CESSE MID-WINTER MEETINGResponding To Economic Changes:Don’t Let a Good Crisis Pass You By
David L. Schutt, PhD
SAE International• Professional society [501(c)(3)] serving the aerospace,
automotive and commercial vehicle industries– Strong industry engagement
• 128,000 members in over 100 countries• Core competencies
– technical standards/publications– life-long-learning
• $60 Million/annum; 200 Staff
• Two Affiliates– Performance Review Institute: $28 Million/annum; 85 staff– Industry Technology Consortia: $3 Million/annum; virtual staff
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Situation: 3Q-2008On the Upside• 100 year history of success
– Recovered from 9/11• Profitable operations and
investments returns (2003-2007)– Strong Q1-3 performance– Net assets approximately
$43 million (>70% of ops)• Significant industry
engagement and support (pride)
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Situation: 3Q-2008Warning Flags• Complacent• Insular• Believed own propaganda• Planned in the rear-view mirror• “Beat Dead Horses”• New product cupboard empty• No contingency plan• Limited understanding of
business model
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Situation: 1Q-2009The Burning Platform• Global economy
– Going into a deep and likely prolonged recession
• The Mobility Industry – Radical downsizing and restructuring
• SAE International– Experiencing profound revenue
shortfalls– Cultural impedance results in
insufficient response to changing business environment
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Situation: 1Q-2009This Time it’s Different…• The worldwide economy will be slow to
recover and consumer behavior will be “permanently” moderated
• Our industries will be fundamentally different
– Smaller OEMs/Primes– Consolidated supply chain– Fewer engineers– Different needs and expectations of and
ability to support SAE International
• Expectations of professional/technical organizations will be radically different
– Demographic shifts will be accelerated– Value proposition expectations will be
higher– New business models will be required
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January February March April May June July August Sept. October Nov. December$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
Outlook: 2Q-2009
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Markets RapidlyDeteriorated in 1Q09
Markets Began Softening in 2H08
2006 Actual2007 Actual2008 Actual2009 ActualProjection
7
Outlook for Balance of the Year Remains Bleak
1Q2009 Financials: The “Perfect Storm”000s omitted 2008 2009
Actual ProjectedOperations
Revenue $57,269 Expense 57,606 Net Operating Results (337) (18,500)
Non-Operating ActivitiesNet Developmental Activities (2,823)Net General Investment Fund (12,901)SAE Foundation Transfer (61)Net Non-Operating Results (15,785)
Pension Adjustment (15,286)
Change in Net Assets (31,408)
Net Assets - Beginning of year 43,055 11,647
Net Assets - End of year $11,647 $ (-6,853)
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Urgent & Profound Action Required
• Reserves will be inadequate to redress shortfall as well as invest for the future (particularly if downturn is sustained)
• Current business models and cost structures based on premises that will not survive recession
• Portfolio of programs, products and services based on evaporating value proposition
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Situation Ripe for Change• Board hired new CEO in the
context that change was needed– Political capital/goodwill was
high• Majority of Board members’
companies going through cathartic transformation—recognized that professional society could/should as well
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Two-fold StrategyResize (Sustainability)• Reduce expenses by $20
Million (35% of total budget)– Staff reductions– Changed operating paradigms
• Eliminate legacy ballast—including governance
• Significantly reduce fixed costs
• Capitalize on vendors willing/need to (re)negotiate
• Secured $10 M Loan (Cash Flow)
Reposition (Growth)• Transform portfolio
– People/paper to digital/virtual– Delivery-based to information-
pull– Legacy to new value
proposition– Local to global marketplace
• Redefine business models• Balance short-term mission
needs with long-term vision realization
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Three Levels of Action DevelopedLevel One: Sustainability
– Focus on core business; reduced offerings
– Divest non-core business/activity
– Meet financial management objectives going forward
Level Two– Selling physical assets
– Exit core businesses– Additional revenue loss
implications
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Level Three
Decision FrameworkContext for Assessment• Everything was “on the table”, but in
the end all things were not treated equally
• Overhead and administration first; Program, Product and Service (PPS) development and delivery second (Target 2:1 – Overhead:PPS)
• Preserve existing and sustainable revenue streams, with priority given to those that produce a positive margin
• Preserve mission-related activities to the extent possible
Evaluation Parameters• Mission/Vision/Ends/Strategic
Plan• Value to future
organization/strategy – growth in valued PPS
• Market performance– $, utilization, customer
satisfaction• Core vs. Non-core
competencies• Return on Revenue (ROR)
– Fixed/Variable cost structure01 March 2011 CESSE Mid-Winter Meeting 13
Financial Performance Scenarios
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Million
s
1Q - 2009
Distribution of $18M of Reductions
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15%
6%
38%
41%
SALARIES & BENEFITS - OVERHEADSALARIES & BENEFITS - PRODUCTDIRECT PRODUCT COSTS INDIRECT COSTS & OVERHEAD
15%
6%
38%
41%
SALARIES & BENEFITS - OVERHEADSALARIES & BENEFITS - PRODUCTDIRECT PRODUCT COSTS INDIRECT COSTS & OVERHEAD
$7.36 M
$2.74 M
$1.13 M
$6.73 M
Cost Reduction Realization
16
2009 Ap-
proved
Q109 Q209 Q309 Q409 2010 Baseline (15,000,000)
(10,000,000)
(5,000,000)
-
5,000,000
10,000,000
15,000,000
20,000,000
ExpensesMargin
RIF #1achieve FMP
RIF #2 Operating at 25% budget
RIF #3Implement
Level 1
Portfolio Restructure
Cost Restructure
Exit non-coreReduce Outyear
Costs
Reduced Lease
Legacy and extraordinary costs carry through fiscal
year
01 March 2011 CESSE Mid-Winter Meeting
White Water Ahead!• Reducing member services• Exiting legacy programs• Sacrificing sacred cows• Confronting the unexpected
and the unintended• Moving forward in
unchartered territory• Not having all of the
answers
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But not without a rudder• We had a solid
– Mission– Strategic plan
• We took the long view• We dialogued and partnered
with– Members– Customers– Vendors
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Ten-year Strategy
Success FactorsThe Right (Amount)
People• “The Bus”• Performance
management• Alignment and
excellence• Enable and empower
• RIFs can be healthy
Manage the Board• Educate!• Present a compelling
case for change—needs for… and benefit of…
• Over communicate throughout the process
• Be clear, honest, and comprehensive
• Demonstrate progress against plan: get it right going in
• Equip them to be advocates—especially the President
Other Things• Cut deeper and faster
than you need to• Strike fast and fully—
strategically, not uniformly
• Be honest about what is core business
• Know your business cycles (with respect to economy)
• Customer Focus– VoC• Staged performance
plan• Keep the long view
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So, Where Are We Today?Operations• Sustainable operations• Renewed product portfolio—
unencumbered by legacy• Member/Staff alignment on a
high-value strategic direction and plan
• Mission, values and strategic plan embedded throughout organization
• New business model(s) in place• Progress against key growth
targets• Compliance with 3 of 6 financial
metrics—full compliance by 2012• Retained membership
Financial Performance$Millions 2008 2009 2010 2011
Revenue 57.3 41.8 43.5 45.9
Expenses 57.6 41.3 41.2 45.7
Net Ops (0.3) 0.4 2.3 0.2
Net Non-Ops (31.1) 4.7 2.6 1.0
Change Net Assets (31.4) 5.1 4.9 1.2
Net Assets @ YE 11.6 16.2 21.1 22.3
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A NEW, EXCITING AND BRIGHTDAY IS DAWNING