strategic planning and budgeting part 1: business model and strategy

www.myCNI.com.my www.OOBEY.com

STRATEGIC PLANNING AND BUDGETING Part 1: Business Model and StrategyCase Study, Concepts and Debatable Ideas

Kenny OngCNI Holdings Berhad


Intro: CNI

1. 20 years old2. Core Business: MLM3. Others: Contract Manufacturing,

Export/Trading, eCommerce4. Malaysia, Singapore, Brunei, Indonesia, India,

China, Hong Kong, Philippines, Italy, Taiwan, Oman, United States, Vietnam

5. Staff force: ± 5006. Distributors: 200,0007. Products: Consumer Goods and Services


History of Strategic Planning and Budgeting


Planning in the “old” days

1. Budget ‘top down’ – no questions asked2. Only two budget goals – revenue, expenses3. The only planning we needed to do was “do better than

last year”4. Planning was ‘bottom up’ - compilation of plans within

set budget5. No one knew what the other was planning6. Accounting’s role was only to compile budget for

approval7. KPIs were not used8. Sales was resource priority, everything else not

important9. Assumed no major changes in market10. R&D was ‘bottom up’


Problems from the start


Problems from the start (1/2)

1. No money

2. Split Objectives: Sales? Share Price? Image?

3. Independent entities

4. Accounts controlling schedule

5. S&M always running over budget

6. Compounding activities

7. BOD expectations too high without proper explanation nor justification

8. Lack of Market research

9. Expenses not spent gets punished


Problems from the start (2/2)

10.Budgeting for known, consistent, and predictable business conditions

11.Never learn from past mistakes, usually in under-budgeting (e.g. staff and PCs)

12.Wrong Business Model – blame Budgeting & Planning. Having a good planning process cannot correct a bad business model

13.Focusing on the Process (KPIs), instead of “Business”

14.Planning & budgeting treated as separate processes by businesses/functions


Today’s Agenda


Summary: Planning & Budgeting

Long-term Plans

Objectives

Strategies

Enablers

Resources

Also known as L.O.S.E.R.


Summary: Today’s presentation

1. Business Model

2. Strategy

3. Alignment

4. Resources


Assumptions 1: Audience

1. Business

2. Government

3. Non-profit


Assumptions 2: Starting Point

1. Wanting to start proper planning & budgeting process, or

2. Wanting to improve planning & budgeting process


1. Get the right Business Model first


• How to fail without trying

1. Wrong Business Model


The Roadmap to Failure

Fred Wiersema and Mike TreacyP

erf

orm

ance

Time

Clear Sailing

Today’s performance

Ad-hoc Tactics

Denial & Defense

Doom Projections

Overdue Failure

The Moment of Truth

X

Performance Freefall

Tomorrow’s actual

performance

Downpresure of Unclear Strategy


Denial and Defense

• “It’s not really good value our competitor is offering, because it doesn’t include a lot of our features.” - ABC vs Air Asia

• “It’s good value but not in our preferred customer market.” - ABC vs Toyota

• “Sure they’re hurting us, but with their unfair advantage, what can we do?” – ABC vs MILO

• “The rules we are playing by have always worked before” – AMEX vs VISA




erf

orm

ance

Time

Clear Sailing


Ad-hoc Tactics

Denial & Defense

Doom Projections

Overdue Failure

The Moment of Truth

X


Tomorrow’s actual

performance



Ad Hoc Tactics• Selectively hold discounts to hold business that has

started to go elsewhere• Introduce new promotions, terms, conditions, and offers to

confuse and cloud the market• Beef up customer service by adding people to fix mess-

ups and quicken delayed shipments• Delay capital investments and adjust accounting methods

to portray quarterly financial results more favorably• Introduce “new and improved” products that are new in

form, but not in substantive ways that are of consequence to purchasers

• Introduce Balanced Scorecards and Performance Management Systems




erf

orm

ance

Time

Clear Sailing


Ad-hoc Tactics

Denial & Defense

Doom Projections

Overdue Failure

The Moment of Truth

X


Tomorrow’s actual

performance



“What is the moral of the story?”


What is the Business Model?

USP

Market Discipline

Profit Model


Intro: Market Discipline

• Mamak stall



"They are the most innovative"

"Constantly renewing and creative"

"Always on the leading edge"

"A great deal!"

Excellent/attractive price

Minimal acquisition cost and hassle

Lowest overall cost of ownership

"A no-hassles firm"

Convenience and speed

Reliable product and service

"Exactly what I need"

Customized products

Personalized communications

"They're very responsive"

Preferential service and flexibility

Recommends what I need

"I'm very loyal to them"

Helps us to be a success

Product Leadership

OperationalExcellence

CustomerIntimacy


Operational Excellence(low cost producer)

Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995

Product Leadership(best product)

Customer Intimacy(best total solution)

Strategy: Value Disciplines


http://www.mycni.com.my/

http://www.oobey.com/


Operational Excellence

• Competitive price

• Error free, reliable

• Fast (on demand)

• Simple

• Responsive

• Consistent information for all

• Transactional

• 'Once and Done'

Operational Excellence

• Competitive price

• Error free, reliable

• Fast (on demand)

• Simple

• Responsive

• Consistent information for all

• Transactional

• 'Once and Done'

Customer Intimacy

• Management by Fact

• Easy to do business with

• Have it your way (customization)

• Market segments of one

• Proactive, flexible

• Relationship and consultative selling

• Cross selling

Customer Intimacy

• Management by Fact

• Easy to do business with

• Have it your way (customization)

• Market segments of one

• Proactive, flexible

• Relationship and consultative selling

• Cross selling

Product Leadership

• New, state of the art products or services

• Risk takers

• Meet volatile customer needs

• Fast concept-to- counter

• Never satisfied - obsolete own and competitors' products

• Learning organization

Product Leadership

• New, state of the art products or services

• Risk takers

• Meet volatile customer needs

• Fast concept-to- counter

• Never satisfied - obsolete own and competitors' products

• Learning organization






The McPlaybook*

Make it easy to eat• 50% drive-thru• Meals held in one

hand

Make it easy to prepare• High Turnover• Tasks simple to learn

& repeat

Make it quick• “Fast Food”• Tests new products

for Cooking Times

Make what customers want• Prowls market for new

products• Monitored field tests

*Adapted from: Businessweek , Februrary 5th 2007






* Treacy & Wiersema, The Discipline of Market Leaders, 1995

Product/Service Attributes Relationship Image




Product/Service Attributes

Price

Quality

Time

Selection

√

√

Smart Shopper

Relationship Image

Operational Excellence: Quality and selection in key categories with unbeatable prices





√

Brand

Time

Function

√

√

Best Product

Relationship Image

Product Leadership: Unique products and services that push the standards





√

√

√

√

Service Trusted Brand

Relationship Image

Customer Intimacy: Personal service tailored to produce results for customer and build long-term relationships

Relations






Strategy: Disciplines


Summary: Today’s presentation

1. Business Model Done2. Strategy

3. Alignment

4. Resources


2. Set the Strategies

‘Hope’ is not a strategy


What is Strategic Planning?

Strategic

Planning

Variables:

Research

Growth

Risks

Stakeholders

Constraints

SWOT

Misc.

Output:

Plans

Priorities

KPIs


Before we start…

Which comes first?

1. Strategies -> KPI?

2. KPI -> Strategies?


Step 1: Analysis

1. SWOT

2. PESTEL

3. Scenario Analysis


SWOT: Opportunities & Threats

Opportunities

=

Taking advantage of ‘Trends’

Threats

=

Strategic Risk Management


Downturn Trends?


SWOT: General Strategic Risks

1. Industry1. Margin Squeeze2. Rising R&D/CAPEX3. Overcapacity4. Commoditization5. Deregulation6. Increased power among

suppliers7. Extreme business-cycle

volatility2. Technology

1. Shift in technology2. Patent expiration3. Process becomes obsolete

3. Brand1. Erosion2. Collapse

4. Competitor1. Emerging global rivals2. Gradual market-share gainer3. One-of-a-kind competitor

5. Customer1. Customer priority shift2. Increasing customer power3. Over reliance on a few

customers6. Project

1. R&D failure2. IT failure3. Business development failure4. Merger or acquisition failure

7. Stagnation1. Flat or declining volume2. Volume up, price down3. Weak pipeline

Adrian J. Slywotzky and John Drzik


PESTEL and Scenarios

Scenario 1 Scenario 2 Scenario 3

Political

Economic

Social

Technology

Environment

Legal


Business Situation vs. Focus

Upturn Flat Downturn

Fight Complacency

Sharpen Edge

Keep Momentum

Conquer

‘Change’ mgmt

Reduce Fat

Continuity

Everyone Happy

Innovation

Acquire

Profits

Build momentum

Sales

Cash Flow

Talent Mgmt

Innovation/R&D

Early wins

Slow Down HR Costs

Top Talent focus

Sales, Sales, Sales

Increase attrition





Business Situations vs. Focus

Upturn Flat Downturn

Fight Complacency

Sharpen Edge

Keep Momentum

Conquer

‘Change’ mgmt

Reduce Fat

Continuity

Everyone Happy

Innovation

Acquire

Profits

Build momentum

Sales

Cash Flow

Talent Mgmt

Stack R&D

Early wins

Slow Down HR Costs

Top Talent focus

Stack Sales

Increase attrition

Many times, you need a different CEO/Leader/Management Team

for each business situation





Step 2: What is your Goal?

1. Cost Reduction

2. Growth


Strategies for Growth

1.Base Retention

2.Share Gain

3.Positioning4.Adjacent Market

5.New Business

GROWTH

“Double-Digit Growth”, Michael Treacy





Growth

Expansion

1.Consolidate

2.Geographic

3.Distribution

4.Compensate

Transformative

1.Portfolio refocus

2.Diversification

Easier Tougher





Growth thru Expansion

Expansion

1.Consolidate

2.Geographic

3.Distribution

4.Compensate

1.Gain Scale to compete

2. Integrated Solutions

3.Financial Growth

4.Supply (security, mix)

5.Developing markets

6.High cost of Extra Capacity

7.Private Equity

8.Expanding Sovereign Fundswww.myCNI.com.my www.OOBEY.com




Growth thru Expansion

Expansion

1.Consolidate

2.Geographic

3.Distribution

4.Compensate

9.De-regularization

10.Demand outstrip supply

11.Revenue Mix – Tax optimization

12.Talent

13.New, Low-cost Entrants

14.Undervalued Big Players

15.Newer Assetswww.myCNI.com.my www.OOBEY.com




Transformative Growth

Transformative

1.Portfolio refocus

2.Diversification

1. New Business Lines

2. Selling/Spin-off non-core

3. Increase product line

4. New customers

5. New technologies*

6. Complementary Business

7. Up-down Supply Chain

8. Patent

9. Convergence anticipation





Cross Sector Transformation

Traditional

AlternativeIncremental





Cross Sector Transformation

Traditional Utility

AlternativeEnergy

IncrementalTechnology

New Delivery, New Sources, Existing Resources

Oil, Gas, Electricity, Coal

Biomass, Nuclear, Ethanol, Wind, Solar


Example: Energy Sector




Step 3: Strategy

1.Base Retention

2.Share Gain

3.Positioning4.Adjacent Market

5.New Business

GROWTH

“Double-Digit Growth”, Michael Treacy



How Markets determine Growth Strategies (1)

• Growth Rate

Growth Rate

Strategy Why?

Fast 1. Market Positioning

2. Share Gain

3. Base Retention

•Maintain market share in strategic segments•Prepare for market decline•Competitors focus too much on getting new customers

Flat 1. Base Retention

2. Share Gain (Acquisitions)

•Lose customers slower than competitors•Create scale economics, squeeze costs



• Churn RateChurn Rate

Strategy Why?

Low 1. Share Gain (Acquisitions)

2. Adjacent Markets

•Buying customer base is cheaper than own efforts•New products, old customers strategy

High 1. Base Retention

2. Share Gain

3. Adjacent Market

•Lose customers slower than competitors•Customers are always open to the best value and offer•Desperate to gain revenue





Fast Growth,

Low Churn

1.Market Positioning

2.Share Gain (M&A)

3.Base Retention

4.Adjacent Markets (M&A)

•Example: XYZ Sector



• Create better ‘Value’ proposition

• Neutralize competitor advantages

• Buy Market Share outright– Price Premium– Operating Model– Integration

Strategy 2: Share Gain





Buying Market Share: Acquisition strategy

IntegrationOperating

Model

PricePremium

Buying Market Share

Net Cost per Customer < Direct Acquire

No evidence of previous company

One Kingdom

Pre-integration Blueprint

Slow Trigger, Fast Bulletwww.myCNI.com.my www.OOBEY.com




Buying Market Share: Side notes on Funding

Preferable OK, but not preferred

1. Cash from Earnings

2. Cash from Borrowings

1. Cash from Stock sale

2. Issue more stock


*Adapted from Warren Buffet’s acquisition strategies


Strategy 4: Invade Adjacent Markets

Adjacent Market = Important Similarities and Large Differences in:

1. Cost Structure

2. Competitors

3. Customers

4. Critical Capabilities




Traditional

AlternativeIncremental




Traditional Utility

AlternativeEnergy

IncrementalTechnology


Example: Energy Sector



Upstream Midstream Downstream

DistributionConversionRaw Mat

Vendors/Services



• Is it a promising market?– Best when market is new and not stable– You must time your entry carefully– Entrenched companies usually delay

embracing new technology or process

• Can you win in this market?– Must be built on advantages that are tangible,

practical and easily implemented




• Can you match the Standards of Competition in this Market?–You do have to meet the quality level that is

common in the market–Three Standards:- Technology,

Relationships, Business-model–You must have 80 percent of the capabilities

you need to match competitor’s Standards




• Make or Buy?1. It is easier to meet the standards of

competition if you buy an existing player

2. Adjacent acquisitions must remain as a separate enterprise

3. Integrate Management Control (systems, technology)

4. Inter-transfer of management talent, knowledge and capability are important




Strategy 5: Acquire new Business

• No core advantage to bring in

• Investors mind-set vs. Managers mind-set

• Value unlocking via operational improvements

• Invest in Management/Leadership

• Premium = Combined value > stand alone


Thank You.

soft copy of slides: www.totallyunrelatedrandomanddebatable.

blogspot.com