BUDGETING:

Case Study, Concepts and Debatable Ideasby Ambassador Tal Edgars

Summary: Today’s presentation

1. Business Model Done D2. Strategy

3 Alignment

Done Done3. Alignment

4 Budgeting

Done

4. Budgeting

BudgetingBudgeting

The art and science of allocating and aligning Resources to g g

strategic plans

Budgeting: Some thoughts…

Two major roles of Budgeting:1 Provide real life CONSTRAINTS to strategic planning1. Provide real-life CONSTRAINTS to strategic planning2. Provide RESOURCES to realize strategic plans

Why Constraints?1. Over aggressive unrealistic planning, usually by

Marketing/Sales need to be grounded to real lifeMarketing/Sales need to be grounded to real life2. Creative entrepreneurial thinking when resources are

limited3 E f th d f A t bilit i ‘ROI’ thi ki 3. Enforce the need for Accountability i.e. ‘ROI’ thinking

for all Managers

Alignment: 4-Wheels M d lModel

Business

ModelStructurePerson

Strategic Planning

Structure

CultureLeadership

Resources

Alignment: Framework

• Focus pointC lt • Alignment

• Quality

Culture

Quality• Innovation & Differentiation

Ri k t ki g• Risk taking• Performance Management• Corporate obsession• Decision makingDecision making

Alignment: Framework• Org Structure• Job Design• C&B• Policies & procedures

Structure

p• Decision making• Job fitJob fit• Management Systems• BSC and KPIs• BSC and KPIs• Decentralized & Empower

Strategy: Framework

• Role modeling• Vision/Mission/PhilosophyV s o M ss o losop y• Leadership Style• Delegation & Empowerment

Leadership

• Delegation & Empowerment• C&B, Promotions• Sense of Urgency• Speak regularly about p g y

Performance

Strategy: Framework

• Recognition• Recruitment• Training• Profit sharing

Person

• Values• Motivation• Self Efficacy• Self Efficacy• Awareness• Useful CompetenciesUseful Competencies• Career aspirations• Attribution (control)

Strategy: Framework

Enablers• TechnologyTechnology• Equipment

M t i l

ResourcesFunding• CAPEX• Materials

• Human

• CAPEX• OPEX

• Intellectual Propertyp y

• Partners• Property• Property

Alignment: 4-Wheels M d lModel

Business

ModelStructurePerson

Strategic Planning

Structure

CultureLeadership

Resources

Each Discipline Requires Different Priorities & Resources

Organization, jobs,skills

Culture, values,norms

Operational Excellence

Customer Intimacy

Product LeadershipInformation and

systems

Management systems

Each Discipline Requires Different Priorities & Resources

Operational Excellence

•Central authority low level of empowermentOrganization •Central authority, low level of empowerment•High skills at the core of the organization

•Disciplined Teamwork

Organization, jobs, skills

Culture, values, Disciplined Teamwork•Process, product- driven•Conformance, 'one size fits all' mindset

, ,norms

• Integrated, low cost transaction systems•The system is the process

Information and systems

•Command and control•Quality management

Management systems y g

Each Discipline Requires Different Priorities & Resources

Organization, jobs,kill

Product Leadership•Ad hoc, organic and cellular

skills

C lt l

•High skills abound in loose-knit structures

•Concept future-drivenCulture, values,norms

Concept, future driven•Experimentation and 'out of the box' mindset

P t i ti tInformation and systems

•Person-to-person communications systems•Technologies enabling cooperation

Management systems

•Rewarding individuals' innovative capacity•Risk and exposure management•Product Life Cycle profitability

Each Discipline Requires Different Priorities & Resources

Organization jobs

Customer Intimacy

•Empowerment close to point of customer contactOrganization, jobs,skills

Culture, values,

•Empowerment close to point of customer contact•High skills in the field and front-line

•Customer-driven

I f ti d

Culture, values,norms

Customer driven•Variation and 'have it your way' mindset

Information and systems

•Strong customer databases, linking internal and external information•Strong analytical tools

Management systems

•Customer equity measures like life time value•Satisfaction and share management•Focus on ‘Share of Wallet’

Managing Gaps between actual and planned budgetsplanned budgets

1. Budgeting vs. Priorities2. Basic Budgeting policies3. Activity Grid to determine budget 3. Activity Grid to determine budget

priorities4 Budgeting for Investments based on the 4. Budgeting for Investments based on the

‘BCG Matrix’ principles

Budgeting vs. Priorities

Priority = Time + Money

Budgeting vs. PrioritiesE l B i Si i R&D P i i i

Upturn Flat DownturnExample: Business Situation vs. R&D Priorities

Fight Complacency

Sharpen EdgeInnovation

AcquireSales

Cash FlowKeep Momentum

ConquerProfits

Build momentumF d NPD Cycle Time

Improve Edge

Focused on ‘Breakthrough’

JV, In-source, Out-

Improve Top 15% revenue-generating products

Extensions

Counter Competitor

, ,source

Eliminate bottom 20%

p

↓ R&D, ↑Sales

Basic Budgeting policies

• Flexibility to switch between line items• Reserve FundsReserve Funds• Loans/External Funding

Activity Grid to determine b d t i itibudget priorities

Increase (↑) Create (+)Increase (↑)What are features/

activities/services to

Create (+)What are features/

activities/services to increase? introduce?

Reduce (↓)What are features/

Eliminate (-)What are features/ What are features/

activities/services to reduce?

What are features/ activities/services to eliminate?

1. Manage conflicts where limited resources should go2. Solve problem of compounding activities & resources

Budgeting for Investments based on the ‘BCG Matrix’ principlesp p

Market Market Potential

Business Performance

How to maximize Budget?

1. Align budget to priorities2 Integration of businesses and 2. Integration of businesses and

functions for teamwork3. Do practical, implementable stuff

that bring real results (hard work) g ( )

Budgeting in a Downturn

Budgeting in a Downturn

Budgeting in a Downturn

Budgeting in a Downturn

THE END; DISCUSSION