Strategic Profit Improvement and Intelligent

Cost Reduction

November 2009
© 2009 IBM Corporation
This is different kind of downturn

Unprecedented Typical cost

constraints on access to management will
Long and credit and capital NOT be enough
difficult
Falling demand and
increased price sensitivity Firms must
examine working

Disruptions in supply capital and
chains investment:
identifying
opportunities to

Restructuring of
restructure,
industries
reduce, and
Transformative
New regulatory regimes preserve capital as
well as streamline

Stress on global inter-
operations
dependencies
2 Strategic Profit Improvement and Intelligent Cost Reduction © 2009 IBM Corporation
Companies need to do three things

Exploit
Focus on Value Act with Speed
Opportunities

Do more with less
Capture share
Manage change

Focus on the
Build future
Leadership

core capabilities

Risk and

Re-align
Change your transparency
relationships industry

3 Strategic Profit Improvement and Intelligent Cost Reduction © 2009 IBM Corporation
SPI looks at top line, bottom line, Balance Sheet and cash flow

Strategic Profit
Improvement

Capital Revenue
Optimization Improvement

Intelligent Cost
Reduction

The scope can be enterprise-wide or focused

4 Strategic Profit Improvement and Intelligent Cost Reduction © 2009 IBM Corporation
SPI/ICR starts with a rapid, focused planning phase

4-6 Weeks 8-10 Weeks TBD

Define Design Deliver

Define Phase

Planning Assessment Opportunities

Key outputs

• Initial hypotheses • Baseline • High level business

comparison case with initial
• Benchmarks and
estimates of costs,
leading practices • Summary of facts
benefits and timing
and opinions from
workshops and • Quick wins
interviews
5 Strategic Profit Improvement and Intelligent Cost Reduction © 2009 IBM Corporation
SPI/ICR avoids weaknesses with traditional cost-cutting

Traditional Approaches Strategic Profit Improvement

Headcount reduction, short-
Driven by business strategy
term focused and transformation agenda

“Running the business” and
Utilizes IBM benchmarking
restructuring objectives not data and point of view on
integrated leading practices

Informal program management
Balances quick wins with
long-term sustainable results

“Program of the month” to
reduce working capital
Program management
focused on benefit realization,

Lack of clarity over benefit implementation and change
tracking and accountability

Comprehensive program that

Change management is limited looks across the enterprise
to ad-hoc communications

6 Strategic Profit Improvement and Intelligent Cost Reduction © 2009 IBM Corporation
Successful SPI/ICR programs have a number of attributes

“Top down” executive sponsorship

with effective oversight

Integral part of company strategy

Rigorous program and change
management

“Fast paced” collaborative
approach using proven methods

Incorporation of results into
performance management cycle

Focus on results that maximize
opportunities for self-funding

7 Strategic Profit Improvement and Intelligent Cost Reduction © 2009 IBM Corporation
The SPI/ICR offering shows you how to look for opportunities

Workshop
Workshopintensive,
intensive,offering
offeringco-invention
co-inventionof
ofsolutions
solutionsto
toensure
ensure
sustainability
sustainability


Focus
Focusonontangible
tangibleand
andmeasurable
measurablebusiness
businessbenefits
benefits


Emphasize
Emphasizetactical
tacticalimprovements
improvementsacross
acrossthe
theenterprise:
enterprise:


Information
Informationand
andprocess
processstandardization
standardization


Organization
Organizationstructure
structure


Working
Workingcapital
capitalimprovements
improvements


Bias
Biastowards
towardsinitiatives
initiativesthat
thatrelease
releasevalue
valueinin6-9
6-9months
months(if
(ifnot
notsooner)
sooner)

8 Strategic Profit Improvement and Intelligent Cost Reduction © 2009 IBM Corporation
IBM has achieved significant benefits for clients

Typical scale of
Current effectiveness of…
opportunity
Current
State
Service Cost Process
Process IT
Quality Levels Maturity

Leading
High High High 10% - 20% 20%
Edge

Average Medium Medium Medium 20% - 40% 25%

Below
Low Low Low 35% - 50% 30%
Average

9 Strategic Profit Improvement and Intelligent Cost Reduction © 2009 IBM Corporation
Case study: nationwide chain of 20 bakeries

ICR for the finance function

Two consultants for five weeks

Identified actions to reduce
finance headcount by 25%:
–Centralization of transaction
processing, e.g. sales orders
–Simplification of processes
such as stock transfers
–No major new IT investments

Changes meant that local finance
managers could spend more time
partnering with the business

10 Strategic Profit Improvement and Intelligent Cost Reduction © 2009 IBM Corporation
‘Top 10’ opportunities

Evaluating ‘how we do
1 business’ will unlock
10 the drivers to cost
2

9
Intelligent 3
Cost … and lay the
foundation for
8 Reduction intelligent cost
4 reduction

7
5
6

11 Strategic Profit Improvement and Intelligent Cost Reduction © 2009 IBM Corporation
‘Top 10’ opportunities

Review each element of your operating model, from your portfolio

1
of products / services to your internal organization structure

Standardize and simplify your business processes to improve

2
efficiency, quality and responsiveness to customer needs

Use shared services and outsourcing to reduce costs and focus

3
the business on value-adding activities

Improve information integration to support informed, timely,

4
consistent decision-making

Implement dynamic, driver-based forecasting to enable more rapid

5
responses to changing market conditions

12 Strategic Profit Improvement and Intelligent Cost Reduction © 2009 IBM Corporation
‘Top 10’ opportunities

Optimize working capital while maintaining good relationships with

6
customers, suppliers and partners

Improve your cash and treasury management to increase interest

7
income, reduce bank charges and manage risk

Take an end-to-end view of procurement to maximize your buying

8
power

Rationalize and simplify your IT operations and applications,

9
moving to a more flexible model

Actively manage business controls and compliance, focusing on

10
key risk areas

13 Strategic Profit Improvement and Intelligent Cost Reduction © 2009 IBM Corporation
In conclusion

Be clear about your objectives

Balance short-term and long-term
actions

Don’t share the pain evenly; focus
your efforts

Finance can lead but the business
has to take ownership

Communicate, communicate,
communicate

14 Strategic Profit Improvement and Intelligent Cost Reduction © 2009 IBM Corporation
Don MacCorquodale
donald@my.ibm.com
+60-123-542-624

© 2009 IBM Corporation