Strategic Planning & Flexibility

Transcription

1 Strategic Planning & Flexibility To the future whatever it may be April 2012

2 The current crisis seems to have greater impact and repercussions than initially anticipated. The economic and market environment is continually deteriorating and uncertainty for future developments is growing. Companies need to position for the future as they strive to survive the challenges of the moment A bold and distinctive strategy is essential for gaining competitive advantage. Yet committing to a particular path forward is daunting when there s so much debate about how tomorrow will look. It s worse than that, though. Rather than an absence of predictions about tomorrow s business conditions, there are plenty it s just that they conflict. Equally qualified experts have diametrically opposed ideas about how things are going to go.

3 The problem with commitment based strategy - Predictions seem structurally unable to accommodate uncertainty The forecasting track records for all types of experts are universally poor [they] routinely fail to predict the major events that shape our world, or even the major turning points whether it be the economy, stock market, weather, or new technologies. We don t understand the world as well as we think we do and tend to be fooled by false patterns, mistake luck for skills, overestimate knowledge about rare events (Black Swans). Things always become obvious after the fact. William Sherden, business consultant and author Nassim Taleb The future is just one damned thing after another All prognosticators are bloody fools Winston Churchill Effective commitment requires accurate prediction Accurate prediction is impossible Only a minority of the Fortune 500 firms of 1970 still survive today Effective commitment is impossible

4 The paradoxical requirements of success You need it because But Strategy Flexibility Defensible, profitable market position requires commitment to capabilities, assets, people, customers Changing, uncertain environments require organizations to change as rapidly as the environment around them Commitment requires prediction, and accurate prediction is impossible The kind of large, complex organizations required to achieve ambitious goals can t change as quickly as the environment What if you could combine strategy with flexibility and overcome the hurdles associated with each? We developed Scenario Planning to resolve these paradoxes

5 Deloitte can support the organizations to plan for future contingencies and manage strategic uncertainty much more effectively. Drivers of Uncertainty Anticipate Market Scenarios & Company Impact Scenario 1 Formulate Develop Core Actions Scenario & Contingency Plans Based Strategies Core Actions Strategy 1 Contingent Elements Economy Regulation Public Policy Scenario 2 Strategy 2 Market Dynamics Scenario 3 Strategy 3 Core strategy elements: not scenario-specific and should always be implemented Contingent strategy elements: developed simultaneously with core strategy elements but not executed until firms perceive a specific scenario unfolding; contingent strategies are scenario-specific. Contingent strategy elements often incorporate real options, in which clients invest upfront and have the right but not the obligation to execute if the scenario unfolds

6 Key Activities Step More specifically, we follow a 3 step approach: Formulate Future Market Scenarios & Perform Business Stress Test Formulate Scenario Based Strategies Develop Core Actions and Contingency Plans Select and rigorously analyze uncertainty drivers Formulate optimal company strategy per scenario Identify core ( do now ) and contingent ( do if ) options across scenarios Identify and prioritize future market scenarios Identify suitable responses / options Identify critical success factors Perform a business stress test Analyze financial impact of each option Develop a realistic action plan to prepare the organization

7 In the first step we select the appropriate uncertainty drivers, we formulate the future market scenarios and rank them according to their criticality Driver Examples Economic Growth (GDP growth, emerging markets), Technology (Enabling & adjacent technologies) Environment Policy Public Opinion Regulation (Investment (tax), cost containment) Building Scenarios 1. Scenarios are plausible combinations of drivers. A list of all combinations of driver values is compiled and an assessment is performed on whether each combination constitutes a plausible scenario. 2. The impact and plausibility of each scenario is assessed to determine which ones should be further considered. Economy Technology Environment Policy Public Opinion Robust Growth Incremental Benign Libertarian Pro-Markets Robust Growth Incremental Benign Libertarian Robust Growth Incremental Benign Marxist Robust Growth Incremental Benign Marxist Robust Growth Incremental Catastrophic Libertarian Robust Growth Incremental Catastrophic Libertarian Robust Growth Incremental Catastrophic Marxist Robust Growth Incremental Catastrophic Marxist Robust Growth Radical Benign Libertarian Robust Growth Radical Benign Libertarian Robust Growth Radical Benign Marxist Robust Growth Radical Benign Marxist Robust Growth Radical Catastrophic Libertarian Robust Growth Radical Catastrophic Libertarian Robust Growth Radical Catastrophic Marxist Robust Growth Radical Catastrophic Marxist Distrust of Dereg Pro-Markets Distrust of Dereg Pro-Markets Distrust of Dereg Pro-Markets Distrust of Dereg Pro-Markets Distrust of Dereg Pro-Markets Scenario Name Scenario 1 Scenario 2 Scenario 3 Positive Impact (above base case) Base Case Distrust of Dereg Negative Pro-Markets Impact Distrust of Dereg (below Scenario 8 Pro-Markets base case) Low Distrust of Dereg Probability of Occurrence High (0%) (80%) = Scenario appears extremely unlikely = Scenario appears improbable = Scenario appears plausible Scenario 2 Low Scenario 1 I Scenario 3 II III Scenario 4 Scenario 6 Scenario 5 Strategic Flexibility Impact High Scenario 7

8 additionally we perform a business stress test by quantifying key parameters that affect the function and performance of the Company and analyzing their respective financial impact Examples of key parameters: 1. Demand for products and services 2. Prices 3. Energy cost 4. Availability and terms of credit and debt «by 80%» Scenario 1 Bankruptcy and return to the local currency «Increase in the raw materials cost by 50%» «Failure of financing by Banks» «Reduction / stop of credit by suppliers» «by 70%» «by 60%» «to 0 days» «15 days» FINANCIAL PROJECTIONS SCENARIO 1 Profit & Loss Account Balance Sheet Cash Flow «by 80%» Scenario 2 Prolonged recession in domestic and global economy «Decrease in sales by 50%» «Reduction in collections by 50%» «Increase in interest rates by 2 percentage points» «by 70%» «by 60%» «by 3 pp» «by 1 pp» FINANCIAL PROJECTIONS SCENARIO 2 Profit & Loss Account Balance Sheet Cash Flow

9 In the second step, we work with the Company to formulate the optimal company strategy and identify suitable actions per scenario Indicative Actions for Scenario 1 Quick Wins: Improvement in working capital Improvement in liquidity Scenario 1 Macroeconomic Scenarios Financial Model Έζοδα ανά Κένηπο Revenues Εζόδων Υθιζηάμενα Assets Πάγια Επενδύζειρ CAPEX Κόζηορ COGS Πωληθένηων Medium to Long Term Actions: Restructuring business model and company structure Redesign support procedures / centralization - merging Λειηοςπγικά OPEX Έξοδα Depreciation Αποζβέζειρ Υπολογιζμόρ Αποηελέζμαηα Taxes Ταμειακέρ Ροέρ Φόπος Φπήζηρ P&L Cash Flow Indicative Actions for Scenario 2 Company/Market Specifics Working Κεθάλαιο Κίνηζηρ Capital Δάνεια / Εναλλακηικέρ Financing Φπημαηοδόηηζηρ Quick Wins: Cost Cutting initiatives Increase in profitability Scenario 2 Medium to Long Term Actions: Assets / business units to deploy / divest Develop a new strategy and marketing, sales capabilities analysis Supply chain redesign

10 Finally, potential options are analyzed, core / contingent actions are identified and a realistic action plan is developed to prepare the organization for any contingency Work Steps Indicative Formulation of Potential Actions Scenario Impact Improvement Areas Actions Action 1 Applicability per Scenario Scenario A Scenario B Scenario C Level / Type of Adjustment Required Strategic Elements Area 1 Action 2 Element 1 Identification of Available Actions Area 2 Action 3 Action 4 Analysis of Action Implementation Results Indicative Action Plan Implementation Schedule Company results under each action in each scenario

11 Oracle s Hyperion-based performance management applications provide support for a broad range of customer requirements. Strategic Planning Set Strategic Objectives Planning and Budgeting Cascade Targets Treasury Strategies Long-Term Planning Forecasting Detailed Budgeting Data Cleansing Corporate Development Financial Close Process Consolidate Internal Reporting & Analysis Audit & Certify Financial results EPM Governance Shared Master Data Lifecycle Manager Data synchronisation External Reporting & Analysis Report & Analyze Allocate Resources Cost & Profitability Management Define Costing Methods Perform Allocations Define Cost Drivers Governance, Risk & Compliance

12 Hyperion System 9 Planning is the heart of Hyperion s Enterprise Planning solution. This module was designed to address a wide range of financial and operational planning requirements. Leverages Essbase powerful reporting and analysis Supports best practices such as rolling forecasts and driverbased planning Common allocations & calculations Integrated Operational Planning to address in-depth revenue and margin planning Powerful workflow and process management for budgeting and forecasting

13 One of the key differentiators is that predictive modeling capabilities are provided to manage the risks in business plans. This is based on the EPM integration with Crystal Ball. Assign probability distributions to uncertain assumptions Run thousands of simulations Analyze range of outcomes and probabilities Assess model sensitivities

14 Deloitte s Scenario & Contingency Planning approach - Develop a pragmatic and achievable approach to identifying the strategic, financial and commercial risks..

15 Deloitte s Scenario & Contingency Planning approach -. and deriving to the key elements of a contingency plan

16 Deloitte s Scenario & Contingency Planning approach - How can we help? A cross functional team of SMEs has been mobilized in order to: Facilitate risk and business impact discussions challenging critical threats and vulnerabilities Make technical expertise available in a range of areas including treasury, tax, strategic, commercial & supply chain Provide project management support to drive forward both strategic analysis and appropriate planning Assess redenomination risk and develop solutions to offset such exposures Develop risk adjusted planning build an integrated approach to strategy, risk, finance to drive advanced planning capabilities Implement simulation based testing of contingency/scenario planning

17 Deloitte s Scenario & Contingency Planning approach - Benefits for the company ECONOMY Assist the management of the company to gain a solid understanding of the economy and market MARKET Clarify and quantify the impact of potential market developments to the organization BUSINESS OPTIONS Analyze, evaluate and prioritize core ( do now ) and contingent ( do if ) business options to proactively manage uncertainty STRATEGIC FLEXIBILITY Help you turn the uncertainty into an advantage and provide strategic flexibility to your organization MONITORING Can be used as a tool for monitoring the performance and liquidity of your organization

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19 Finally, potential options / actions are analyzed based on the financial model developed core and contingent options are identified. Work Steps Indicative Formulation of Potential Options Scenario Impact Invest / Disinvest in regions / offerings Level / Type of Adjustment Required Identification of Available Options Analysis of Option Implementation Results Company results under each option in each scenario Required speed of downsizing / development per scenario in each product line / entity / region / function. Assets / business units to deploy / divest. Functions / operations to outsource / in-source. Overall, role of the company in the value chain. Perform the action if common across scenarios Maintain (potentially buy ) the option to perform the action especially if required in high risk scenarios

20 As it is evident, there is a large number of potential scenarios and each of them creates a very different environment for the organizations to operate in. Commercial Issues Downward sales trends may continue or intensify. Some scenarios may result in abrupt changes in sales volumes. Changes in the cost base may require price increases that would alter the positioning of the products in the market. Cost Issues Some scenarios may result in significant increase in the cost of imported goods either merchandise or raw materials. Measures for the labor market may increase flexibility and decrease cost. Tax environment may stabilize. Funding & Cash Flow Issues Some scenarios may result in abrupt changes in bank financing. Creditworthiness may be further affected bartering agreements may emerge. Exchange controls may be a possibility under some scenarios. Talent Managemen t Issues Though not surfaced yet, at some point shortages in specific segments of the labor market may emerge. A recovery may trigger a wave of job changing stripping organizations of valuable personnel. Business Continuity Issues Abrupt changes in the environment may lead to disruptions in operations. Planning for such disruptions may be required for mission critical functions and / or for the organization as a whole. Growth Issues Investment opportunities may emerge due to industry consolidation and / or the privatization program. Exporting may be also an opportunity though confidence in Greek entities may remain low

21 Deloitte s Scenario & Contingency Planning approach - How can we help?

22 Deloitte is designated by Oracle as a Diamond level partner and has held the highest level alliance relationship with Oracle for more than a decade. Deloitte has won the most Oracle Partner Network Titan awards over the past five years, for helping clients in their efforts to achieve and exceed their business objectives through technology enablement. A long lasting relationship based on: A unique blend of multi-disciplinary skills meeting the full spectrum of business issues A strategic commitment to strengthen relationship and deliver added value to the clients A plethora of joint initiatives and solutions in a continuous effort to proactively address business issues

23 The Oracle Hyperion Enterprise Planning Suite provides an integrated solution for strategic, financial and operational planning processes. Predictive Modelling & Simulation Long-Term Planning Cashflow & earnings Capital investments Corporate value Corporate Financial Plan What-If Analysis Macro-economic Strategic alternatives Corporate restructuring Corporate Development Mergers & acquisitions Divestitures Joint-ventures Treasury Strategies Capital structure Credit rating Debt covenants Automated Data Integration & Drill-back

24 It can use data from various sources and perform sophisticated ad-hoc analyses and standard financial reports. Smart View Reports Ad-hoc- and Analyses Dashboard Consolidation Hyperion Performance Management Applications Administration Manual Input Journals ERP ASCII, RDBMS MS-Excel

25 Key features include flexible modeling and what-if analysis, which supports scenario planning. CAPABILITY Planning and Analysis Modeling What-if Collaboration Top-down/Bottom-up DETAIL Fully embedded into BI and Microsoft Office for real-time reporting and analysis The ability to model at the operational level, assessing impact to the overall strategic plan See the business impact of changing business drivers to make intelligent decisions Technology that allows the entire user community to communicate and plan in real time as well as offline Bi-directional planning capabilities to promote accuracy and accountability