OLEX Strategic Planning for Operations

Finance and Strategy PracticeOperatiOns Leadership exchange™

strategic planning for Operations12 May 2011

a Framework For member converSationS

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LegaL caveat

The Operations Leadership Exchange has worked to ensure the accuracy of the information it provides to its members. This report relies upon data obtained from many sources, however, and the Operations Leadership Exchange cannot guarantee the accuracy of the information or its analysis in all cases. Furthermore, the Operations Leadership Exchange is not engaged in rendering legal, accounting, or other professional services. Its reports should not be construed as professional advice on any particular set of facts or circumstances. Members requiring such services are advised to consult an appropriate professional. Neither The Corporate Executive Board Company nor its programs are responsible for any claims or losses that may arise from a) any errors or omissions in their reports, whether caused by the Operations Leadership Exchange or its sources, or b) reliance upon any recommendation made by the Operations Leadership Exchange.

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From the OPErATIONS LEAdErShIP ExChANgE™of the FINANCE ANd STrATEgy PrACTICE www.OperationsLeadershipExchange.executiveboard.com

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ROAD MAP FOR THE PRESENTATION

the operations Planning Process

Strategic Planning Blind Spots Session takeaways



4

29% Somewhat Significant

10% Slightly Significant

3% Not At All Significant 14%

Extremely Significant

44% Very

Significant63%

Potential of Strategy

Achieved

37% Potential of Strategy Lost

STRATEGIC PLANNING IS VALUED, BUT IMPACT IS QUESTIONABLE

Executives must find ways to magnify the usefulness and impact of their strategic plans.

Role of Strategic Planning Process in Developing Strategy

Potential Value of Strategic Plan Lost to Execution Barriers

n = 796. n = 197.

Source: McKinsey Quarterly, 2006; Economist Intelligence Unit & Marakon Associates, 2005.



5

Symptoms of Problems

Milestones missed and/or interim metrics off track; no clear milestones

Only qualitative measures tracked, not quantitative

Zero challenges or conflicts raised to managers; nothing changing, initiatives too quiet; silence

departure of key initiative leaders; difficulty recruiting the “right” talent to participate

Low level of comprehension among team members about initiative’s purpose and team’s role

different perceptions walking out of the same meeting; next steps not clearly communicated

Too many initiatives in the pipeline, and/or not willing to kill initiatives; slow failure versus fast fail

Conversation focused on only financial or strategic factors

Lack of “buy-in” by senior executive or team responsible for execution

“Analysis paralysis”; no formal process to ensure decisions are reached

Conflict of interest; regional versus functional or collective versus individual goals

goals/incentive system does not accurately reflect expectations

No executive sponsor or single person accountable; initiative not linked to an executive’s goals

Senior management not focused on initiative; lack of commitment and excitement; individuals skipping meetings

Initiative under budget; not spending capital

Investment cut for next budget cycle

Cannot identify and allocate necessary resources

Market changed and strategy “debunked”; new assumptions not tested

“Firefighting” rather than pursuing execution agenda

Inconsistent messages; division/confusion between departments

SYMPTOMS OF STRATEGIC PLANNING FAILURE ARE COMMON

Common Symptoms of Initiative Failure Identified via executive discussions

Executives cite a number of common “early warning signs” that an initiative will fail.

■■ Several of these symptoms are clearly emergent during the early strategic planning process.

Source: Corporate Strategy Board.



6

CONTINUING ASSUMPTIONS IS EASIER THAN CHALLENGING THEM

Eight Common Brain Flaws that Lead Strategies AstrayInsights from Behavioral Economics

The human tendency to continue with existing assumptions perpetuates strategy failure.

Source: roxburgh, Charles, “hidden Flaws in Strategy,” The McKinsey Quarterly , 2008; Corporate Strategy Board.

Flaw 1: Overconfidence

The brain inspires great confidence in its ability to make accurate estimates.

Flaw 3: The Status Quo Bias

People are more concerned about the risk of loss than excited by the prospect of gain.

Flaw 4: Anchoring

The brain connects current experiences with past experiences when cited.

Flaw 5: The Sunk-Cost Effect

People would rather continue investing and complete an unprofitable project than write it off.

Flaw 2: Mental Accounting

The brain is inclined to scrutinize spending based on the way it is categorized.

Flaw 6: The Herding Instinct

The brain desires conformity to the behavior and opinions of others—especially when senior views (e.g., CEO’s) are already known.

Flaw 7: Misestimating

Future hedonic States People cannot estimate how much pleasure or pain they will feel if their circumstances change dramatically.

Flaw 8: False Consensus

People overestimate the extent to which others share their views, beliefs, and experiences.



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OPERATIONS PLANNING PRESENTS NUMEROUS POTENTIAL BLIND SPOTS

Overview of Operations Planning Stages

As Operations executives find themselves establishing strategic priorities, blind spots exist at every stage, posing threats to their success.

Blind Spots to Avoid

1. Identify Lessons from Last year

3. Establish Priorities

2. Evaluate the Internal and External Environment

4. Communicate to Business Partners

5. Establish Budget and Structure

Q3 Q4

Over-emphasize adherence to plan, over business (e.g., customer) impact

Focus on traditional Operations risks

View as “one-time” exercise

discount projects where rOI is less

easily evident

“report” rather than draw links with

corporate strategy or other functional

priorities

Limit flexibility to adjust to changing

needs

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The Operations Planning Process

Strategic Planning blind Spots Session takeaways



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1. IDENTIFY LESSONS FROM LAST YEAR

IdENTIFy LESSONS EVALUATE ENVIrONMENT PrIOrITIZE COMMUNICATE BUdgET

Previous year’s strategy and work plan

KPIs, functional dashboards

Indicators of business impact and needs

Inputs

review results to date

Identify critical successes, failures, and root causes

revisit functional mission and vision statements

Activities

Identified objectives to continue, close, and/or discontinue

Identified areas for additional investigation

revised mission and vision statements

Output

Common Blind Spot

Operations executives commonly focus reviews on achievement rather than impact, and limit their perspectives to internal metrics, ignoring customer assessments.

Planning Stage 1 Objectives: document lessons learned and key objectives to continue through next year.



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THE “HIERARCHY OF HORRORS”

Service Quality Index (SQI), FedExFedEx (Illustrative)

prOcess FaiLure WeightLost packages 50Claims for missing packages or packages that have contents missing damaged packages 30Claims for cost of contents for packages with visible or concealed damageWrong-day Late 10Packages that are delivered past the commitment date (resulting from a FedEx error)complaint reopened 10Any customer complaint reopened after an unsatisfactory resolutionLate pick-up stops 3Packages that were picked up later than the stated pick-up timetraces 3Package status and proof-of-delivery requests that cannot be answered from data contained in online tracking systemright-day Late 1Packages delivered past the commitment time on the correct day for which money-back guarantee applies (resulting from a FedEx error)invoice adjustment 1Customer requests for a credit or refund for real or perceived failuresabandoned calls 1Any phone call that is not answered by a customer service agent within ten seconds of the call resulting in the customer hanging upMissing proof of delivery 1Packages that lack written proof-of-delivery informationinternational 1A composite score of indices from international operations, containing similar metrics plus a customs clearance metric

Key QuestionsFedEx (Illustrative)

Source: FedEx; Working Council for Chief Financial Officers research; roundtable research.

FedEx creates a weighted index of customer dissatisfiers, which is updated annually to ensure alignment with customer preferences and corporate strategy over time.

■■ the Service Quality index indicates which process failures impact customer welfare and conveys their relative importance

Customer Preferences1. Are SQI improvements tracking with customer satisfaction?2. have customer preferences changed?

Composition and weighting of SQI

Corporate Strategy

3. do any shifts in strategy require a reevaluation of the SQi’s composition and weighting?

4. do SQi changes warrant a reevaluation of strategic priorities?



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2. EVALUATE THE INTERNAL AND EXTERNAL ENVIRONMENT


recent Survey data

Input from external consultants and other information sources

Corporate strategy, mission, and vision

Inputs

Evaluate industry trends

Conduct scenario planning

Learn strategic priorities of cross-functional partners

Activities

Preliminary list of strategic priorities and alternatives

Set of assumptions about internal strengths and weaknesses and external trends

Output

Common Blind Spot

Executives often review the internal and external environment on an annual basis, without building in opportunities to adjust course as conditions change.

Planning Stage 2 Objectives: determine risks and opportunities facing both the business and your function, and develop viable strategic alternatives.



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STRATEGIC EARLY WARNING SYSTEM

DASA’s Early Warning System Process

Integrated scenario development and monitoring activities enable anticipation of strategic events.


Participants

Source: daimler Chrysler Aerospace Ag; Corporate Strategy Board, Strategic Intelligence: Providing Critical Information for Strategic Decisions, August 2000: 17–19

Cross-functional team of middle managers and external experts

Scenario Analysis Team

Low- and mid-level management volunteers, often includes scenario participants; occasionally includes external scanners

Expert Scanners

Vice president-level decision makers from diverse functions (e.g., strategy development, marketing, sales)

Evaluation Committees

CEO, senior-most corporate and business unit managers

Executive Board

1. Scenario DevelopmentOwner: Scenario Analysis Team

■■ develops scenarios based on 20 to 30 driving factors

■■ defines measurable signposts for each factor

2. Signpost MonitoringOwner: Expert Scanners

■■ Collect information in area of specialization

■■ Emphasize search for “remarkable” changes

3. Strategic AnalysisOwner: Evaluation Committees

■■ Analyze trends and determine possible business implications

■■ recommend response

4. Competitive ActionOwner: Executive Board

■■ Consults Evaluation Committees to determine a course of action

5. Scenario ReevaluationOwner: Scenario Analysis Team

■■ reevaluates scenarios driving factors in light of new information and Executive Board input

Signpost Document: guidelines for tracking driving factors of competitive environment

Early Warning Notice: Issued to evaluation committee when warranted to highlight remarkable changes and potential trends.

Traffic Light Report: delivered to Executive Board to indicate critical issues requiring a decision.

Scenario Input: recommendations for future scenario analysis.



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3. ESTABLISH PRIORITIES


Activities

Work with internal partners (e.g., CEO, CFO, Corporate Strategy) and teams to develop targets and goals

Evaluate risks and opportunities of potential initiatives

Output

Prioritized list of strategic initiatives for following year

Business case supporting strategic priorities

Common Blind Spot

Executives have difficulty evaluating projects where rOI is less immediately evident, and risk missing high-impact improvement opportunities.

Materials from previous year’s and internal/external analysis

Strategic plans of business partners

Corporate center targets and goals

Inputs

Planning Stage 3 Objectives: establish a core set of strategic initiatives, and alternatives.



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TRAVERSING THE GRAY ZONE

Components, “Gray Zone” Project Prioritization Process

Projects without immediately recognizable benefits are identified and scrutinized by ChevronTexaco to ensure maximum value capture.


Project Portfolio Allocation

Strategic Risk/ Return Analysis

Comprehensive Prioritization Screen

Peer Review of “Gray Zone” Projects

Projects are assigned to one of four categories, ensuring alignment with strategic priorities

The risks and returns of projects are assessed in the context of potential actions by competitors and regulators

All projects are assessed against the same criteria, and rank ordered to enable identification of “gray zone” projects

Middle management reviewers collaborate to test assumptions and select projects from the “gray zone”

Refining Capital Project Prioritization Process

Project:Refinery:Total Estimated Capital Cost:Estimated Spending per Year:

Weighting Raw Score Weighted ScoreSafety/Environmental 10Business Impact 8Qualitative 6Probability of Success 4Total - -Date:

Safety & Environmental

Very High (10-9) High (8-6) Medium (5-3) Low (2-0)Safety andEnvironmental

∞ Mitigate documented potentialregulatory compliance gaps.Regulatory includes Federal,State, and Local agencies.

∞ Resolve issues that posesubstantial risk to personnel.

∞ Resolve issues that posesubstantial risk of damagingcompany image and/or that canlead to significant liabilityexposure.

∞ Maintain compliance or betterensure compliance withCorporate initiatives, such as:∞ Tenets∞ Operational Excellence∞ RSIP∞ Scorecard Metrics∞ Pollution Prevention

Initiatives

∞ Dependent onadministrative controls toprevent incidents orinjuries.

∞ In compliance, but notoperating at optimumpoint due to constraintsrequired to remaincompliant.

∞ Current operation is incompliance and not limiting,but improvements wouldfurther reduce exposure risk orfurther increase level ofcompliance.

∞ Reduce nuisance exposure.∞ Prepare for possible future

regulations.

Business Impact

Very High (10-9) High (8-6) Medium (5-3) Low (2-0)Capital Intensity - Simple Payback(Before – Tax)

projects <$5MM < 1 year 1 to 2 years 2 to 3 years > 3 yearsprojects >$5MM < 2 year 2 to 3 years 3 to 4 years > 4 years

Increases Competitive Advantage /Closes competitive gaps

∞ Unique Competitiveadvantage

∞ First in

Best Practice in industry Industry standardapproach

Fundamental Catch -Up

Capital Efficiency Addresses multiple, refinerywide constraints

Addresses a majorrefinery constraint

∞ Increases refineryutilization

∞ Equipment re-use

Limited useful life

Qualitative

Very High (10-9) High (8-6) Medium (5-3) Low (2-0)Providesfoundation forcontinuousimprovement

∞ Part of 10 year facility plan andbusiness plans

∞ Important to continuousimprovement of a facility

∞ Some benefit to continuousimprovement of a facility

∞ Importance to continuousimprovement of a facility isunclear

ImprovesInfrastructure

∞ Essential to facility futureinfrastructure needs and viability

∞ Important to facility futureinfrastructure needs andviability

∞ Some benefit to facilityfuture infrastructure needsand viability

∞ Not required infrastructurefor the facility

Political &Emotional Factors

∞ Visible to outside regulatoryagencies, local community, andentire facility

∞ Visible to entire facility or anoutside agency

∞ Visible to a business unit ordivision

∞ Visible to a few individuals

Rational ∞ Need is soundly supported bydata

∞ “Right thing to do” ∞ Makes Sense ∞ Unclear

Probability of Success of Projects

Very High (10-9) High (8-6) Medium (5-3) Low (2-0)Funding ∞ Project is included in “Base-Line”

approved Refining CapitalProgram

∞ Project is included as adiscretionary project in theapproved Refining CapitalProgram

∞ Project is included in theinventory of discretionarycapital projects but is notincluded in the approvedRefining Capital Program

∞ Project is new and notincluded in either the“Base-Line” Program or asa discretionary project.

AvailableResources

∞ Refinery organizations haveresource plans in place to supportthe project.

∞ Refinery organizations aredeveloping resource plans tosupport the project and there isbelief sufficient resources areavailable

∞ Refinery organizations havenot developed resource plansto support the project andthere are some concernsregarding the availability ofresources

∞ Refinery organizations havenot developed resourceplans to support the projectand most express concernregarding the availability ofresources

Certainty ofBenefits

∞ Strong endorsement by projectteam and stakeholders thatexpected benefits are real andobtainable. Benefits have beendocumented and endorsed bystakeholders.

∞ Wide acceptance by projectteam and stakeholders thatexpected benefits are real andobtainable. Benefits have notbeen well documented andendorsed by stakeholders.

∞ Project team or somestakeholders believe benefitsare real and obtainable.Benefits have not beendocumented and endorsed bystakeholders.

∞ There is widespreaddisagreement on type ofbenefits and how real thebenefits might be. Nodocumentation of benefitshas been completed.

OtherExternal orInternalBarriers

∞ Project team and stakeholdershave completed a preliminary riskassessment and identified nosignificant risks/issues; i.e.technology, governmental,regulatory, private groups, etc.

∞ Project team and stakeholdershave completed a riskassessment and identified somesignificant risks. Mitigationplans have been developed toaddress the risks.

∞ Some discussions concerningpotential external/internalbarriers have occurred, andthe project team believespotential barriers can bemitigated. No plans havebeen developed.

∞ No discussions concerningpotential external/internalbarriers have occurred, andthere is belief that barriersexist.

4321

Innovation Opportunity

15%

Gap Closure Opportunity

15%

Business Continuity

30%

Mandatory Investments

40%

YesNo

Yes



15

CATEGORIZING IMPROVEMENT OPPORTUNITIES

Opportunity Value CategorizationIllustrative

Projects are aligned with key value categories.


Value Opportunity Allocation TargetsIllustrative

“there are definite consequences of deferring investment in

certain key supply chain areas. instead of being first to market, you may be fourth. your competitors could leverage technology and capture value and make it impossible for you to do so. the key is knowing which investments fall into this category.”Steve Woodruffgeneral Manager

refining Central TechnologyChevronTexaco Corporation

Innovation Opportunity Capturing Potential

Competitive Advantage

Gap Closure Opportunity Strengthening Core

Competencies

■■ Ability to gain first-mover advantage

■■ Fit with corporate strategy and capital allocation plan

■■ Applicability across businesses

■■ Potential to attract new customers or facilitate new market entry

■■ Potential increase in market share

■■ Benefits to infrastructure■■ Simplification of work

processes■■ Improvement in product

quality

Mandatory InvestmentsEnsuring regulatory

Compliance

Business ContinuityMaintaining Competencies

■■ Visibility to regulatory agencies

■■ International customs requirements

■■ Facility security requirements

■■ Improvement or maintenance of market share

■■ Necessary facility infrastructure upgrades

■■ Technology life-cycle upgrades

■■ reusability across refineries

■■ Customer requirements

Innovation Opportunity

15%

Gap Closure Opportunity

15%

Business Continuity

30%

Mandatory Investments

40%



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Risk Management■■ Competitive Issues■■ regulatory requirements■■ “ risk of doing Nothing”

WEIGHING THE RISK OF INACTION

Principal Strategic Screens

Projects are screened to ensure alignment with ChevronTexaco’s objectives, competencies, and risk profile.


Risk Screen FlowIllustrative

Strategic Alignment

Corporate Focus■■ growth■■ Market Expansion■■ Cost Control

Supply Chain CompetencyCompetency Audit

■■ Assets■■ People■■ Technology

YesNo

Yes

does the investment provide a potential source

of advantage?

Apply screens: investigate further

If we do not invest, will regulatory

compliance be an issue in the near

future?

If we do not invest, will we fall behind our competitors?

Invest in pilot initiatives with stage-gates for

future investments

Investigate Further

No“No-Go”

Yes

Is the investment made by our

competitors worthy of duplication?

Invest minimally in the event competitor’s

investment fails

No“No-Go”



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DRILLING DOWN TO THE DETAILS

Prioritization Scorecard CriteriaChevronTexaco

Projects are evaluated and prioritized based on a comprehensive screen.

Refining Capital Project Prioritization Process

Project:Refinery:Total Estimated Capital Cost:Estimated Spending per Year:

Weighting Raw Score Weighted ScoreSafety/Environmental 10Business Impact 8Qualitative 6Probability of Success 4Total - -Date:

Safety & Environmental

Very High (10-9) High (8-6) Medium (5-3) Low (2-0)Safety andEnvironmental

∞ Mitigate documented potentialregulatory compliance gaps.Regulatory includes Federal,State, and Local agencies.

∞ Resolve issues that posesubstantial risk to personnel.

∞ Resolve issues that posesubstantial risk of damagingcompany image and/or that canlead to significant liabilityexposure.

∞ Maintain compliance or betterensure compliance withCorporate initiatives, such as:∞ Tenets∞ Operational Excellence∞ RSIP∞ Scorecard Metrics∞ Pollution Prevention

Initiatives

∞ Dependent onadministrative controls toprevent incidents orinjuries.

∞ In compliance, but notoperating at optimumpoint due to constraintsrequired to remaincompliant.

∞ Current operation is incompliance and not limiting,but improvements wouldfurther reduce exposure risk orfurther increase level ofcompliance.

∞ Reduce nuisance exposure.∞ Prepare for possible future

regulations.

Business Impact

Very High (10-9) High (8-6) Medium (5-3) Low (2-0)Capital Intensity - Simple Payback(Before – Tax)

projects <$5MM < 1 year 1 to 2 years 2 to 3 years > 3 yearsprojects >$5MM < 2 year 2 to 3 years 3 to 4 years > 4 years

Increases Competitive Advantage /Closes competitive gaps

∞ Unique Competitiveadvantage

∞ First in

Best Practice in industry Industry standardapproach

Fundamental Catch -Up

Capital Efficiency Addresses multiple, refinerywide constraints

Addresses a majorrefinery constraint

∞ Increases refineryutilization

∞ Equipment re-use

Limited useful life

Qualitative

Very High (10-9) High (8-6) Medium (5-3) Low (2-0)Providesfoundation forcontinuousimprovement

∞ Part of 10 year facility plan andbusiness plans

∞ Important to continuousimprovement of a facility

∞ Some benefit to continuousimprovement of a facility

∞ Importance to continuousimprovement of a facility isunclear

ImprovesInfrastructure

∞ Essential to facility futureinfrastructure needs and viability

∞ Important to facility futureinfrastructure needs andviability

∞ Some benefit to facilityfuture infrastructure needsand viability

∞ Not required infrastructurefor the facility

Political &Emotional Factors

∞ Visible to outside regulatoryagencies, local community, andentire facility

∞ Visible to entire facility or anoutside agency

∞ Visible to a business unit ordivision

∞ Visible to a few individuals

Rational ∞ Need is soundly supported bydata

∞ “Right thing to do” ∞ Makes Sense ∞ Unclear

Probability of Success of Projects

Very High (10-9) High (8-6) Medium (5-3) Low (2-0)Funding ∞ Project is included in “Base-Line”

approved Refining CapitalProgram

∞ Project is included as adiscretionary project in theapproved Refining CapitalProgram

∞ Project is included in theinventory of discretionarycapital projects but is notincluded in the approvedRefining Capital Program

∞ Project is new and notincluded in either the“Base-Line” Program or asa discretionary project.

AvailableResources

∞ Refinery organizations haveresource plans in place to supportthe project.

∞ Refinery organizations aredeveloping resource plans tosupport the project and there isbelief sufficient resources areavailable

∞ Refinery organizations havenot developed resource plansto support the project andthere are some concernsregarding the availability ofresources

∞ Refinery organizations havenot developed resourceplans to support the projectand most express concernregarding the availability ofresources

Certainty ofBenefits

∞ Strong endorsement by projectteam and stakeholders thatexpected benefits are real andobtainable. Benefits have beendocumented and endorsed bystakeholders.

∞ Wide acceptance by projectteam and stakeholders thatexpected benefits are real andobtainable. Benefits have notbeen well documented andendorsed by stakeholders.

∞ Project team or somestakeholders believe benefitsare real and obtainable.Benefits have not beendocumented and endorsed bystakeholders.

∞ There is widespreaddisagreement on type ofbenefits and how real thebenefits might be. Nodocumentation of benefitshas been completed.

OtherExternal orInternalBarriers

∞ Project team and stakeholdershave completed a preliminary riskassessment and identified nosignificant risks/issues; i.e.technology, governmental,regulatory, private groups, etc.

∞ Project team and stakeholdershave completed a riskassessment and identified somesignificant risks. Mitigationplans have been developed toaddress the risks.

∞ Some discussions concerningpotential external/internalbarriers have occurred, andthe project team believespotential barriers can bemitigated. No plans havebeen developed.

∞ No discussions concerningpotential external/internalbarriers have occurred, andthere is belief that barriersexist.

Final project rating allows assessment of potential value from the project, driving detailed assessment of “gray zone” projects.

Projects with longer time frame for return on investment receive lower scores.

Prioritization scores are weighted and regularly reassessed to ensure alignment with strategic objectives.

Projects with business impact across several facilities will receive a higher score.




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4. COMMUNICATE TO BUSINESS PARTNERS


Activities

develop key messages and links between strategic priorities and partner goals

Schedule “road show” to share priorities with key business partners

Output

“Branded” documentation presenting strategic priorities and their overall value to the enterprise

Final function level strategic plan

Business partner strategic priorities

Corporate objectives, mission, vision, and values

Inputs

Common Blind Spot

documentation often emphasizes “reporting” strategic initiatives, neglecting to clearly establish their value to business partners and the enterprise as a whole

Planning Stage 4 Objectives: generate buy-in across the organization for function strategic plan, and identify opportunities for collaboration.



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PRIORITY SYNERGY MAPPING

Priority-Synergy Maps Overview

LSI aligns and communicates business and quality priority synergies to ensure initiative traction.

Priority Framework

Value Alignment Cascade

Problem AddressedThe link between Quality objectives and corporate strategy is unclear.

Key Question for Qualityhow can we create a clear link between Quality objectives and business priorities?

Component OverviewQuality aligns its initiatives with current corporate priorities to illustrate synergies and demonstrate priority alignment.

Problem Addressed

Quality initiative communication strategies focus only on the Quality benefits and value, not broader business benefits.

Key Question for Quality

how can we more effectively communicate the value of Quality initiatives to business partners?

Component Overview

Quality translates the benefits and value of Quality initiatives into business impact to gain business buy-in and support for ongoing initiatives.


DERF 09-4743

Catalog # oLeX5173509Syn

Title



20

PRIORITY ALIGNMENT

Priority Framework1

Illustrative

Quality aligns its initiatives with corporate strategy to understand underlying priority synergies.

Corporate Priorities

Growth/ProfitabilityCapture market share for core competency products.

Design develop best-in-class design and product realization process.

Top-TierAchieve top-tier ranking from customer base by exceeding expectations.

Peopledevelop high-potential training program to attract, train, and retain top talent.

Quality Initiatives

Standardize Cost of Quality Models

Improve Customer Satisfaction

Variation Reduction

Harmonize Quality Systems

Quality Impact

■■ report and measure cross-business cost of Quality trends.

■■ Identify waste-reduction opportunities.

■■ Meet customer expectations (service and product).

■■ Collect meaningful feedback to drive Quality improvements.

■■ design robustness. ■■ develop supplier improvement programs.

■■ Standardize universal process rigor. ■■ reduce policy duplication efforts.■■ Update to changing regulatory compliance.

1 The alignment framework does not represent LSI’s corporate priorities nor Quality initiatives.

…to illustrate priority synergies and create a direct link between Quality objectives and business priorities.

3…and aligns existing Quality initiatives to its business partners’ most key areas of focus…

2Quality identifies corporate-wide business priorities…

1


DERF 09-4743

Catalog # oLeX5173509Syn

Title



21

Corporate Priorities Business Impact Quality Initiative Quality–Business Goal Alignment

Identify Business Unit’s Corporate Priorities

Determine Desired Business Unit Goals and Objectives

Align Existing Quality Initiatives to Desired Business Impact

Translate Quality Initiative Impact into Business Impact

design process reduce customer’s total cost of ownership.

Standardize cost of Quality model.

Identifies improvement opportunities to reduce indirect costs of ownership.

Top-tier Increase customer satisfaction.

harmonize Quality systems.

Creates standard processes to increase customer satisfaction and decrease purchasing frustrations.

growth/profitability Increase product cross-sell.

redesign customer feedback survey.

Identifies top drivers of customer cross-sell.

design process Process waste reduction.


Isolates opportunities for process redesign to eliminate redundancy and increase productivity.

design process Accelerate time to profit.


Identifies development wastes to accelerate time to market and reduce costs.

DERF 09-1765

Catalog # QEB1B15SCJ

Title Quality ST

COMMUNICATING BUSINESS VALUE

LSI Corporation’s Value Alignment CascadeBusiness Unit A, Example

LSI clearly communicates the link between corporate priorities, desired goals, and organizational initiatives.

■■ the framework helps communicate how individual initiatives are beneficial to the business.

■■ clarification helps drive business partner commitment and long-term sustainability of initiatives.

“you need to define value the way the business sees it, not

how Quality defines it. instead of fighting for mindshare for issues the business believes are more important than Quality, we position our initiatives as improvements to their priorities to show that we are working on the same issues that are a business priority.”ron BermanVice President, Quality and reliability,

LSI Corporation




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ELEMENTS OF SUCCESSFUL BUSINESS PARTNER COMMUNICATION

Select Communication TipsGenerating Buy-In and Support for Strategic Plan

Effective communication of your strategic plan to business partners involves more than simply “reporting” priorities.


Communication Element Details

“Brand” Internal Communications Internal audiences respond to the same marketing and communication tools that companies apply to external constituencies like customers and investors.

Avoid “Broadcast” Messages Broadcast messages ensure consistency but suffer from the inability of a single message to address the differing concerns of partners across the enterprise. Further, a message not delivered in person lacks the emotional connection that helps to generate support.

Provide details The communication process must provide sufficient details of the vision to inform employees “what’s in it for them”, as well as how you expect to measure your progress and impact.

Incorporate Opportunities for Feedback

Within your communications create spaces to solicit business partner and employee feedback, and provide opportunities for them to express both concerns and ideas for collaboration. Slides with targeted questions can form a basis to both launch a conversation and keep it focused on your own objectives.



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5. ESTABLISH BUDGET AND STRUCTURE

Activities

Set organizational structure and allocate resources across activities

Communicate priorities to teams

Final function level strategic plan

Preliminary budget

Evaluation of internal and external environment

Inputs Output

“Trackable” budget, team assignments, and MBOs

Common Blind Spot

Executives establish annual budgets that are rapidly made obsolete due to shifting priorities and/or external cost volatility.

Planning Stage 5 Objectives: design a budget, organizational structure, and execution plan that turns strategy into action.



24


FROM LONG-TERM PRIORITIES TO QUARTERLY PLANS

Planning Frameworks“Company B”

Company B uses Planning Frameworks to break conceptual strategic priorities into short-term objectives and activities.

Three-Year Strategic Planning Grid

Includes all current and future product- and market-related initiatives—including the introduction of new products, expansion into new markets, and management of the existing product portfolio.

Annual Quarterly Plan

Quarter-by-quarter breakdown of specific product activities or growth initiatives within all global business groups.

Product development and market expansion milestones articulated in the three-year strategic planning grid…

year 1 year 2 year 3

Strategic Priority 1





year 1

Q1 Q2 Q3 Q4





…are further broken down into specific quarterly objectives and activities in year 1, used both as an input to and criteria for budget requests.




25

MONTHLY EXECUTION PLANS

Planning Framework Application“Company B”

The three-year Planning Framework forms a basis for monthly financial, marketing, and manufacturing plans, and budgets.

■■ this monthly cadence enables rapid adjustments based on any changes in internal or external circumstances.

■■ Semi-annual reviews of three-year grids ensure plans remain relevant and performance on track.

Planning Framework Key BenefitsApplication of Planning Framework

Three-Year Planning Grid

year 1 year 2 year 3


Three-Year Planning Grid

Q1 Q2 Q3 Q4


Enterprise-Wide Coordination and Communication

Consolidated three-year grids enable cross-business visibility and dialogue around product growth and development.

Strategic Input to Operating Plans and Budgets

detailed quarterly strategic plans provide direct inputs to form monthly functional operating plans and budget projections.

Senior Management Review

■■ Consists of the CEO, their executive team, heads of global business groups and regional divisions, and executives from select functional areas.

■■ Meets semi-annually to review three-year grids

Budget Formation

■■ Contains monthly executional plans (including financial, marketing, and manufacturing plans)

■■ Built upon specific product- and market-related initiatives from annual quarterly plan



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the operations Planning Process

Strategic Planning blind Spots Session Takeaways

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SESSION TAKEAWAYS: OPERATIONS STRATEGIC PLANNING

1. Start with the Business—Focus performance reviews on the business impact of ongoing activity, using customers and business partners as your guide.

2. Validate Your Assumptions, Continuously—The external environment is changing rapidly; make sure your team and business partners (1) carry common understandings of where the market is heading, and (2) are prepared to change those assumptions rapidly.

3. Evaluate ROI on All Potential Projects—”hidden gems” may exist beyond what’s easily evaluated; establish ways for understanding the usefulness and impact of initiatives beyond those with the highest evident rOI.

4. Clearly Communicate Your Impact—generate buy-in and support for your strategic priorities by showing key business partners what’s in it for them, and how you can collaboratively achieve your objectives.

5. Plan for Volatility—The external environment is unusually uncertain, and changing rapidly. Build new sources of flexibility into operational plans to ensure that unexpected events don’t catch you off guard.

6. “Bite-Size” Your Plan—develop operational plans down to the most granular level, quarterly or even monthly, and budget to that level as well. This level of detail will enable rapid adjustments when necessary, as well as closer progress monitoring.

Finance and Strategy PracticeOperatiOns Leadership exchange™


Documents

OLEX Strategic Planning for Operations