© 2009 IBM Corporation IBM FORUM 2009 Strategic Profit Improvement Succeeding in the New Economic...

© 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


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



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



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



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



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



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

•



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



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



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



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



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



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



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.



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



Examples of SPI successes

Approximately 120 engagements globally!Over US$8.5 billion in savings identified!



Questions and Answers

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