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Strategic PlanningNovember 1, 2012Presented by: Andrew Blake, BMOS, CMA

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AgendaIntroduction/AgendaWhat is Strategy?

Strategic Planning Structure

Types of Analysis

What can a Strategy do for you?

Conclusion

PAGE 3What is Strategy? Structure Analysis Conclusion What’s in it for you?

What is Strategy?

Strategy is the creation of a unique and valuable position, involving a different set of activities. It involves proper Placement, Perception, Persistence.

Examples of different strategies:• Serving a few needs of many customers (ex. Jiffy

Lube)• Serving broad needs of few customers (ex.

Berkshire Hathaway)• Serving broad needs of many customers in a

narrow market (Carmike Cinemas)

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Strategic Activities

Strategy involves:

Strategic Positioning Creating Sustainable Competitive Advantage Creating “fit” amongst the company’s resources Corporate Culture Making trade-offs – choosing what NOT to do Operating Efficiencies

What is Strategy? Structure Analysis Conclusion What’s in it for you?

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Strategic Positioning

What is Strategy? Structure Analysis What’s in it for you? Conclusion

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Strategic Positioning

What is Strategy? Structure Analysis What’s in it for you? Conclusion

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Competitive Advantage

What is Strategy? Structure Analysis What’s in it for you? Conclusion

Competitive Advantage means: What are we as a company good at? Better than anyone else!

Competitive Advantage is Not Operational Can Change Can Be Reviewed

Example: Wal-Mart’s Distribution System

The Key to creating a SUSTAINABLE Competitive Advantage is finding that area, and making it the focus of the business.

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Resource Optimization

What is Strategy? Structure Analysis What’s in it for you? Conclusion

Resource Optimization means: Using the resources the company has with the fit of the company’s strategy. Doing so makes the strategy more sustainable and forming a competitive advantage.

Example: Southwest Airlines compared to other Airline companies

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Corporate Culture

Corporate Culture can have one of the biggest impacts for implementing or derailing a strategy !

The corporate culture must: Fit with the strategy Buy-in to the strategy Have ownership of the strategyOnly then can they be accountable to it and make it a successExample: The previous Daimler-Chrysler partnership

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Trade-offs

What is Strategy? Structure Analysis What’s in it for you? Conclusion

Some Competitive activities are NOT compatible. Hence making trade-offs are necessary for

successful strategy implementation

For example: a low cost strategy does not lend itself well for premium product sales

Example: Maytag’s product line additions

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Operating Efficiencies

In the past operating efficiencies were a form of competitive advantage, now they are

tablestakes.

Some examples of operating efficiencies: Technology Cost Control Value Chain Analysis

Although these are not in itself an advantage, they are still absolutely necessary for strategy implementation and business operations.

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Strategic Planning Structure

Strategic Planning involves completing a review of all facets of the company in order to create a strategy that answers:

What are we good at? What are we not so good at?

What is going on in the industry? Where do we fit into the industry? What is our focus? What initiatives can we take? Are they

profitable? How do I put these plans into place?

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Strategic Planning Structure

A Comprehensive Strategy Plan includes:

A Situational Analysis Analysis of Major Initiatives Recommendations Implementation Plan Financial Forecasts

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Situational Analysis

A Situational Analysis includes:

A review of the Vision/Mission of the company Strategic Goals Stakeholder Preferences Resources available/constraints Financial Statement Analysis Company Strengths, Weaknesses The Industry, and Industry Opportunities, and

Threats

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Major Initiative Analysis

This Analysis includes a full review of different strategic alternatives such as:

Qualitative Pros/Cons relating to all areas of the situational analysis

Quantitative Pros/Cons such as how much will this cost, is it profitable

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Recommendations

The Recommendations list the strategic alternatives and recommends pursuing them or not, as well as justifying the rationale why. Often a decision matrix is used to help.

Criteria

Nothern Ontario

MineGeoCopper Exploration Smelter Sell Zinc

BC Hydro Power Plant

NPV $28 Million

$34 -($1236) Million

$32 – ($6) Million

($32 - 73 Million)

$155 Million

Investment$240

million $50 million$230

million NA$125

millionStrategic FitIncrease Proven Copper ReservesROI of 10%Meets Stakeholder Preferences Split SplitOverall

Decision Matrix

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Implementation Plan

Implantation Planning is the Who, What, When, Where, and How of the Strategic Plan. This includes:

A review/recommendation of minor alternatives/operational issues

An action plan/timeline of who does what, when Formalized plan for addressing as many

company needs as feasible

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Financial Forecasts

Financial Forecasts take into account all areas of the chosen strategy and initiatives undertaken. This gives an idea of where the company will be projected to be (based on the assumptions) once the strategy is implemented. It can include any of:

Forcasted Income Statement Forecasted Statement of Cash Flows Forecasted Balance Sheets Forecasted Budgets

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Types of AnalysisWithin the Situational Analysis and Initiative Analysis, there are many types of Analysis that can be done to give valuable information about the company.

Some examples include:

• Financial Statement Analysis• Benchmarking• Operational Analysis• Contribution Margin• Market Share• Product Composition• Net Present Value

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Financial Statement Analysis

Example

Metric Ratio Brightstar2011 2010

2009

Benchmark 2010 2011

2009Liquidity Current

Quick

Solvency Debt to Equity

Profitability ROS

Asset Management

DSO

Inv. Turns

.19 0.38 0.22 0.16 0.12 0.14

21.9% 23.2% 13.8% 24.6% 27.4% 18.9%

43.9 35.4 21.7 34.6 25.3 19.6

5.9 7.3 12.9 5.8 6.0 7.3

2.3 3.4 5.7 7.9 3.8 3.9

1.8 2.2 4.6 7.2 3.1 3.2

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Operational AnalysisOperations can include: Production process, Workforce Management, Value-Chain Analysis.

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Contribution MarginContribution Margin helps determine what products are profitable and at what sales volume are products profitable.

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Market ShareMarket Share explains where the company is compared to others in the industry.

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Product CompositionProduct Composition explains what the company is good at selling.

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Net Present ValueOften Major Initiatives take more than 1 year to evaluate. A Net Present Value takes into account discounting future cash flows to create a value for today for direct comparison.Appendix 6 - BC Hydro

(In $Millions, except salesprice/Kilowat) 2012 2013 2014-25 2026 2012 2013 2014-25 2026Financial Summary (NPV) Yr 0 Yr 1 Yr 2 Yr 3-14 Residual Yr 0 Yr 1 Yr 2 Yr 3-14 ResidualInitial Investment in Hydro Plant (125) (250)Total Power ProducedOwnership Interest (5%)Power Consumed

$0.087 $0.0903%

constant growth

$0.128 $0.087 $0.0903%

constant growth

$0.128

Kilowatts Sold (000's) 306 306 306 306 676 676 676 676 IRR = 20%Sales 26.72 27.53 402.37 39.25 59.04 60.81 888.89 86.70 Operating Costs 2.67 2.75 40.24 3.92 5.90 6.08 88.89 8.67 Cost Savings by not purchasing power (5.38) (5.54) (80.9) - (5.38) (5.54) (80.9) - Net Change in Cash Flow (prior to tax) 29.43 30.31 443.07 35.32 58.51 60.26 880.94 78.03 Taxes RATE= 25% (7.36) (7.58) (110.77) (8.83) (14.63) (15.07) (220.23) (19.51)After Tax Cash Flow 22.07 22.73 332.30 26.49 43.88 45.20 660.70 58.52

Discretionary Cashflows (DCF):Annual DCF (125) 22.07 22.73 332.30 26.49 (250) 43.88 45.20 660.70 58.52 PV of DCF WACC= 10% (125) 20.06 18.79 150.86 90.59 (250) 39.89 37.35 299.94 200.14 Cumulative PV of DCF: (125) (104.94) (86.15) 64.71 155.30 (250) (210.11) (172.75) 127.19 327.33

Notes:

5% Ownership (Investment: $125M) 10% Ownership (Investment: $250M)

7,400 Gigawatts/ annually 7,400 Gigawatts/ annually370 Gigawatts / Annually 370 Gigawatts / Annually

64 Gigawatts 64 Gigawatts

Sales Price / Kilowatt (3% growth/yr)

All excess power is soldBMC usage remains constant at 64 Gigawatts until 2025 then drops to zero (reflected in residual calc)

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What can a Plan do for you?

What is Strategy? Structure Analysis What’s in it for you? Conclusion

Strategy formulation and planning is NOT an easy task.

Often it can:• Use Significant Resources – Time, Money• Be Emotional – People have vested interests• Be Biased – depending on the sources• Be Incomplete – often areas are overlooked

Even after decisions are made, often the most overlooked part is the implementation and evaluation of the strategy on an ongoing basis.

A Comprehensive Plan does not guarantee success rather it gives all the tools and information needed for it!

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What can a Plan do for you?

What is Strategy? Structure Analysis What’s in it for you? Conclusion

To create a Comprehensive Plan and have all the needed information gathered and utilized correctly can also be very challenging.

Having a Facilitator guide the Management team through the evaluation of the company, the strategy formulation process, and the subsequent alternative review, decision, and implementation can be vital to a successful strategy.

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What can a Plan do for you?

What is Strategy? Structure Analysis What’s in it for you? Conclusion

A Plan provides an opportunity for:

• An unbiased view of the company and industry• An outsiders perspective • Financial information to backup recommendations• A way to concisely order all the competing

perspectives

A Facilitator provides all the above, as well as:

• Professional Experience and Expertise• Ongoing support throughout the process• A Tailored process structure and Implementation

to give the best chance of success

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Conclusion

What is Strategy? Structure Analysis What’s in it for you? Conclusion

Align For

Success

Evaluate All Areas of

the Company

Successfully

Implement Strategy

Evaluate Strategic

Alternatives

Outline Goals

Creating a Strategic Plan will:

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Questions ???

What is Strategy? Structure Analysis What’s in it for you? Conclusion