ABF Budgeting, Forecasting and Financial Planning Conference, Feb 2009 *Understanding what strategic planning is and why it is important *Clarify the difference between vision, mission statement, goals and objectives *The external environment: The need to understand the economic cycle *Tying the strategic plan to the budget *Cost Reduction methods and advice

1. STRATEGIC PLANNING AND BUDGETING Part 2: Alignment, Budgeting and Resources Case Study, Concepts and Debatable Ideas Kenny Ong CNI Holdings Berhad

2. Summary: Today’s presentation 1. Business Model  Done 2. Strategy 3. Alignment 4. Resources  Done

3. 3. Align the business to the strategy Dangers of Benchmarking, BSC, KPIs and other evils sold by Consultants

8. Dangers of Best Practice and Benchmarking… “ Abraham Wald’s Work on Aircraft Survivability”, M. Mangel and F.J. Samaniego Where would you focus reinforcement? www.myCNI.com.my www.OOBEY.com

9. Dangers of Best Practice and Benchmarking… www.myCNI.com.my www.OOBEY.com Company Performance high low ‘ Best Practice’ theories low high zero Performance “ Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005 Trend line

10. Dangers of Best Practice and Benchmarking… www.myCNI.com.my www.OOBEY.com Company Performance high low ‘ Best Practice’ theories low high zero Performance “ Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005 Trend line

15. Focus: Corporate Alignment Financial “ To satisfy our stakeholders, what Financial objectives must we accomplish?” Internal Process “ To satisfy our customers, in which internal business processes must we excel?" Customer “ Who are our target customers? What is our value proposition?” Learning & Growth “ What capabilities and tools do our employees require to help them execute our strategy?

16. Linking BSC to Strategy Revenue Growth Base Retention Share Gain Positioning Adjacent Market New Business Operational Excellence Product Leadership Customer Intimacy Competencies Information Systems Motivation, empowerment, alignment Financial Learning & Growth Internal Process Customers Investment Strategy Productivity Market Value

17. Focus: Corporate Alignment Financial Learning & Growth Internal Process Customers / Distributors Revenue Growth Productivity Market Value Department Operations Supplier & Alliances External Involvement Target Markets Products/ Services Channel Strategies Human Resources Technology Information & Intelligence Systems & Processes

19. Example: 1 st Level BSC & KPIs Financial Learning & Growth Internal Process Customers / Distributors Profit after Tax. Revenue. Cash-to-cash cycle. Operating cash flow Customer Complaints. Customer Acquisition Rate. Product Availability. Product Quality & Service. Renewal Annual Subscription. No. of Active Customers. No. Retail Shops. Customer Database Availability. Accuracy of Forecast Planning. Continuous Improvement. Response Time to Customer Needs. Perfect Order Fulfillment. Inventory Turnover. Number of Effective Sponsoring Program. On Time Delivery. No. of Effective Training. Number of Effective A&P % of staff evaluated on Core Competency Framework. % of staff with Career Development Plans. No. of training hours completed per staff. % of staff with access to strategic information. Q12 Index. % staff evaluated on Culture alignment

21. Lagging and Leading KPIs Historical, Outcome, Results, 1 st Level, Usually Financial or tangible, Quarterly and Annually Current, Indicators, Drivers, 2 nd Level onwards, usually non-financial or intangible, Weekly, Monthly and Quarterly Leading Lagging

22. Developing ‘Driver’ KPIs Customer Retention % Lagging, 1 st Level Customer Satisfaction Index Leading, 2 nd Level On time delivery Time to market for new products TNA % Defect levels, warranty claims Leading, 3 rd Level onwards

23. Strategy: Disciplines, Priorities, and KPIs 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)

28. Strategy: Value Disciplines Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders , Michael Treacy & Fred Wiersema; 1995 Product Leadership (best product) Customer Intimacy (best total solution)

29. Strategy: Value Disciplines Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders , Michael Treacy & Fred Wiersema; 1995 Product Leadership (best product) Customer Intimacy (best total solution)

31. E3 – Department BSC Financial Perspective Budgeting On Time Delivery Innovation Quality OPEX CAPEX Targets Measures Goals

32. Summary: Today’s presentation 1. Business Model  Done 2. Strategy 3. Alignment 4. Budgeting  Done  Done

33. 4. Budgeting The art and science of allocating and aligning Resources to strategic plans

35. Alignment: 4-Wheels Model Culture Business Model Strategic Planning Structure Person Leadership Resources

41. Alignment: 4-Wheels Model Culture Business Model Strategic Planning Structure Person Leadership Resources

48. Budgeting vs. Priorities Upturn Flat Downturn Fight Complacency Sharpen Edge Keep Momentum Conquer NPD Cycle Time Improve Edge Extensions Counter Competitor Innovation Acquire Profits Build momentum Sales Cash Flow Focused on ‘Breakthrough’ JV, In-source, Out-source Eliminate bottom 20% Improve Top 15% revenue-generating products ↓ R&D, ↑ Sales Example: Business Situation vs. R&D Priorities

51. Budgeting for Investments based on the ‘BCG Matrix’ principles Business Performance Market Potential

53. Budgeting in a Downturn

54. Budgeting in a Downturn

55. Budgeting in a Downturn

56. Budgeting in a Downturn

58. Planning, Budgeting, Schedules, Processes Tying it all up

61. Problems, problems and more problems…

63. Alignment: 4-Wheels Model Culture Business Model Strategic Planning Structure Person Leadership Resources

64. Thank You. soft copy of slides: www.totallyunrelatedrandomanddebatable.blogspot.com