Value Based Management for the New · PDF fileValue Based Management for the New Economy ......

1

Value Based Management for the New Economy

Jürgen H. DaumSAP AG

SAP AG 2000 A02 The mySAP Business Intelligence Conference (Daum) / 2

Topics

Value Based Management inan New Economy - the role of the CFO

111

333

222

The New Economics after the e-Business Revolution

The need for an integrated analytic environement

444 Making it happen

2


Enormous efficiencygains through e-markets

End UserRetailerDistributorManufacturerSuppliers

Electronic Market Place

The New Economy Is Radically Altering Value Chains

End UserRetailerDistributorManufacturerSuppliers

Reconfigurationof industry value chains

Distributor Retailer

Examples:

Examples:


What Does the New Economy Mean for Companies?

● Ubiquity of information never seen before

Customer focus vs. product focus

Radical shift in valuechain / price pressure

Unleashing hidden value

Concentration on core competencies

High level of uncertainty

Tremendous increasein productivity

● Change happening at a pace never experienced

E-Business Characteristics

● Basic change in the nature of the interface with the customer

● Collaboration beats self dependency

● Desintermediation of companies and industries

● The source of value has shifted from tangible to intangible assets

3


Evolution of Corporate Structures to E-business Structures

The E-Business did not come from nowhere: it is built on previous developments

Product and/or Customer

Fun

ctio

ns o

r B

rand

Ma

nage

me

nt

‘80s: VERTICAL(FUNCTIONAL)

STRUCTURES

‘90s: GLOBAL MATRIX

STRUCTURES

Sub-supplier

System-supplier

Sub-supplier

BrandOwner

System-supplier

Sub-supplier

Distr.Partner

Distr.Partner

Customers

‘00s:GLOBAL E-BUSINESS

NETWORK STRUCTURES

E-M

arke

t

ManagementFocus

• Margins / CostManagement

• VBM / Portfolio Management

• VBM II/ Value Network Management


The Source of value has shifted from tangible to intangible assets !

199211982

Market Value

38%

38%

62% tangible assets

intangible assets

62%

19982

15%

85%

Percentage of market value of US corporations related to ....

1: Brooking Institute2: Brauch Lev analysis of S&P500 companies

Evolution of Corporate Value

4


Traditional Business

BRAND CAPITAL

HUMAN CAPITAL

WORKING CAPITAL

“Push” Focus

ProductionFocus

High

HighPHYSICALCAPITAL

Focus onproduction and

supply chain management

E-Business

“Pull” Focus

CustomerFocus

Low

Low

(Outsourced Network )

Focus oncustomer relationship

and brand management

source: Grady Means and David Schneier, MetaCapitalism (New York: John Wiley & Sons, 2000), page 6

Value Networks Decapitalize the Traditional Business Model


What is the main value driver in the New Economy ?

5


0

10

20

30

40

50

60

70

80

90

100

Cisco Nokia Lucent Ericsson Siemens Nortel Alcatel

Per

cent

of M

arke

t Val

ue

Value of Assets in Place Market Expectation of Value from Future Options

Market ExpectsLow Growth

Market ExpectsHigh Growth

Total market value consists of assets in place plus the market’s perception of growth opportunities

Source: PricewaterhouseCoopers

The Main Value Drivers in the New Economy Are Future Growth Options


Measureable through discounted free cash flow valuation (DCF) of expected cash flows from existing business

Tot

al M

arke

t Val

ue ?Value of options

for future new business

Value of options


Value of existing

business

Value of existing

business

How to Value a Business in the New Economy ?

6


How to Value a Business in the New Economy ?

BusinessModel 2

DCF= $

BusinessModel 3 DCF= $

Total value of future options= $

+ Value of existing business= $

OrganizationalCapital


Brand / CustomerCapital


HumanCapitalHumanCapital

Partner / Network Capital


IdentifyIntellectual

Capital

BusinessModel 1 DCF= $

Identify Future Options for

new business

Total Value = $

Value of options


Value of options


Value of existing

business

Value of existing

business


options for future new

business

options for future new

business

existing businessexisting

business

How to Manage Value in the New Economy ?

P&L BalanceSheet

Financial Reporting

Budgeting

A B C D

2 0 9 3 4 5 8 2 3 2 3 4 5 3 2 4 4 3 4 4 4 4 5 7 6 6 7 6

2 4 3 5 2 3 0 2 3 5 2 3 4 5 3 2 4 4 5 6 5 7 4 5 6 7 6

2 3 4 0 9 2 3 4 3 2 3 2 4 5 4 5 6 7 4 5 6 7 6 7

2 3 4 0 5 9 2 3 2 3 3 2 4 5 7 6 6 6 5 4 5 6 7 4 2 4 3 5 3 2

2 3 4 0 9 2 3 2 3 4 5 3 2 4 5 6 7 8 7 9 9 6 7 7 6

2 3 4 0 9 2 3 3 2 1 4 5 4 5 6 7 4 5 1 2 4 4 5

2 3 4 0 9 2 3 4 5 5 6 7 3 4 6 7 6 5

3 4 5 2 3 2 3 4 5 4 5 6 7 3 2 4 5 4 5

Allocation of ressources

once a year

Monitionring of

financial results

?Which tools

7


Topics


111

333

222





The Role of Finance and of the CFO

Mission of the Finance FunctionMission of the Finance Function

Establish change in infrastructure,operations and control to meet requirements of E-Business

Establish new management processes and analytic tools to enable value creation from intangibles

Guard the Assets

Guard the Economics

8


Principles of Value Base Management in the New Economy

● Understand what your intellectual capital isand what drives its value

● Measure value created or value destroyedin intellectual capital

● Institutionalize a management system , that helps to manage systematically valuecreation from intellectual capital

● Institutionalize a management system , thathelps to continuously find future business options and helps to track and adapt themto changing technology or market conditions

● Continously report to investors and other stakeholders


Understand What Your Intellectual Capital Is and What Drives Its Value








Example:

Value Driver

Core Competence

service quality,customer #

marketing

qualityquality of

CRM processes

partner development

skilled sales & marketing staff

constantinnovation

customerfocused

Measures new customers

# of partnersw. skill level 1

customersatisfaction

time facingcustomer

9


CRM Analytics

Customer

Prospect

Optimize Relation-

ships

All CustomerTouchpoints

Direct Mail

Internet

Call-Center

Fax

Billing

Face-to Face

Advertising

…

CustomerValue-

Management

Campaign-Optimiz-

ation

Sales support

Customer-Retention

Mgmt

Know-ledge-

Discovery

Data Collection

Central Customer

KnowledgeBase

Analyticalmethods


Understand What Your Intellectual Capital Is and What Drives Its Value








Example:

Value Driver

Core Competence

service quality,customer #

marketing

qualityquality of

CRM processes

partner development

skilled sales & marketing staff

constantinnovation

customerfocused

Measures new customers

# of partnersw. skill level 1

customersatisfaction

time facingcustomer

10


Need for a Management System, That Helps to Manage Systematically Value Creation From Intellectual Capital

Organizational Capital

(CRM Processes)


(CRM Processes)

HumanCapital(Skilled sales &marketing staff)

HumanCapital(Skilled sales &marketing staff)


(Distribution Partner)


(Distribution Partner)

Service Quality

Service Quality

Customer #Customer #

Financial Capital(Revenue, Cash Flow)

Financial Capital(Revenue, Cash Flow)

Understand the relationship between different intellectual capital components and how it can impact overall financial value

= Value Drivers

Customer / BrandCapital

Customer / BrandCapital


Strategy defines the unique approach of an organization to create value

Need for a Strategic Enterprise Management System

Intellectual Capital

ValueValueCompetitor

actions

Technoloytrends

Overalleconomic

trend

Value Driver

StrategyMission critical activities / initiatives

Value Driver

Value Driver

Value Driver



CustomerCapital

CustomerCapital


Partner / NetworkCapital

Partner / NetworkCapital

11


FormulationFormulation

Feedback /Analysis

Feedback /Analysis

STRATEGY

ImplementationImplementation

CommunicationCommunication

Planning /SimulationPlanning /Simulation

Strategy has to be adapted to changing market conditions continuously in order to maintain the organizations value

creation potential and to evaluate future business options:

Why Strategic Enterprise Management ?



Feedback /Analysis

Feedback /Analysis

STRATEGY




Communication with Investors and Stakeholders

Investors / stakeholders

12


Topics


111

333

222





Inte

grat

ed A

nalti

cs

Integrated and Effective Management Processes

Strategic Communication

Strategic Communication

External ValueCommunicationExternal Value

Communication

Strategy Management

Strategy Management

Value CalculationValue Calculation

Scenario ModelingScenario Modeling

STRATEGIC PLANNINGLOOP

OPTIMIZE AND ADJUST STRATEGY

Strategy andBusiness Options

Evaluation

Strategy andBusiness Options

Evaluation

SimulationSimulation

Strategic Learningand Feedback

Strategic Learningand Feedback

Target Setting &Action Planning

Target Setting &Action Planning

OperationalAnalytics

OperationalAnalytics

BUSINESS EXECUTION

ForecastingForecasting

Performance Reporting

Performance Reporting

Adjust Initiatives andOperations

Analyze value drivers and IC components

Analyze value drivers and IC components

OPTIMIZE TACTICS ANDOPERATIONS

Marketing& Sales

Research &Development

InboundLogistics

ManufactureOutboundLogistics

13


Optimizeoperations andvalue drivers

Create strategic focus, managefuture options,

managebusiness

performance

Educate stakeholders

on valuecreation potential

Operational Analytics

SAP’s Solution Vision: Integrated Analytic Applications

SupplyChain

Analytics

CustomerRelationship

Analytics

Strategy& BusinessPerformance Management

EnterpriseAnalytics

StrategicEnterprise

Management

HCMAnalytics

FinancialAnalytics

PLMAnalytics

StrategicStakeholder

Comm.


The first inte grated anal ytical application on the market:

SAP SEM

14


SAP Strategic Enterprise Management

SAP Strategic Enterprise ManagementSAP Strategic Enterprise Management

SEM-CPMCorporate

PerformanceMonitor

SEM-CPMCorporate

PerformanceMonitor

• Model-based world on multi-dimensional OLAP Data structures

SEM-BICBusiness

InformationCollection

SEM-BICBusiness

InformationCollection

SEM-SRMStakeholderRelationshipManagement

SEM-SRMStakeholderRelationshipManagement

SEM-BCSBusiness

Consolidation

SEM-BCSBusiness

Consolidation

SEM-BPSBusiness

Planning andSimulation

SEM-BPSBusiness

Planning andSimulation

• Cross-componentintegration of Data

• Cross-componentintegration of functionsSAP BW



Feedback /Analysis

Feedback /Analysis

STRATEGY




Strategy has to be adapted to changing market conditions continuously in order to maintain the organizations value

creation potential and to evaluate future business options:


15



FeedbackFeedbackSTRATEGY




Investors / stakeholders



NonNon--SAPSAP

Analysis of the Market Environment

Analysis of the Market Environment

Strategy & EnterprisePlanning

Strategy & EnterprisePlanning

Definition of Goals, Measurements and Measures

Definition of Goals, Measurements and Measures

PerformanceMonitoringPerformanceMonitoring

Communication with Stakeholders / Stakeholder Relationship ManagementCommunication with Stakeholders / Stakeholder Relationship Management

External Sources Internal Sources

Taking ActionTaking Action

Investors, Analysts and Other Stakeholders

Business Information Warehouse

Strategic Enterprise Management Process

Seamless SEM Process Through the Integration of Data and Functions with mySAP SEM

16


SEM Role Based Workplace Portals

Corporate Accountant Strategic Planner

Corporate Business Planner Assistant to the CFO

Other SEM Roles:

• CEO

• Assistant to the CEO

• CFO

• Management Cockpit Officer

• Corporate Controller

• Corporate Business Analyst

• Head of Strategy

• Investor Relations Manager

• Investor Relations Analyst

• Corporate CommunicationsManager

• Corporate CommunicationsAnalyst


CFO Portal

17


CFO Portal


CFO Portal

18


mySAP SEM enables organizations to move to the next level in value creation: identify, simulate, manage and realize strategic growth opportunities by:

Benefits of SAP SEM I (Strategic Value Proposition)

● Allowing management to control an enterprise internally using value-based management principles.

● Helping to translate corporate strategy into operational target setting.

● Providing an end-to-end solution on the market to support integrated enterprise management processes, enabling continuous management dialogs and organizational strategic learning

● Improving the communication process with stakeholder groups significantly and thereby helping to realize stakeholder value.


Benefits of mySAP SEM II ("Operational" Value Proposition)

● Speeds up the legal and management consolidation process significantly by automation.

● Enables continuous and efficient simulation, planning and forecasting processes across the entire organization.

● Provides a powerful infrastructure for KPI-based performance management and benchmarking.

● Helps to find, structure and edit relevant external (unstructured) competitive, market or other information on an ongoing basis andto automatically distribute it to the appropriate information consumers.

● Accelerates implementation through ready-to-use generic and industry-specific content for SEM excellence.

19


Gartner Group Inc. “SAP SEM – Analytical Applications With A Strategic Focus” (30 June 2000)

„ Feedback from early users has been positive - SEM is viewed as a significant step forward ”

„ We expect SEM to be successful […] at least 30 percent of R/3 users will license SEM by the end of 2004 (0.7 probability) ”

„ SEM has a compelling vision ”

Gartner Group Inc. “SAP SEM – Analytical Applications With A Strategic Focus” (30 June 2000)

„ Feedback from early users has been positive - SEM is viewed as a significant step forward ”

„ We expect SEM to be successful […] at least 30 percent of R/3 users will license SEM by the end of 2004 (0.7 probability) ”

„ SEM has a compelling vision ”

The AMR Research Alert on European E-Business (29 August 2000)

„The most complete [analytical application] by far is SAP with its Strategic Enterprise Management (SEM) “

The AMR Research Alert on European E-Business (29 August 2000)

„The most complete [analytical application] by far is SAP with its Strategic Enterprise Management (SEM) “

Analyst Statements


Topics


111

333

222




20


Making it happen: The CFO view

● Initiate an e-Business VBM initiative at senior executive level

● Define value strategy

● Develop management and analytics concept (identify IC components, define measures, define processes)

● Communicate strategy and management system concept

● Implement new management system / processes

● Support new processes step-by-step through technology

● Implement concept for operative analytics into overallmanagement system and support it through technology step-by-step


Critical Success Factors: The CIO View

● Strong business (CFO) sponsorship

● Business driven goals, and impact

● Develop an Enterprise Strategy / Architecture

● Integrate separately executed projects (Performance Management, CRM analytics)under this architecture

● Incremental delivery in small, high-impact, end-to-end solutions

● Define and implement a change management process

● Highly skilled and motivated Project Team

Value Based Management for the New · PDF fileValue Based Management for the New Economy ......

Documents

Transcript of Value Based Management for the New · PDF fileValue Based Management for the New Economy ......