MICG ENTERPRISE RISK MANAGEMENT 2012 November 2012 Strategy and Risk Management • Strategic Risks in the New World • The Most Important Risk of All: Business Model vs. Risk (Choosing the wrong Business Model) • M&A Risk (Pre- and Post- Acquisition Risks) • People Risk (Succession Planning and Business Continuity) • Fraud Risk • Growth Risk (Growth methods and their associated risks including Benchmarking Risk) • Reputational Risk (Brand and PR) • R&D Risk • How To: The 4-Wheels Operating Model and Strategic Risk Management Checklist

1. STRATEGY AND RISK
MANAGEMENT
MICG Enterprise Risk Management Seminar
2012 for MTU Services
Kenny Ong
Takaful IKHLAS Sdn Bhd
1

2. THE NEW WORLD
2

3. The World Today…
13th April 2009
•Two Domino’s employees
•YouTube
•Apology from Domino’s after
48 hours
•1 million hits
•Twitter: questions on silence
•LinkedIn: suggestions by users
in forum
3
BusinessWeek, May 4, 2009

4. TAKAFUL IKHLAS CORPORATE PROFILE
• Shareholder : MNRB Holdings Berhad (100%)
• Established Date : 18 September 2002
• Operational since : 2 July 2003
• Takaful Model : Al-Wakalah
• Business Portfolio : General and Family Takaful
• Number Products : More than 90
• Number of Participants : More than 1,800,000
• Number of Agents : More than 6,000
• Number of Staff : 490
• Regional Offices : 11
• Paid Up Capital : RM295 million
4

5. IKHLAS Customized Healthcare Solutions
Smart
Partnerships
Medical
Wellness
Advisory
Program
Board
Cost
Flexible
Management
5

6. "The digital watch didn't come from
established watch companies, the calculator
didn't come from slide rule or adding
machine companies, video games didn't come
from board-game manufacturers Parker Bros
or Mattel, the ballpoint pen didn't come from
fountain pen manufacturers, and Google
didn't come from the Yellow Pages"
Bob Seidensticker, Futurehype
6

7. What’s wrong with Strategic
Planning Today?
Long-term Plans
Objectives
Strategies
Enablers
Resources
Also known as L.O.S.E.R.
7

8. What’s wrong with Strategic
Planning Today?
1. Biggest Threats often come from OUTSIDE your normal
industry
2. Planning from the base of an ‘Existing’ organization vs.
zero-based
3. Traditional Analysis (e.g. SWOT) based only on known
or existing assumptions or knowledge
4. Spending too much time in market research and
analysis
5. Defining the company from a Product/Service
perspective vs. Category vs. JTBD (e.g. Coca-cola)
6. Wrong Benchmark – already successful vs. what made
them successful
7. Implementing BSC and PMS to improve Business
Model and Strategy
8. New strategy, same people
8

10. Finance Today…
$19.90
10

11. Contents
1. The Biggest Risk of All
2. Growth Risks
3. Reputational Risks
4. R&D Risks
5. People Risks
6. How To…
11

12. THE MOST IMPORTANT RISK
OF ALL
12

13. Strategic Risk
External events and trends that can destroy a
company's growth course and shareholder
value:
1.Industry 5.Customer
2.Technology 6.Project
3.Brand 7.Stagnation
4.Competitor
13
A. Slywotzky & J. Drzik, Harvard Business Review, April 2005

14. So, what is the biggest
risk of all?
IRRELEVANCE
14

15. Irrelevance Risk =
Business Model Risk
• Business Model Risk
– Business Model
– Industry
15

16. The Business Model
The biggest and most holistic
consideration
16

20. The McPlaybook*
Make it easy to eat Make it easy to prepare
• 50% drive-thru • High Turnover
• Meals held in one • Tasks simple to learn
hand & repeat
Make it quick Make what customers want
• “Fast Food” • Prowls market for new
• Tests new products products
for Cooking Times • Monitored field tests
*Adapted from: Businessweek , Februrary 5th 2007
20

21. What is the Business Model?
•Google
•Tata Nano UVP
Cash-Flow Market
Model Discipline
21

22. Business Model: UVP
Unique Value Proposition (USP)
=
Targeted Customer
=
Core Buying Purpose/ Customer Value
Proposition/ Job To Be Done (JBTD)
22

23. Business Model: UVP
“The Product is Not the Product”
• What is the customer really buying?
• What is the “Core Buying Purpose”?
23

24. Business Model: UVP
1. Insufficient WEALTH
2. Insufficient ACCESS
3. Insufficient SKILL
4. Insufficient TIME
24

25. Business Model: Cash-Flow Model
Revenue
Assets Cost
Cash
Margin
Flow
25

26. Business Model: Cash-Flow Model
Cash-Flow Model Examples:
Revenue 1. Gillette Shaver
Assets Cost 2. IBM and Lenovo
3. GM and GM Finance
Cash
Margin
Flow 4. Google and Ad Revenue
5. McD and Drive-thru revenue
6. SaaS PAYU e.g. Siebel/Salesforce
7. Facebook and Investors
8. Courts and Instalments
9. Kindle Fire and e-Books
10.Celcom and MVNOs
11.Kenya and M-Pesa
12.Banks and Non-Fees vs. Fees
26

27. What is the Business Model?
UVP
Cash-Flow Market
Model Discipline
27

28. Market Discipline
• Features,
"They are the most innovative"
Product
Leadership Benefits
"Constantly renewing and creative"
• Limited
"Always on the leading edge"
Range
Customer
Operational Intimacy
Excellence "Exactly what I need"
"A great deal!"
Customized products
Excellent/attractive price
Minimal acquisition cost and
• Solutions
Personalized communications
"They're very responsive"
hassle • Preferential service and
Customization
• Cost
Lowest overall cost of • Breadth &
flexibility
• Convenience
ownership Depth
Recommends what I need
• firm"
"A no-hassles TCO "I'm very loyal to them"
Convenience and speed Helps us to be a success
Reliable product and
service
28

29. Market Discipline
Product "They are the most innovative" •LV
Leadership "Constantly renewing and creative"
"Always on the leading edge"
•Air Asia Operational
•Ramly Customer
Intimacy
Excellence "Exactly what I need"
"A great deal!"
Customized products
Excellent/attractive price
Personalized communications
Minimal acquisition cost and "They're very responsive"
hassle
Preferential service and
Lowest overall cost of flexibility
ownership Recommends what I need
"A no-hassles firm" "I'm very loyal to them"
Convenience and speed Helps us to be a success
Reliable product and
service
29

30. Alignment & Consistency:
Market Disciplines
Product Leadership
(best product)
Operational Excellence Customer Intimacy
(low cost producer) (best total solution)
30
Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995

31. Alignment & Consistency:
Market Disciplines
Product Leadership
(best product)
Operational Excellence Customer Intimacy
(low cost producer) (best total solution)
31
Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995

32. Alignment & Consistency:
Market Disciplines
Product Leadership
(best product)
Operational Excellence Customer Intimacy
(low cost producer) (best total solution)
32
Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995

33. Alignment & Consistency:
Disciplines, Priorities, and KPIs
Operational Product Leadership Customer Intimacy
Excellence
• New, state of the • Management by
• Competitive price art products or Fact
services
• Error free, reliable • Easy to do
• Risk takers business with
• Fast (on demand)
• Meet volatile • Have it your way
• Simple
customer needs (customization)
• Responsive
• Fast concept-to- • Market segments
• Consistent counter of one
information for all
• Never satisfied - • Proactive, flexible
• Transactional obsolete own and
• Relationship and
competitors'
• 'Once and Done' consultative
products
selling
• Learning
• Cross selling
organization 33

34. Each Discipline Requires
Different Priorities & Resources
Organization, jobs,
skills
Culture, values,
norms Operational Product Customer
Excellence Leadership Intimacy
Information and
systems
Management
systems
34

35. Each Discipline Requires
Different Priorities & Resources
Operational Excellence
Organization, •Central authority, low level of empowerment
jobs, skills •High skills at the core of the organization
Culture, values, •Disciplined Teamwork
norms •Process, product- driven
•Conformance, 'one size fits all' mindset
Information and •Integrated, low cost transaction systems
systems •The system is the process
Management •Command and control
systems •Quality management
35

36. Each Discipline Requires
Different Priorities & Resources
Product Leadership
Organization, jobs, •Ad hoc, organic and cellular
skills •High skills abound in loose-knit structures
Culture, values, •Concept, future-driven
norms •Experimentation and 'out of the box' mindset
Information and •Person-to-person communications systems
systems •Technologies enabling cooperation
Management •Rewarding individuals' innovative capacity
systems •Risk and exposure management
•Product Life Cycle profitability
36

37. Each Discipline Requires
Different Priorities & Resources
Customer Intimacy
Organization, jobs, •Empowerment close to point of customer contact
skills •High skills in the field and front-line
Culture, values, •Customer-driven
norms •Variation and 'have it your way' mindset
Information and •Strong customer databases, linking internal and
systems external information
•Strong analytical tools
Management •Customer equity measures like life time value
systems •Satisfaction and share management
•Focus on ‘Share of Wallet’ 37

38. Alignment & Consistency
Product Leadership
(best product)
Operational Excellence Customer Intimacy
(low cost producer) (best total solution)
38

39. Alignment & Consistency
Apple powerful Product Leadership
products, premium (best product)
pricing, limited range
Still Doing
well in HP well-balanced
Acer super lean
2009-2011 portfolio, mass
cost structure,
aggressive pricing customization
Operational Excellence Customer Intimacy
(low cost producer) (best total solution)
39

40. Where are your Key Risks?
RISK?
UVP
RISK? RISK?
Cash-Flow Market
Model Discipline
40

41. Where are your Key Risks?
RISK? RISK? RISK?
Organization, jobs,
skills
Culture, values,
norms Operational Product Customer
Excellence Leadership Intimacy
Information and
systems
Management
systems
41

42. Market Disciplines and Risk
Mitigation Focus
• Operational Excellence
• Move know-how from top performing
units to others
• Benchmark against best in class
• Ensure operations training for all
employees
• Use disciplines like TQM for continuous
learning to reduce costs and improve
quality
42

43. Market Disciplines and Risk
Mitigation Focus
• Customer Intimacy
• Capture knowledge about customers
• Understand customer needs
• Empower front line employees
• Ensure that everyone knows the
customer
• Make company knowledge available to
customers
43

44. Market Disciplines and Risk
Mitigation Focus
• Product Leadership
• Reduce time to market
• Commercialize new products fast
• Ensure that ideas flow
• Reuse what other parts of the company
have already learned
• Ensure there are multiple sources of
funding
44

45. Industry Risk
45

46. Financial Product Innovation from
Non-Traditional Financial Players
• M&A: bar code readers, inventory tracking, location-
based deals
• App: loyalty card, coupon, NFC, mobile payment at
restaurants and cafés
• the largest holder of personal savings in the world: $2.1
trillion of assets in yū-cho savings accounts, $1.2 trillion of
assets in kampo life insurance services, ¥140 trillion of
government bonds.
• eWallet (soon)
• eWallet – in collaboration with Citibank, MasterCard,
Sprint Nexus 4G
• Raised $32,000,000 - $10 at a time, via TEXT for the
Haiti earthquake 2010
46

47. Industry Risks
47
The A.T. Kearney Strategy Chessboard, June 2011

48. Guess Who?

50. Strategic Risk
Other Industry Risks
– Margin Squeeze
– Rising R&D / capital expenditure costs
– Overcapacity
– Commoditization
– Deregulation
– Increased power among suppliers
– Extreme business-cycle volatility
50
A. Slywotzky & J. Drzik, Harvard Business Review, April 2005

51. GROWTH RISK
51

52. Growth Risk
• Growth Risk
– Growth Model selection
– Competitor
– Customer
– Benchmarking
52

53. Growth Model Selection
1.Base Retention
5.New Business 2.Share Gain
GROWTH
4.Adjacent Market 3.Positioning
53
“Double-Digit Growth”, Michael Treacy

54. Growth Model Selection
•Increase switching cost
•Customize products
1. Base Retention •Preempt Defections
•Brand
5. New Business 2. Share Gain
•Neutralize Competitor
GROWTH advantages
•Superior Value
•Promising Market? •Buy market share
•Make or Buy?
4. Adjacent Market 3. Positioning
•Spot growth opportunities
•Organized search
54
“Double-Digit Growth”, Michael Treacy

55. Growth Model Selection:
Risks
RISK?
1.Base Retention
RISK? RISK?
5.New Business 2.Share Gain
GROWTH
RISK? RISK?
4.Adjacent Market 3.Positioning
55
“Double-Digit Growth”, Michael Treacy

56. Growth Model Selection: Risk Mitigation
• Growth Rate
Growth Strategy Why?
Rate
Fast 1. Market •Maintain market share in strategic
Positioning segments
2. Share Gain •Prepare for market decline
3. Base •Competitors focus too much on
Retention getting new customers
Flat 1. Base •Lose customers slower than
Retention competitors
2. Share Gain •Create scale economics, squeeze
(Acquisitions) costs
56

57. Growth Model Selection: Risk Mitigation
How Markets determine
Growth Model Selection: Risk Mitigation
Growth Strategies (2)
• Churn Rate
Churn Strategy Why?
Rate
Low 1. Share Gain •Buying customer base is
(Acquisitions) cheaper than own efforts
2. Adjacent •New products, old customers
Markets strategy
High 1. Base •Lose customers slower than
Retention competitors
2. Share Gain •Customers are always open to
3. Adjacent the best value and offer
Market •Desperate to gain revenue
57

58. Growth Model Selection: Risk Mitigation
•Example: XYZ Sector
Fast Growth, 1.Market Positioning
Low Churn 2.Share Gain
3.Base Retention
4.Adjacent Markets
58

59. Other Growth-related Risks
Competitor
– Emerging global rivals
– Gradual market-share gainer
– One-of-a-kind competitor
Customer
– Customer priority shift
– Increasing customer power
– Over reliance on a few customers
59
A. Slywotzky & J. Drzik, Harvard Business Review, April 2005

60. Dangers of Best Practice
and Benchmarking…
high
zero
Perfor
Company mance
Performance
Trend
line
low
low ‘Best Practice’ high
theories
60
“Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005

61. Dangers of Best Practice
and Benchmarking…
Trend
high
line
zero
Perfor
Company mance
Performance
low
low ‘Best Practice’ high
theories
61
“Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005

62. Dangers of Best Practice
and Benchmarking…
Selection Bias:
1. Success Traits = Failure Traits
2. Successful Cases + Failure Cases
3. Worst effects in ‘Old’ industries
4. Overvalue ‘best practice’ theories
5. Current accomplishments unfairly magnified by
past achievements
6. Reverse Causal
62

63. Dangers of Best Practice
and Benchmarking…
Also known as ‘Beware of Consultants’:
1. Selection Bias
2. Big vs. Small company
3. Selective success stories
4. Correlation vs. Causal
5. Survey problems
6. Practical vs. Glamour-to-have
63

64. Other Growth-related Risk
Stagnation
– Flat or declining volume
– Volume up, price down
– Weak pipeline
64
A. Slywotzky & J. Drzik, Harvard Business Review, April 2005

65. R&D RISK
65

66. R&D Risk
• R&D Risk
– R&D
– Innovation
– Research/Information
66

67. Basic R&D Risks…
1.Top Down – Process problem
2.Because I can - Competency problem
3.Poor business value – Ignorance
problem
4. No Budget - Alignment problem
5.Not-Invented-Here – Ego problem
67

68. The “Old” Days
Invent
R&D
Build
• Manufacturing Market
• Product Dev. Marketing
Sell
Sales
68

69. The “New” Days
Invent
R&D
Manufacturing Build
Marketing Market
Sales
Sell
69

70. Marketing 101
Place
Product 4Ps Pricing
Promotion
70

71. Marketing & R&D
Logistics/
Place Technology
Features Target
Product 4Ps Pricing
Promotion
Brand
71

72. Marketing & R&D
Target
Price
Features
Brand
Promotion Product
IKEA
Apple
Place Nestle
Logistics/ Asus
Technology
72

73. R&D Today → RD&D
• Garnier
• Digi
Design Point 1: Designed to SELL
Design Point 2: Before-After R&D
73

74. R&D Today → RD&D
• Research, Development & DESIGN
1. Features
2. Benefits
3. Differentiation
74

75. R&D Today → RD&D
• Research, Development & DESIGN
1. Function
2. Aesthetics
3. Logistics
Design Point 1: Designed to SELL
Design Point 2: Before-After R&D
75

76. Retail Adaptation:
McDonald’s Menu
Product Variation:
– 80% Global, 20% Local
– home-style meals (Boston Market) 
– burritos (Chipotle) 
– coffee (McCafé) 
– DVD rentals (Redbox) 
– Premium menu items (snack wraps, sweet tea
Frappes) 
76

77. Retail Adaptation: McDonald’s Design
$2.4 billion to:
•redo at least 400 domestic outposts,
•refurbish 1,600 restaurants abroad,
and
•build another 1,000

78. Business Situation vs. R&D
Upturn Flat Downturn
Fight Complacency Innovation Sales
Sharpen Edge Acquire Cash Flow
Keep Momentum Profits
Conquer Build momentum
NPD Cycle Time Focused on Improve Top 15%
‘Breakthrough’ revenue-generating
Improve Edge
products
JV, In-source, Out-
Extensions
source
Counter Competitor
↓ R&D, ↑Sales
Eliminate bottom 20%
78

79. Potential Tools for Innovation in
the Financial Services sector
• Social Networks - new financial services, increase
interaction with customer, collect new ideas from outside
• Dedicated “Innovation Department” or “R&D
Department”
• Think broadly about what their target customers are
trying to get done
• New technologies – Mobile, Social, Cloud, GeoMarketing
etc.
• Under-served Markets, New Segments on Value-Chain,
Micro Niche segments
• Academia partnership
• Corporate venture capital fund
79

80. Location-based example
80

81. Future of Financial Services Sector
• Just take an image of the front and back of the check.
• No annoying deposit slip required
• Immediate confirmation of deposit transaction.
• It’s Free
81

82. Future of Financial Services Sector
• Just slide the Money Bar to transfer funds
between accounts.
82

83. Research/Information Risk
“In business after business, 60% to
80% of lost customers reported
on a survey just prior to defecting
that they were satisfied or very
satisfied.”
HBR March/April 1996
83

84. ‘Input’ Filters and Associated Risks
Mkt Rsc
R&D
Marketing Filter
Filter Filter
Research
Filter
Development
84

85. Information Drifts (1/2)
1. Availability Drift: Looking for convenience
• You give more weight to information that’s more
readily available to you.
2. Experience Drift: Influenced by personal
prejudice
• You tend to see things in terms of your personal or
professional interest.
3. Conflict Drift: Struggling with beliefs
• Your natural tendency is to reject information that
conflicts with your beliefs.
4. Recall Drift: Trusting your memory
• You more easily recall information about things
familiar to you.
85

86. Information Drifts (2/2)
5. Selectivity Drift: Picking your priorities
• You screen out information and observations about
things that do not interest you.
6. Anchoring Drift: Weighing answers too heavily
• If you lack experience in a specific area, you hang on to
or anchor to the first information you hear.
7. Recency Drift
• You place greater emphasis on what has just
happened to you.
8. Favorability Drift
• You are more likely to look harder for information that
supports your beliefs rather than input that is obvious in
front of you.
86

87. REPUTATIONAL RISK
87

88. Reputational Risk
• Reputational Risk
– Branding
– Public Relations
– Crisis Management
88

89. Strategic Risk
Brand
– Erosion
– Collapse
89
A. Slywotzky & J. Drzik, Harvard Business Review, April 2005

90. What is the purpose of
Marketing & Branding?
Ultimate Objective of Marketing:
“Get more people, to buy more
things, more frequently, at higher
prices.”
“Retention and Loyalty are useless if
No Conversion is happening.”
Sergio Zyman
90

91. What is the purpose of
Marketing & Branding?
“Retention and Loyalty are useless if
No Conversion is happening.”
“Communication is useless if No
Conversion is happening.”
91

92. What is the Objective?
1.Comm = Relationship (something
like Dating)
2.Comm ≠ Media glitz
3.Comm ≠ ATL/BTL/BwTL/ArTL/FTL
4.Comm ≠ CSR
5.Comm = Get more people, to buy
more, more frequently, at higher
prices
92

93. Brand Erosion
“Get more people, to buy more
things, more frequently, at higher
prices.”
“Less people, buying less things,
less frequently, at lower prices.”
93

94. What does the Customer
want?
Product/Service Attributes Relationship Image
94
* Treacy & Wiersema, The Discipline of Market Leaders, 1995

95. What does the Customer
want?
Operational Excellence: Quality and selection in
key categories with unbeatable prices
Product/Service Attributes Relationship Image
Price Time √ Smart
Selection √ Shopper
Quality
95
* Treacy & Wiersema, The Discipline of Market Leaders, 1995

96. What does the Customer
want?
Product Leadership: Unique products and services
that push the standards
Product/Service Attributes Relationship Image
√ Time √ Best
Function √ Product
Brand
96
* Treacy & Wiersema, The Discipline of Market Leaders, 1995

97. What does the Customer
want?
Customer Intimacy: Personal service tailored to
produce results for customer and build long-term
relationships
Product/Service Attributes Relationship Image
√ √ Service Trusted
√ Brand
√ Relations
97
* Treacy & Wiersema, The Discipline of Market Leaders, 1995

98. Public Relations and
Reputational Risk
98

99. Why is PR important to
Business Value?
1. Funds
2. Brand
3. Intelligence
4. Business
99

100. Why is PR important to
Business Value?
1. Funds
Communication
2. Brand
to bring in the
3. Intelligence Funds
4. Business
100

101. Why is PR important to
Business Value?
1. Funds
Communication
2. Brand
to bring in the
3. Intelligence Sales
4. Business
101

102. Importance: Brand
PR is a key component of corporate
Branding due to its direct influence on:
1. Multiple parties (Investors)
• These parties are either our Branding
targets or has influence on our branding
targets
2. Brand Story
102

103. Challenges of Public
Relations
1. Stake- vs. Share-holder* 7. What to do with
2. Public Opinions Excessive Cash?
3. Indirect Stakeholders – 8. Superficial changes vs.
NGOs, Community Fundamental Changes
Activists, Online 9. Investors depend on
Networks ‘hearsay’ vs. ‘facts’
4. Increasing focus on 10. Share Price ≠ Market
ecological, social, ethical 11. R&D/M.S./HR vs.
issues Investor Expectations
5. Diverged expectations 12. Opposing ‘Expert’ views
for same issue 13. Operational Risk ->
6. Web 2.0 Reputational Risks
103

104. PR Challenges
“Good news for stockholders can be
bad news for other stakeholders.”
Gregory Miller, Assoc. Prof., Harvard Business School.
104

105. Audiences – Good News?
Bad News?
• money saved by tough bargaining
with a union
• announcing a dividend: to employees
• announcing a dividend: to
environmentalists
• setting up Diversified business
105

106. Audiences
Institutional
Fund Managers Financial (Loans) Gov VCs
Corporations JV Partners Supply Chain
Sovereign Funds M&A Government
VCs Social VCs PFI
NGOs Holding Co. Competitors
Non-Profit Org HQ (MNC) Franchisees
106

107. Audiences
Individuals
Investors Customers
Employees Distributors
Shareholders Management
107

108. How do External Parties get
their ‘INFO’? (1/2)
Gov./Politics Suppliers
Customer
s Newsletter
Spokespersons
Analysts
Annual Institutional Due
Report Diligence
Media
Internet* Economic
s
AGM
Fund
Market
NGOs Managers
Research 108

109. How do External Parties get
their ‘INFO’? (1/2)
Gov./Politics Suppliers
Customer
s Newsletter
Spokespersons
Analysts
Annual Institutional Due
Report Diligence
Media
Internet Economic
s
AGM
Fund
Market
NGOs Managers
Research 109

110. How do External Parties get
their ‘INFO’? (2/2)
Employee Newsletter
Customer
Bloggers Gov./ s Public
Politics Analysts Events
Annual Mgmt
Individuals Relatives
Report Action
s Pasar
Media
Internet* Malam
Economic
s
Ads AGM
Fund
Employees Friends Managers
110

111. How do External Parties get
their ‘INFO’? (2/2)
Employee Newsletter
Customer
Bloggers Gov./ s Public
Politics Analysts Events
Annual Mgmt
Individuals Relatives
Report Action
s Pasar
Media
Internet Malam
Economic
s
Ads AGM
Fund
Employees Friends Managers
111

112. What topics interest External
Parties?
Acquisition Crisis CSR-
target related
Strategy
Layoffs
Alignment
Cost
Topics? Politics
Cutting
New
Economics
Mgmt
Treatment
Ecology
of Profits
Consistency 112

113. What topics interest External
Parties?
Acquisition Crisis CSR-
target related
Strategy
Layoffs
Alignment
Cost
Topics? Politics
Cutting
New
Economics
Mgmt
Treatment
Ecology
of Profits
Consistency 113

114. What Events impact External
Parties?
Share-
drop New
Politics
Plans
Financial
M&A
Announcements
Shareholding Events? Competitor
changes Moves
Structure Crisis
Accidents Economic
114

115. What Events impact External
Parties?
Share-
drop New
Politics
Plans
Financial
M&A
Announcements
Shareholding Events? Competitor
changes Moves
Structure Crisis
Accidents Economic
115

116. Good News vs.
Controllability
Can Control Cannot Control
Internal
Attribution  
External
Attribution
? 
116

117. Bad News vs.
Controllability
Can Control Cannot Control
Internal
Attribution  
External
Attribution  
117

118. Stakeholders vs. Reputation
Communications
Consumer Media Sharehold Regulators Civil
s, Partners ers, Society,
Investors, NGOs
Analysts
Key Issues
Key
Questions
asked
Actions
118

119. Media-specific Reputation
Communications
Media
Key Issues •Big business as negative
•Lack in-depth reporting for balanced view
Key Questions •Limited, usually telecons with IR/CC
asked
Actions •Websites
•Press Release
•Management Press
•Sells-side Analyst calls and reports
•Industry Reports 119

120. Crisis Management
120

121. What is a Crisis
1. cannot be predicted,
2. they always bring about change—
often for the worse, and
3. affects reputation, management,
brand or market share.
121

122. Goal of Crisis Management
“to contain and/or prevent the
impact on the various audiences
that corporations must recognize”
these audiences are customers, employees,
communities, government, and of course, the
shareholder/ investment community.
122

123. Board’s Role in Crisis Management
1. Understanding types of Crisis Risk
2. Effective Crisis Plans
3. Good Communications Strategy
123

124. Type of Crisis - Corporate
Entire organization is put at risk:
• Failure of Corporate Governance
• Changing the shape of structure or
organization
• Failure of strategy
• Government regulations
124

125. Type of Crisis – Site
Part of organization is put at risk:
• Major fire
• Explosion
• Dangerous leaks and spills
• Physical damage
• Physical harm to staff
• Theft of dangerous materials
• Natural disasters 125

126. Type of Crisis – Product
• Process failure contamination
• Direct and indirect Raw material problems
• Mischief or extortion
• Counterfeiting
• Poor distribution
126

127. Type of Crisis – Employee
• Criminal acts
• Sabotage
• Drugs
• Money-laundering
• Lawsuits
• Defection
• Loss of key staff
127

128. Type of Crisis – Competitor-initiated
• Media attack
• Prevent a deal
• Dismantle barriers to entry
128

129. Crisis Planning
• Vulnerabilities Audit
• Business Recovery Planning
• Disaster Recovery Plan
• Crisis Communication Plan
129

130. Crisis Management Plan
Business Function Crisis:
Before During After
(readiness for (sound crisis (profiting and
crisis) management) learning)
Policy and
Planning
Process Owner:
[dept. accountable]
Communications
Logistics & Info
Systems
130

131. Crisis Communication Plan
• Crisis Communication Team (to determine small
or BIG for communications purposes)
• Crisis Media Plan
– Media Management
– Media Centre
– Crisis Spokesperson & Interview
– Press Release
131

132. PEOPLE RISK
132

133. People Risk
• People Risk
– Succession Planning and Business
Continuity
– Fraud
133

134. Practical succession planning
134

135. Right vs. Wrong SP Method
 Succession Planning as
per Job Positions
 Succession Planning as
per Leveling
135

136. Risk and Succession Planning
Succession Planning
=
Business Continuity Plan
136

137. What’s your SP goal?
Succession
Planning
Personal Business
Estate
Legacy
Planning
Business
Continuity
137

138. Principles and Objectives
Principles Company’s Needs
1. Succession Planning of Key Leaders –
Founding Directors (perpetual business theory)
2. Retention of Key Staff – especially younger
ones
3. Transform into a Performance-based
organization
138

139. Principles and Objectives
Principles HR Philosophy
1. Equal / Fair
2. Happy / Productive
3. Hire Low, Train High
4. Performance vs Potential
5. Retention / Engagement
139

140. The Wrong Approach
140

141. The Better Approach
P/P Grid, SP Table,
PDP, Premium,
Selection
P/P Grid, Q12,
PA, SDP, SP
Business
Evaluation Development
Strategy
OJT, Mentoring,
Big-5, LP, PDP,
Motivation SDP, Projects,
Q12, C&B, ACDP, SCL,
Transfers, Events
141

142. Targeting: Identify and Attract
• Identify POTENTIAL
2 3 4 5
PERFORMANCE
5
Group I
(Talent Pool)
4
3
2
142

143. Targeting: Identify and Attract
• Identify POTENTIAL
2 3 4 5
PERFORMANCE
Group II Group I
5
( Potential) (Talent Pool)
4
Group IV Group III
3
(Counseling) ( Performance)
2
143

144. Succession Planning Table:
Example
Succession Plan
Business-Critical Ready Now 1-2 years > 2 years
Position 1 (Year estimated)
Head of Sales 1. Ramli Bakar 1. Rebecca Ganaraj 1. Irene Soo
2. Joseph Wan 2. Abu Hassan 2. Fatimah Ibrahim
3. Selina Chan 3. Lee Tai How 3. Kan Weng Tai
Business-Critical Ready Now 1-2 years > 2 years
Position 2 (Year estimated)
Head of Operations 1. Wong Wai Chun 1. Abu Hassan 1. Khoo Tien Wee
2. Selina Chan 2. Syed Kamil 2. -
3. - 3. Jessica Lee 3. -
Business-Critical Ready Now 1-2 years > 2 years
Position 3 (Year estimated)
Head of R&D 1. Michael Wong 1. - 1. Khariul Nizam
2. - 2. - 2. Jessica Lee
3. - 3. - 3. Wong Lai Sun
144

145. Advanced Career
Development Plan: Example
9. PERSONALITY PROFILE: 10. LEADERSHIP STYLE: 11. RELOCATABLE:
12. PERFORMANCE/POTENTIAL RECORDS
Within Country Within Region Globally Year Performance Potential Performance/
Rating Rating Potential Grid
Exceptions:
13. SHORT RANGE CAREER GOALS: 14. LONG RANGE CAREER GOALS:
State goals for the next 1-2 years State Career goals for the 3-5 years
15. CAREER PLAN
Next Position Option 1 Readiness for Next Next Position Option 2 Readiness for Next
Position Option 1 Position Option 2
Next Position Option 3 Readiness for Next Next Position Option 4 Readiness for Next
Position Option 3 Position Option 4
145

146. Advanced Career
Development Plan: Example
9. PERSONALITY PROFILE: 10. LEADERSHIP STYLE: 11. RELOCATABLE:
Within Country Within Region Globally
Exceptions:
13. SHORT RANGE CAREER GOALS: 14. LONG RANGE CAREER GOALS:
State goals for the next 1-2 years State Career goals for the 3-5 years
15. CAREER PLAN
Next Position Option 1 Readiness for Next Next Position Option 2 Readiness for Next
Position Option 1 Position Option 2
146

147. Advanced Career
Development Plan: Example
12. PERFORMANCE/POTENTIAL RECORDS
Globally Year Performance Potential Performance/
Rating Rating Potential Grid
147

148. Advanced Career
Development Plan: Example
15. CAREER PLAN
Next Position Option 1 Readiness for Next Next Position Option 2 Readiness for Next
Position Option 1 Position Option 2
Next Position Option 3 Readiness for Next Next Position Option 4 Readiness for Next
Position Option 3 Position Option 4
148

149. SCL: Specialist Career Ladder
•Telco,
•Outsourcing,
Principal Consultant (1)
•Aerospace,
Consultant (4)
•Biotech,
•Digital media,
Specialist (4) •Animation,
•M&A
•Financial forensics
Associate Specialist (2)
149

150. Last Note about Succession
Planning
“He has 20 years experience:
1 year of bad experience
repeated 20 times”
150

151. Fraud
151

152. No Business, No Risks.
• Ironically, success is the cause of risk
• More success, more money, more fraud
• Easiest way to reduce fraud is to reduce
business
• Don’t laugh. This is what most Finance and HR
people do, unintentionally
152

153. Fraud Risk Mitigation?
Standard Fraud definition:
What is Fraud?
1. Someone is Lying
2. Someone is Benefiting
Both Conditions must be met in order to be
considered Fraud.
153

154. Where are the Risks?
Suppliers/Vendors Industry
Management
Retail Front
Staff
Frontline
154

155. Real Fraud, Real Risks
1. Distributor Fraud 10.Ghost Staff
2. Staff Fraud 11.Ghost Distributor
3. Management Fraud 12.Financial Reporting
4. Distributor 13.Theft
5. Credit Loss 14.Sales Staff
6. Undercutting 15.eCommerce
7. Purchasing 16.Share manipulation
8. Credit Card
155

156. Fraud Root Causes
• Policy problem
• People problem
• Unavoidable problem
156

157. Possible Psychological Root
Causes for Fraud
1. "Everyone does it."
2. "It was small potatoes."
3. "They had it coming." – the revenge syndrome
4. "I had it coming." – the equity syndrome
157

158. GENERAL STRATEGIES AND
POLICIES
• B1. Classification of Behaviors
– B1.1 Disrespectful Workplace Behavior
– B1.2 Progressive Discipline
– B1.3 Zero Tolerance
158

159. GENERAL STRATEGIES AND
POLICIES
• B2. Recruitment and Selection
• B3. Exit
• B4. Employee Assistance Program
• B5. Anonymous Hotline
• B6. Communication and Feedback
• B7. Training and Education
• B8. Formal Complaint and Grievance
159

160. GENERAL STRATEGIES AND
POLICIES
• B9 Leadership
– 1. Leaders act as role models whether
consciously or unconsciously
– 2. Leaders determine the working
environment
160

161. GENERAL STRATEGIES AND
POLICIES
• B9 Leadership
– 1. Educate
– 2. Involve
– 3. Teach
– 4. Eliminate
161

162. SPECIFIC STRATEGIES AND
POLICIES
• C1. Theft and Fraud – Root Causes
– 68.6% - no prior criminal record.
– Struggling financially or large purchases
• difficult time in their lives
• gets out of hand
– Merger and acquisition or reorganization
activity.
• ‘I don’t have a career here’ attitude.
162

163. SPECIFIC STRATEGIES AND
POLICIES
• C1. Theft and Fraud - Prevention
– Background checks
– Duties segregated
– Anonymous hotline
– Share the wealth
– Communicate successes
– Make a big noise when discovered
– Video surveillance equipment
163

164. SPECIFIC STRATEGIES AND
POLICIES
• C2. Violation of confidentiality or security
of company information - Prevention
– a. ICT Security Policies
– b. Ownership of Intellectual Property
– c. Inside Information and Trading of shares
164

165. *ICT Security and Fraud (1/3)
Biggest ICT risks
• E-mails
• Portable drives
• Social Media
• Cloud services
• Mobile devices
• Laptops
165

166. *ICT Security and Fraud (2/3)
The following are threats faced from ‘inside’ the
company:
• Current Employees,
• On-site Contractors,
• Former Employees,
• Vendors/Suppliers,
• Strategic Partners, and
• OEMs
166

167. *ICT Security and Fraud (3/3)
ICT Security, Backup, and Continuity Strategies:
1. Web browsing and 8. Physical
Internet Access 9. PCs and laptops
2. Username and 10.Remote access
passwords 11.Servers, routers, and
3. Instant Messaging switches
4. E-Mail 12.Internet / external
5. File access permissions network
6. Backups 13.Wireless
7. Crisis management, 14.PDA and cell phone
Disaster recovery and 15.Documentation and
Business Continuity change management
167

168. Mistakes and Lessons
Learned on Fraud Cases
1. Price to Pay for Fraud/Risk Mitigation =>
Business Flexibility
2. Control vs. Growth
3. Rules vs. Humanity/Motivation
4. Not tackling the root cause i.e. Motive +
Opportunity i.e. Humans
5. Focus on Finance vs. Sales/Marketing => who
has control?
6. Relationship Role vs. Enforcement Role e.g.
Sales vs. Credit Control vs. Retail Audit
168

169. HOW TO…
169

170. • How To…
– 4-Wheels Model
– Checklists
– Insurance/Takaful
170

171. Risk Mitigation Strategies
Mitigation
Resources
Structure Identified
Fraud
Risks
Culture
Leadership
Person
171

172. Alignment: Framework
Structure • Org Structure
• Job Design – C.Fraud.O.
• Policies & procedures
• Governance, Internal Controls
• Management Systems, SOPs
• Central
• Special Task Force
• Internal Audit, Surprise Audit, Regular Audit
(Surveillance)
• Levels of Authority, Power Balancing*
172

173. *Power Balancing
1. Initiate
2. Propose
3. Approve
4. Monitor
173

174. Alignment: Framework
Resources • Tools
• ICT Systems
• Rules detection
• Whistle Blower
• PED
• Profiling/Assessment Tools
• Budget for Investigation,
Litigation
174

175. Strategy: Framework
Leadership • PED
• Involuntary Role Modeling
• Personal accountability and
Commitment
• Values
• Watch out: Current people promoted
to Key Positions
• Promotional criteria
175

176. Alignment: Framework
• New Employee Background
Person
checks
• Willingness to Punish
• Root Cause Analysis (Mager &
Pipe)
• Rotation
• PED
• Fraud Detection & Analysis
Competency
• High Risk Jobs
• IT breaches through Frontline
176

177. Strategic Risk Map
Expected timing Changing
Type of in years probability
Risk Risk Rating 1 2 3 4 5 over time
177
A. Slywotzky & J. Drzik, Harvard Business Review, April 2005

178. End Notes
178

179. Which Company?
American Customer Satisfaction Index (ACSI)
• 64 out of100-point scale: lower than IRS (Tax)
• 2nd last among 30 companies surveyed
• Lowest 5% among 223 companies surveyed
• Bottom 5% of all measured private sector
companies
• 500 million customers
2010 American Customer Satisfaction Index
(ACSI) E-Business Report
179

180. Which Company?
American Customer Satisfaction Index (ACSI)
• 64 out of100-point scale: lower than IRS (Tax)
• 2nd last among 30 companies surveyed
• Lowest 5% among 223 companies surveyed
• Bottom 5% of all measured private sector
companies
• 500 million customers
2010 American Customer Satisfaction Index
(ACSI) E-Business Report
180

181. Popularly Unpopular
Popularity
≠
Affection
181

183. Thank You.
soft copy of slides:
http://totallyunrelatedrandomanddebatable.
blogspot.com/