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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
André André de de WaalWaal Arthur AndersenArthur Andersen
Business ConsultingBusiness Consulting‘Drowning in information,thirsty for knowledge’
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
Purpose
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
Challenges (1)
TURNOVER
If we put it vertically,then it will look great
Strategy development:� Inward looking� Mainly financial &
hockey stick� Lacking actions, not
enough value based
Budgeting:� Too detailed� Manual & time
consuming
The first process is the business planning and strategy review process.
• In one of the businesses we found the business planning process beingsupported by strong communication. A consistent message over the years iscommunicated to the people by using pledges, posters, quality teams and staffmeetings. In this way, the total organization is aware of and supports the goalsof the business.
• The business planning process seems to be a yearly event which, in the opinionof many interviewees, is primarily performed for the BoM (strategic review). Itis not sufficiently linked to the operations in two ways: 1) the strategy is not(enough) updated through the year to take into account major changes in theenvironment (f.e. a merger of competitors) 2) often the execution of the strategy(‘are we reaching our strategic goals?’) is not measured enough with financial +non financial performance indicators. Another remark which was made often isthat the strategy is too focused on short-term and making budget then on longterm vision. Also, the long term targets in the strategy plan after are veryoptimistic after year 2: the so-called hockey stick effect.
• At some places in Philips there is some use of scenarios and contingencyplanning. Linking this with one of the outcomes of the N&W there is a clearneed for using theses techniques to increase the quality and depth of thebusiness planning process.
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
Performance Review:
� Forecasts too detailed,manual and not reliable
� Review meetings notbased on issues andexceptions
Compensation:
� Only based on short-term performance
Boss, boss ?
Challenges (2)
• In one of the businesses we found the carrousel process in which the major entities (BGsand regios) together plan for the future together for 2 days at a remote site. Lots ofinformation is exchanged and plans are discussed in detail. In this way it becomes possibleto reach mutual agreement in a relative short time.
•
• A remark often made is that Philips is too much inward looking. The company does nottake (enough) into account the outside world by structurally collecting information aboutcompetition, economy, trends etc. and linking this with the results of the company. In onebusiness we found that in the barrel specific (but very high level) mention is made ofmarketing information which can explain the results of the business.
•
• A lot of time and effort is spent on preparing the budgets and the forecasts. It is often beingdone bottom-up, involving lots of people, and in great detail. The question can be asked ifthis is worth the effort because many interviewees questioned the quality (and thereby therelevance) of the budgets and RoFos.
•
• In forecasting a lot of attention is given to the accuracy of the forecast, as somebody said‘We spend a lot of time on planing the unknown’. However, planning in so much detail 1year ahead makes accuracy rather academic. Is there a good trade-off?
• There is no specific information from the N&W about these processes.
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
I’m sure it is inhere somewhere ….
Performance Measurement:� Too financial� Time consuming data
collection� Reports not satisfactory� Quality of analysis
unsatisfactory� Impact of actions unclear� Insufficient IT support
for measurement +reporting
Challenges (3)
In one of the business management exception reports are used for the financials.With traffic lights a summary of key financial data per entity is given on one page.In this way, management can see in one glance which entity is in trouble.Supporting data for these entities can then be found in the underlying reports. Thisprinciple can and should be extended to the non financials as well.
In another business the barrel data is accompanied with a description of correctiveactions. In this way the BoM can directly see which actions management is takingto rectify certain issues.
Many people complain about the quality of analysis. Often, the narrative justrestates the figures, there is no real root cause analysis. There is also no impactanalysis of corrective actions proposed: so how do we know that the proposedactions are sufficient enough to solve the issues? Also, making analysis is still seenas a task of the controller, instead of a line manager’s task.
An issue here is the question: ‘does speed of reporting excludes good quality ofanalysis’? On the other hand: if the consolidation + reporting process has beenstructured in an efficient way management gets the time to do real analysis.
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
value
cost
dynamic
static
forward
historic
outward
inward
TRENDS, TOOL & TECHNIQUES:PROCESS
IT SUPPORT
Developments
Trends you can see in the area of performance management and the new role of control (business partner) can be summarized by the following 4changes:
cost - value
To become a business partner, the scorekeeper must change his focus from a cost-(cutting) approach to a value-added business view.
static - dynamic
As business changes drastically and time becomes more and more crucial, a static look on the business is no longer sufficient. Continuous focus onstrategic and operational performance and corrective actions to get back on track are crucial to stay up to speed with the competition
historic - forward
The changing business environment does not allow looking at the past only. Historic performance does not provide enough information to takeappropriate business decisions. Looking into the future, forecasting, simulation and modeling are some of the tools that enable us to learn more aboutthe future.
inward - outward
Today companies tend to look inward, to their own business. A more outward look to the business environment, market trends, competitive actions(intelligence) and integrating that knowledge into strategic planning and business operations is a key for success.
The trends applicable to the above topics relate to processes on the one hand and IT support on the other.
(In the examples to come we do not make a link with Philips, but talk about general trends seen and their potential benefits!!)
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
Mission&
Strategy
KeyPerfor-mance
Indicators
CriticalSuccessFactors
OperationalRevenues
OperationalCosts
Cost ofCapital
Riskfactor
Economicvalue
NOPAT
Risk adjustedCost ofCapital
Drivers that causefinancial results
KPI definitions
Value Based Management (1)
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
Improved Balanced Scorecard
Innovative perspectiveQuality brand portfolio
- Big brands �0 Brand reduction �
Quality investments+Big brand investment �
Financial perspectiveTop line growth
0 NSV growth �0 Sales volume growth �
Succesful new products+ New product sales �
Customer perspectiveTrade customer satisfaction+Customer satisfaction �- Days sales outstanding �
Trade spend0 Trade spend rate �
+
Internal perspectiveEffective processes
+Process goal achievement�“Quality” employees
+ Multiskilled employees Productivity
0 Qualified employees � 0 Qualified employees �
�
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
Budget contingency areas
③ D
ivision in
terven
e area
Jan Q1 Q2 Q3 Dec Q4
Target budget
Corporateinterveneline
Divisionintervene line
② Corporate intervene area
Budget level
① contingency
∑
Bonuslevel
extra ↑
no ↓
normalmin.
∑
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
Traffic Light Reporting
PD Lighting EPR Sales CM IFO NOC CAP EX Cash flowActual Budget Actual Budget Actual Budget Actual Budget Actual Budget Actual Budget Actual Budget
Lamps 200 180 4,200 4,000 3,200 3,130 1,120 1,100 2,500 2,480 230 235 760 758
Luminaires 45 43 1,540 1,540 900 880 512 500 270 286 60 80 98 95
Automotive 57 51 450 448 410 400 60 58 430 300 35 60 115 103
ighting E & G 156 148 1,700 1,680 768 750 234 230 601 589 40 40 280 270
Batteries 10 10 280 220 95 94 30 60 100 90 2 2,1 23 23
thers Lighting 15 14 130 125 160 150 20 20 40 35 30 31 -12 -8
Total483 446 8,300 8,013 5,533 5,404 1,976 1,968 3,941 3,780 397 449 1264 1241
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
CriticalSuccessFactors
Keyperform.indicators
Budgetvalue
Actiondescription
Q2 Q2 Q3 Q4
Timetomarket
Fore-castedvalue
Q2
AverageLead time
1. Increase knowledgethrough recruiting
2. Build multi-discipli-nairy teams toincrease synergy
3. Invest in new CADsoftware
14 14 12
Projected result
period : Second Q ’98
date : 3-4-’98
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Resp.Duedate
Analysis&Feedback
Lead time
increasesbecauseseveralexperiencedpeople willleave shortlyafter oneanother
1. Q2
2. Q3
3. Q4
1. X
2. Y
3. Z
Action Reporting
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
• Budget lines (target, PD intervene, Board intervene)• Contingency areas• Input for sensitivity
analysis (preventive actions)
STRATEGYFORECASTING/
REVIEWBUDGETING REPORTING
•Key financials•Leading non-financials•Input for targets year 1•Input for contingency (sensitivity analysis, scenario planning)
Linking the performance processes
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
IT support
SHALL I APPLY FOR APATENT?
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
• Real-time, day-to-day management information
• On-line business intelligence information about
customer + market developments
• Most performance indicators automatically
available (from ERP systems + EIS)
• Datamarts + datawarehouses
• Business Intelligence WEB applications
(inter/intranet)
ROLE IT IS ALL-IMPORTANT !
IT support developments
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
Information architecture based on ERP systems
����Data warehouse
Transaction systems(ERP)
DSS/OLAP
EISAnalysis /
ad hoc reports
�������������� ���
�������������� ���
Standard management
reportsOperational
reports
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
SALES FORCE
BILLING
ORDER ENTRY
TEMPERATURE
EXTRACT
CLEANSE
SUMMARISE
DATAWAREHOUSE
CONSUMER
DATAMART
INCOME
INTERNALINFO
EXTERNALINFO
operational systems
OLAP TOOLS
DATA MINING
QUERY &REPORTING
EIS
business intelligenceapplications
datawarehouse
METADATA
IT structure
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
Decision Room
[NEC foto]
A nice example of IT support is the decision room that NEC uses. The boardmeetings are conducted in this room. Every board member has a terminal onwhich external and internal information is displayed (using the Intranet!).During the discussion one person centrally looks for the supporting data.The DSS has been split in two: one for executive use giving primarilysummaries and one for more analytical use. This last one is also availableon the lap-tops of the executives.
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
WEB applicationsApplications:· WEB Publishing - Report distribution· Dynamic WEB Applications:
· Access up to date information· Create custom reports and graphs· Ease of information distribution and access· Empower the organisation and customers
Benefits:· Easy to use, common user interface· Platform independent, world-wide information access· Universally available, opens up data warehouse
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
Corporate
PD
Business
•Surf around to lowerlevel reporting onBusiness web pages
•Analysis capabilities(like drill down andslice & dice) dependon the functionality ofthe site that is visited
•Hyperlinks toexplanatory webpages (either internalor external)
external
‘Management by surfing around’
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SEUGI 17© 1999 Arthur Andersen. All rights reserved.
‘What is it?’ ‘Aperformanc
eindicator’
‘And what’sit used for ?’
‘Eh … Iwouldn’t
know