Building a Business Case Workshop - University of San Diego's Fall Forum
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This document provides an overview of a workshop on building a business case. It discusses developing a compelling call to action, vision, and value proposition to influence others. It emphasizes understanding customers and quantifying value through metrics like return on equity, cash cycle, and discounted cash flow. Tools for developing a business case include benchmarking financial and operational metrics against peers, identifying risks, and understanding customer jobs, pains, and gains. The overall aim is to provide frameworks and techniques to help participants drive their ideas and initiatives forward in a persuasive manner.
Building a Business Case Workshop - University of San Diego's Fall Forum
- 1. Building a Business Case Steve Wilson Director of Solution Design, NFI Industries
- 2. • I want you to be more successful and satisfied in your supply chain career • Ultimately, your ability to lead is determined by your ability to influence • For this reason, everything in this workshop will tie back to improving your capabilities to influence and persuade • This workshop will provide you with a framework, tools and (hopefully) inspiration help drive your own ideas and initiatives forward – Finance (Math) – Ideas and inspiration from Silicon Valley/Entrepreneurship & Motion Picture Industry – Applied Psychology – Lessons learned from innovative companies (Amazon, McKinsey Consulting) – My own experience (mistakes) Why Do this Workshop?
- 3. 3 HIGH FIT, END-TO-END 3PL INDUSTRY SUSTAINABILITY LEADER FINANCIALLY OLID, WELL CAPITALIZED, & ENTREPRENEURIAL $ EMPLOYEES 9,600+ 4,000+ 8,300+ 22m+ SQ. FT. OF WAREHOUSE SPACE TRACTORS TRAILERS EMPLOYEES 41.5M SQ. FT. OF WAREHOUSE SPACE PRIVATELY HELD FOUNDED IN 1932
- 4. • Persuasive Frameworks • The Four Components – A Call to Action – A Compelling Vision – Quantified Value – Maximize Credibility • Questions Our Journey Today…
- 5. Ideas have to compete for resources. All of us have experience with new initiatives that fail to reach their potential. Everyone likes their own ideas better. However: There are tools and techniques that have been proven successful in both modern and historical times You can be successful too if you are willing to put in the work This is not Easy
- 6. Logos Pathos Ethos The logic used to support a claim; can also be the facts and statistics used to help support the argument. The emotional or motivational appeals; vivid language, emotional language and numerous sensory details. The source’s credibility and/or the author’s authority. Combine all three to make the most persuasive arguments Aristotle’s Means of Persuasion
- 7. • Began his research into persuasion after falling “victim” to various sales tactics • Got hired into various sales roles and underwent training • Was able to take lessons learned through training and design research experiments to prove and refine principles • These principles are psychological “Judo” that are extremely powerful and sometimes used unethically • His book has sold millions of copies and has become the bible of persuasion Professor Robert Cialdini
- 8. Have you ever done something or made a purchase you because…? • You felt like you “owed a favor” to someone? • This is “Reciprocity” • Used with a small “give” to receive a larger “get” • Someone told you that either time or quantity is running out? That this is your “last chance”? • This is “Scarcity” • Used to motivate action or purchases
- 9. Have you ever done something or made a purchase you because…? • You saw or thought that others were doing it? • This is “Social Proof” • Used to convince others that a particular action is correct • Phillip Zimbardo’s “Stanford Prison Experiment” was strong evidence to the degree we conform to expected norms of behavior • Because you liked that other person (or wanted them to like you). • This is “Liking” • Used by sales folks world-wide, known as “building rapport” • Police, FBI and CIA agents use this technique as well
- 10. Have you ever done something or made a purchase you because…? • You didn’t want to break a promise or you wanted to demonstrate your integrity • This is “Consistency & Commitment” • Used in an incremental process and tied to actions • Used by the Chinese in the Korean War to brainwash captured US Soldiers • Someone who you felt was knowledgeable and/or in a position of authority told you to do it or recommended it? • This is “Authority” • Very similar to Aristotle’s “Ethos” • Milgram’s “obedience” experiments demonstrated to a surprising (and demoralizing) extent how willing most of us allow ourselves to be subject to authority.
- 11. Robert Cialdini’s Six Principles of Influence 1. Reciprocity 2. Scarcity 3. Social Proof 4. Liking 5. Consistency & Commitment 6. Authority
- 12. Call to Action Vision Value Proposition Build Credibility Build Your Business Case
- 13. A Good Idea Is Not Enough Not Urgent Urgent NotImportantImportant Important & Urgent Develop a Call to Action
- 14. “The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to its close. In its place we are entering a period of consequences.” Winston Churchill - 1936 BUT NOT EVERYONE WANTS TO HEAR BAD NEWS
- 15. “On her first engagement she may have to present her analysis to the CEO of a Fortune 50 company, who will not give much credence to what some newly minted, 27-year-old MBA has to say—unless she has an overwhelming weight of facts to back her up. This is just as true for a junior executive presenting a proposal to his boss.” The McKinsey Way – Ethan M. Rasiel Facts Bridge the Credibility Gap
- 16. • What has changed • Lagging behind the competition • Declining trends • Unprepared to handle events • Pain Develop a Call to Action - Identify
- 17. • Financial Benchmarking / Peer Comparisons • Operational metrics • Process capabilities • Third party research • Identifying risk Develop a Call to Action - Tools
- 18. Financial Benchmarking – Relative to Peer Companies Comparison Tables and Metrics Analysis as developed by Dr. Stephen Timme: www.finlistics.com Target Co Financial Performance Metrics Metric Your Company Competitor 1 Competitor 2 Competitor 3 Size Revenue in Millions 730$ 3,777$ 5,900$ 3,242$ Size Net Income in Millions 39$ 377$ 734$ 153$ Profitability Gross Margin % 20.7% 29.7% 39.6% 13.1% Operating Expense as % of Rev 12.4% 15.6% 20.1% 6.3% Net Income as % of Revenue 5.4% 10.0% 12.4% 4.7% Capital Cash Operating Cycle 29.3 (6.0) 120.4 11.4 Utilization Day's Payables Outstanding 80.92 82.59 49.02 36.86 Day's Sales On Hand (Inventory) 88.6 57.4 43.5 19.8 Day's Sales Outstanding 21.7 19.2 125.9 28.5 Inventory Turns 4.12 6.36 8.39 18.41 Fixed Assets / Revenue 0.29 0.26 0.53 0.08 Overall Return on Assets 11.5% 22.4% 7.8% 11.5% Performance Return on Capital 20.3% 40.1% 8.4% 15.8% Peer Companies How does your company compare to peers? Common-format financial statements from Google or Yahoo Finance Identifies opportunities and weaknesses relative to competitors Focus on profitability, Capital Utilization and Return
- 19. Financial Benchmarking – Same Company Over Time Comparison Tables and Metrics Analysis as developed by Dr. Stephen Timme: www.finlistics.com Metric 2013 2012 2011 2010 Revenue in Millions 730$ 672$ 585$ 465$ Net Income in Millions 39$ 40$ 30$ 13$ Gross Margin % 20.7% 22.5% 22.3% 21.8% Operating Expense as % of Rev 12.4% 13.4% 14.5% 17.9% Net Income as % of Revenue 5.4% 5.9% 5.1% 2.8% Cash Operating Cycle 29.3 10.9 22.0 10.1 Day's Payables Outstanding 80.9 73.1 77.2 70.4 Day's Sales On Hand (Inventory) 88.6 67.6 79.2 61.8 Day's Sales Outstanding 21.7 16.5 20.0 18.6 Inventory Turns 4.12 5.40 4.61 5.91 Fixed Assets / Revenue 0.29 0.28 0.30 0.48 Return on Assets 11.5% 13.0% 11.7% 4.8% Return on Capital 20.3% 22.2% 21.2% 7.0% Target Co How do the metrics change over time? Are things getting better or worse? What are the business drivers behind the changes you see? For our target company, inventory and DSO are concerning trends
- 20. Financial Benchmarking – Industry Comparisons Supply Chain Insights – Lora Cecere offers excellent industry reports and comparisons from a supply chain perspective
- 21. CFO Magazine Publishes an annual Working Capital Scorecard DSO: Day‘s Sales Outstanding DIO: Day’s Inventory Outstanding DPO: Day’s Purchases Outstanding CCC: Cash Cycle Financial Benchmarking – Industry Comparisons
- 22. APQC American Productivity and Quality Center WERC Warehousing Education and Research Council Offers a paid, online benchmarking tool CSCMP Council of Supply Chain Management Professionals Offers documented “Best Practice” process standards for purchase. A free version of “Minimum Process Standards” is also available. Operational Metrics & Process Capabilities
- 23. Generate superior profitability ROE 18% higher than low scoring peers and 67% higher than non-responders With more stability 50% lower volatility of earnings over the past decade than low scoring peers Grow dividends to shareholders 21% stronger than low scoring peers Exhibit value attributes attractive to equity investors Example 2014 CDP study on financial impact of sustainable practices Third Party Research Organizations
- 24. (1) Squire Patton Boggs Website - Webinar by Sarah K. Rathke & Dynda A. Thomas (2) Environmental Law Portal – Beveridge & Diamond PC, posts by Elizabeth Richardson (1) On August 19, 2015, the first class action of its kind was filed against Costco Wholesale Corporation and several of its suppliers in Monica Sud v. Costco Wholesale Corporation, et al., in the Northern District of California. The complaint alleges that Costco’s supply chain practices were not in compliance with its California Transparency in Supply Chains Act (CTSCA) disclosure statement with respect to Costco’s supply chain for shrimp, which the plaintiff alleged was farmed using slave labor. Just days later, a similar class action was filed against Nestle USA Inc. in the same court, alleging slavery in Nestle’s pet food supply chain. (2) In a press release issued on September 17, 2014, the U.S. Consumer Product Safety Commission (CPSC) announced that Michigan-based retailer, Meijer Inc., will pay a $2 million find to resolve allegations that It knowingly introduced recalled products into commerce. Legal Blog Article ExamplesIdentify Risk
- 25. Emphasizes Scarcity of Time Points of Pain, Risks, Negative Trends, ComparisonsIdentifies Required to be Credible Makes Urgent Fact-Based A Comprehensive Call to Action
- 26. Call to Action Vision Value Proposition Build Credibility Build Your Business Case
- 27. Leading without situational authority requires a compelling vision. Tell us your Purpose Make it Personal Make it Relatable Succinct and Complete “Those who tell the stories rule society” - PLATO
- 28. Most of us think linearly. 1. What (is your idea/project/initiative) ? 2. How (will it work) ? 3. Why (should we do this)? But your vision must align with their aspirations, desires and professional goals – Their Why. Reducing costs by ‘X’ percent is not a vision, but a metric. Necessary, yes, but who of us can get excited by a metric? Begin with Why Develop Your Vision
- 29. “If it could save a person’s life, could you find a way to save ten seconds off the boot time? If there were five million people using the Mac, and it took ten seconds extra to turn it on every day, that added up to three hundred million or so hours per year people would save, which was the equivalent of at least one hundred lifetimes saved per year.” Make It Personal
- 30. English Explorer Earnest Shackleton Recruiting for Antarctic Expedition Credited with the “Greatest Want Ad Ever” Personal Purpose
- 31. Easy to Describe • Tagline / Concept: 1-3 sentences • Treatment / Overview: 1-3 pages It’s Hamlet But with Lions We’ll call it “The Lion King” Make it Relatable Next Step is to envision the End State – What does success look like?
- 32. Amazon’s “Internal Press Release” Heading Name the product in a way the reader (i.e. your target customers) will understand. Sub-heading Describe who the market for the product is and what benefit they get. One sentence only underneath the title. Summary Give a summary of the product and the benefit. Assume the reader will not read anything else so make this paragraph good. Problem Describe the problem your product solves. Solution Describe how your product elegantly solves it. Quote from you A quote from a spokesperson in your company. How to get started Describe how easy it is to get started. Customer quote Provide a quote from a hypothetical customer that describes how they experienced the benefit. Closing and call to action Wrap it up and give pointers where the reader should go next. Ian McAllister, General Manager, Amazon
- 33. How will it personally affect the audience? Start with WhyPurposeful Make it easy to understand and describe What does the End State (Success!) look like? Personalized Relatable Complete Elements of a Compelling Vision
- 34. Call to Action Vision Value Proposition Build Credibility Build Your Business Case
- 35. Value Proposition Any project will impact customers, both internal and external. Identify and segment your customers: • Internal vs. external • By function: Accounting, Operations, Purchasing, Logistics, etc. Identify what it is that they need and value: “Value is created in the Office of the Customer” “Seek first to understand, then be understood” (Steven Covey) Understand your Customer
- 36. Understand your Customer Each element of your solution that addresses a job, gain or pain is considered a Value Driver Jobs Pain Wins
- 37. Amazon’s Customer Obsession Sandy Carter – Vice President of Amazon Web Services “7 Valuable Lessons from a New Amazonian” Published on LinkedIn “For every proposal, the executive team will ask what the customer wants and needs. Customer obsession is a business, and we leverage consumption data and outcomes as a sign of a customer’s desires and willingness to use our platform more. We always start with a press release and a Frequently Asked Questions (FAQs) document. For my first review, I spoke with over 40 Windows on AWS customers, did a customer survey, and listened to many partners. While I have always engaged with customers for knowledge, here it is expected. It is not a nice to have; it is a must have.”
- 38. Customer Examples Jobs (J): AR/AP, Billing, Audit, Capital Management Pains (P): Monthly Close, Collections, Expense Control, Inventory Write-offs Wins (W): Faster invoicing, less inventory, Easier reconciliations Finance & Accounting Jobs (J): Ordering, Stocking, Selling Pains (P): Damages, Out-of-stocks Wins (W): Improved fill-rate, lower lead times, value-added services Retail Customer
- 39. Customer Examples – What do you think? Plant Manager Customer Service RepVP of Sales Purchasing Manager Jobs Pain Wins
- 40. Quantifying Value We’ll look at value quantification from three perspectives Cash CycleDuPont Model Discounted Cash Flow
- 41. Quantifying Value The DuPont Model is an expression which breaks Return on Equity (ROE) into three parts. • Profitability (measured by profit margin) • Operating efficiency (measured by asset turnover) • Financial leverage (measured by equity multiplier) The name comes from the DuPont Corporation that started using this formula in the 1920s. The DuPont Model
- 42. Improved Shareholder/ Ownership Value (ROE) Increase Revenue Reduce Asset Requirements Reduce COGS Reduce SG & A Increase Operating Profits Reduce Inventory Investment Improved DPO Reduce Fixed Assets Improve the Cost Recovery of Returned Items • Credit on donations • Improved recovery on liquidation • Improved resale percentage • Reduced inventory write-offs • Negotiate higher inventory returns allowances • Reduced DC/ store receiving/ admin labor • Reduce transportation & storage costs of returns • Reduce administrative expense (AP/AR) • Improve the speed of disposition of returned items • Reduce need for DC capacity • Improve the speed of receiving supplier return credit Quantifying Value DuPont Model Example: Financial Impact of Reverse Logistics Improvements
- 43. Traditional accounting metrics focus on profitability and sources of capital Cash flow is a measure of how efficiently capital is utilized Cash is “oxygen” for a business. • Enable growth (new stores, new markets, etc.) • Pay off debt • Buy back stock • Fund acquisitions Lack of cash will bankrupt a business – even if profitable by formal accounting measures Importance of Cash Flow (Cash Cycle)
- 44. What is the Cash Cycle? It starts with inventory Days Sale’s On-Hand (DOH) 60 Days Then it adds in credit extended to customers Days Sales Outstanding (DSO) 30 Days Credit from suppliers is subtracted Days Purchases Outstanding (40) Days The calculated cash cycle is 50 Days
- 45. Example: Coca-Cola vs. PepsiCo Partial Income Statement Coca Cola Pepsi-Cola Revenue 48,017$ 65,492$ COGS 19,053$ 31,291$ SG&A + Other Exp 18,185$ 25,089$ Op Income 10,779$ 9,112$ Net Income 9,019$ 6,178$ Partial Balance Sheet Accounts Payable 8,220$ 8,343$ Inventory 3,264$ 3,581$ Accounts Receivable 4,759$ 7,041$ Cash Cycle Calculation Day's Sales On Hand 62.5 41.8 Day's Sales Outstanding 36.2 39.2 It’s difficult to find facts inside income statements and balance sheets. Coca-Cola and PepsiCo financials for 2012 (all $ in Millions)
- 46. Example: Coca-Cola vs. PepsiCo Let’s compare their cash cycles instead. COGS 19,053$ 31,291$ SG&A + Other Exp 18,185$ 25,089$ Op Income 10,779$ 9,112$ Net Income 9,019$ 6,178$ Partial Balance Sheet Accounts Payable 8,220$ 8,343$ Inventory 3,264$ 3,581$ Accounts Receivable 4,759$ 7,041$ Cash Cycle Calculation Day's Sales On Hand 62.5 41.8 Day's Sales Outstanding 36.2 39.2 Day's Payables Outstanding (80.6) (54.0) Cash to Cash Cycle 18.1 27.0 Partial Income Statement Coca Cola Pepsi-Cola Revenue 48,017$ 65,492$ COGS 19,053$ 31,291$ SG&A + Other Exp 18,185$ 25,089$ Op Income 10,779$ 9,112$ Net Income 9,019$ 6,178$ Partial Balance Sheet Accounts Payable 8,220$ 8,343$ Inventory 3,264$ 3,581$ Accounts Receivable 4,759$ 7,041$ Cash Cycle Calculation Day's Sales On Hand 62.5 41.8 Day's Sales Outstanding 36.2 39.2 • Pepsi has lower inventory. • Coke pays slower and collects faster. • Coke has faster Cash to Cash cycle and this frees up capital for other uses. • Coke wins the “Pepsi Challenge”. Coca-Cola and PepsiCo financials for 2012 (all $ in Millions)
- 47. Quantifying Value Discounted Cash Flow (DCF) models are typically the primary financial evaluation tool in large companies. The models taught in school are simplified (like the one below). Often, they have specific elements (reinvestment rate, lease options, tax benefits, etc.) specific to an individual company Don’t present an incorrect analysis. wrong information will damage credibility – Partner with a finance team member. Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Initial Investment (500,000)$ Annual Expense (75,000)$ (75,000)$ (75,000)$ (75,000)$ (75,000)$ Annual Savings 175,000$ 175,000$ 175,000$ 175,000$ 175,000$ Income Taxes (78,750)$ (78,750)$ (78,750)$ (78,750)$ (78,750)$ Add Back Depreciation 100,000$ 100,000$ 100,000$ 100,000$ 100,000$ Sum of Cash Flows (500,000)$ 121,250$ 121,250$ 121,250$ 121,250$ 121,250$ NPV @10% (36,697)$ IRR 7% Payback 4.12 What about discounted cash flow?
- 48. How will your solution impact your customer? Value Proposition Summary Customer Wins, Jobs & PainUnderstand Impacts into Value Drivers Value Drivers into Financial Impact Use others to confirm financial impact Identify Translate Calculate Validate
- 49. Call to Action Vision Value Proposition Build Credibility Build Your Business Case
- 50. Credibility = TRUST Our influence is in direct proportion to the trust we have built Trust is difficult to build quickly Senior business leaders have learned not to trust Building Credibility
- 51. Building Credibility Demonstrate your knowledge and perspective Display loyalty Reflect the culture Leverage trust from someone else Do your homework Keep your process transparent I’m on your side More than understanding Executive sponsorship and/ or team members
- 52. Agree Upon Selection Criteria Up-Front Will it solve real problems? Can it be implemented? Is it better than doing nothing? Are the benefits long-term? The project must be… (specific to organization) Ex. Work on “X” ERP, fit within the four walls, not disrupt “Y” process, show “Z” return on investment, etc. Classic product development methodology utilizes pre-set, often called toll-gates, or phase-gates
- 53. Develop and Share Alternatives Up-front investment What will be the immediate cash outlay required? On-going expenses What will be required on an on-going basis, and will it be perpetual or time-limited? Internal resources required Who and for how long? Management time and attention Will this require consistent review and participation of senior executives? Opportunity cost To what extent will this option prevent the organization form pursuing other projects or initiatives?
- 54. Homework: Develop and Share Risk Plans Understand the dependencies Develop contingency plans Understand your key assumptions Lower risk through Proof of Concept and Pilot studies…
- 55. Lessons from The Lean Startup Focuses the process on “validated learnings” – What do customers really want, and will pay for? Instead of going “all in”, work to create prototypes, test scenarios Expect that you don’t know everything – but that you need to learn through trying and repetition This approach substantially reduces risk of failure and lost investment
- 56. Utilize the Authority of Others All organizations have both informal and informal leaders In situations where you are an outsider or not in any sort of leadership role it is difficult to influence others Identify who are the influencers in the organization you wish to influence yourself Use them to either present, recommend, or otherwise validate your project
- 57. Great Moments in Leveraging Authority: The Guinea Worm in Africa A horrible scourge that infected millions in Africa A diabolical reproduction and infection mechanism US and European Healthcare workers had difficulty in changing behavior to stop the spread
- 58. Action & Results Aid workers enlisted village chiefs and elders to help with the problem The village leaders demonstrated the use of filters and filter straws to remove the worm larvae from the water They also established enforcement mechanisms to keep infected people from using drinking water sources for relief
- 59. Open and honest about your objectives Get buy-in on selection process or go/no-go criteriaCriteria Develop, Share and Discuss Risks by understanding dependencies & assumptions Leverage the authority of others (carefully) Transparency Alternatives Mitigate Recruit Build Credibility Summary
- 60. Call to Action Vision Value Proposition Build Credibility Build Your Business Case
- 61. References
- 62. “The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.” George Bernard Shaw
- 63. Great Moments in Leveraging Authority Anne Murray, Shep Gordon & the Hollywood Vampires
- 64. • 4 Grammys • 24 Junos • 3 American Music Awards • 3 Country Music Association Awards • 3 Canadian Country Music Association Awards. • Canadian Country Music Hall of Fame • Country Music Hall of Fame • Star on the Hollywood Walk of Fame Great Moments in Leveraged Authority This picture kick-started Anne Murray’s career
- 65. But choose your authority figures carefully
- 66. Thank you Slides available on Slideshare.net: