water Company emerging from the privatization of the British
Water Industry in the 80s
In 1998 TW entered into the first BOT- (Build, Operate, Transfer) Agreement with Shanghai Waterworks Shibei Ltd. for 20 years period at
fixed returns of 15 % p.a
In 2002 a legislative change made high and fixed return BOT-JVs illegal (Return should not exeed
8-10 %)
In 2004 TM sold their shares in Shanghai Thames Water Dachang Company Ltd. to Shanghai
Waterworks Shibei Ltd. for 30 Mio. US$
Dr. Marcus Schuetzmarcus@mcschuetz.com
SK-II decided not to withdrawal from China, even after severe brand damage by a quality scandal in 9/2006
Neodymium and chromium found in SK-II beauty product in a lab sample by China's General Administration of Quality Supervision, Inspection and Quarantine
P&G announced the withdrawal of all SK-II products off the shelves and closed all shops after cases of violence against property and staff.
In a statement, SK-II said: "Although we believe our products are safe, sales will be suspended until we affirm our products meet China's standard on neodymium and chromium in cosmetics."
“Customers wait in line to return SK-II skincare products in Shanghai on Wednesday, September 20, 2006. Neodymium and chromium - substances banned in cosmetics which can cause allergic dermatitis and eczema - were detected last week in the Japanese cosmetic brand SK-II.” [Xinhua]
China Daily, September 21st 2006 What happened?
Dr. Marcus Schuetzmarcus@mcschuetz.com
In 10/2006 a Law Sued was filed against Carina Lau for false Advertising of SK-II Product
Carina Lau (47) was sued by Mrs. Lu Ping (47) in a local Court in Jiangxi
Province for false advertising
Skin-tightening, anti-wrinkle facial milk advertised: … "reduce wrinkles by 47
percent and make you appear 12 years younger“ (Elle, January 2005)
Evidence that Mrs. Lu’s skin had not become silky. Her face became itchy and
she felt a burning after 28 days application
P&G was fined 25000 US$ for false advertising (Carina Lau had no personal
responsibility)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Reasons and examples of Exits from Markets
NEC, Mitsubishi, Alcatel withdraw from the mobile phone market from China (2005-06)
Walmart withdraws from South Korea and Germany (2006)
Siemens withdraws from digital Television business in China (2006)
Thames Water withdraws from JVs in the Chinese Water Industries (2005)
Shanghai Volkswagen withdraws the VW Gol from the Chinese Market
The potential withdrawal of SKII from China after a product quality scandal
Wrong product decision
Consolidation
Uncompetitive Model
Lost strategic Project
Regulation change
Brand damaged
Dr. Marcus Schuetzmarcus@mcschuetz.com
Let us find out whether the OBI-Management did their homework before they decided to enter China
1. Identifying the Market Target Segment
2. Value Chain SWOT Analysis of OBI in China
3. Main Forces of a China Entry of OBI
4. Strategic Battlefield of OBI in China
5. Recommendations
Dr. Marcus Schuetzmarcus@mcschuetz.com
Remember from Session 1: Before you go to China think what you want to do there and why you go
Post-debt cash flow
Free cash flow
Debt EquityRevenue
Interest expense
Retire debt
Buy back
shares
Issue new debt
Issue new equity
Asset growth
Marketingstrategy
Operations strategy
Financialstrategy
Expense
Depreciation
Market Assets
Dr. Marcus Schuetzmarcus@mcschuetz.com
As a result of a multidimensional Factor Analysis Roland Berger defines a “Brand Battlefield” in “Profiler”
Dr. Marcus Schuetzmarcus@mcschuetz.com
DIY Market has to be created and the Value Chain does not compensate failure to achieve this
Sourcing ProductPortfolio
InboundLogistics Sales Service
S
W
O
T
• ready • forecast• Mgt. exp.
• Gdn. Qual.• Mgt. arrogan.•• Rise Suppl. Base••• Legisl change••
• Technology• Quality• Range
• Design• Price••••• IP••
• Cost••
•••••••••
• Quality• Brands• Trust
• low marg.• “Lamp Str.”• Price• Consolidat.••• Cons. Behav.• Wrong $ forecast•
• Exchange• Training• Payment
• No setting up• Expensive delivery•• Qualified contracor••• Cost••
Dr. Marcus Schuetzmarcus@mcschuetz.com
Value Chain Elements of OBI in ChinaWhat do you want to do (in China) and why?
Sell a Productor Service
Source a Product
Recruit
Others
• Sell products for DIY application• ?
• Mainly local Sourcing • Opportunity to improve European Sourcing
• Recruit Sales force•
• Grow your franchise network •
Dr. Marcus Schuetzmarcus@mcschuetz.com
Strong buyers market with established competition and low demand of the advantage of DIY due to low labor cost
Degree of Rivalry
Threat ofSubstitute
Barriers of Entry
Supplier Power
Buyer Power
• Fragmented comptetion, but established and market adapted• Direct competition with same retailers weak but might increase• “Hard to beat”
• Low labor cost substituting tools• Uprising direct competition which adapts to market better• Ready furnished developments delay the purchase SSubstitution Market)
•••
• Legislation could force to purchase from certain suppliers • OBI has large scale negotiation position•
• Unpredictable consumer behavior • Low switching cost•
Dr. Marcus Schuetzmarcus@mcschuetz.com
“Rule of Thumb”: 4 P and 4 C
Product Price Promotion Place
Consumer
Competitors
Company
Community
Consumer
Competitors
Company
Community
Consumer
Competitors
Company
Community
Consumer
Competitors
Company
Community
Consumer
Competitors
Company
Community
Dr. Marcus Schuetzmarcus@mcschuetz.com
Mayor Phases of Selling a Company (strongly generalized)
Exitdecision I-Bank Bidders Buyer Deal
Decide which parts of the value chain exit
Information Memorandum
Engagement letter
Due Diligence
Bidder’s list
Bidder’s short list
Conf. Agreement
Company Information
Due Diligence
Price Negotiations
Transaction
Act
iviti
es
Phases
Dr. Marcus Schuetzmarcus@mcschuetz.com
Have a nice Christmas and a good Start of 2007See you again on January, 4th
Dr. Marcus Schuetzmarcus@mcschuetz.com
Uncertainty and Change Managementin China
Hong Kong University- PMBA 2266 -
(2006/2007, Module 3)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Dr. Marcus Schuetzmarcus@mcschuetz.com
Agenda: “Change and Uncertainty Management in China” (PMBA 2266)
123456
789101112
-
Phase 1: Market Entry in China
Phase 2: Setting up in China
Phase 3: Change Management in Chinese Companies (Part 1)
Phase 3: Change Management in Chinese Companies (Part 2)
Phase 4: The Chinese Company in a Crisis
Phase 5: Exit Strategies from China
Strategic Scenario Techniques
Statistical Tools and methods evaluating Strategic Scenarios
Quantitative Forecasting in Business
Game and Decision Theory in Practice
Strategy implementation (Part 1)
Strategy implementation (Part 2)
Christmas Break
4.12.2006
7.12.2006
11.12.2006
14.12.2006
18.12.2006
21.12.2006
4.1..2007
8.1.2007
11.1.2007
15.1.2007
18.1.2007
22.1.2007
Dr. Marcus Schuetzmarcus@mcschuetz.com
What is Strategy?
Strategy is generally spoken a way or a number of ways to a certain target which includes and anticipates changes in the environment and actions of competitors.
Strategy does not include tactical means.
A strategy is usually a set of rules in a “game” which can be for example a
• Strategic “Masterplan”• Behavioral codex• …
The term “strategy” has a military history, however some “big strategists” where more tactical genius (Caesar, Tzu Tse etc.)
The first real strategist was Napoleon I who tried to find “mathematical” ways to maximize the effect of his small, well trained and expensive armies.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Development of Military Strategy in a nutshell (1)
Napoleon 1st tried to win wars avoiding battles. Due to small, well trained and expensive army the need of effective and efficient wars increased
General Clausewitz analyzed Napoleon’s wars and focused only on battles that were necessary to destroy military and political activity of the enemy
Baron Jomini focused on conquering large scale enemy territory to reduce political potential and not on destroying the armed forces
Duke of Moltke saw “Strategy” as an “excuse for missing action” and instead of strategic master plans he delegated tactical responsibilities
World War I technical innovations in communication, weapon range (submarines, planes, tanks) and destructive potential (TNT, chemical warfare) and the inclusion of civil population into the war changed most strategic concepts
Dr. Marcus Schuetzmarcus@mcschuetz.com
World War II was started with the “Blitzkrieg”-Strategy which were surprise attacks of tank and air force deep into the enemies territory
Later in World War II large scale landing operations and destruction of industrial and civil infrastructure integrated civilest into the war
The destruction not of armies, but of complete cities stared by the attack e.g. on Coventry and Dresden lead to mega threat strategies to destroy whole societies by the first thermonuclear attacks on Hiroshima and Nagasaki
“Revolution” as a type of civil war developed, including the civil societies and combining conventional warfare and economic matters. Usually these use some type (e.g. religion, communism) to fully include the civil society
Development of Military Strategy in a nutshell (2)
Dr. Marcus Schuetzmarcus@mcschuetz.com
“Guerilla”-wars that do not follow the concepts of battles, front lines and even not a “declared war” at all achieve surprising results
“Terrorism” of the 70s emerged of Guerilla tactics on “foreign”territories (e.g. Mogadishu). They were frequently tactical maneuvers of the “Cold War” (Balance of Threat)
“Modern Terrorism” is frequently carried by religious ideologies and attacks predominantly civil unprotected targets to achieve political targets
Development of Military Strategy in a nutshell (3)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Golden Strategic Rule 1: Anticipate the future and draw conclusions on current action from that perspective
“Two Roads diverged in the wood, and I I took the one less traveled by,
And that made all the difference”
Robert Frost
Frequently travelled
Less traveled
Think Decide Anti-cipate
Dr. Marcus Schuetzmarcus@mcschuetz.com
Golden Strategic Rule 2: Try to understand the Strategy of your competitor / enemy
Before you explore the competitor’s strategy, be clear about his target
Understand which assets the competitor has and what is their function in terms of decision making
Understand the rules (laws, capability, social standards …) which limit the decision spectrum of the competitor
Analyze the competitive advantages on both sides
Keep track of the anticipated reaction and what has actually been done
Dr. Marcus Schuetzmarcus@mcschuetz.com
Golden Strategic Rule 3: Try to identify and reach “Dominant Strategies”
Definition: A “dominant Strategy” is independent of the reaction of the competitor
The “L-Trick” The “iPod-Trick”
* White started
Dr. Marcus Schuetzmarcus@mcschuetz.com
Some people even find new names for dominant business strategies which can fill a whole book
Dr. Marcus Schuetzmarcus@mcschuetz.com
Democracy as a strategy gameBritish Election Campaign 1987
Thatcher Kinnock
“noble way”
“rude way”
“noble way”
“rude way”
“noble way”
“rude way”
Thatcher wins
Kinnock hasa chance
Thatcher wins
Kinnockhas a chance
In 1987 the governing Conservatives (Thatcher) had to face an election against Labour (Kinnock)
Thatcher opened the campaign:•“rude” would be a battle on persons•“noble” a battle on topics
Assume: Kinnock can only win when he chooses the opposite campaign style
Dr. Marcus Schuetzmarcus@mcschuetz.com
Decision Analysis
Insight about the risk and reward of future profitability with the focus on key issues that count
analysis of uncertainty applied to decision-makingmodels to estimate future profitability and guide decision-makingwas coined in 1964 by Ronald A. Howard
Three stage process:
Scenario Analysis
Sensitivity Analysis
The basis for the
decision
The decision Analysis is a method to identify important aspects of a decision situation by creating different future scenarios
Dr. Marcus Schuetzmarcus@mcschuetz.com
Multidimensional ways of Scenario TechniquesExample: Developing an Anti-AIDS Strategy
HIVInfection
rate
Dr. Marcus Schuetzmarcus@mcschuetz.com
HIVInfection
rateBehavior Hygiene
means
Developing an Anti-AIDS-StrategyWhat are the directly influencing factors?
Dr. Marcus Schuetzmarcus@mcschuetz.com
HIVInfection
rateBehavior
GDP
Hygienemeans
Developing an Anti-AIDS-StrategyWhat is the HIV Infection Rate influencing?
Dr. Marcus Schuetzmarcus@mcschuetz.com
HIVInfection
rateBehavior
Culture
Socialvalues
Schools
MedicalService
HIVTesting
Edu-cation
Funding
GDP
HygienemeansInfo
&Propag.
Developing an Anti-AIDS-StrategyDefining the interdependencies
Dr. Marcus Schuetzmarcus@mcschuetz.com
HIVInfection
rateBehavior
Culture
Socialvalues
Schools
MedicalService
HIVTesting
Edu-cation
Funding
GDP
HygienemeansInfo
&Propag. -
- -
++
+
+
+
+
+
+
++
+
Developing an Anti-AIDS-StrategyDefinition of positive and negative directions
Dr. Marcus Schuetzmarcus@mcschuetz.com
Developing an Anti-AIDS-StrategyExample of a vicious circle
HIVInfection
rateBehavior
Culture
Socialvalues
Schools
MedicalService
HIVTesting
Edu-cation
Funding
GDP
HygienemeansInfo
&Propag. -
- -
++
+
+
+
+
+
+
++
+
Dr. Marcus Schuetzmarcus@mcschuetz.com
Developing an Anti-AIDS-StrategyBreaking a vicious circle
HIVInfection
rateBehavior
Culture
Socialvalues
Schools
MedicalService
HIVTesting
Edu-cation
Funding
GDP
HygienemeansInfo
&Propag. -
- -
++
+
+
+
+
+
+
++
+
ExternalFunding
Dr. Marcus Schuetzmarcus@mcschuetz.com
The first two steps of a Scenario Analysis are defining the scenarios themselves
Oil priceGDP growth
InflationPolitical Stability
CompetitionMargins
…
Oil
pric
eG
DP
grow
thIn
flatio
nPo
litic
al S
tabi
lity
Com
petit
ion
Mar
gins
…
Dependent
Inde
pend
.
Step 1: DependencyAnalysis of Factors
Step 2: Scenario Extraction
Growth Scenario
High Competition
Environmental restrictions
Infrastructure restrictions
Political instability
…
Perform a cluster analysis to form groups of factors and find names for them
Dr. Marcus Schuetzmarcus@mcschuetz.com
The next steps are to identify the main factors and check for potential inconsistent scenarios
Step 3: Sensitivity Analysis(Main Factor Analysis)
Dep
ende
nt
Independ.
Step 4: Consistency Check
Check active and passive sums to identify the largest sensitivities
Check for contradictions in factors in the scenarios
Contra-diction
?
Dr. Marcus Schuetzmarcus@mcschuetz.com
If you have no elaborated “flashy” software, start with an Excel Sheet
Dr. Marcus Schuetzmarcus@mcschuetz.com
Define a factor matrix for the industry you look at holding the dependencies in the cells
Dr. Marcus Schuetzmarcus@mcschuetz.com
This matrix is not symmetric because the dependent and the independent factors are not exchangeable
Dr. Marcus Schuetzmarcus@mcschuetz.com
Check the active and passive sums to see which are the most sensitive factors
Dr. Marcus Schuetzmarcus@mcschuetz.com
Perform a hierarchical Cluster analysis on the variables and identify the dependent factor scenarios
Dr. Marcus Schuetzmarcus@mcschuetz.com
The dendrogram shows you a very visual and easy to interpret cluster structure of the variables
Dr. Marcus Schuetzmarcus@mcschuetz.com
Now perform the same cluster analysis with the active factors (“cases”) in SPSS
Dr. Marcus Schuetzmarcus@mcschuetz.com
If the clustering of active and passive factors matches then there are consistent scenarions
Dr. Marcus Schuetzmarcus@mcschuetz.com
An example of Scenario Analysis the Chinese Automotive Industry (2005)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Example of evaluation patterns of a positive Scenario for Shanghai Volkswagen
Dr. Marcus Schuetzmarcus@mcschuetz.com
Another example showing a negative scenario of losses for Shanghai Volkswagen
Dr. Marcus Schuetzmarcus@mcschuetz.com
Scenarios are complex ways describing a future development which “visualization” is not easy
The mirror of Utopia
Forecasts of facts and figures
Products which “stand for” a scenario
Finding historical parallels
Examples of cultural elements and social rules
Popular culture examples representing a scenario or trend
Examples from arts
Music examples
Dr. Marcus Schuetzmarcus@mcschuetz.com
BMW started a large scale campaign branding products “behind”superstars
Examples of Trend and Scenario Dossiers (3)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Uncertainty and Change Managementin China
Hong Kong University- PMBA 2266 -
(2006/2007, Module 3)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Dr. Marcus Schuetzmarcus@mcschuetz.com
Agenda: “Change and Uncertainty Management in China” (PMBA 2266)
123456
789101112
-
Phase 1: Market Entry in China
Phase 2: Setting up in China
Phase 3: Change Management in Chinese Companies (Part 1)
Phase 3: Change Management in Chinese Companies (Part 2)
Phase 4: The Chinese Company in a Crisis
Phase 5: Exit Strategies from China
Strategic Scenario Techniques
Statistical Tools and methods evaluating Strategic Scenarios
Quantitative Forecasting in Business
Game and Decision Theory in Practice
Strategy implementation (Part 1)
Strategy implementation (Part 2)
Christmas Break
4.12.2006
7.12.2006
11.12.2006
14.12.2006
18.12.2006
21.12.2006
4.1..2007
8.1.2007
11.1.2007
15.1.2007
18.1.2007
22.1.2007
Dr. Marcus Schuetzmarcus@mcschuetz.com
Quick Exercise to remember what we learned last lesson: Cluster Analysis of Car Sales by Province in China
Dr. Marcus Schuetzmarcus@mcschuetz.com
Definition of Significance, Representativity and the Confidence Interval
The sample’s structure represents the population for which the hypothesis is tested
The probability that of making an error accepting / declining a hypothesis
Interval in which the a data point is not significantly different from the others
Significance
Representativity
Confidence Interval
Dr. Marcus Schuetzmarcus@mcschuetz.com
Rule of Thumb: How many people to ask in the “worst case” (assuming a Normal Distribution)
2
2
αpqtn ≥
with maxpq=0,5x0,5=0,25
2
225,0α
tn ≥
Approx. t for n>30: )exp()( αα bat −⋅=
With a=2.89b=6.96 (R²=0,86)
0
1000
2000
3000
4000
5000
6000
0 0.05 0.1 0.15 0.2 0.25
Significance
Sam
ple
(n)
Dr. Marcus Schuetzmarcus@mcschuetz.com
The sample size estimation is based on the worst caseof the distribution
Dr. Marcus Schuetzmarcus@mcschuetz.com
The “Normal Distribution” is quite good for “normally”distributed Phenomena
f(x)=1
2π σ√exp (x-x)
2σ2
--
Dr. Marcus Schuetzmarcus@mcschuetz.com
Let’s find some strange people … statistically
Assume the sizes of human beings is normally distributed with an average of 152 cm and a standard deviation of 27 cm. Further assume the world’s population is 7 bn.
Apply what you learned and find out:
1. How many people should exist being taller than 3 meters?
2. How many humans with negative body size should be around the planet?
3. Now, what does this tell us?
They are under us …
… statistically
Findthem!
Dr. Marcus Schuetzmarcus@mcschuetz.com
Excel has a handy function (=NDIST(x,average,standard deviation, true/false)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Strange things happenWhat went wrong?
=NORMDIST(X,MEAN,STANDARD DEVIATION, TRUE / FALSE)
147 people are more than 3 meters tall
63 people are around with negative body size
Dr. Marcus Schuetzmarcus@mcschuetz.com
When is a trend a trend?
For the linear regression f(x)=ax+b the slope is
If b>0 then there might be a positive trend and if b<0 then there might be a negative.
To test the significance of this you use the PEARSON Correlation coefficient
and test Bxy SBt = with2
222
−
−=
nS
SBSS
x
xxyy
B
Dr. Marcus Schuetzmarcus@mcschuetz.com
What can we do at an ordinal level to test find a trend?The “Mann Test”
Mann-Test (1945)
Principally tests the sums of all indicators (positive against negative)
)52)(1(181)1(2
1)1(21
)sgn(1
1 1
+−≈
−=
−
−=∑ ∑−
= +=
nnn
Snn
S
nn
xxQ
n
i
n
ijij
S
For n>10 andNormal Distribution
Dr. Marcus Schuetzmarcus@mcschuetz.com
What else can we do at an ordinal level to test find a trend?The “Mann-Kendall Test”
Mann-Kendall Test (1970)
( )( ) ( )( )⎥⎦
⎤⎢⎣
⎡+−−+−
=
∑l
lll bbbnnn
SQ52152118
1
with l as the number of bindings
Dr. Marcus Schuetzmarcus@mcschuetz.com
The T-Test is used to check whether two averages of two samples are the same
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Chi-Square Test can be used for verifying a forecast by an experiment
With
Aij as actual frequency in the i-th row and j-th column
and
Eij as expected frequency in the i-th row and j-th column
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Oil Industry has high cost per borehole and needs to evaluate the ROI based on high risks
The upward potential of a borehole has to be large enough to compensate the holes that make losses (no oil found!) in the whole portfolio.
Think of analogies in the derivatives financial markets …
… can this help to quantify the value of an individual borehole project?
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Black Scholes Model, applied on Cash Flows instead of Stock Prices can be an Evaluation tool
)()exp()()exp( 21 drtXdtSP Φ−−Φ−= δStock price
Dividend
Time to Expiry
Normal Distribution
t
trXS
dσ
σδ ⎟⎟⎠
⎞⎜⎜⎝
⎛+−+⎟
⎠⎞
⎜⎝⎛
=2
ln2
1
tdd σ12 =
ExercisePrice
Risk free interest rate
Dr. Marcus Schuetzmarcus@mcschuetz.com
Exercise: New Car Model introduction into the Chinese Market
Given a Automotive Manufacturer plans to introduce a new model, locally built in China. The car concept is new and it is a very competitive and volatile market.
Product cycle time: 10 years (take also as depreciation period)Cash flow per annum: 1 bn p.a. (average) at a standard deviation of 0.5 bnVariable cost: 0.7 bn p.a.Invest: 3 bnDividend: 8 %Risk free interest rate 3 %
What is the value of this project …
(1) … seen conventionally,
(2) … using Black Scholes?
Dr. Marcus Schuetzmarcus@mcschuetz.com
How to rescue the Bond Girl in the Casino Royal when you are offered a Roulette game which runs for the bank
Bond enters the Casino Royal to rescue the Bond Girl, orders a Martini (shaken not stirred - sure) and puts on his x-ray sunglasses. But what does he see through Dinner jackets and cocktail dresses now? He is at gunpoint! Bond is in a trap.
But the Casino’s owner is a gambling character and offers Bond and the girl a chance to get out alive.
With a cold smile he says: “Mr. Bond, if you make it to win 5 Mio. $ here, you and the girl are free”. The game he offers at the Roulette table runs for the bank. Bond takes off his x-ray sunglasses. He knows there is no chance to fight his way out. He has to play this game. A lady from the Casino hands over 2 Mio. $ in chips as generous starting capital to Bond. “Mr. Bond, if you like to check my figures, you are welcome to do so”. Bond looks at her while letting his x-ray sunglasses slide back the pocket of his dinner jacket: “Thank you, I believe they are perfectly right”.
Bond remembers his Statistics lecture from Oxford University. How is he going to play?
“… shaken, not stirred”
Dr. Marcus Schuetzmarcus@mcschuetz.com
Setting small amounts in an „unlucky game“ streches the time to bancrupcy, but increases its probability (Dubins & Savage, 1965)
P(s,t)=1-(q/p)s
1-(q/p)tfor p<>1/2
P(s,t)= s/t for p=1/2
“Name of the game?”
Roulette game with a probability <0.5 to win (bad luck) and the task to reach the target t by setting the amount s in the number of rounds t*.
Background
(Fellner, Princeton University)
p is winning probability and q=1-p
Example
Winning probability p=0,493Loosing probability q=1-
0,493=0,507Starting capital s=2 Mio. $Winning target capital t=5 Mio. $
1. Aggressive scenario:set 1 Mio. $ per round, so t=5
P(s,t)=1-(0,507/0,493)2
1-(0,507/0,493)5=0,383
2. Cautious scenario:set 100.000 $ per round, so t=50
P(s,t)=1-(0,507/0,493)20
1-(0,507/0,493)50=0,245
!
Dr. Marcus Schuetzmarcus@mcschuetz.com
Uncertainty and Change Managementin China
Hong Kong University- PMBA 2266 -
(2006/2007, Module 3)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Dr. Marcus Schuetzmarcus@mcschuetz.com
Agenda: “Change and Uncertainty Management in China” (PMBA 2266)
123456
789101112
-
Phase 1: Market Entry in China
Phase 2: Setting up in China
Phase 3: Change Management in Chinese Companies (Part 1)
Phase 3: Change Management in Chinese Companies (Part 2)
Phase 4: The Chinese Company in a Crisis
Phase 5: Exit Strategies from China
Strategic Scenario Techniques
Statistical Tools and methods evaluating Strategic Scenarios
Quantitative Forecasting in Business
Game and Decision Theory in Practice
Strategy implementation (Part 1)
Strategy implementation (Part 2)
Christmas Break
4.12.2006
7.12.2006
11.12.2006
14.12.2006
18.12.2006
21.12.2006
4.1..2007
8.1.2007
11.1.2007
15.1.2007
18.1.2007
22.1.2007
Dr. Marcus Schuetzmarcus@mcschuetz.com
Forecasting means building a model that can be used for predictive purposes
Dr. Marcus Schuetzmarcus@mcschuetz.com
Different kinds of modeling approaches … and why to you model?
Physical models combine usually quantitative so-called natural laws and use this for calculative forecasting.
Stochastic (statistical) Models use statistical relationships to form quantitative models.
Models also have the function of understanding a process.
If you can model accurately a process then you can assume that you understood a mayor part of the process itself.
“To understand is to destroy the wondering” (Carl Popper).
Dr. Marcus Schuetzmarcus@mcschuetz.com
We talk about scientific forecasting and possible applications in business today …
… so we do not talk about
• Fortune Telling
• Astrology
• Superstition
• Religious belief
• Ideology
…
• Technical Chart Analysis
Dr. Marcus Schuetzmarcus@mcschuetz.com
The “Running Means” are helpful for visualizing a backward trend but useless for predictions
Dr. Marcus Schuetzmarcus@mcschuetz.com
What is your strategy if you want to drink your coffee as hot as possible after the phone call from your boss?
Java Case
Assume you are sitting in a coffee place and you ordered a cup of coffee.
You get a coffee with at hot Temperature and a cold milk separated at your table and some sugar bag.
Just after this is delivered at the table, you get distracted by a mobile phone call from your boss which might take between 5 to 10 minutes. You have to stay through that call and you have no influence on the duration.
After the phone call you want to drink your coffee as hot a still possible.
What is your strategy?
Dr. Marcus Schuetzmarcus@mcschuetz.com
Physical Models apply quantifiable natural laws for forecasting purposes
)()ln()ln(
1
1
1212
2
1
2
1
ttTT
dtdTT
dtdTT
TdtdT
t
t
T
T
−−=−
−=
−=
−=
∫∫λ
λ
λ
λ
t
t
eTT
eTT
tTT
∆−
∆−
=
=⎟⎟⎠
⎞⎜⎜⎝
⎛
∆−=⎟⎟⎠
⎞⎜⎜⎝
⎛
λ
λ
λ
12
1
2
1
2ln
Example: Cooling down a cup of coffee
Dr. Marcus Schuetzmarcus@mcschuetz.com
The models of Physics can be combined to complex systems, e.g. forecasting the air pressure field in Meteorology
Dr. Marcus Schuetzmarcus@mcschuetz.com
Different layers of modeling scales and approaches can be combined hierarchically
Multi Layer Integration Climatic Modeling Harvest forecasting
Dr. Marcus Schuetzmarcus@mcschuetz.com
Climate Models integrate different modeling scales and vary not just the grid size but also the approaches used
Mac
roLe
vel
Mes
oLe
vel
Mic
roLe
vel
Dr. Marcus Schuetzmarcus@mcschuetz.com
Finite Element Methods are using grids and model the physical relations between them
Finite Element Model Grid Stress forces modeled by finite element methodin an aircraft
Dr. Marcus Schuetzmarcus@mcschuetz.com
To simplify the application sometimes heavy parameterizations have to be accepted
The Gaussian Plume Model forecasting air pollution diffusionand dispersion (for small particles)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Application of a modified Gaussian Plume Model in Environmental Air Pollution forecasting
Dr. Marcus Schuetzmarcus@mcschuetz.com
Different layers of wind speed vector field vectors by height in air pollution modeling
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Gaussian Plume Model combines many “rules of Thumb”, so you can run it on an Excel Sheet
Dr. Marcus Schuetzmarcus@mcschuetz.com
Statistical (stochastic) Modeling Approaches, e.g. the Galton Board
Dr. Marcus Schuetzmarcus@mcschuetz.com
In case a process produces an outcome following a distribution, this can be used as a model
Dr. Marcus Schuetzmarcus@mcschuetz.com
Linear Regression Models are a possibility of defining statistical models out of given data
f(x)=
a+bx
In a linear regression a relationship is defined by using a simple f(x)=a+bx function with
The Pearson Coefficient shows the “Quality” of the Model:
Dr. Marcus Schuetzmarcus@mcschuetz.com
Linear Regressions do not have to be 2-dim. You can also lay a line in a more dimensional space
The number of dimension of the regression model function has to be smaller than the number of dimensions of the data itself.
The modeling function should be choose in the way that it fits and represents the data in the best way.
Dr. Marcus Schuetzmarcus@mcschuetz.com
In the example of a 3-dim dataset also a 2-dim modeling function can be used, for example a 2-dim plain in a 3-dim data set.
The plain can be described by
Hessian Normal Form
1 Point and 2 directions
or
3 points
Linear Regression Models do not have to be only two dimensional
csbraE rrrr++=
)()(
13
121
ppspprpE
rr
rrrr
−+−+=
csbraE rrrr++=
dxn =⋅rr
Dr. Marcus Schuetzmarcus@mcschuetz.com
And even “worse”: Regression Models do not have to be 2-dim and also not linear
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Data can show different describable relations or patterns (e.g. Clusters)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Clusters can also have the structure of “patterns” which are also recognizable by modified Cluster Analysis
Dr. Marcus Schuetzmarcus@mcschuetz.com
Factor Analysis is a method of Data reduction in which correlating variables are summarized
In the 2-dim Regression Analysis two variables are reduced to one mixed factor.
Analog to that the factor analysis works (usually) with more than two dimensional factors. The factors are (in the ideal case) linear independent (orthogonal).
“Eigenvalues” show the contribution of a factor to the whole variance
“Kaiser-Criteria”: Extraction condition EW>1, which means the factor explains at least the variance contribution of the root dimension.
“Communalities” are variance parts that one variable has in common with another one
Prin
cipl
eSo
me
term
inol
ogy
Dr. Marcus Schuetzmarcus@mcschuetz.com
Example of a non-linear spacial forecasting model for the market of the DIY Segment (Germany 1996)
4Re
Re
ReRe100
tail
tail
itsBuildingUn
approval
itsBuildingUn
approval
national venuevenue
nn
nn
CostCostDIY ⋅⋅⋅=
Modification: Revenue is a measure for the degree of centrality of a city. This is why large cities get overvalued.
4100
itsBuildingUn
approval
itsBuildingUn
approval
nationaln
nn
n
CostCostDIY ⋅⋅=*
Dr. Marcus Schuetzmarcus@mcschuetz.com
Whirlpool Brand Modeling by multivariate statistical approach
Dr. Marcus Schuetzmarcus@mcschuetz.com
What is Fractal Geometry, basically?
In 1525 the German Painter Albrecht Duererpublished in the “Painter’s manual” a section on tiles patterns formed by Pentagons.
Fractals are geometric structures with often simple geometric rule
A simple fractal is formed by1) Draw a rectangular triangle2) Move a distance from the centre of the
triangle to make this the centre of a new triangle with the hypotenuse length being the tangents of the distance of the old triangle
3) Go on with this …
Fractals have underlying rules which are simple but build complex structures
This is not a leave Fractal principles
Dr. Marcus Schuetzmarcus@mcschuetz.com
Fractal Geometries can build very complex structures with very small rule sets, e.g. fractal landscapes
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Fourier-Transformation assumes that any row can be modeled in a sum of Sinus and Cosines Functions
∫
∫
∑
−
−
=
==
==
++=
π
π
π
π
π
π
,...2,1,0,)sin()(1
,...2,1,0,)cos()(1
)sin()cos(2
)(1
0
kdxkxxfb
and
kdxkxxfa
with
kxbkxaaxf
k
k
n
kkk
Dr. Marcus Schuetzmarcus@mcschuetz.com
Frequency Analysis using the Fourier Transformation shows periodical in a data set
Dr. Marcus Schuetzmarcus@mcschuetz.com
Fourier Spectrum Analysis to identify periods in a stock price high frequency data set
Dr. Marcus Schuetzmarcus@mcschuetz.com
Fuzzy Logic is a methodology assuming that the outcome of a decision is not bimodal
Dr. Marcus Schuetzmarcus@mcschuetz.com
Monte-Carlo Methodology uses the “Random-Walk”theory to apply statistical experiments in Modeling
Random Walk Monte-Carlo Modeled pressurefield around an obstacle
Dr. Marcus Schuetzmarcus@mcschuetz.com
Monte-Carlo Method applied on forecasting the stock price distribution
Dr. Marcus Schuetzmarcus@mcschuetz.com
Example: Behavioral forecasting in the Volkswagen Autostadt using Monte Carlo Algorithms
),...,,,(3
tzyxfPloc =
),...,,,(1
tzyxfPloc =
),...,,,(4
tzyxfPloc =
go …
AutomuseumVW-PavillionSkoda-PavillionAudi-PavillionBentley-Pavilion“Konzernwelt”
…
Lagune RestaurantMoewenpick
…
Neaerest ToiletExit
Define actionprobabilities
Action options
),...,,,(2
tzyxfPloc =
…
“Play it” and put people on “new positions”
Dr. Marcus Schuetzmarcus@mcschuetz.com
Artificial Intelligence: Copying biological processes in thinking
Artificial intelligence (AI) may be defined as intelligence in a non life (artificial) entity. AI is studied in overlapping fields of computer science, robotics, psychology and mathematics. Machines performing AI are usually computers.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Artificial Intelligence is applied to all kinds of Robotic Applications
Terrence Kelly
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Principles of Artificial Neuronal Networks are one Method of AI
The elementary structural element of a AFN is the so-called “Neuron”. This contains a knot and the synapses connecting it with its defined neighbors knots. Each synapses owns a weighting factor ωwhich is multiplied to the signal which is carried via this line.
The knot itself adds up all incoming signals at applies this to a simple function, which has usually an s-shape and so is called “Sigmoid Function” (e.g. F(x)=tanh(x)). The neurons are put together in an architecture which is usually structured passing signals from one layer to the next.
The memory of the system are the weighting factors. They are adjusted my different methods of back propagation comparing input and output with a given result in phase of a number of learning steps.
Givenresult
Givenresult
? compareadjust
adjust
F(x)in out
ω
ωω
ωNeu
ron
Net
wor
kLe
arni
ng
Dr. Marcus Schuetzmarcus@mcschuetz.com
EasyNN (Easy Neuronal Network) is a nice software for Neuronal Network Modeling Applications
Dr. Marcus Schuetzmarcus@mcschuetz.com
Brainpower seems to be limiting factor for Primates maintaining social networks in a One-to-One Relationship
0.1 10
10
100
1000
Neocortex Ratio (to rest of brain)
Mea
n so
cial
gro
up s
ize
(n)
Log(n)=0.0
93+3.3
89Log
(CR)
at R =0.7
64, N
=36
150
Sources:Dunbar, R.I.M. (1992): Neocortex Size as a Constraint on Group Size in Primates. Journal of Human Evolution 20, 469-493.Dunbar, R.I.M. (1993): Coevolution of neocortex size, group size and language in humans. Behavioral and Brain Sciences 16, 681-735.
Correlation of Neocortex Ratio andMean social group size for Primates
Brainpower seems a limiting factor for size of social network
Maintaining large social networks in a 1:1 relationship consumes high brain power
If large networks are needed switch to hierarchical models and use media
Dr. Marcus Schuetzmarcus@mcschuetz.com
Relative Income for 100 % Work
0
50
100
150
200
250
50 70 90 110
130
150
170
190
IQ
Inco
me
(%)
Using only 25 % of your brain in a Management Position will more than double your income
TimeWorkPower=
KnowledgWorkMoney=
“Time is Money”Time = Money
“Knowledge is power”` Knowledge = Power
Management rules:
Definition of Power:
By applying physics onmanagement rules we derive
Reduce thinking by 75 %
Dou
ble
inco
me
Dr. Marcus Schuetzmarcus@mcschuetz.com
Uncertainty and Change Managementin China
Hong Kong University- PMBA 2266 -
(2006/2007, Module 3)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Dr. Marcus Schuetzmarcus@mcschuetz.com
Agenda: “Change and Uncertainty Management in China” (PMBA 2266)
123456
789101112
-
Phase 1: Market Entry in China
Phase 2: Setting up in China
Phase 3: Change Management in Chinese Companies (Part 1)
Phase 3: Change Management in Chinese Companies (Part 2)
Phase 4: The Chinese Company in a Crisis
Phase 5: Exit Strategies from China
Strategic Scenario Techniques
Statistical Tools and methods evaluating Strategic Scenarios
Quantitative Forecasting in Business
Game and Decision Theory in Practice
Strategy implementation (Part 1)
Strategy implementation (Part 2)
Christmas Break
4.12.2006
7.12.2006
11.12.2006
14.12.2006
18.12.2006
21.12.2006
4.1..2007
8.1.2007
11.1.2007
15.1.2007
18.1.2007
22.1.2007
Dr. Marcus Schuetzmarcus@mcschuetz.com
Game theory becomes a science
Who is John Nash?
John Forbes Nash Jr., born 1928 in Bluefield (USA)
Noble Price (1994) in Economics together with Reinhart Selten and John Harsanyi
“Nash Equilibrium” is called the situation in game theory in which no one of the two or more players of a game has an advantage in changing the strategy.
Nash proved that for every finite time this equilibrium exists for “zero sum” games of two players.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Prisoner’s Dilemma by Robert Trivers
Two suspected criminals are under investigation and kept in two different prison cells in which they can not communicate in any way with each other.
They are each asked whether the other suspect have been evolved in the crime.
In case they both co-operate with each other and do not convict the other one to be involved, they both get an incentive, say 3 points.
In case they both do not co-operate and say they are involved in the crime they both get each one point.
In case one acts against the other suspect (non-co-operation) this one gets a higher incentive of 5 points and the other one gets 0 points
Dr. Marcus Schuetzmarcus@mcschuetz.com
The paying structure of the Prisoner’s dilemma
Player 2
Pla
yer 1
Player 23 Points
Player 13 Points
Co-operates Non-Co-operates
Co-
oper
ates
Non
-Co-
oper
ates
Player 25 Points
Player 10 Points
Player 20 Points
Player 15 Points
Player 21 Point
Player 11 Point
Dr. Marcus Schuetzmarcus@mcschuetz.com
Let’s play …
Player 1 is ________________________
Player 2 is ________________________
“Messenger 1” is __________________
“Messenger 2” is __________________
Player 1 takes Messenger 1 and leaves the class room.
Player 2 and Messenger 2 stay.
Playing the first round
Player 1 and 2 writes the info “co-operate” or “non-cooperate” in a paper, give this to the messenger which brings it to me.
I will write the resulting scores on the paper and the messenger brings it back.
Then play the next round, …
… and the next, 10 times.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Score sheet
_ _
_ _
_ _
_ _
_ _
_ _
_ _
_ _
_ _
_ _
1
2
3
4
5
6
7
8
9
10
Player 1 Player 2
_ _
Player 1 Player 2
Dr. Marcus Schuetzmarcus@mcschuetz.com
What can be a strategy in this game?
What is strategy in this game?
What can be a strategy in this game?
How can you find out the strategy of the other prisoner?
Does it make sense to change the strategy during the game?
What is the most effective strategy for the individual in this game?
Dr. Marcus Schuetzmarcus@mcschuetz.com
Examples of strategies in the Prisoner’s Dilemma
Robert Axelrod (1992) performed a Stategy Competition in Ann Arbor, Michigan University taking programmed strategy contributions
•“Lovely”: I always co-operate•“Mean”: I always cheat•“Mad”: I cheat randomly and in average every second time•“Tit for tat”: I follow what the other one did before•“Non-forgiving”: I co-operate until the other one cheats the first time, from then on I always cheat •“Periodical Mean”: Cheat, cheat, co-operate, cheat, cheat, co-operate, …•“Periodical Lovely”: Co-operate, co-operate, cheat, co-operate, co-operate, cheat•“Mistrusting tit for tat”: I cheat the first time and then tit for tat•“Mild elective”: I do what the other one did in the most of the past cases. In case of equality, I co-operate•“Hard elective”: I do what the other one did in the most of the past cases. In case of equality, I cheat•“Try out”: Cheat, co-operate, cheat. If the other co-operated in step 2 and 3, I always cheat. If not I play tit for tat•“Hard tit for tat”: I co-operate in case the other one did not cheat the last 2 steps
Dr. Marcus Schuetzmarcus@mcschuetz.com
Ranking of the 12 Strategies in different Environments
1. Tit for tat2. Mild elective3. Non-forgiving4. Try out5. Periodical lovely6. Hard tit for tat7. Lovely8. Mad9. Mistrusting tit for tat10. Elective hard11. Mean12. Periodical mean
1. Tit for tat2. Mild elective3. Periodical lovely4. Try out5. Hard tit for tat6. Mad7. Lovely8. Mistrusting tit for tat9. Mean10. Elective hard11. Periodical mean
1. Mild elective2. Tit for tat3. Try out4. Non-forgiving5. Hard tit for tat6. Lovely7. Elective hard8. Mistrusting tit for tat9. Mad10. Mean11. Periodical mean
All strategies compete No “non-forgiving” No “periodical lovely”
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Environment of other strategies is strongly effecting the outcome
020406080
100120140160
0 1 2 3 4 5 6 7 8 9 10 11
Mild punishment Tit for tat Mad Mastermind
0
50
100
150
200
250
300
0 25 50 75 100
Periodical Mean Ticktack Mild Elective
“Enforcement Environment” “Doom’s day of democracy”
• Mild Punishment receives higher scores than tit for tat• Being a mastermind is as bad as being mad
• Periodical mean strategy has a bad start but then overtakes quickly• Stupid “Tricktrack” rises fist faster than Mild Elective
Dr. Marcus Schuetzmarcus@mcschuetz.com
Prisoner’s Dilemma life: Opera versus Rock
Assume your neighbor is a nice person but lives in the normal limits arising from a modern education.
He likes to emit over 80 dBA rock “music”while drinking Jack Daniels with friends at about 11 p.m.
Further assume he hates opera.
You like to listen to loud opera arias after coming from work at the same time.
What is the scoring matrix of the game you are going to play with him?
“Enforcement Environment”
Dr. Marcus Schuetzmarcus@mcschuetz.com
How to organize a Joint Venture from a game theory perspective
In the 60s Hedges had the product idea of launching an exceptionally long cigarette with the tobacco of an unpopular brand called Benson –the “Benson & Hedges 100’s”
The product became quickly a success and both increased revenue and profit.
After the initial surprising success now Benson wants to re-negotiate the profit sharing.
How can he play that game?
“Smoking kills”, but whom?
Dr. Marcus Schuetzmarcus@mcschuetz.com
Brinkmanship GamesThe Cuba Missile Crises
In 1962 American intelligence found evidence that Chrutchow started to build nuclear missile launch sites in Cuba, 90 miles from the American coast.
Kennedy lets the US Navy block Cuba and threatens the CCCR with the escalation up to a nuclear strike. He estimates the probability to be ½to 1/3 and prepares the public for the possibility of a World War III.
After weeks of fear and threats, for the withdrawal of American missiles from Turkey, Chrutchow stops the construction and orders the return of the Soviet missiles.
What game played Kennedy?What are the prerequisites that is works?
Game at the edge
Dr. Marcus Schuetzmarcus@mcschuetz.com
What is a Win-Win scenario … when one person has a good microphone but a bad speaker …?
In 1875 Thomas Alva Edison invented the carbon microphone, which can pick up audio signals and change electrical resistance accordingly.
Dr. Marcus Schuetzmarcus@mcschuetz.com
And the other one had a good speaker, but a lousy microphone?
In 1875 Alexander Graham Bell invented his own telephone like apparatus with a not very good marketable microphone
Dr. Marcus Schuetzmarcus@mcschuetz.com
Stability in conventionsDvorak versus QWUERTY
Qwerty-Keyboard-Layout
Dvorak-Keyboard-Layout
Layout keeps often used letters apart, so that the mechanical hammers can not collide.
Layout keeps often used letters close, to have a faster typing due to smaller ways of the fingers
So, why has your laptop a QWERTY keyboard and not a Dvorak?
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Parasite-Dilemma
Assume, you are a top manager of a company in a mature social environment.
Further assume, it is time again to talk to the Trade Union again.
Round 1 they open: No surprise, they want more money and shorter working hours.
What kind of game is this?
What is the decision tree?
Egoism versus overall benefit
Dr. Marcus Schuetzmarcus@mcschuetz.com
Let us play carsSVW moves first in 1984, what now?
Fleet Business Private
Low
Mid
dle
Hig
h
VW 50 %, SAIC 50 %
VW 60 %, FAW 40 %
GM 50 %, SAIC 50 %
SAIC 100 %
Dr. Marcus Schuetzmarcus@mcschuetz.com
Uncertainty and Change Managementin China
Hong Kong University- PMBA 2266 -
(2006/2007, Module 3)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Dr. Marcus Schuetzmarcus@mcschuetz.com
Agenda: “Change and Uncertainty Management in China” (PMBA 2266)
123456
789101112
-
Phase 1: Market Entry in China
Phase 2: Setting up in China
Phase 3: Change Management in Chinese Companies (Part 1)
Phase 3: Change Management in Chinese Companies (Part 2)
Phase 4: The Chinese Company in a Crisis
Phase 5: Exit Strategies from China
Strategic Scenario Techniques
Statistical Tools and methods evaluating Strategic Scenarios
Quantitative Forecasting in Business
Game and Decision Theory in Practice
Strategy implementation (Part 1)
Strategy implementation (Part 2)
Christmas Break
4.12.2006
7.12.2006
11.12.2006
14.12.2006
18.12.2006
21.12.2006
4.1..2007
8.1.2007
11.1.2007
15.1.2007
18.1.2007
22.1.2007
Dr. Marcus Schuetzmarcus@mcschuetz.com
Getting ideas become reality
Some thesis on implementation:
It is easy to have bight ideas in a strategy department.
The largest effort is the implementation.
The critical staff for implementation is your middle management.
Implementation usually ends up to be a leadership issue.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Implementation is the process of ensuring that a strategy is executed
Strategy is a “road map” and the way to a target
Tactical means are maneuvers that comply with a strategy
Execution is the doing “on shop floor”
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Management of Shanghai Volkswagen Automotive Ltd. (after some Changes)
Dr. Marcus Schuetzmarcus@mcschuetz.com
MCCHANGE MANAGEMENT
Dr. SchuetzN/N
Mr. Li Yali
Mr. Wang Hua
Dr. Berlich
Dr. Marufke Ms. Tang Lingjia Dr. Gisin
Mr. Chen Haowei
Dr. Neiteler
FSE (12/2005)
Mr. Hua Yun50%
SVW
SVW SVW
Dr. Cao Min
SVW
IPDSVW
VW Consulting VW Consulting CMC Consulting
Dr. Frisch
SVW
MC Employee
Ms. Li Ranqing
SVW
Dr. Yao Yun
SVW
MC “borrowed” Employee
External Consultant
The Organization of the Change Management Devision at SVW (2004)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Client of Change Management project
Working partner of Change Management project
总经理 M 副总经理兼商务执行经理 C 销售与市场执行经理 SMANAGING DIRECTOR DEPUTY MANAGING SALES&MARKETING
DIRECTOR & COMMERCIAL EXECUTIVE DIRECTOREXECUTIVE DIRECTOR
技术执行经理 TTECHNICAL EXECUTIVE
DIRECTOR
变革管理部 MC 财务部 CF 销售财务控制部SFSALES CONTROLLING
销售部 SS 制造部 TF 产品工程部 TPCHANGE MANAGEMENT FINANCE SALES Production PRODUCT ENGINEERING
总经理办公室 MO 供应部 CS 新业务开发科S*DNEW BUSINESS DEVELOPMENT(P)
市场营销部 SM 规划部 TM ∗MD OFFICE SUPPLY MARKETING PLANNING
质量保证部 MQ 信息系统部 CI 网络培训科S*TNETWORK TRAINING
售后服务部 SA 计划物流与控制部 TLQUALITY ASSURANCE INFORMATION SYSTEMS AFTER SALES LOGISTICS
汽车一厂 TC1公共关系部 MR 外籍职工协调科 C*F 12 售销 服务中心 S*R
12 RSSCs网络发展与管理部 SN CAR PLANT (1) 产品经理部 TR
PUBLIC RELATIONS FOREIGN SERVICE NETWORK DEVELOPMENT & MANAGEMENT
PRODUCT MANAGEMENT
COORDINATION 汽车二厂 TC2法律事务部 ML CAR PLANT (2) 临港项目经理*LEGAL AFFAIRS PSPC协调办公室 C*PSPC 销售行政办公室 S*O LINGANG PROJECT MANAGER
PSPC COORDINATION OFFICE SALES ADMIN. OFFICE 汽车三厂 TC3组织与流程科 M*O CAR PLANT(3)
ORGANIZATION &
PROCESS 冲压中心 TS人事部 MP STAMPING CENTER
内部审计科 M*I PERSONNELINTERNAL AUDIT 发动机厂 TE
人员培训部 MD ENGINE PLANT
人力资源部 MH PERSONNEL DEVELOPMENT
HUMAN RESOURCE
人员服务部 MSPERSONNEL SERVICE
Support at project of Sales relocation
On Project tracking
*
Impact of Change Management in terms of functional divisions and departments at SVW
Dr. Marcus Schuetzmarcus@mcschuetz.com
Client of Change Management project
Working partner of Change Management projectOn Project tracking
38
5
6. Jour fixe15.06.2005
20 53%
39%
15
3 8%
Running
In Planning
Status of the 23 Projects
under the ConceptPhase
Status of the 23 Projects
under ImplementationPhase
11 projets
in red
10 projets
in green Concepts of 5 projetsare done
9 projets
in green
Implmentationof 3 projets arenot begon
11 projets
in red 6 projets
in red Implemented
Projects are tracked and reported to the Executive Committee in periodical terms (Example, 6th Jour Fixe)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Reporting the “Project Maturity” in a simple project dash board
Dr. Marcus Schuetzmarcus@mcschuetz.com
Reporting maturity needs clear definitions of the color code used
Activity is on track and there are no foreseeable job stoppers
Activity is on track but job stoppers have been identified. Actions and responsibilities which will ensure, not to hit the job stopper are in place.Activity is slightly delayed but the delay will be caught up until the next milestone date. Actions and responsibilities are in place and can be implemented with on-board measures. The action stays in the budget.
Activity is critically delayed and will hit a mile stone. If activity is on the critical path also all other related activities turn red. Actions and responsibilities are in place.
Technical problem, came up which will affect the whole concept.
Management decision needed
Dr. Marcus Schuetzmarcus@mcschuetz.com
Financial effects are tracked in degrees of „Durability“
100 %
0 %
50 %
25 %
70 % *
Target100%
Reached%
100 %
0 %
25 %
75 %
100 %
7 % *
50 %
25 %
75 %
100 %
15 % *
50 %
25 %
75 %
52 % *
100 %
0 %
25 %
75 %
41 % *
Potentialidentified
EvaluatedBy Finance
Decided andapproved
Done Bookedby Finance
0 % 0 %
Achieved 7%
Dr. Marcus Schuetzmarcus@mcschuetz.com
Some companies copy “War Rooms” to aggregate strategic information in a “command centre”
Dr. Marcus Schuetzmarcus@mcschuetz.com
For a turn-around situation a “project office” tracks and supports the implementation phases
Tasks of the project office:
Consolidates the status referring to milestone achievements of the hole initiative.
Auditing the achievements and reporting on their quality.
Making the status visible.
Tracking the resources used in the overall initiative.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Web-based workflow supporting tools offer process editing tools
Dr. Marcus Schuetzmarcus@mcschuetz.com
Example: Product Development Process of an automotive dashboard
Surfaces & DKM works at EBFDesign and engineering
Planning tools and diesCosts pursuitPhysical partsTrial/TestGemien?/ Monitoring
Building PR1-cars
SOP
0-3
0-SPVS
-6-9-12-15
DKM/LH2DDKMV1.PTPD DE/LH1PEPEPold PR1PR0 PR2
Monthstill SOP
-19-24-27-31-36
SP
-40-45/ -47
-49/ -51
Mile
ston
es fo
r dev
elop
men
t sy
nchr
oniz
atio
n „Kick-Off“by PM
Letter of Intent (Cycleplan)
Presentation sitting buck
Concept description
Developers‘definition for the P-release
Definition Struktur- u. SicherheitsConcepte
Acceptance ofexterieur- andinterieur model
Design-decision
Calculation models available
(VW) Groupacceptance in
DMU
1st set of class Asurfaces completed
P-Release Start
Acceptance1st DMUForward Sourcing finished; CSC
AcceptanceDDKM
Structure-& safety concepts‘ release
1st Prototype
Acceptance DKM
B-Release Start
Approval ofcoating modelEBA
AcceptanceFAKOM
Texture release
Summer / Winter cars
Summer / Winter cars
Summer / Winter cars
AcceptanceRFM Handing over DKM
Digital designdata
Single part-/modul-target
D-Release Start
Acceptance basislayout
Draft of specifi-cation plan
TPB
AcceptanceofspecificationDefinition of
techniqueConfirmation
of technique &concepts
DefinitionX-flange
Package Definition
Definition of tech-nology conceptsPriority 1 parts
n-models
2-models
Concept surfaces
P-Release platform
1-model
1st Sample Mark 3 Mark 1TBT
Presentation 1st. DKM milling(internally)
Basis layoutVolume data, RPS
1. DMU
Volume data
2. DMUCalculation Calculation
ENTs/RPS S.-DrawingsP-Release B-Release D-Release
Concept DMUPackage DMU
Pre-development
Prozess-&. manufacturing conceptsPlanning tools & dies Prototypes‘ tools
RPT-Wzg.
RPT-Parts
Planning toolsManufacture tools/dies (Series production tools...) Prozess adjustment
Prototypes according to prototypes‘ plan/ PVS; press cars according to PM programm
Carrying out of the ÄKO-Process ÄA
Testing functional samples+Prototypes according test program/Validation of calculation
Prototypes
Cubing Sampling
Sampling/type approvalDesign check models
System charge
Lot sizes Heading for
the target
Manufacturing concepts / System release
Sales data target FG-TargetSingle parts‘ targets
VSI/ CSCForward Sourcing CSC-Alignment
EBAI CSC-Alignment
Innovations- Concept competition
PR1-car
RPT-parts
Concept engineering/ concept teamSpecific. books
Gaps & radii planConcept surfaces
DKM-Strak Mill DKMDKM surfaces‘ optimization
Digital design data
Co-ordination TPB
Summer /winter cars
Concept team, supervising by EBF Specialists‘ group + SET
Acceptance 2nd DMU
DKM-DMU
Class A surfaces for RFMRFM erst.
Small Series tools if appropriate
Testing with KSW-parts where appropr.
K-FMEA P-FMEA
Dr. Marcus Schuetzmarcus@mcschuetz.com
A Dashboard consolidates all project information into a steering and reporting console
The dashboards should include …
• Current status snapshot
• “Job stopper Alert functions”
• Foreseeable delays
• Resources usage
• Resources allocation
• Individual performance evaluation
• Task lists
• …
Dr. Marcus Schuetzmarcus@mcschuetz.com
Individual behavioral codex as an instrument for implementation. Example: The Ritz Carlton Credo
“ The Gold Standards are introduced at intensive orientation for new employees. Thereafter, the concepts are reinforced in daily departmental line-ups attended by all 32,000 employees. Daily topics for line-up discussions are issued by the company's Chevy Chase, Md. headquarters to The Ritz-Carlton hotels worldwide.
The Gold Standards provide the basis for all ongoing employee training; The Ritz Carlton is an industry leader in providing 120 hours of training per employee per year.
"Although much imitated, The Gold Standards as embodied in The Credo Card remain an industry first and are a blueprint for our success," said Simon Cooper, president and chief operating officer. "Every employee has the business plan of The Ritz-Carlton in his or her pocket. Constantly reinforcing that guest satisfaction is our highest mission."
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Ritz Carlton 20 Basic Rules (1-10)
20 BASICS
1. The Credo is the principal belief of our Company. It must be known, owned and energized by all.
2. Our Motto is "We are Ladies and Gentlemen serving Ladies and Gentlemen." As service professionals, we treat our guests and each other with respect and dignity.
3. The Three Steps of Service are the foundation of Ritz-Carlton hospitality. These steps must be used in every interaction to ensure satisfaction, retention and loyalty.
4. The Employee Promise is the basis for our Ritz-Carlton work environment. It will be honored by all employees.
5. All employees will successfully complete annual Training Certification for their position.
6. Company objectives are communicated to all employees. It is everyone's responsibility to support them.
7. To create pride and joy in the workplace, all employees have the right to be involved in the planning of the work that affects them.
8. Each employee will continuously identify defects (MR BIV) throughout the Hotel.
9. It is the responsibility of each employee to create a work environment of teamwork and lateral service so that the needs of our guests and each other are met.
10. Each employee is empowered. For example, when a guest has a problem or needs something special you should break away from your regular duties, address and resolve the issue.
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Ritz Carlton 20 Basic Rules (11-20)
…
11. Uncompromising levels of cleanliness are the responsibility of every employee.
12. To provide the finest personal service for our guests, each employee is responsible for identifying and recording individual guest preferences.
13. Never lose a guest. Instant guest pacification is the responsibility of each employee. Whoever receives a complaint will own it, resolve it to the guest's satisfaction and record it.
14. "Smile - we are on stage." Always maintain positive eye contact. Use the proper vocabulary with our guests. (Use words like - "Good Morning," "Certainly," "I'll be happy to," and "My pleasure.")
15. Be an ambassador of your Hotel in and outside of the work place. Always talk positively. Communicate any concerns to the appropriate person.
16. Escort guests rather than pointing out directions to another area of the Hotel.
17. Use Ritz-Carlton telephone etiquette. Answer within three rings and with a "smile." Use the guest's name when possible. When necessary, ask the caller "May I place you on hold?" Do not screen calls. Eliminate call transfers whenever possible. Adhere to voice mail standards.
18. Take pride in and care of your personal appearance. Everyone is responsible for conveying a professional image by adhering to Ritz-Carlton clothing and grooming standards.
19. Think safety first. Each employee is responsible for creating a safe, secure and accident free environment for all guests and each other. Be aware of all fire and safety emergency procedures and report security risks immediately.
20. Protecting the assets of a Ritz-Carlton Hotel is the responsibility of every employee. Conserve energy, properly maintain our hotels and protect the environment.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Motto of Ritz Carlton Credo and a very basic “Process Description”
MOTTO
At The Ritz-Carlton Hotel Company, L.L.C., "We are ladies and gentlemen serving ladies and gentlemen." This motto exemplifies the anticipatory service provided by all staff members.
THREE STEPS OF SERVICE
1. A warm and sincere greeting. Use the guest name, if and when possible.
2. Anticipation and compliance with guest needs.
3. Fond farewell. Give them a warm good-bye and use their names, if and when possible.
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Ritz Carlton Credo
THE CREDO
The Ritz-Carlton Hotel is aplace where the genuine careand comfort of our guests isour highest mission.
We pledge to provide the finestpersonal service and facilitiesfor our guests who will alwaysenjoy a warm, relaxed, yetrefined ambience.
The Ritz-Carlton experienceenlivens the senses, instillswell-being, and fulfills eventhe unexpressed wishesand needs of our guests.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Terminology of the Toyota Production System
• Kaizen: 改善:• Kanban: 看板カンバン
• Jidoka: 自働化
• Muda: 無駄
• Heijunka: 平準化
• Kaikaku: 改革
Dr. Marcus Schuetzmarcus@mcschuetz.com
Kaizen 改善
• The Japanese usage of Kaizen is "to take it apart and put back together in a better way." What is taken apart is usually a process, system, product, or service.
• Kaizen is a daily activity whose purpose goes beyond improvement. It is also a process that, when done correctly, humanizes the workplace, eliminates hard work (both mental and physical), and teaches people how to do rapid experiments using the scientific method and how to learn to see and eliminate waste in business processes.
• Kaizen must operate with three principles in place: process and results (not results-only); systemic thinking (i.e. big picture, not solely the narrow view); and non-judgmental, non-blaming (because blaming is wasteful).
• The Toyota Production System aims for nothing less that 100 percent perfection.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Kanban 看板
• Kanban (in kanji 看板 also in katakana カンバン, where "kan 看 カン" means visual, and "ban 板 バン" means card or board) is a concept related to the Just In Time (JIT) production, but these two concepts are not the same thing.
• Kanban is frequently known as a "pull" system, as everything is pulled in response to past demand. Demand forecasts are not used in kanban systems. This is the opposite of the traditional "push" manufacturing philosophy, in which everything is made to forecasted future needs.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Jidoka 自働化
• Equipping every machine and empowering every worker to halt the production process at the first sign of a glitch or an imperfection.
• The practical use of automation to mistake-proof the detection of defects and free up workers to perform multiple tasks within work cells.
• Three Functions of Jidoka:– Separate human work from machine work.– Develop defect-prevention devices.– Apply jidoka to assembly operations.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Muda 無駄
• Muda (無駄) is a Japanese term for anything that is wasteful and doesn't add value. It is also a key concept in the Toyota Production System. Waste reduction is an effective way to increase profitability.
• The Seven Wastes (Plus One) identified by Taiichi Ohno :1 Defects, 2 Overproduction , 3 Transportation , 4 Waiting , 5 Inventory , 6 Motion ,7 Overprocessing , 8 Skill.
• A process adds value by producing goods or providing a service. A process also consumes resources. Waste occurs when more resources are consumed than are necessary to produce the goods or provide the service.
• The final product, whether a car or a pickup truck or a laboratory test or a coronary artery bypass graft is flawless.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Heijunka 平準化
• Heijunka is Japanese term that refers to a system of production smoothing designed to achieve a more even and consistent flow ofwork. Heijunka as a concept is closely related to lean production and just in time manufacturing.
• A related visual scheduling board known as a heijunka box is often used in achieving heijunka style efficiencies.
• The use of heijunka as well as broader lean production techniques helped Toyota massively reduce vehicle production times as well as inventory levels during the 1980s.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Kaikaku 改革
• Kaikaku means “transformation” or “reform” and implies a redesign of business processes that is radical and reaches across an entire organization. On a local scale, kaizen activity may result in a kaikaku if a drastic change is made. In general a kaikaku is something that is planned more carefully over a longer period oftime, while kaizen can be planned and executed in days or weeks.A “kaikaku” may not always have a positive outcome, since “reforms” or “transformations” may in fact fail.
• Both kaizen and kaikaku are essential strategies. Without a culture of kaizen, a kaikaku can not succeed. Successful long-term transformations require a series of short-term successes, the engagement of everyone in the organization and a bias towards practical local improvement.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Uncertainty and Change Managementin China
Hong Kong University- PMBA 2266 -
(2006/2007, Module 3)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Dr. Marcus Schuetzmarcus@mcschuetz.com
Agenda: “Change and Uncertainty Management in China” (PMBA 2266)
123456
789101112
-
Phase 1: Market Entry in China
Phase 2: Setting up in China
Phase 3: Change Management in Chinese Companies (Part 1)
Phase 3: Change Management in Chinese Companies (Part 2)
Phase 4: The Chinese Company in a Crisis
Phase 5: Exit Strategies from China
Strategic Scenario Techniques
Statistical Tools and methods evaluating Strategic Scenarios
Quantitative Forecasting in Business
Game and Decision Theory in Practice
Strategy implementation (Part 1)
Strategy implementation (Part 2)
Christmas Break
4.12.2006
7.12.2006
11.12.2006
14.12.2006
18.12.2006
21.12.2006
4.1..2007
8.1.2007
11.1.2007
15.1.2007
18.1.2007
22.1.2007
Dr. Marcus Schuetzmarcus@mcschuetz.com
A Consultant’s view on Schubert’s Unfinished Symphony
A company chairman was given a ticket for a performance of Schubert's Unfinished Symphony. Since he was unable to go, he passed the invitation to his management consultant.
The next morning, the chairman asked him how he enjoyed it, and instead of a few plausible observations, he was handed a memorandum which read as follows:
1. For a considerable period, the oboe players had nothing to do. Their number should be reduced, and their work spread over the whole orchestra, thus avoiding peaks of inactivity.
2. All twelve violins were playing identical notes. This seems unnecessary duplications, and the staff of this section should be drastically cut. If a large volume of sound is really required, this could be obtained through the use of an amplifier.
3. Much effort was involved in playing the demi-semiquavers. This seems an excessive refinement, and it is recommended that all notes should be rounded up to the nearest semiquaver. If this were done, it would be possible to use trainees instead of craftsman.
4. No useful purpose is served by repeating with horns the passage that has already been handled by the strings. If all such redundant passages were eliminated, the concert could be reduced from two hours to twenty minutes.
In light of the above, one can only conclude that had Schubert given attention to these matters, he probably would have had the time to finish his symphony.
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Tier 1 Management Consulting Companies and a rough estimation of their recruiting numbers
2900 Employees x 0.66 Consultants / 5 year turn over = 383 Recruits p.a.
13 000 Employees x 0.66 Consultants / 5 year turn over = 1 716 Recruits p.a.
2300 Employees x 0.66 Consultants / 5 year turn over = 300 Recruits p.a.
Total = 2 402 Recruits p.a.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Examples of other Management Consulting Companies (not complete) …
…
Total = 3200 Recruits p.a.
Dr. Marcus Schuetzmarcus@mcschuetz.com
Examples of Companies that have their main business in the financial fields but hold “Consulting Practices”
…
Total = 3000 Recruits p.a.
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Human Resources Consulting market is highly fragmented in size and services
Dr. Marcus Schuetzmarcus@mcschuetz.com
Many large corporations have in-house consulting services (Examples)
Dr. Marcus Schuetzmarcus@mcschuetz.com
There are thousands of small consulting groups, highly fragmented and with different kinds of expertise
Dr. Marcus Schuetzmarcus@mcschuetz.com
Different kinds of management consultant’s types (looking at people)
Type
Functional Expert
Industry Expert
Advisor
Visionary
Diplomat
“Smart kid”
Extended Workbench
General profile
Experience and credibility in a functional field
Overlooking an industry sector based on project or own management experience
Combining industrial and functional expertise with a high degree of strategic and tactical experience
Combining corporate experience with generalist views into entrepreneurial vision
Using his credibility and network to convince people or convey information in informal ways
High analytical and communication skills in the second line of a consulting company
Technical workforce with special expertise
Dr. Marcus Schuetzmarcus@mcschuetz.com
Phases of a consulting project (generalized and simplified)
ProjectLead
Client’sbriefing Proposal “Beauty
Contest”Prelim.Staffing
FixedStaffing
“Doing” Delivering
Letterof Intend
(LOI)
LetterOf
Engagement(LOE)
Contract
FinalPresentation
HandingOver
deliverables
FinalInvoicing
& Payment
Win
ning
Fixi
ngD
oing
&D
eliv
erin
g
$
$
$ $
Payment
Dr. Marcus Schuetzmarcus@mcschuetz.com
Different levels and roles in a classical private consulting company (generalized in terminology)
Managing Director (CEO)Senior Partner (Senior VP)Partner (VP)
ManagerProject LeaderSenior ConsultantConsultant
Associate/Junior
Shareholders
EmployeesExperts
Analysts
FinanceHROther Support
Consulting track Expert track
Dr. Marcus Schuetzmarcus@mcschuetz.com
“Up or Out” – Legend or Reality
“Up or Out” means that after an evaluation period the consultant will either be promoted or has to leave the company
Advantages:
• Only people with growing capacities stay• Selection of the most competitive consultants• Fast career or “nothing”• High motivation for a certain “breed”
Disadvantages:
• Loose people that are “perfect” in their job, but fail after promotion• No experience is building up in the levels themselves• Expertise shifts very fast to Senior Postions (where it is less needed)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Consulting Companies are structured in Industry and Functional Practices
AutomotiveHigh Tech
Industrial GoodsConsumer Goods
Finance…
Stra
tegy
Ope
ratio
nsO
rga
M&
A…
Indu
stry
Prac
tices
FunctionalPractices
Dr. Marcus Schuetzmarcus@mcschuetz.com
Charging schemes in consulting companies
Fix price
Retainer
Day based
Hourly bases
The deliverables are clearly defined and the project will be delivered for a fixed price following the terms of payment in the contract
The service provider receives a fixed amount (e.g. per month) to deliver a clearly defined scope
The consulting company is engaged for a usually short period and will charge by the number of days engaged (based on a frame contract)
Charging in a “Law firm style” (also without “contract”)
Dr. Marcus Schuetzmarcus@mcschuetz.com
Very much a “Rule of thumb” … how to estimate the consulting services market
The “Rule of thumb” to estimate the market size:
“Large multinational corporations spend about 1 ppm. of their revenue on high value consulting services”
Nobody knows whether this is really true, but this would mean for example:
Euro
Euro
6
3
9
105010
10245.50
⋅=
×
⋅−
… this looks reasonable!
Revenue of theVolkswagen AG (2005)
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Job Number is the core key for any action or expense related to a project
Every project or proposal gets a unique “Job number” (=“Case number”) which is the core key for booking all activities and expenses
Example for a structure:
New Enquiry NActual Case CClosed Case X
20XY-Running Number
The “Job numbers” are assigned by a central administrative function.
There is “capital punishment” for somebody who fiddles around defining own job numbers!
Dr. Marcus Schuetzmarcus@mcschuetz.com
A consultant is knocking on heaven’s door …Always remember that there will be a final judgment
A consultant passed away and is now knocking on heaven’s door.
Petrus opens the heavenly gate and is surprised: “My God you are still so young, no older than 35”.
“Yes, we have to work day and night and many of us pass away in early age”
Petrus: “Oh, don’t be pathetic. I had a look at your time sheets and according to what you charged to your clients you should be 85”.
Dr. Marcus Schuetzmarcus@mcschuetz.com
The Time Sheet
Client Job # Activity Mo. Tu. We. Th. Fr. Sa. Su. Sum Comment(s)
O&A
Recruiting
Sick, holiday
Subtotal =
Subtotal = Total =
Inte
rnal
Dr. Marcus Schuetzmarcus@mcschuetz.com
• Why can we not do it ourselves? Really? Really?
• Does the proposal show a clear understanding of the problem?• Is the proposal specifically workable in your company?• Can they work in a “political environment”?• Is the time frame reasonable? • Do we need a “big name” for this project?
• How big is the commitment of the Partner on the case?• How strong is the project leader and how strong is the team?• Can their team on the ground work with your people?• How strong is the background organization of the team?
• Is the proposed project organization also supportable from the client?
• Value for Money?
Questions to address from the client’s side before engaging a consulting company
Dr. Marcus Schuetzmarcus@mcschuetz.com
Example of a project organization
SteeringCommittee
Project Leader(Client)
Project Leader(Consultant)
Assistant
Dept. 1 Consultants
Project Office
Field TrialTeam
Assistant
Dept. 2
Dept. 3
Dept. 4
Dept. x
ResearchAnalysts
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