VL Jubilee Summit_BCG presentation package_6May15_vF.pptx 1 C op yri gh t © 2 01 5 by T he Bo st on C on su lti ng G ro up , I nc. Al l ri gh ts re se rve d.
Introduction
Disruption is increasing, the advantage of position is no longer there in most industries
60% of all BCG transformations are done in connection with a new CEO
Only 29% of BCG transformations are pre-emptive – transforming the strong company
Increased need to keep the finger on the pulse / keep a "disruption" radar
Growth is the missing piece in most Danish companies
•
Without profitable growth it is difficult to deliver value creation long term
•
Important to look at disruption also as an opportunity
The cost of complacency is increasing
•
Must constantly challenge the business
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Sources of traditional competitive advantage
are disappearing
0 5 10 15 1950 1960 1970 1980 1990 2000 2010 % of companies leaving top 3 ranking position0 10 20 30 40 50 1950 1960 1970 1980 1990 2000 2010
Probability that share leader is the profitability leader
0 5 10 15
1950 1960 1970 1980 1990 2000 2010
EBIT margin volatility %
Note: All metrics calculated as 3-year averages Source: Compustat, BCG analysis
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Businesses facing unprecedented disruption
Increased Volatility
More intense competition and costly, extreme events (natural
disasters, financial crisis) driving more turbulence
Digital Disruption
Across industries, digital is fundamentally shift how individuals interact, what customers expect and how
work is done (i.e. cloud, mobile)
Increasing
Regulation
As the number and complexity of regulations increases across markets, planning and
operations become inherently more difficult
Geopolitics
Increasingly complex geopolitical situations are forcing global companies to shift thinking about how they think about risk (e.g. Russia,
Middle East)
Public Spending
Pressure
Rising costs across most aspects of government spending creating pressure to
trim budgets and/or cut programs
Manufacturing
Economics
Volatility in logistics costs, labor costs and supply chain complexity are changing the
formula for where to manufacture and make vs.
buy decisions
Energy Dynamics
The global energy landscape is dramatically shifting due to geopolitical issues, technology
advances and changing portfolio of sources
Two-speed
world
First must be able to "clutch" between different approaches
to compete against low-cost countries and developed
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Transformation is a major course correction of strategy,
organization, and processes
From an unstable reality...
Changing market environment
•
Technology
•
Regulation
•
Customer behavior/demand
•
Competitive dynamics
Underperformance –
Poor financial returns
Inadequate internal org
capabilities
M&A, Spin-offs
... requiring fundamental
change...
...to achieve a sustainable
quantum leap in
performance
Strategy
Operations
Organization
HR
IT
Culture
Time
Performance
Current
path
The risk of failure equals often the enterprise value
Transformation
path
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Funding
the journey
Leading and sustaining performance
Winning in the
medium term
A transformation requires a holistic approach that addresses three
key elements
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There are 4 key levers that can help fund the journey
Common levers Impact
Revenue
Pricing Pricing model, realization, capabilities 2-8% revenue
Sales-force effectiveness Customer targeting, deployment, planning engagement, and sales team enablement 10-15% revenue & profit Marketing Spend optimization, analytical measurement 10-20% cost, 3-8% volume Organizational
Simplicity Delayering
Decrease layers
increases spans of control 15-30% indirect labor cost Improved accountabilities, decision making and speed
Capital Efficiency
Net Working Capital Optimization
Receivables, payables, inventory 20-40% WC reduction
Fixed-Asset
Productivity Sell assets, simplification, outsourcing, OEE 20-30% CapEx; 2-8% EBITDA
Project Portfolio
Optimization NPV, project prioritization, stop failing projects 20-40% relative TSR increase
Cost Excellence
COGS/ Procurement Promotional spend, scale, Category/supplier mgmt, procurement academy 2-3% on addressed COGS 5-20% procurement costs Manufacturing/ Supply
Chain Lean production, Logistics, network optimization, SKU rationalization 10-30% OpEx
Personnel Cost Off-shoring/outsourcing, headcount reduction 20-40% labor cost reduction Non-personnel Cost (NPC) NPC Tool: Travel, utilities, facilities, IT, services 20% overhead costs
1
2
3
4
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Business model innovation is important...
Business model
Product / service offering Target segment(s) Revenue modelValue chain Organization Cost model
Value proposition
Operating model
What do we offer our customers?
What channels do we use to reach customers?
Which customer segments do we target?
How do we get paid for our offering?
What assets and capabilities do we own?
How is our supply
chain structured? How do we organize our people and processes?
What costs result from our businesses? What customer need do we
satisfy?
What interactions do we have with external firms?
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... And innovating the business model often creates more value than
innovating the product
Source: BCG ValueScience analysis
0 5 10 15 20 +4.6% +5.0% 10-Year (2001-11)
7.0
2.4
3-Year (2008-11)15.3
10.3
Increase in shareholder return above average
Business model innovation
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No profitable growth – no long-term value creation
Growth the most important source
of long-term value creation
Sources of TSR for top-quartile performers (S&P 500, 1990–2009) Change in annual TSR (%) 40 30 20 10 0 10 years 17 74% 15% 6% 5% 5 years 21 58% 20% 15% 7% 3 years 22 50% 20% 19% 11% 1 year 34 29% 13% 46%
12% Revenue growth Margin
Multiple
Free cash flow
However, there is
good growth and bad growth
Correlation of revenue growth and TSR (S&P 500, 1990–2009)
Average annual revenue growth (%) Average annual
TSR (%)
Growth without value creation
Growth with value creation –20% 0% 20% 40% –20% 0% 20% 40% Source: BCG analysis.
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Transformational success rests on orchestrating all three action
areas in parallel
Strategy rollout Set strategic directionFirst 6
Months
Years
1-2
Years
2+
Project Management Office
Top line focus Internal must win
battles Realize quick wins
Deliver the bottom
line
Building the right team, organization, culture
Source: BCG Funding the Journey Winning in the Medium Term Leading and Sustaining Performance
Level of
Focus
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Specific initiatives can be defined by each area...
Winning the medium-term
Funding the journey
Leading and Sustaining Performance
Merchandise efficiency
Lean retail
Supply chain transformation
Retail technology & IT
1. Strategic vendor management 2. Pricing / promotional effectiveness 3. Supplier - supply chain integration 4 Lean Flow
5. Demand driven operation 6. Availability & lean Inventory 7. Availability
8. Total loss
9. Store labor productivity
Right box, right place
11. Concept (re)invention 12. Network strategy
Category strategy
13. Category reset
14. Effective category management 15. Pricing & promotions
16. Private label
Customer engagement
17. Brand centric transformation 18. Loyalty program
Organization & culture Governance
20. IT strategy
21. Retail Analytics, Big Data 22. IT & technology
23. Structure
24. Individual capabilities
25. Role charters & collaboration 26. Culture
27. Transparent governance 28. Consistent communication
Indirect cost
10. Effective procurement of indirect
Multi-channel strategy
19. Multi-channel execution
Retail
Example
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...and rolled out as part of a multi-year effort
Industrial
example
2015 2016-2017
Winning in the mid term
Growth strategy
Reporting and insights, business tools, data quality and transparency Wave 3 implem'n
Leading change
Communication plan and implementation
Regular pulse check and culture shaping activities PMO ramp up
& master plan
Org simplification and efficiency implementation Organization design 3 4 No regret moves Wave 1 implem'n Wave 2 planning Procurement Wave 1 plan
incl. org & tool fixes
Rollout Pricing strategy
and Wave 1 rollout
Rollout and production system Manufacturing pilot and SC
diagnostic 1 2 Wave 2 rollout Wave 2 implem'n Wave 3 planning Wave 3 rollout Go-to-market Shared services
Rigorous program management: Tracking and follow-up, issue resolve
Digitalization strategy and implementation Capabilities and talent
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