Planning Strategy and Business Models PMA Management Development Academy and Network

Cleveland, Ohio Monday June 4, 2012 Presented by Craig Fitzgerald, Strategy Analyst, Plante Moran

Topics Covered ■ Comparison of Budget, Business Plan, Business Model and Strategic Plan ■ Table of Contents – Business Plan for Manufacturing Business ■ Business Model ■ Business Model Sanitized Example ■ Strategic Planning Process Elements ■ Middle Management Role in Strategic Planning ■ Facilitated Strategic Planning Conceptual Framework ■ Facilitated Strategic Planning Process Diagram ■ Sanitized Strategy Summary ■ Sanitized Strategy Map ■ Sanitized Tactics ■ Market Attractiveness Studies – Conceptual Framework

■ Market Attractiveness Studies – Typical Deliverable

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Comparison of Budget Business Plan, Business Model and Strategic Plan

Business Plan

Business Model

Dimension

Budget

Strategic Plan

Primary Purpose

Set financial targets for 12 months based on documented assumptions

Set mid-term financial expectations, tactics and descriptive materials

Defines customers, scope of product/services, differentiation, and expected profit pools

Documents the course and direction for the business, sales and profit targets, enterprise strategies, strategy metrics, s/t goals and objectives, and 18 months of tactics

Typical Users

Executives, managers, bankers, shareholders, boards

Executives, managers, investors, bankers, owners, boards

Executives, owners, boards

Executives, managers, owners, boards

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Comparison of Budget Business Plan, Business Model and Strategic Plan (continued)

Dimension

Budget

Business Plan

Business Model

Strategic Plan

Time Frame

1 year

1-3 years

5 years (updated periodically)

3-8 years (updated periodically)

Emphasis

Revenue monitoring, expense monitoring and control, profit reporting; heavy income statement focus

Often used to secure financing (both equity and debt); validate mid-term business case

Defining basis of competition and sand box

Defining course and direction of business; basis of competition; enterprise strategies; goals, targets and tactics

Participants

Level 1-3 leaders/managers

Select department heads and senior executives

Senior level managers and executives

Senior level managers and executives

Summary

1 year performance

Mid-term financing

Basis of competition, customers and scope

Business model, targets, enterprise strtegies and tactics

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Table of Contents-Business Plan for Manufacturing Business

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EXECUTIVE SUMMARY ....................................................................................................... 1 ENTERPRISE DESCRIPTION............................................................................................... 7 BUSINESS BACKGROUND ......................................................................................................... 7 VISION, VALUE PROPOSITION, AND STRATEGY ....................................................................... 7 ENTITY STRUCTURE AND OWNERSHIP ................................................................................... 14 PRODUCTS AND SERVICES ..................................................................................................... 14 CONSUMER BENEFITS ............................................................................................................ 15

EXHIBIT 1 EXHIBIT 2 EXHIBIT 3 EXHIBIT 4 EXHIBIT 5 EXHIBIT 6

PRESENT BUSINESS MODEL (2006) ................................................................... 3 ALIGNMENT AND LINKAGES.............................................................................. 6 CRITICAL MANUFACTURING HORIZONTAL BUSINESS PROCESSES .................. 11 STRATEGY MAP (2006) ................................................................................... 12 STRATEGY SUMMARY ..................................................................................... 13 GLOBAL ORGANIZATION ................................................................................. 32

MARKETS, CUSTOMER ENVIRONMENT, SALES STRATEGY................................ 16 CONSUMER INTEREST AND MARKET SIZE ............................................................................. 16 TARGET CUSTOMERS ............................................................................................................. 17 SALES STRATEGY AND TACTICS ............................................................................................ 17 ENFORCEMENT OF INTELLECTUAL PROPERTY ....................................................................... 18 COMPETITOR ANALYSIS .................................................................................................. 19 COMPETING PRODUCTS AND ENTERPRISES ............................................................................ 19 ENTERPRISE STRATEGIES AND BUSINESS PROCESS SCALE UP PLANS ........... 22 SIX ENTERPRISE STRATEGIES ................................................................................................ 22 BECOME LEAN ....................................................................................................................... 23 GROW SALES AND DIVERSIFY CUSTOMERS ........................................................................... 24 COMMERCIALIZE BLOCKBUSTER PRODUCTS ......................................................................... 26 BEST TALENT ........................................................................................................................ 27 BECOME PROCESS DRIVEN .................................................................................................... 28 DEVELOP THE AFTERMARKET ............................................................................................... 29 MANAGEMENT AND ORGANIZATION STRUCTURE ................................................ 31 ORGANIZATIONAL STRUCTURE ............................................................................................. 31 ENTERPRISE LEADERSHIP ...................................................................................................... 33 ADMINISTRATIVE CLUSTER ................................................................................................... 33 CUSTOMER DRIVEN INNOVATION AND RELATIONSHIP MANAGEMENT CLUSTER .................. 34 OPERATIONS CLUSTER .......................................................................................................... 35 ORGANIZATIONAL DEVELOPMENT FOCUS ............................................................................. 36 2007-2009 CY FINANCIAL FORECASTS .......................................................................... 38 FORECAST SUMMARY 2006 ................................................................................................... 39 FORECAST SUMMARY 2007 ................................................................................................... 40 FORECAST SUMMARY 2008 ................................................................................................... 41 FORECAST SUMMARY 2009 ................................................................................................... 42 CASH FLOW STATEMENT 2006-2007 ..................................................................................... 43 CASH FLOW STATEMENT 2008-2009 ..................................................................................... 44 BALANCE SHEET CALENDAR 2006 ........................................................................................ 45

TABLE 1 NORTH AMERICA AND REST OF WORLD VEHICLE VOLUMES ............................. 17 TABLE 2 SIX ENTERPRISE STRATEGIES ............................................................................. 22

Business Model Purpose: To document the four essential questions every business must answer:  Who are the customers we wish to serve?

 What is the product, service and geographic scope for the business?  How we wish to differentiate ourselves in the market place (from our competitors in a way that meets customers expectations)?  What are the profit streams that drive cash flow? Why Important:  Defines the essential basis of competitive differentiation  It reflects the awardable competitor set

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Business Model Sanitized Example Vision: Best-in-class and #1 share provider of outsourced facilities and environmental management services serving highly complex industrial customers and select government, education and health care customers

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Strategic Planning Process Elements

7

Primary Purpose:

Document the course and direction for the business; sales and profit targets; enterprise strategies; strategy metrics; short-term goals and objectives; and 18 months of tactics

Planning Team:

Typically 6-12 executives, managers, and high potential staff, lead by a strategy facilitator (either internal or external)

Duration

3 – 5 months

Time Frame:

5 – 10 years (fewer for smaller enterprises)

Description of General Process:

Internal assessment; market/product assessment; customer assessment; competitor assessment; evaluation of strengths and weaknesses; evaluation of threats and opportunities; synthesis of alternative competitive scenarios; choice of strategies; documentation of metrics, goals, objectives and tactics

Strategic Planning Process Elements (continued)

8

Representative Deliverables:

Future Business Model; Strategy Summary; Strategy Map; Strategy Matrix; Tactics for each strategy

Possible additional deliverables

Product Market Strategy Profile; Facility Strategy Profile; Product/Market Customer Attack Plan; 5 year Financial Forecast; 5-Year Capital Expenditures Forecast

Communication Process:

Business wide deployment of 10 page PowerPoint with emphasis on “where are we going” and “what's my role” in getting us there; quarterly update on progress for supervisors and middle managers; active management and accountability for department heads and executives

Middle Management Role in Strategic Planning

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■ Push/challenge leadership gently for understanding of strategic direction ■ Participate as a member of the planning team ■ Provide data, input or analysis in support of the planning team

■ Serve as a member of an ad-hoc team assigned to document tactics for each strategy ■ Serve as a participant on the strategy implementation monitoring work team ■ Perform one or more activities documented in a strategy tactics document ■ Tactfully ask how strategy progress is being measured and monitored ■ Provide articles to higher level managers/leaders on strategic planning topics ■ Engage in discussions with superiors regarding strategy topics, issues, or considerations ■ Be neither pushy nor passive; show interest, engagement, and value relative to strategic planning ■ Use a book club to explore strategy issues

Facilitated Strategic Planning Conceptual Framework

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Facilitated Strategic PlanningProcess Diagram

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Sanitized Strategy Summary

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Sanitized Strategy Map

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COMPANY M Sanitized Tactic Strategy Area:

Go-to-Market Plans

Strategy Description:

Company M will create growth strategies within its existing client base (Detroit 3 & their supply chain) that are customer and market driven, that will provide our employees with a clear understanding of company goals and that will improve the effectiveness of company marketing and sales efforts.

Strategy Champion:

John Doe

2013 Metric:

$95 million in sales

2008, 2009 Objective:

1. 2. 3. 4. 5. 20

Ref.

GMP-1

GMP-2

Define the market opportunity for the service. Build a budget model to establish clear goals relative to revenue and profit margin. Define the general strategy for how the service offering(s) will be delivered/sold, including the Value Proposition. Identify the organizational structure and personnel required to execute the strategy. Obtain additional Revenue as Follows: 2008 Revenue ($16.4–Ford, $22.2M–GM, $10.8M-Chrysler). 2009 Revenue ($18.1M–Ford, $24.7M–GM, $20.8M–Chrysler).

Action Item Description Identify and define growth opportunities within existing client base. Identify key organizational interfaces within each client’s structure that will award, and that will influence the award, of the most profitable growth opportunities. Prioritize those opportunities taking into account the size of opportunity, value of current client relationships, risk of opportunity, market position and potential for incremental business, at a minimum. Develop revenue and margin goals over one, three and five year periods. Outline and define risks that may affect the ability to reach the goals for each service and develop strategies to address how risks can be mitigated.

Priority

High

High

Expected Outcome Prioritized growth opportunities with targeted individuals/positio ns internal to our current Client base.

A business tool that includes measurable goals, with milestones, to evaluate the effectiveness of the program.

Responsibility

Planned Start

Planned Completion

Depend -encies

Resource Requirements

John

5/1/08

8/31/08

Executive Mgt. – 24hrs Senior Mgt. – 40hrs Staff Support – 12hrs

John, Chuck & Dave

5/1/08

8/31/08

Executive Mgt. – 10hrs Senior Mgt. – 30hrs

Sanitized Tactic (continued)

GMP-3

Define “Value Proposition” stating why clients will buy from Company M, which outlines our expertise and advantages over our competition. Develop processes as to how the services will be delivered/sold and identify the tools and systems needed to support sales operations. Create formal, documented attack plans, by customer, with targets, objectives and effective monitoring processes.

* High, Medium, Low

High

An organization that has a clear and common understanding of its sales approach and its value to its customers.

John

6-1-08

5/31/09

Executive Mgt. – 80hrs Senior Mgt. – 80hrs

Market Attractiveness Studies – Conceptual Framework Public Sources Research

Client’s Questions to be Answered

Public Sources Research

Client Approval of Working Hypotheses

Data/Info Compilation and Analysis Consultant Initiated Customized Research

Preliminary Findings, Analysis, and Conclusions

Refined and Refocused Research and Data Collection

Findings, Conclusions, Analyses, Data Tables and Recommendations

Market Attractiveness Studies – Typical Deliverable Market Segment: Metal Fabrication – Control Arms and Locating Components Description/Content

Required Competencies

Control arms and various locating components formed through casting, stamping, forging, tube bending, hydroforming, forming wire, cold forming and warm forming mostly steel, aluminum or iron.

 One or preferably multiple forming process (i.e., process neutral) including forging,

Market Drivers

Estimated Volumes by Design Type

 Lowest possible weight with maximum strength and durability within cost targets  Reducing locating components while meeting suspension performance

   

casting, stamping, tube forming, wire forming, warm forming or cold forming Engineering support (i.e., process engineering, DFM and DFA) Multiple content manufacturing capability for global programs Raw material purchasing, particularly steel Tool design and sourcing

Low Cost:

New Domestics:

Gestamp, Magna Cosma, , Iroquois, Radar Industries, SKD (minority), Midway, Intermet, Metaldyne Hayes Lemmerz International, Aluminum Precision Products, Inc., Kaiser Aluminum, Raufoss Technologies Yorozu, ZF Lenforder

Niche:

Benteler, ThyssenKrupp

requirements (such as McPherson strut and twist beam axle)  Simplification of suspension design that reduces cost and weight

Light Material Specialist:

Design and Process Trends  Trend toward lighter weight formed and fabricated designs including tubes,

hydroforming, and specialized fabrication and advanced joining techniques  Hollow aluminum die casting

Obsolescence Risks  Rapid movement from steel to aluminum for control arms and locating

components  Carbon fiber composites (cost and manufacturing fire risk issues)

Market Attractiveness Studies – Typical Deliverable (continued) Market Segment: Metal Fabrication – Control Arms and Locating Components Market Size Market size is estimated at ~$1.25 billion in North America  15 million production units  $40-120/vehicle  Average vehicle cost of ~$83

Target Customers Detroit 3: Japanese: European: Other European: Tier 1 suspension integrators: ZF, Aisin Seiki

Buying Sensitivity Factors Detroit 3: Price (55%), quality and delivery performance (25%); experience with components (10%); financial strength (10%) Japanese: Understands customers systems (40%); quality and reliability (35%); cost (20%); financial strength (5%) Europeans: Understands customers systems (30%), price (30%), quality and delivery (30%); technology (10%) Tier 1’s: Price (65%); quality and delivery performance (15%); experience with components (10%); financial strength (10%)

Chrysler, Ford, GM Honda, Nissan, Toyota BMW, Mercedes, VW Hyundai, Suzuki Continental, Benteler, TRW,

Competitors and Market Positioning Low Cost:

New Domestics:

Gestamp, Magna Cosma, AGS, Iroquois, Radar Industries, SKD (minority), Midway, Intermet, TRW Automotive, Metaldyne Hayes Lemmerz International, Aluminum Precision Products, Inc., Kaiser Aluminum, Raufoss Technologies Yorozu, ZF Lemforder

Niche:

Benteler, ThyssenKrupp

Light Material Specialist:

Market Share for Competitors (in estimated share order)

Stamped: Magna Cosma, Gestamp Automocion, Iroquois Industries, Tower Automotive Cast:

TRW, ZF Lemforder, Benteler, BTR

Forged:

Bharat Forge, ZF Lemforder, TRW

This box was intentionally left blank

Market Attractiveness Studies – Typical Deliverable (continued) Market Segment: Metal Fabrication – Control Arms and Locating Components Required Capital Investment

Estimated Profitability

 Stamping capital investment is quite low due to low capacity utilization (64% in

2006) and substantial available mid tonnage line presses. Average year EX of 1-2% of sales  Casting capital investment is quite low due to bankruptcy actions and low capacity utilization. Average year EX is estimated at 1% of sales or less  Forging capital investment is modest for domestically owned firms, and substantially higher for foreign owned enterprises. Domestic investment is estimated at less than 2% of sales, with nearly double that for foreign-owned forging operations

 Stamping margins averaging approximately 5% EBIT  Casting margins averaging approximately 6-7% EBIT  Forging margins averaging approximately 7+% EBIT

Growth Obstacles/Strategies  Growth through acquisition of a steel fabrication operation (such as hydroforming, tube specialists, or specialized joining expertise)  Enter aluminum sector through acquisition of aerospace focused aluminum casting company

Overall Assessment

Key: 5 - Favorable 0 - Unfavorable

Market Size – (2) Good size market, with many participants and a few critical mass participants Market Drivers – (2) Trend toward weight reduction, active suspension and smaller vehicles with McPherson strut suspension design Technology Risk – (3) Emphasis on weight reduction increasing use of aluminum components, with even small progression toward carbon fiber Competitors – (2) Excessive number of competitors, many quite good, with low overall capacity utilization (~68%) Customer Opportunity – (2) Customers look primarily for low margin stampers and providers of alternative processes and materials Customer Expectations – (3) Detroit 3 have heavy emphasis on cost and product experience, Japanese focused on understanding customer systems and quality and reliability Engineering & Investment Req’d – (3.5) Engineering is mostly formability, DFM and DFA, capital investment is relatively modest Segment Profitability – (2.5) Each of the three dominant process technologies is mature, over capacitized, with substantial base of unproductive assets and marginal enterprises. Profitability will continue to be below sustainable levels until excess capacity is drained from the system, marginal enterprises liquidate, and consolidation occurs. Expect margins to improve meaningfully at post consolidation