Business policy Delta Airlines

TEMPLATE – PART 3

DEVELOP NECESSARY CHANGES TO BUSINESS CAPABILITIES AND A PLAN TO IMPLEMENT THEM AND ASSESS FINANCIAL VIABILITY

This template has two parts:

PART-3(A): DEVELOP NECESSARY CHANGES TO BUSINESS CAPABILITIES AND A PLAN TO IMPLEMENT THEM

PART-3(B): CONFIRM FINANCIAL VIABILITY OF THE PLAN

PART 3-A

DEVELOP NECESSARY CHANGES TO BUSINESS CAPABILITIES AND A PLAN TO IMPLEMENT THEM

Now that you have selected a strategic proposal, you need to provide an analysis of the changes to various organizational components that are necessary to develop the business capabilities that will make the strategy a success. This includes recommendations on both how and when these organizational components need to be adjusted to meet the needs of the new strategic proposal as well as reasonable forecasts of the cost and revenue implications of each of the changes. Use a 5-year time-frame for your analysis.

Readings in the book and supplements highlight a number of broad issues to consider in putting together your implementation plan. Class material offers additional specific ideas. We suggest that you carefully review this material and consider the ideas suggested.

1. DATA COLLECTION

To accomplish the task laid out for you, the following information must be generated or collected. Completing this analysis in the sequence provided will help to ensure a logical flow between the pieces.

Note: This is a long and labor-intensive exercise!!!!

Budget your time accordingly.

1.1 Initial Change Ideas

· In Part 2-B you developed a list of broad changes to the business capabilities that would be needed to support your proposed strategy changes. Build on these to describe in more detail specific changes to the current business capabilities that need to be made so that the resultant “new” capabilities (alterations to existing capabilities and/or truly new business capabilities) can be used to successfully implement the new strategy.

· Conduct appropriate analytical drill-downs to identify necessary changes in the firm’s resources, managerial preferences and organizing processes and the efforts that will be needed to ensure that they are appropriately positioned and combined to achieve each of the three required new capabilities.

· Identify the departments (functional areas) that would be most significantly affected by the recommended changes to each of the three required capabilities. If a proposed capability change cuts across multiple functions, make note of this and be sure to remember it when you are developing more specific functional plans in the next section.

· You must broadly identify the impact that the proposed functional level changes would have on both the revenues and expenses of the company. That is, what will it cost to make each of the various changes that you are proposing? Will any of the changes increase or decrease existing operating costs? What, if any, impact will each of the changes have on the company’s revenues? Be as detailed as possible and do any necessary research to make appropriate assumptions and forecasts.

Consider using a chart like the following to lay out all of the information that you are gathering and to help you determine where you will need to generate additional information.

Initial Ideas on Changes
Capability Being Addressed (pull the appropriate capabilities from your preferred strategic proposal)	Is it a New Capability or an adjustment of Existing Capabilities? Explain	Importance of this Capability in Achieving Strategic Fit (Some of the justification may be found in Part-2 B of the SBI Process)	Changes in Resources, Management Preferences and/or Organizational Processes to achieve this Capability	Functional Areas Effected	Cost of Implement-ing Change	Impact (if any) on ongoing operating costs or revenues
OperationalCapability
Identify specific			Note that information in each of these cells is preliminary. Once this table is completed, you can use it to help determine what changes are most needed and are affordable. You will then need to develop much more detailed change plans (e.g., specific plans for each functional area effected, etc.) to flush out the ideas, determine detailed costs, etc.
Operational
Capabilities here
Customer Capability
Identify specific			Note that information in each of these cells is preliminary. Once this table is completed, you can use it to help determine what changes are most needed and are affordable. You will then need to develop much more detailed change plans (e.g., specific plans for each functional area effected, etc.) to flush out the ideas, determine detailed costs, etc.
Customer
Capabilities here
Innovation Capability
Identify specific			Note that information in each of these cells is preliminary. Once this table is completed, you can use it to help determine what changes are most needed and are affordable. You will then need to develop much more detailed change plans (e.g., specific plans for each functional area effected, etc.) to flush out the ideas, determine detailed costs, etc.
Innovation
Capabilities here

1.2 Specific Changes for Each Area

Having laid out the broad outline of the needed changes above, you can now work to develop specific plans for each of the functional areas (Operations, Marketing, Procurement, etc.) for which changes are needed. Here, you want to identify what you are trying to accomplish with the changes, as well as lay out the new resources needed (e.g., equipment, people, etc.) and any specific changes in processes or organization structure and rewards. As well, you should identify the sequence of steps necessary to get the functional area from where it currently is to where you think it should be.

This is also the place where you can lay out any specific plans for an area – e.g., the development of a specific marketing idea, the purchase of a new facility, IT upgrades, new product or service offerings, etc. Note that such specific plans are really a subset of the plans for any of the functional areas and that they are being done to improve a particular operational, service, or innovation capability. Further, remember that doing so may require efforts that cut across functional lines. For example, if under service capabilities you have listed improving the ability to communicate and stay in touch with customers, then you may need to address this in functional plans for IT (e.g., new point of sale equipment and software to collect customer information, new personnel to manage web and social media, etc.) and marketing (e.g., new personnel to reach out to customers, a larger advertising budget, etc.). As well, you may have specific ideas for how to initially make use of these capability improvements (e.g., getting feedback from customers, offering discounts, new advertising ideas, etc.).

The more you can flush out your ideas, the better. But always keep in mind the logical flow – Given the strategy (especially what you are recommending in terms of the value proposition and product and market focus), then a) determine the capabilities that need to be improved and/or newly developed, b) determine what this means for the functional areas (with an eye on resources, management preferences and organizational processes), and c) develop any specific plans that you think might be needed. Or, looked at from the other side, for any specific idea that you have (e.g., purchasing equipment or a facility, a particular marketing approach, additional management personnel, etc.), be sure that you can clearly articulate how this fits into functional plans that lead to improved capabilities in the areas that are most necessary to respond to the recommended product and market focus and achieve the recommended value proposition so that customers will see value in purchasing from the company rather than from a competitor.

Finally, recognize that the more detail you can lay out in these plans, the better you will be at refining the cost forecasts laid out in the previous section – i.e., with all specifics laid out, identify what, if any, costs are associated with each part of the functional plans. As well, you can verify that your initial forecasts of the impact of the changes on the ongoing costs and/or revenue stream for the firm still make sense.

The chart that follows may be helpful in making sure that you are clear in laying out your ideas, getting at an appropriate level of detail, and linking the implementation plans back to capabilities and strategy. But do note that a) you will need to make similar charts for each of the areas where you are recommending changes, and b) the chart is a guide rather than an absolute – feel free to modify or adjust it as need to fit the specific ideas that you are developing.

Specific Change Plans for Functional Areas
Note that you will need to complete a separate plan for each functional area that requires changes
Capability Being Addressed	This can be pulled from the strategic proposal recommended in Part 2B
How do the recommended changes (details provided below) help improve the capability?	This is a logic "double check". Be sure you can show how the changes recommended below improve the capability and help address the product and market focus and add to accomplishment of the value proposition
Details of Specific Changes:
Proposed Changes in Resources
Proposed Changes to Management Preferences
Proposed Changes to Organizational Processes
Detailed Change Plans
(Lay out here the specifics of all recommended changes for this area. Modify the layout as necessary to account for the changes being recommended)
Proposed Change	Timing	Costs	On going impact on budget	On going impact on revenue

2. ORGANIZATION AND ANALYSIS OF DATA

With all the ideas regarding necessary changes now developed, you need to sort through and organize them to determine which changes you are actually going to recommend. Several things should guide your organization of the information (note that these may overlap). These include:

· Timing – Realistically, organizational changes do not happen overnight. Thus, you must examine your proposed changes with an eye towards determining the appropriate timing of events. Look through the proposed changes (both within and across capabilities) while considering such questions as: What is a realistic estimate of the time needed for each change (things ALWAYS take longer than you think!)? Which changes need to be developed as soon as possible and which can be delayed to later time periods? Which changes depend on the development of other changes before they can be implemented? What are the implications if a change takes longer than expected?

· Priority – While all of your listed changes are likely to be important (or you would not have developed them!), the reality is that some of the changes are likely to be more important than others. Thus, you should look through everything you developed (both within and across capabilities) and consider questions such as: Which capabilities are the most important to the success of your proposed strategy? Given this, which of the functional or operational changes developed above are most critical? If budgetary or other restrictions kept you from implementing all of the ideas, which ones would create the least problems if they were cut?

· Financial Implications – While some of your proposed changes may cost little, others are likely to require a significant investment. Likewise, some changes may have little impact on ongoing expenses or revenues while others may have a significant impact. Review the proposed changes while considering such questions as: What is the total cost of implementing all of your proposed changes? Is this a cost that is realistic given the firm’s financial situation? What are the most expensive proposed changes? What are the least expensive? Which have the biggest potential impact on revenues? For a given proposed change, are the expenses a “sunk” investment (i.e., all up front with no way to get them back) or can the expenses be paid for over time?

· Risk/Difficulty – Making changes is always easier in theory than practice. Thus, you must consider the risk/difficulty in implementing your proposed changes. Consider such questions as: Which proposed changes will be the most difficult to implement? Are the changes independent (each could be done on its own) or tied together (A must be done if B is to be successfully implemented)? What are the likely consequences if any given change is not successfully implemented? What resistance is likely to be encountered in trying to implement the changes?

3. CONCLUSIONS AND RECOMMENDATIONS

Having considered all of the questions above, you should now be ready to put together a detailed implementation plan to show how the organization can achieve the business capabilities needed to support your proposed strategy. While we are not going to specify a particular format for your implementation plan, recognize that at a minimum it should address:

1. Analysis of Starting Conditions

Address the urgency of change and the readiness of the organization and its managers for change. Your earlier analysis should have given an indication of how urgent the need for change is. Highlight that you have given consideration to this in your change plan and offer ideas for how management might approach the change process to address any likely resistance to change that you think they might encounter.

2. Change Agenda

What specific changes are necessary to implement your plan and develop the business capabilities necessary to support your proposed strategy? Recognize that not all of these details need to be included in the body of your written or oral report. Consider what you want to highlight and what can be put into an appendix (for the written report) or a handout (for your oral presentation). For example, you will probably want to include some form of the tables and charts completed in earlier steps of this process that provide the details of the changes in capabilities and the specific functional plans in appendices. You could then highlight pieces of each of these in the written report and/or oral presentation and refer the reader/audience to the appendices for more detail.

In this regard, think about how you can best show that you have thought about both the broad steps necessary to implement your recommendation as well as the details and financial implications of each step. Overall, your goal is to show the audience/reader that your plan can actually be accomplished and to highlight the logic that justifies how the specific changes recommended will develop the capabilities needed to support the firm’s strategy.

3. Guidelines for Action and Detailed Action Plan

In charts or diagrams (e.g., a GANTT chart), lay out the actions and timing of all the necessary changes and include these in appendices/handouts. Highlights of, and reference to, these diagrams/charts should be included in your report and/or oral presentation. You may want to refer to the “Detailed Change Plans” developed by your team to help you finalize the GANTT chart.

4. Change Measurement and Outcomes

In putting together your implementation plan, it is always a good idea to visualize what the company will look like when your plan is implemented. While the details will vary depending on the company being studied and the nature of your recommendations, consider questions like the following:

· What capabilities will the company have that it does have currently? How will you know that these have been developed appropriately?

· What will its sales mix look like? That is, what percentage of its sales will come from each of its various product or service offerings? How will this differ (if at all) from the current mix?

· Who will its customers be? Will the demographic mix of the customers be different than it is today?

· etc.

As well, you should be able to pick out and highlight specific goals/targets that will be monitored during the implementation process to help identify whether progress is being made. For example, if you are recommending a particular marketing plan, what level of sales increase do you expect and how soon is it expected? If you are recommending changes in operations to reduce costs, how much and how quickly should costs decrease? If you are suggesting offering new products or services, or opening new sales locations, what level of sales can be expected and how soon should management expect these? The idea here is to give management a way to tell if they are on the right track and getting the expected results if they were to implement your recommendations.

Note that, as with much of the previous change implementation material, you will need to consider what to include in the body of the report/presentation and what to include in appendices. As you make this determination, keep in mind that management will want to know that you have thought through your recommendations in enough detail to be able to address what the likely outcomes will be both immediately and over the longer term. Given this, think about how you can best highlight this in the report/presentation and then reference appendices to provide more detail and support for your ideas.

PART-3(B)

CONFIRM FINANCIAL VIABILITY

1: PREPARE 5-YEAR PRO FORMA FINANCIAL STATEMENTS

Prepare 5-year pro forma Financial Statements that are based on the key factual and quantitative information contained in your proposal . This will primarily focus on the pro forma income statement, but may also include a pro forma balance sheet and/or a cash flow statement if these provide significant insights regarding your proposal. Note that in earlier steps your team identified and quantified most of the information you will need regarding the costs of implementation and the impact that these changes would have on ongoing cost and revenue streams. Use that as a starting point and then add to it here.

Remember that the 5-year pro forma financial statements are merely accurate financial reflections of the strategic development conducted in earlier parts of the assignment. Hence, we expect your team to provide extensive footnotes to the Financial Statements that tie each line-item in these statements to appropriate assumptions and cost/revenue expectations of the strategic proposal. Absence of such a linkage will result in a serious grade loss.

Please keep the following in mind as you prepare the pro forma statements:

· While you are only required to include a single set of projections (i.e., your most realistic view of what is likely to happen), you MUST consider and address the likelihood that your forecasts will be correct. Said differently, you must address the RISK inherent in your plan and identify whether these risks lie primarily on the sales side (i.e., risk that the sales projections will not be achieved), on the cost side (i.e., risk that the implementation costs will be higher than expected and/or that projected cost savings will not occur), or in both area. Where the risks are perceived to be high, consider calculating alternative projections to identify where the minimum growth and/or maximum costs are that still allow your plan to be profitable.

· You must footnote sources of information to authenticate the appropriateness of the assumptions made regarding the data used in the computations of each line item in the pro forma statement.

· Remember that the quality of recommendations is largely dependent on the quality of the assumptions that you make throughout the analysis.

2: DETERMINE HOW THE COMPANY IS GOING TO PAY FOR THE PROPOSED CHANGES

Now that you have all of the information on the initial costs of the proposed changes and the impact of the changes on the ongoing financial position of the company, you must determine how the company is going to pay for the changes. Depending on the magnitude of the changes and the current financial position of the company, it is possible that current profits will be enough to cover the costs. Alternatively, it may be that the company will need to raise money in some way (e.g., loans, selling equity, etc.) to cover the costs.

Your job is to offer clear recommendations regarding how you think the company should pay for the changes and show that this is financially viable given both the current financial position of the company and your projections of the financial returns that can be expected over the next 5 years if your proposal was put into action. Note that if you are recommending external financing (e.g., a loan), you must show the implications of this in your financial projections (e.g., interest and/or principle payments).

3: CONFIRM FINANCIAL VIABILITY OF THE STRATEGIC BUSINESS INTEGRATION PROPOSED BY YOUR TEAM

How do the 5-year financial projections for the new strategy (in particular the income statement) compare with the 5-year projections with the old strategy? Given the costs of implementing your proposal, what kind of return can management expect if they commit to the recommended changes? Do you believe that these “improvements” will meet the expectations/vision of top management?

Assess the financial viability of the proposal assembled by your team. Use techniques discussed in class (e.g., NPV analysis) and/or others techniques that your team deems appropriate for this purpose. In essence, you are trying to answer, empirically, the question of why the company should invest their money in your proposal rather than investing it somewhere else.

4: DETERMINE HOW BEST TO PRESENT THIS INFORMATION IN BOTH ORAL AND WRITTEN REPORTS

While you will want to present as much information as you can regarding your financial projections and the viability of your recommendations in appendices/handouts, you clearly cannot present all of the details of it in the oral presentation or the body of your written report. So, spend some time thinking about what information you want to highlight and what can be left in the appendices and referenced as needed. Remember that you are trying to “sell” the financial viability of your plan, so think about things that management is likely to focus on – e.g., things like total costs of implementation, where this money will come from, major changes to cost and revenue streams, changes to overall profitability, the return expected on the money invested in changes, etc. Make sure that these are offered in a clear, logical manner that the reader/audience can easily follow and that you can back up your conclusions with the detail that is in the appendices.