Transcript Slide 1

Mihail Simov – Senior Consultant,
IBM Global Business Services
22/10/2009
IBM FORUM 2009
Strategic Profit Improvement
Succeeding in the New Economic Environment
© 2009 IBM Corporation
Strategic Profit Improvement Services
A different kind of downturn – Traditional responses will not suffice
Reality of New Environment
Implications
Required Change
Long & Difficult
Short Term Opportunities
 Unprecedented constraints on
access to credit and capital;
 Immediate cost takeout initiatives
 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 interdependencies
 Manage costs and maximize capital to
drive a focus on value
Firms must examine
working capital &
investment:
identifying
opportunities to
restructure, reduce,
and preserve capital
as well as streamline
operations
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
© 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
Rapidly identify and deliver a step change in financial performance with
uncompromising focus on optimizing capital and revenue improvement
Do more with
less
 Optimize assets and working capital
 Reduce SG&A expenses
 Realize acquisition synergies
Be more agile
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Defend market
share
 Offer new services and solutions
 Make selective acquisitions
 Enter into new markets and channels
Adapt to changing demand patterns
Increase flexibility of the supply chain
Transform fixed to variable costs
Make processes more effective and efficient
© 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 measure
and/or poor accountability
 Change management is not
considered
or 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 sustainable
results and quick win situations
 Program management focused on
benefit realization, project
implementation and change
management
 Comprehensive program that looks
across the enterprise to
improve 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
IBM SPI Framework
• Collaborative approach • Experience
• Strong leadership
• Strategy focused
• Performance metrics • Change management
Improve
Key Processes
&
Organizations
Reduce
Costs
Optimize
Assets
Leverage
Enabling
Technology
SUSTAINABLE BY
Function 1
Function 2
Function 3
• Eliminating work
• Realigning
Organization
Support
Structure
Growth
Plans
• Improving asset
utilization
• Exploring
accessible
technology
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
© 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
Key Steps
SPI Approach
Phase 1
Phase 2
Phase 3
Define
Design
Deliver
 Confirm strategic context,
imperatives and scope
 Evaluate current state
leveraging IBM capability
framework (CBM)
 Identify transformation options
and benefit potential
 Select opportunities and design
operating model recommendations
 Establish Program
Management Office
 Undertake sponsor briefings and
develop final capabilities
 Execute transformation
initiatives
 Create go-forward playbook and
transition roadmap
 Measure and control
implementation progress
Business Case & Value Realization
 Finalize detailed business case
 Establish KPIs and tracking
mechanisms
 Define baseline and
preliminary business
case
 Deliver and track benefits
Program & Change Management
 Mobilize program and develop
change management strategy
 Develop integrated change
plan
 Manage ongoing change
activities
© 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
Phase 1: 4-6 Weeks
Phase 2: 8-10 Weeks
Illustrative Tools
Deliverables
Define
Phase 3: TBD
Design
Deliver
• Value proposition
• Improvement proposals
• Improvement specifications
• Baseline in-scope areas
• Business cases
• Implemented projects
• Quantified gaps & opportunities
• Implementation plans
• Benefits delivery
•
•
•
•
•
•
Component Business Modeling
Financial Analysis tools
Data Request Templates
Pareto Analysis
Process Mapping
Process Analysis
Span of Control Analysis
•
•
•
•
•
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Benchmark Wizard
Span of Control Analysis
Expense Analysis
Interview Tools
Industry Points of View
Dynamic Inventory Optimization
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•
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Outsourcing
Tax Diagnostic
Maturity Profiles
Pricing Optimization
Business Case and Roadmap
LogicTools
Industry Points of View
CBM
Benchmarking Program
© 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
Planning
Key
Activities
• 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
Primary
Deliverable
• Plan and schedule interviews,
meetings, and workshops
Assessment
• 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
• Initial hypotheses
• Baseline data
• Back-up benchmarks and other
financial information
• A summary of key interviews and
facts gathered supporting the
analysis
Opportunities
• 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
• Business Case detailing the range
of benefits, timing and “roughorder-of-magnitude” investment
needed
© 2009 IBM Corporation
Strategic Profit Improvement Services
The SPI approach is tailored to address areas where opportunities for
improvement exist
IBM GBS Transformation Capabilities
Global, Regional,
Local Model
Re/designs
Core vs. NonCore Process
Analysis
In-House vs.
Outsource
Analysis
Organization
Structure
Re/designs
Roles, Resp.
& Incentives
Re/design
Governance
Model
Development
Process
& People
Process
Improvement
Development
Cost Reduction
Implementation
Performance
Management
Technology
& Infrastructure
Technology
Roadmaps
Development
Site &
Infrastructure
Management
Technology
Implementation
Operating
Model
Organization
&
Governance
Our approach can include the management of implementation, change management and benefit
realization activities for the above capabilities
© 2009 IBM Corporation
Strategic Profit Improvement Services
Company-wide
The SPI approach focuses on aligning the client’s value chain with its
strategic and profitability objectives
Corporate and Business Unit
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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
Valle Chain specific
New Product
Development
Marketing
and Sales
Customer
Care
• Minimize warranty
• Implement
and returns costs
segmentation
strategy and
• Centralize call
account profitability
centers for
• Design for
consumers
manufacturing • Review marketing
services and
• Reexamine/
• Rationalize
spend
enforce order
R&D portfolio
minimums and
• Improve cost to
• Evaluate new
price overrides
sales/service
product make
channels
• Align cost to serve
v. buy
and improve post
• Improve sales
sale customer
operations and
service
automation
• Improve time
to market and
reduce costs
• Rationalize offices and sell non-core assets
• Implement employee self service model
• Identify controllable expense opportunities and
improve expense policies
Procuremen
t
Manufacturi
ng
• Implement
• Align manufacturing •
strategic
capacity to customer
sourcing
and product portfolio programs to
make vs. buy criteria •
reduce costs
• Improve production
• Improve
planning effectiveness
order to pay
to reduce working
•
process
capital
efficiency
• Improve process
and
flexibility and reliability
compliance
• Improve maintenance
effectiveness and MRO
management
Distribution
Optimize
distribution and
network strategy
Optimize
logistics and
freight costs
Review pick and
pack capabilities
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
Quick Hit Cost Reduction:
Efficiency initiatives that drive nearterm saves via reduced capacity
Illustrative – Cost Savings Initiatives
High
(>25%)
Capacity
Total Cost
Longer Term Savings:
Transformational initiatives that drive
longer-term saving, sustained
growth, and greater agility without
sacrificing capacity
Long-term Impact
(Savings as % of spend)
Total Cost
Finance, HR and IT
Optimization
Med
(10 25%)
Low
(5-10%)
 Consolidation of finance
and HR processes
across business units
 Application portfolio
rationalization and
maintenance planning
 IT Resource Utilization
 Customer experience
management
 Inventory optimization
 Shared Services Optimization
 Corporate Support Function
Sourcing and Consolidation
 Sourcing rationalization
Quick Hits
 Smaller and flexible
organizations
 Management De-layering
 Activity and Project
Rationalization
 Inventory assessment
Short
(3-6 mos.)
Capacity
Enterprise Transformation
Asset Utilization
 Supply chain facility
optimization
 Regional facility
consolidation
 HQ Consolidation
Medium
(6-12 mos.)
Long
(> 12 mos.)
Timing of Benefits Realization
© 2009 IBM Corporation
Strategic Profit Improvement Services
Companies that adopt SPI have significantly improved the cost
effectiveness and performance of their organizations
Typical Opportunity for
Improvement
Current Effectiveness of….
Client Situation
Leading Edge
(High Previous Investment)
Average
(Moderate Previous Investment)
Below Average
(Little to No Previous Investment)
Processes
High
Process
Performance*
Technology
Service
Quality
Costs
High
High
10 to 20%
+
20%
20 to 40%
+
25%
35 to 50%
+
30%
Moderate
Moderate
to High
Low to
Moderate
Low to
Moderate
Moderate
Low 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.

* Includes improvements in cycle times, strategic information availability, working capital, and customer service.
© 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-tomarket 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
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 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
 North American SG&A
and Business Unit
Distribution and
Warehousing
Operations
 Annual savings of $200 million
Stagnant share price
Complex operating model
Redundant functions
Limited collaboration across business
units
 Shareholder Value and investor
pressure
 Transform business model from
decentralized to centralized
 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
 Globalized direct spend processes
 Integrated regional supply chains
 Implemented regional/global strategies for Europe &
ROW
 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!
© 2009 IBM Corporation
Strategic Profit Improvement Services
Questions and Answers
© 2009 IBM Corporation