Statragic controlling

Day 2 “Strategic controlling” Mag. Philipp Gaggl, BA Vietnam University of Commerce Hanoi, 10.4. – 14.4.2013

www.pwc.at/sustainability

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IV - Tools and instruments for strategic control

External:

portfolio, potential, benchmarking, sector structure, client

satisfaction

Internal:

value chain, life cycle, learning curve, company culture

Strategy formulation:

scenario analysis, gap analysis, SWOT analysis

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April 2013 strategic controlling, Philipp Gaggl, Hanoi

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Welcome to the second day!

Repeating what we learned yesterday:

• What is a strategy?

• What is controlling?

• What are the main functions of strategic controlling?

• How is strategic controlling different from operational controlling?

• What are the six elements of the strategic controlling cycle?

• What value provides strategic controlling to management?


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IV - Tools and instruments for strategic control Tools in relation to control areas

Area tools

Financial controlling

Market • Portfolio analysis • Peer group analysis • Sector structure analysis (five

forces)

• Benchmarking • Stakeholder analysis

Clients • ABC-analysis • Target group analysis

• Client satisfaction analysis

Products • Life cycle analysis • Substitution analysis

• Conjoint analysis • Quality function deployment

Processes • Value chain analysis (Porter) • Six-sigma analysis

Ressources • Company culture analysis • Core competency analysis • Technology portfolio analysis

• Resource portfolio analysis • Human resource portfolio analysis

Operational controlling

Financials • Cost structure analysis (target costing) • GAP analysis • Learning curve analysis

• Brand-equity analysis • PIMS analysis

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IV - Tools and instruments for strategic control Tools in relation to functions

strategic gap

assess

control

prevent

potential analysis

target costing

product life cycle analyis

experience curve gap analysis

portfolio analysis

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IV - Tools and instruments for strategic control External opportunities & risks vs. internal strengths and weaknesses

internal

strengths

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external

weaknesses

opportunities

risks

+

-

Team work: What are the external opportunities and risks and internal strengths and weaknesses in your company?

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IV - Tools and instruments for strategic control SWOT – BMW

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IV - Tools and instruments for strategic control SWOT – P&G

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IV - Tools and instruments for strategic control SWOT – India

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IV - Tools and instruments for strategic control - external

External:

portfolio, potential, benchmarking, sector structure, client

satisfaction

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IV - Tools and instruments for strategic control - external Portfolio analysis / BCG matrix

Once a company is following a diversification strategy, the challenge arises, how to distribute the company resources in the best possible way.

In the second half of the 70s the Boston Consulting Group (BCG) developed the “growth share matrix” or “BCG matrix”.

Goal of this tool is to balance the resources invested in capital demanding and capital generating business units.

Key value:

• Provides analysis and evaluation of strategic business units or products

• Allows to see the balance of a product or service portfolio

• Highlights how many new and emerging products need to be developed to achieve a profitable business (how many question mark products are needed per cash cow)

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Basic structure:

The BCG matrix is based on a two dimensional representation of success potentials of a strategic business unit

The first dimension is the one of market-growth:

• Assumption is that all risks and opportunities of a company environment can be shown through a market-growth rate

• Strong growing markets are an opportunity

• Declining markets are a risk

The second dimension is the one of relative market share:

• The relative market share includes the cumulated production amount

• Thus also the cost structure and the competitive advantage versus the competitors are included

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ma

rke

t g

row

th

relative market share (comparison to strongest competitor)

B

+20 %

0 %

2 1

A

C

D

cash-flow

typical life cycle

star question mark

cash cow dog

0

- 20 %

1.5 0,5

-10 %

+10 %

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high

low

low high

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Key elements of the BCG matrix:

Following four areas can be identified by the matrix and inform strategic decisions:

Stars:

• Business units with a relatively high market share in a growing market

• They have a high gross cash flow

Cash cows:

• Business units with a very high relative market share in a stagnating or slow growing market

Question marks:

• Relatively low market share in a strong growing market

• Often an unused opportunity

Dogs:

• Low relative market share in a stagnating market

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IV - Tools and instruments for strategic control - external Portfolio analysis / BCG matrix success objects

own sales volume in Mio US$

sales volume of strongest competitor

relative market share

market growth in %

% of total sales volume

product XY 1. 2. 3. = 1. / 2. 4. 5. = sum / 1.

Market share:

•The competitors value is always 1

•The business unit value is always relative to this one

•Own sales volume / competitors sales volume = relative market share I(between 0 and 2)

Market growth:

•The market growth is always the real market growth of the business unit

•The competitors market growth is not put in relation

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ma

rke

t gro

wth

relative market share (comparison to strongest competitor)

B

+20 %

0 %

2 1

A

C

D

star question mark

cash cow dog

0

- 20 %

1.5 0,5

-10 %

+10 %

product A 10 7 1,42 -10 % 24 %

product B 20 80 0,25 -13 % 48 %

product C 7 20 0,35 +10 % 17 %

product D 4 3,2 1,25 +18 % 9,7 %

sum 41 110 100 %

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Steps towards a BCG matrix:

The following steps build the basic information to create a BCG matrix

1. Definition of the business units Products and groups of products are defined in business units

2. Definition of market growth The growth or decline of the specific sales volume versus the past year, indicates the attractiveness of the market

3. Definition of the market share The turnover of a specific business unit in relation to the turnover of the strongest competitor, defines the market share.

4. Definition of the performance of a business unit The level of turnover per business unit defines the performance. In the graph this is represented by the size of the circle per business unit.

5. Analysis based on the four-fields-matrix Both dimensions – market growth and market share – are combined in a portfolio overview

6. Development of norm strategies On basis of the matrix, startegies for each business unit can be derived

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IV - Tools and instruments for strategic control - external Portfolio analysis / BCG matrix Norm strategies:

The following overview shows which startegies are usually taken respective to the four elements of the matrix:

ma

rke

t g

row

th

+20 %

0 %

2 1 0

- 20 %

relative market share

Investment strategy:

•High need for cash •Gain market share as

long as market expands

> In or out

Growth strategy:

•Strong growing market

•High investment need •Secure competitive

advantage > Invest

De-investment strategy:

•Low cash flow

•Saturated market

> De-invest

Skimming strategy:

• High cash flows

• Hard to gain more

market share

> Keep and skim

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IV - Tools and instruments for strategic control - external Portfolio analysis / BCG matrix - pharma

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IV - Tools and instruments for strategic control - external Portfolio analysis / BCG matrix - Apple

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IV - Tools and instruments for strategic control - external Portfolio analysis / BCG matrix - KFC

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Group work:

• Choose a company of your liking (your own, other one) and describe its main products/services in the BCG matrix.

• Invent numbers and calculate them with the matrix formula

• Establish the matrix with size and position of bubbles

• How would a recommended strategy look like

Time: 15 min

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IV - Tools and instruments for strategic control - external Competitive potential – GE/McKinsey matrix

Key goals:

Comparison of the two basic dimensions in one matrix of

• market attractiveness

• competitive strengths

This matrix has been developed by the consulting company McKinsey and is thus called McKinsey matrix. The matrix provides a tool for diversified companies to invest the internal resources most effectively in certain products or business units.

The main differences to the BCG matrix are the comparison of the market attractiveness instead of the market growth and the competitive strengths instead of the market share. The McKinsey matrix offers a more differentiated picture of the situation, as there are more factors included and instead of the four quadrants of the BCG matrix, the McKinsey matrix has nine.

• Competitive strength: internal strengths and weaknesses

• Market attractiveness: external opportunities and risks

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Key steps to develop a McKinsey matrix:

1. Definition of the influence factors for market attractiveness and competitive strengths: There are several internal and external influence factors – which need to be derived from the PIMS analysis. Exemplary factors are:

internal factors external factors

• market share • image • sales staff • product portfolio • marketing • quality / reliability • client satisfaction • research and development • management competency • client management • financial resources • cost situation • production potential • sales

• market volume and market growth rate

• inflation • regulatory framework • market cycles • availability of human resources • competitive structure • social issues • market entry barriers • environmental issues • profitability of sector • political issues • technology availability • legal issues

competitive strengths market attractiveness

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2. Evaluation of the characteristics of the market strengths and market attractiveness:

• In a second step the influence factors of the basic dimensions need to be weighted to see their relative importance.

• This is done by weighting the influence factors on a scale (e.g. 0- 10)

• This is done separately for the market attractiveness and the competitive strengths

An example weighting scheme looks like this:

0 – 1 -2 -3 -4 – 5- 6 -7 -8 -9 -10 weighting factor

weighted value product A

weighted value product B

product portfolio 0,15 0,3 0,9

marketing 0,1 0,5 0,5

client satisfaction 0,25 2 0,75

client management 0,2 1,4 0,8

financial resources 0,15 1,05 0,9

cost situation 0,15 0,9 0,45

total 1 6,15 4,3

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3. Representation of the business areas in a matrix:

In this last step the positioning of a product or business unit is derived. The values calculated through the weighting of the influence factors are the basis. There are nine areas highlighted which influence strategic decision making. The following graph represents such a matrix:

ma

rke

t a

ttra

ctiv

enes

s

3,3 0 6,6 10

3,3

6,6

10

high

medium

low

low medium high

area of freeing resources

area of binding resources

• Each product is assessed by its weighted internal influence factors and weighted external influence factors e.g product A values market attractiveness 4 and competitive strength 9.

• this would translate to a position in quadrant medium attractiveness and high strength

• Thus a investment strategy to bind resources to the product needs to be done

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competitive strength

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Strategy implications of matrix product positioning:

competitive strength

ma

rke

t a

ttra

ctiv

enes

s

3,3 0 6,6 10

3,3

6,6

10

high

medium

low

low medium high

area of freeing resources

area of binding resources

Investment and growth strategy

Selective strategy

Skimming or de-investment strategy

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Application in practice:

• The McKinsey matrix is less relevant in practical use, as it was over the course of the years not possible to derive some universally valid success and influence factors. Thus the assessment is very subjective.

• Nevertheless the matrix is still in use especially in companies with divisional character.

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Question:

• Where do you see the advantage and disadvantage of the GE/McKinsey matrix to the BCG matrix?

• In which situations would you prefer which tool?

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IV - Tools and instruments for strategic control - external Benchmarking

Benchmarking is the continuous process to assess products, services and practices against the strongest competitor.

Even 500 years before Christ Sun Tzu, the Chinese general said “You don’t have to fear the outcome of even 100 battles, if you know your enemy well”.

Today's form of benchmarking has been developed in the second half of the 70s by the Xerox company. Xerox analyzed the product value and functional abilities of it Japanese competitors copying machines. Reason was that Xerox copiers where more cost intensive than the Japanese pendant. On basis of the benchmarking results strategic decision were taken which put Xerox in a far better competitive position afterwards.

Typical areas for benchmarking analysis are:

• business practices, products, services, processes, functions of products etc.

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Types of benchmarking:

Product benchmarking:

• Functions, value offering, performance and other elements for a product positioning are analyzed

• It is the aim to highlight the key aspects of performance difference of the own products to the ones of the competition

Process benchmarking:

• The processes needed to generate the products or services are in focus

• It is important to structure, define and quantify the processes to be able to compare them

• Aim is to draw key insights how the own processes can be improved to increase the value of the products and services

Administrative benchmarking:

• Focus are processes that only have a supportive function in the development of products or services

• Examples are processes in human resource management, sales, marketing etc.

• Aim is to improve the supporting processes to be a more effective organization

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Operative benchmarking:

• Processes that are explicitly focused on producing a product or service

• Examples are the technological process in using raw material, the automated process in packaging a product etc.

• Aim is to highlight areas for operative improvement and adapt processes accordingly

Strategic benchmarking:

• The long term orientation of a company in respect to the positioning on the market is in focus

• Examples are the strategic positioning of the own products in respect to client satisfaction, environmental pollution, or overall product portfolio

• Aim is to get insights how to improve ones positioning on the market

Which benchmarking “partners” are to be analyzed?

It is key and often difficult to choose the right benchmarking partner. It is not necessary that the partner is from the same industry sector but a company that is likely to have better processes etc. than the own and is considered best in class in the analyzed aspects. Key to successful benchmarking is the availability of data.

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Exemplary benchmarking overview:

Company product value product price product availability

market presence

best practice to analyse

A high high medium medium value, price

B medium high medium low price

C low low low medium presence

own medium low high high availability

Of a range of analyzed companies and competitors – usually those where data is available / accessible – the areas of best practice for further in depth analysis are highlighted.

The detailed benchmarking analysis is mostly resulting in a strengths and weaknesses profile.

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Steps towards a benchmarking analysis:

There are different processes to do a benchmarking but in most cases it follows the following cycle:

Preperation

Implementation

Analysis

Conclusion

1. Preparation:

• Definition which aspects are to be benchmarked in which depth

• Definition of benchmarking goals – what is expected outcome

• Definition of benchmarking team, time frame and resources (e.g. budget for external benchmarking)

• Definition of benchmarking objects e.g. products, services, processes, organizational structures

• Assessment of the own performance and positioning in respect to the benchmarking objects (creation of a reference point)

• Selection of key performance indicators which describe the benchmarked performance

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2. Implementation:

• After defining the benchmarking objects the benchmarking partners need to be defined

• If it is an internal benchmarking, partners can be other functional units or subsidiaries

• If it is an external benchmarking partners are sector or non-sector competitors, or companies which are globally best in class in the analyzed aspects

• Key is to always select companies that are better than the own organization in the benchmarked aspects

• There are often sector specific benchmarking organizations, which – being a neutral third party – get access to data and information of the sector competitors. They then sell their benchmarking results to the market

• If no direct data is available one has to work with publicly available data

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3. Analysis:

• With the benchmarked data and information it is possible to highlight areas of performance improvement

• Also it is thus possible to see the gap between the own company versus the analyzed best practice

• In an ideal benchmarking these aspects are shown by quantitative data points

• The analysis results in a strengths and weaknesses profile comprising of the analyzed benchmarking objects

• Also it is important to highlight the best practices to learn from these and if directly applicable adopt them in the own organization

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4. Conclusion:

• The last phase of the benchmarking process aims at implementing the learnings from the benchmarking process in the own organization

• Existing processes are adapted or changed and best practice practices are implemented

• It is important to communicate the reason and value of this organizational change, as often the organization and its employees are resistant to changes

• A plan of implementing the changes contains of the specification of the specific activities, the sequence of implementation, the resources allocated, the time allocated, the responsibilities and the expected results

• The results of the successful implementation need to be communicated as well and participating employees need to be thanked to keep the motivation for future changes

Benchmarking in practice:

Benchmarking is a continuous process, rather than a one off activity. Thus it should be done frequently to keep up with changes and improvements in processes and best practices.

Ultimate result is the improvement of the competitive positioning.

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IV - Tools and instruments for strategic control - external Benchmarking - example

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company report communication memberships management systems

key issues

Peer-Group A

Kein NB • kurzes Kapitel über NH im Geschäftsbericht 2009 – NH-Subsite auf Unternehmenswebsite

Mitgliedschaft bei respACT und dem Unternehmensnetz-werk „Verantwortung zeigen!“

Keine Informationen

Mitarbeitergesundheit, Corporate Governance, Umgang mit Älteren, Transparenz

Peer-Group B

NB 2009 (A+), geprüft , Bericht seit 2006

• Hohes Level der NH Kommunikation • Verankerung in Geschäftsstrategie • Stakeholderdialoge

UN Global Compact, ÖGUT, Transparency International, respACT

EMAS, „audit beruf und familie“

Produktverantwortung, Entwicklungshilfe, Menschen-rechte, Transparenz, Diversität, Gleichberechtigung, Umweltschutz

Peer-Group C

Kein eigener NB in AUT, sondern im Unicredit-Verbund (B+) geprüft von Wirtschaftsprüfer

• NH in Geschäfts-strategie verankert • vielfältige Informationen auf österreichischer Website

ÖGUT, Cabernet, ÖVA, UNEP FI, ÖNORM, UN Global Compact, respACT

Keine Informationen

Mitarbeiterzufrieden-heit/ -gesundheit, Klimaschutz, Emissionsreduktion, Diversity-Management, Sponsoring

Peer-Group D

CSR Report 2009 (+CoP), nicht geprüft, seit 2008

• Ausführliche Website zum Thema NH • Transparenter NHB

respACT, UN Global Compact, Global Compact Netzwerk Österreich

EMAS-Einführung geplant

Transparenz, Sponsoring, Produktverantwortung, Compliance, Abfall, Energieverbrauch, Menschenrechte

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Group work:

• Select your own or a fictional company (define goal, purpose, product and industry) to benchmark it with the peer-group and best in class.

• Go through the preparation and as much as possible through the implementation phase

• Think of what you want to benchmark, which data sources are available, what KPIs can measure the gap etc.

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End of second day

Thank you for your time and interest!

Philipp GAGGL | Manager, Consulting

( +43-1-501 88-2834 | 7 +43-1-501 88-621 | È +43676833772834 | * [email protected]

PwC Österreich | Erdbergstraße 200 | 1030 Wien | www.pwc.at

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