Thriving in Volatile Times - Deloitte US...• Outsource peak capacity to 3 rd party • Ensure...
Transcript of Thriving in Volatile Times - Deloitte US...• Outsource peak capacity to 3 rd party • Ensure...
Thriving in Volatile Times
March, 2020
Morten Thorball and Anders Lund
22
Who are we?
MSc Economics
+45 25 61 00 84
Copenhagen, Denmark
Morten Thorball | Strategy & Business Design lead
MA Corporate Comms, HD (MM)
+45 30 93 69 45
Aarhus, Denmark
Anders Lund | Strategic Cost Transformation lead
If a downturn is
happening in the next
few years…
…how do you make
sure that you are
prepared for this…
…and how can best-in-
class cost management
be particularly beneficial?
4Source: U.S. Bureau of Economic Analysis; Deloitte analysis; Note: (1) Since records started to be tracked in 1854.
We are in the longest period of economic expansion in recorded history
5
Almost all downturns of the past 50 years…
Source: Deloitte Analysis
6Source: Deloitte Analysis
… find their origins in 4 main types of root causes
7
The strong interconnections between these root causes explain most systemic crises…
Source: Deloitte Analysis
8
… such as the sub-prime crisis in 2007-2008
Source: Deloitte Analysis
9
If a recession happens, it tends to last about a year…
Postwar US business cycles by length of recession, months
Sources: Bachman, “What to Expect When You’re Expecting . . . a Recession”; National Bureau of Economic Research; Haver Analytics.
10
… and impact a few sectors significantly harder than others
Average maximum decline in main GDP expenditure categories across all post–World War II recessions percent
Residential investment
Exports
Consumer durable goods
Imports
Nonresidential investment
Federal spending
GDP
Consumer nondurable goods
State and local spending
Consumer services
-22.6%
-13.5%
-9.2%
-9.2%
-9.2%
-9.2%
-2.1%
-1.3%
-1.2%
-0.4%
Sources: Bachman, “What to Expect When You’re Expecting . . . a Recession”; National Bureau of Economic Research; Haver Analytics.
11
The nature/timing/triggers are still very hard to predict…
Source: Deloitte Analysis
Conflict with Iran erupts
Pandemic Outbreak (Covid-19)
12
… and the stakes are high in a downturn, where history has favored the prepared
Source: BHI, based on S&P Compustat and Capital IQ data; Note: (1) Average across last four U.S. downturns since 1985, based on performance compared to 3-year pre-downturn baseline for U.S. companies with >$50M in sales; (2)
Annualized revenue growth during the downturn; (3) Compared tot the 3-year average pre-downturn EBIT margin
If a downturn is
happening in the next
few years…
…how do you make
sure that you are
prepared for this…
…and how can best-in-
class cost management
be particularly beneficial?
14
Preparing for volatile times is all about building a truly agile and scalable business
A misaligned operating model creates inefficiencies and inflexibility
An aligned operating model is the foundation for scalability and
responsiveness
Operating Model
“How the organization delivers value”
Operating Model
Businessmodel
“How the organization delivers value”
“How the organization operates”
Capital Model“How operations are financed”
Operatingmodel
Operatingmodel
“How the organization operates”
Capital Model“How operations are financed”
Typical benefits from fast transition
• Increase probability of achieving organizational strategy• Improve flow of resources to areas of strategic importance• Achieve greater alignment of business functions
Businessmodel
• Reduce level of cost inefficiencies• Minimize effects of organizational weaknesses• Decrease amount of effort dedicated to non-strategic activities
A scalable operating model rapidly realigns
to the changes a downturn would
put on the business model
and capital model.
15
We have found 6 key levers in preparing for potential changes in the economy
Set the foundation
Defend and drive revenue
Reduce and manage costs
Optimize assets, liabilities, and liquidity
Accelerate digital
Manage expectations
16
Set the foundation: Scenario planning is a key foundational tool for mitigation planning against potential changes in the global markets
Rich, data-driven, stories about tomorrow that can help you make better decisions today!
Hypotheses that describe a range of possibilities for the future — not predictions
Imaginative narratives that stretch thinking, but are always plausible and logical
Together, a set of scenarios form an organizing framework that can be used to make sense of conflicting or ambiguous market signals moreholistically — today, and as they appear over time
Observed Trends and Events
Scenario A
OM
CM
BM
Scenario Planning
Business alignment OM
CM
BM
Scenario B
OM
CM
BM
Scenario C
What is Scenario Planning? Aligning of business with scenarios
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Offerings
Suppliers
Clients
Ecosystem
Capabilities
…
Implications Success Factors
Set the foundation: Combining scenario-based strategic thinking with cutting-edge Artificial Intelligence
1 2 3 4 5 6
Identifydriving forces
Developscenario model
Determinestrategic implications
Wind tunnel existing strategies
Develop actionable strategies
Monitor and adjust strategy
Deep View Future-Proofing Gnosis.strategy
Critical uncertainty 1
Critic
al u
ncer
tain
ty 2
PerceiveUnderstand your
market and competitors
AnticipateBuild a future-proof strategy
based on scenarios
NavigateKeep your strategy
up to date
18
Set the foundation: Sample driving forces analyses for retail
19
Offerings
Suppliers
Clients
Ecosystem
Capabilities
…
Implications Success Factors
Set the foundation: Combining scenario-based strategic thinking with cutting-edge Artificial Intelligence
1 2 3 4 5 6
Identifydriving forces
Developscenario model
Determinestrategic implications
Wind tunnel existing strategies
Develop actionable strategies
Monitor and adjust strategy
Deep View Future-Proofing Gnosis.strategy
Critical uncertainty 1
Critic
al u
ncer
tain
ty 2
PerceiveUnderstand your
market and competitors
AnticipateBuild a future-proof strategy
based on scenarios
NavigateKeep your strategy
up to date
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Reduce and manage costs: There is nothing more harmful than a blind, generic blanket approach to cost savings
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Operating Governance
Transitioning to the optimal governance model that aligns with the organization’soverall business model and achieves maximum resource efficiency across all functions
Service Delivery Model
Clearly defining and optimizing what work is performed, where, with how manyresources and at what cost, resulting in optimal re-alignment of functional staff
Business Process Optimisation
Simplifying, standardising, re-engineering and automating end-to-end processes (e.g.,order-to-cash, procure-to-pay, hire-to-retire) across business units and geographies(including enabling technologies)
OrganizationDesign
Aligning the organizational structure with overall business and operating models;defining required functional capabilities and roles / responsibilities and reducing layers and broadening spans of control
External Spend Management
Aggressively sourcing and managing indirect external spend; applying deep category-specific insights to develop the right program to manage each major spend category
Demand Management
Reducing level of effort through elimination of work (i.e., rationalizing managementreports, standardising master data, harmonizing policies)Tactical
improvement
Strategic, structural
transformation
Reduce and manage costs: Structured offset in 6 levers for efficient cost focus
The 6 levers for efficient cost management and reduction
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Optimize assets, liabilities, and liquidity: ‘Cash is king’, and especially in shifting economic environments with tightening capital markets
Operational Tactical Strategic Improvement range
Procure to pay (Accounts payable)
• Year-end collections push
• Early payment discounts
• Expedite billing
• Efficient payments and automation
• Utility maximization of payment terms & condition
• Change payment frequency, payment methods, triggers and approval process
• Reevaluate supplier base
• Renegotiate terms and conditions
• Sourcing strategy
20% to 40%
Forecast to fulfillment(Inventory
management)
• Stop/ delay supplier payments
• Reduce safety stock levels
• Focus on S&OP
• Review minimum order quantities/Lead Times
• Make-to-order/ make-to-stock
• Rationalise SKU & Product line
• Storage facilities and locations
15% to 30%
Order to cash(Accounts
receivables)• Sell SLOBs at discount
• Stop/ accelerate production
• Efficient billing and automation
• Proactive collections strategy
• Terms & condition adjustments
• Align sales compensation structure
• Renegotiate terms and conditions
10% to 30%
Operational, Tactical and Strategic actions for improving cash balances
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Accelerate digital: Our recent cost survey revealed poor adoption/implementation rates of core digital enablers
29% 31% 33% 35%
31% 38% 27% 19%
RPA CloudCognitive & AI BINot implemented but planned In process of implementation
22% 25%
56%38%
56%
22%49%
19%
RPA Cloud
13%
Cognitive & AI
Below expectations Above expectationsAccording to expectations
Global USA
17%
EMEA Nordics
35%49%30%
25%25%
62%49%
27%
50% 32%23%
27% 33%25%
19%
Cloud BI RPA Cognitive & AI
Global reported implementation of technologies (past 24 months)
Nordic success of outcomes
Nordic implementation levels (next 24 months)
End-2-End Process
OpportunitiesTask-BasedAutomations
Hig
hva
lue
oppo
rtun
itie
s
Use Case TargetedAutomations
Multiple tools(RxA+ML+BxM
+CB)
2-3 tools in use(RPA+ML)
Single tool (RPA)
Low valueopportunities
# of opportunities
Level 1Savings: <0,5 FTE per task automated.
Level 2Savings: 1 – 3 FTE per use case automated.
Level 3Savings: 10 – 40 FTE per process automated.
Deloitte’s 2019 cost survey Effect of multiple digital enables in process optimisation
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Examples of drivers that can enable a more agile and scalable business
Revenue
Cos
ts
Liquidity
COGS
SG&A
• Outsource peak capacity to 3rd party
• Ensure flexible sourcing contract structure with material suppliers
• Strengthen integrated business planning to improve reaction time
• Utilise business process outsourcing (especially on transactional processes)
• Implement cloud based solutions
• Implement cognitive automation programme
• Product and customer portfolio clean-up/simplification
• Implement dynamic pricing models
• Ensure pricing realisation
• Minimise inventory levels
• Tighten payment discipline (AP/AR)
• Delay CAPEX (especially in manufacturing)
If a downturn is
happening in the next
few years…
…how do you make
sure that you are
prepared for this…
…and how can best-in-
class cost management
be particularly beneficial?
26
Those that manage costs consistently tends to winO
verh
ead
Rat
io(S
G&
A /
Rev
enue
)
T1 T2 T3 T4 T5 T8T6 T7
0%
25%
50%
75%
T1 T2 T3 T4 T5 T8T6 T7
9.7%
21.6%
0%
5%
10%
15%
20%
25%
Erratic Cost Managers Managers with Consistent CostManagement approaches
Erratic managers with lacking focus on cost ratios are more likely to experiences the roller coaster effect
Managers with a consistent focus are better able to control and continuously decrease cost ratios
0%
25%
50%
75%
Ove
rhea
d Rat
io(S
G&
A /
Rev
enue
) Sha
reho
lder
Val
ue
Incr
ease
(5
Year
)
Succeeding with consistent cost management delivers significantly higher increases in shareholder value
Source: Deloitte case examples and proprietary data set, Institute for Corporate Productivity.Source: Thriving in uncertainty in the age of digital disruption (2017), Deloitte’s first biennial global cost survey report.
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Start your cost management journey with upgrading your understanding of costs
1) D&A: Depreciations and amortisations should be aligned through allocation to external and internal spend.
COGS
SG&A
Internal spend(salary)
External spend(procurement)
White collar salary
Blue collar salary
Direct spend
Indirect spend
Further classification into specific cost categories for labor costs and dimensions (e.g. E2E processes or functional splits). Process oriented analysis drive significant opportunities
Category specific clas-sification and management of external spend. Data analytics and cognitive insights is key for step changes
28
Survey Respondents &
Population
Process Taxonomy
Setup Activity Analysis Survey
Distribute Survey and Collect Responses
Inputs to Activity Analysis Survey
Survey Communications
Transparency is key in order to drive efficient cost management within internal spend
Analyze Survey Data
Client DeloitteDeloitte digital
enabled
Foundation for decision making on e.g.;• Service delivery, • Span of Control,• Management Layers, • Process Efficiencies, • RPA Opportunities, • Etc.
Developing transparency in internal spend (labor costs)
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Activity Analysis (ProfileIQ™)
Example: Activity analyses using Deloitte’s digital platform
• ProfileIQ’s activity analysis is the frontier of FTE based activity analysis. It is a complete browser enabled tool making the process for collecting and reviewing data more agile
• It allows for up-to-date tracking of respondent activities ensuring commitment and participation
Data gathering Data analytics and deep insights
Process and site benchmarking
Span of controlProcess based cost baseline
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Utilising global trained cognitive engines will deliver quick saving opportunities
Upload to Microsite -Upload spend data through a secured CognitiveSpend microsite portal direct to the delivery team
Combine Datasets -Aggregate client files and map spend data to CognitiveSpend’sclassification engine
Classification Assumptions Table –Review areas where ML classification resulted in low confidence to automatically update spend cube
Industry Benchmarking – compare spend volume & supplier fragmentation to peer companies
Purchase Price Variance – pinpoint & evaluate pricing variance by item
Executive Dashboard – Provides ability to view / filter spend by category, supplier, business unit, geography and type (direct / indirect)
Aggregate & Classify Provide Spend Visibility Deliver Actionable Insights
M&A Synergy Assessment Dashboard – Enables rapid evaluation of common categories & common suppliers to identify synergy opportunities
Pre
-C
lass
ific
atio
nP
ost
-C
lass
ific
atio
n
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Example: Sourcing analyses using Deloitte’s digital platform
Data gathering Data analytics and deep insights
Opportunity assessmentSpend overviewCognitiveSpend™
• Natural language processing and Machine Learning are used to classify complex transaction data.
• Enhanced Spend Visibility – gain faster, more accurate, and more detailed classification; more easily navigate spend by category, supplier, business unit and geography
SUMMING UP
If a downturn is
happening in the next
few years…
…how do you make
sure that you are
prepared for this…
…and how can best-in-
class cost management
be particularly beneficial?
It is difficult to make accurate predictions, especially about the future.
“- Niels Bohr
The downturn will happen, but it is hard to predict when, where, what and how significant.
Being prepared means having a scalable and agile business, that is ready to meet the sudden change in demand.
This can be supported,by best-in-class cost management approaches.