© 2009 ibm corporation ibm forum 2009 strategic profit improvement succeeding in the new economic...
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© 2009 IBM Corporation
IBM FORUM 2009
Strategic Profit Improvement
Succeeding in the New Economic Environment
Mihail Simov – Senior Consultant,
IBM Global Business Services
22/10/2009
© 2009 IBM Corporation
Strategic Profit Improvement Services
A different kind of downturn – Traditional responses will not suffice
Long & Difficult
Unprecedented constraints on access to credit and capital;
Falling demand, increased price sensitivity as consumers and enterprises cut back
Disruptions in supply chains, partner and customer arrangements
Transformative
Restructuring of industries: Firms fail, sold off overnight
New regulatory regimes
Stress on global inter-dependencies
Firms must examine working capital &
investment: identifying
opportunities to restructure, reduce, and preserve capital
as well as streamline operations
Short Term Opportunities
Immediate cost takeout initiatives
Manage costs and maximize capital to drive a focus on value
Long Term Sustainability
Position organization for sustainable profit improvement
Drive a structured approach to increasing efficiency and enhancing effectiveness of organization
Reduce structural complexity (processes, systems)
Optimize the Business operating model including CoEs, shared services, outsourcing
Reality of New Environment Required ChangeImplications
© 2009 IBM Corporation
Strategic Profit Improvement Services
To thrive, not to survive, companies need to take action on 3 fronts
Source – IBM Institute of Business Value http://www-935.ibm.com/services/us/gbs/bus/html/gbs-new-economic-environment.html
© 2009 IBM Corporation
Strategic Profit Improvement Services
How can SPI help?Strategic Profit Improvement – Looking at the whole equation
Do more with less
Be more agile
Defend market share
Rapidly identify and deliver a step change in financial performance with uncompromising focus on optimizing capital and revenue improvement
Optimize assets and working capital Reduce SG&A expenses Realize acquisition synergies
Adapt to changing demand patterns Increase flexibility of the supply chain Transform fixed to variable costs Make processes more effective and efficient
Offer new services and solutions Make selective acquisitions Enter into new markets and channels
© 2009 IBM Corporation
Strategic Profit Improvement Services
SPI is an IBM solution that helps clients who are challenged by…
A need to reduce costs in short term and/or require capital to fund future growth
Merger and acquisition related activities– Integrate acquired business into new company –Need for more cash for acquisitions or fund new businesses
Shareholder value, profitability and/or competitive pressure –Competition has widen the gap –Has been under-performer and requires a turnaround –Need to improve lagging Division / BU
Other business impacts–Recent management changes – new CEO, CFO, etc.– Increasing customer service or performance issues
© 2009 IBM Corporation
Strategic Profit Improvement Services
Not just traditional cost cutting, SPI focuses on structurally optimizing working capital, assets and human capital
Traditional Approaches
Headcount reduction, short-term focused (human capital is ignored)
“Running the business” and restructuring objectives not integrated
Informal program management
“Program of the month” to reduce working capital
Time-to-benefits difficult to measureand/or poor accountability
Change management is not consideredor limited to ad-hoc communications
Strategic Profit Improvement
Driven by business strategy and transformation agenda
Immediate business requirements and transformation agenda actively managed
Focused on long-term sustainableresults and quick win situations
Program management focused on benefit realization, project implementation and change management
Comprehensive program that looksacross the enterprise toimprove revenue and optimize assets
© 2009 IBM Corporation
Strategic Profit Improvement Services
SPI is a strategy-driven, issues based approach for increasing revenue, reducing costs, optimizing assets, leveraging technology and increasing effectiveness across the value chain
SPI - a proven approach
Leverages IBM’s unparalleled experience with clients of all sizes across industries
Provides practitioners who have extensive functional, industry and profit improvement expertise
Supplies the right tools / analytics for each client situation
Targets high impact areas across the value chain
Identifies critical enablers to achieve benefits rapidly
SUSTAINABLE BY
• Eliminating work
ImproveKey Processes
&Organizations
ReduceCosts
OptimizeAssets
LeverageEnabling
Technology
Support
Growth
Plans
Dri
ven
by
clie
nt’
s st
rate
gy
IBM SPI Framework• Collaborative approach• Strategy focused
• Experience• Performance metrics
• Strong leadership• Change management
Function 2 Function 3Function 1 Function 2 Function 3Function 1
Realigning OrganizationStructure
•
Improving asset utilization
•
Exploring accessible technology
•
© 2009 IBM Corporation
Strategic Profit Improvement Services
A full SPI engagement provides a rigorous approach to identify and deliver a step change in financial performance
Confirm strategic context, imperatives and scope
Evaluate current state leveraging IBM capability framework (CBM)
Identify transformation options and benefit potential
Define Design Deliver
Key
Ste
ps
Business Case & Value Realization
Program & Change Management
Phase 1 Phase 2 Phase 3
Define baseline and preliminary business case
Finalize detailed business case Establish KPIs and tracking
mechanisms
Deliver and track benefits
Mobilize program and develop change management strategy
Develop integrated change plan
Manage ongoing change activities
SPI Approach
Select opportunities and design operating model recommendations
Undertake sponsor briefings and develop final capabilities
Create go-forward playbook and transition roadmap
Establish Program Management Office
Execute transformation initiatives
Measure and control implementation progress
© 2009 IBM Corporation
Strategic Profit Improvement Services
A full SPI engagement provides a rigorous approach to identify and deliver a step change in financial performance
• Value proposition
• Baseline in-scope areas
• Quantified gaps & opportunities
• Improvement proposals
• Business cases
• Implementation plans
• Improvement specifications
• Implemented projects
• Benefits delivery
Define Design Deliver
De
liv
era
ble
s
Phase 1: 4-6 Weeks Phase 2: 8-10 Weeks Phase 3: TBD
• Component Business Modeling• Financial Analysis tools• Data Request Templates• Pareto Analysis• Process Mapping• Process Analysis
Illu
str
ati
ve
To
ols
• Outsourcing • Tax Diagnostic• Maturity Profiles• Pricing Optimization• Business Case and Roadmap• LogicTools
Benchmarking ProgramCBM
• Benchmark Wizard• Span of Control Analysis• Expense Analysis• Interview Tools• Industry Points of View• Dynamic Inventory Optimization
Span of Control Analysis Industry Points of View
© 2009 IBM Corporation
Strategic Profit Improvement Services
The SPI Assessment (3 – 4 weeks) provides a rapid high level assessment to validate and review opportunities
SPI Assessment
• Initial hypotheses
• Back-up benchmarks and other financial information
• Initiate data requests (e.g., financials, organization charts, IT infrastructure, ongoing initiatives)
• Formulate initial hypotheses for optimizing capital
• Refine data requests based on the hypotheses
• Select relevant external benchmarks
• Develop data collection methods
• Plan and schedule interviews, meetings, and workshops
• Baseline data
• A summary of key interviews and facts gathered supporting the analysis
• Interview Executives to understand the current situation and explore options
• Collect data and understand capital optimization drivers
– Additional focused interviews
– Workshops
– Surveys (high level)
• Develop baseline models
• Collect internal benchmarks
• Analyze causes of performance gaps
Ke
y
Ac
tiv
itie
s
• Business Case detailing the range of benefits, timing and “rough-order-of-magnitude” investment needed
• Identify the directional opportunities
• Estimate
– Range of potential savings
– Enablers and dependencies
– Implementation timetable
– Prioritized list of savings
• Draft a short, summary report
• Validate with management
• Assess readiness for change
• Present to project sponsors
Pri
ma
ry
De
liv
era
ble
Planning Assessment Opportunities
© 2009 IBM Corporation
Strategic Profit Improvement Services
The SPI approach is tailored to address areas where opportunities for improvement exist
Roles, Resp. & Incentives
Re/design
OrganizationStructure
Re/designs
Technology & Infrastructure
Organization &
Governance
Process & People
Operating Model
Global, Regional, Local Model Re/designs
Core vs. Non-Core Process
Analysis
In-House vs. Outsource Analysis
Performance Management
Process ImprovementDevelopment
Site & Infrastructure Management
Governance Model
Development
IBM GBS Transformation Capabilities
Cost Reduction Implementation
TechnologyRoadmaps
Development
Our approach can include the management of implementation, change management and benefit realization activities for the above capabilities
Technology Implementation
© 2009 IBM Corporation
Strategic Profit Improvement Services
The SPI approach focuses on aligning the client’s value chain with its strategic and profitability objectives
Corporate and Business Unit
New Product Development
Marketing and Sales
• Implement strategic sourcing programs to reduce costs
• Improve order to pay process efficiency and compliance
• Align manufacturing capacity to customer and product portfolio - make vs. buy criteria
• Improve production planning effectiveness to reduce working capital
• Improve process flexibility and reliability
• Improve maintenance effectiveness and MRO management
• Improve time to market and reduce costs
• Design for manufacturing
• Rationalize R&D portfolio
• Evaluate new product make v. buy
• Implement segmentation strategy and account profitability
• Review marketing services and spend
• Improve cost to sales/service channels
• Improve sales operations and automation
• Implement shared service centers/outsource select functions • Eliminate redundancies and improve spans of controls • Align roles and responsibilities to speed decision making• Leverage information technology - e-business strategy
• Rationalize offices and sell non-core assets• Implement employee self service model• Identify controllable expense opportunities and
improve expense policies
• Minimize warranty and returns costs
• Centralize call centers for consumers
• Reexamine/ enforce order minimums and price overrides
• Align cost to serve and improve post sale customer service
• Optimize distribution and network strategy
• Optimize logistics and freight costs
• Review pick and pack capabilities
Co
mp
an
y-w
ide
Customer Care Procurement Manufacturing Distribution
Va
lle
Ch
ain
sp
ec
ific
The SPI framework can be tailored to meet each client’s specific situation
© 2009 IBM Corporation
Strategic Profit Improvement Services
How can SPI help now?Providing for “self funding” of initiatives through balancing “quick hit” opportunities and longer term initiatives
Tot
al C
ost
Capacity
Tot
al C
ost
Capacity
Longer Term Savings: Transformational initiatives that drive longer-term saving, sustained growth, and greater agility without sacrificing capacity
Timing of Benefits Realization
Lo
ng
-te
rm I
mp
ac
t(S
avi
ng
s a
s %
of
spe
nd
)
Low (5-10%)
Long(> 12 mos.)
Short(3-6 mos.)
Med (10 - 25%)
High (>25%)
Medium(6-12 mos.)
Supply chain facility optimization
Regional facility consolidation
HQ Consolidation
Quick Hit Cost Reduction: Efficiency initiatives that drive near-term saves via reduced capacity
Illustrative – Cost Savings Initiatives
Customer experience management
Inventory optimization Shared Services Optimization Corporate Support Function
Sourcing and Consolidation Sourcing rationalization
Finance, HR and IT Optimization
Consolidation of finance and HR processes across business units
Application portfolio rationalization and maintenance planning
IT Resource Utilization
Quick Hits Smaller and flexible
organizations Management De-layering Activity and Project
Rationalization Inventory assessment
Enterprise Transformation
Asset Utilization
© 2009 IBM Corporation
Strategic Profit Improvement Services
Companies that adopt SPI have significantly improved the cost effectiveness and performance of their organizations
Current Effectiveness of….
* Includes improvements in cycle times, strategic information availability, working capital, and customer service.
Client Situation
Leading Edge(High Previous Investment)
Average(Moderate Previous Investment)
Below Average(Little to No Previous Investment)
ProcessesService Quality
High High High
ModerateModerate to High
Moderate
Low to Moderate
10 to 20% +
20 to 40% +
35 to 50% +
Typical Opportunity for Improvement
CostsProcess
Performance*
20%
Technology
25%
30%Low to
ModerateLow to
Moderate
The value each Company will realize is determined by the starting point, the breadth of scope, and the client’s willingness to push the envelope.
© 2009 IBM Corporation
Strategic Profit Improvement Services
Many of our SPI projects have resulted in significant bottom line savings
Client Cause for Change Scope Results
Lagging financial performance in Europe
Concern operating model was out of date
Internal complexity Shrinking margins and top-line growth Increased competition Previous silo attempts to reduce cost
structure had failed
All of European headquarters Go-to-market out of scope; all other processes/functions were in-scope
Worldwide Operations across all lines of business with over 400K employees
Annual savings of over $1.2B Implemented new model for Northeast and
Southwest Europe; Rolled out shared support services / globalized
functions Decommissioned over 10,000 applications in a 3
year period, from 16,500 to 6,200 Improved customer satisfaction
Stagnant share price Complex operating model Redundant functions Limited collaboration across business
units
Corporate HQ, North Am., Eur., Aus., NZ
Processes: Innovation, Trade Management, Supply Chain, Procurement, Finance, HR and IS
Identified revenue up-lift of $100M and savings of $300M
Globalized direct spend processes Integrated regional supply chains Implemented regional/global strategies for Europe &
ROW
Shareholder Value and investor pressure
Transform business model from decentralized to centralized
North American SG&A and Business Unit Distribution and Warehousing Operations
Annual savings of $200 million Restructured organization Redesigned sales and operations Established shared services for common support
functions
© 2009 IBM Corporation
Strategic Profit Improvement Services
Examples of SPI successes
Approximately 120 engagements globally!Over US$8.5 billion in savings identified!