On November 24 and December 1, 2009, Graduate Program in Information Technology invited as a guest lecturer to sharing the real world experiences in IS/IT investments

Herewith the objectives of the sharing experiences that I taken from the sylabus:

The Information Systems (IS)/Information Technology (IT) investments will always be related to costs and benefits. Costs are much easier to identify and calculate than benefits, especially intangible benefits, which include increased company image due to the use of IS/IT. The hardest and most tedious part is the effort to quantify intangible benefits into monetary values in order to make the cost-benefit analysis more accurate.
Most of business and IS/IT managers prefer not to go into detail when talking about intangible benefits because the depth of analysis is uncertain. The more practical way in using this financial approach is to focus on tangible benefits, such as cost saving, reduced staff, etc. Unfortunately, reducing or even eliminating the intangible benefits contribution to the IS/IT implementation has degraded the economic value of the investment.
Based on this issue, some thinkers have introduced a much more practical way for business and IS/IT managers to get snapshots of how IS/IT investment is going to be measured, i.e., using the nonfinancial approach. Some people believe that the two approaches must be combined to have a better and more accurate result.

Mohon restu dan dukungannya. Telah terbit dan tersedia di toko buku, buku kami yang terbaru:

The Art of BEST WIN (BEcoming Smarter, Tougher, and Wiser, INvestors), Kiat Aman dan Nyaman menciptakan kemakmuran yang membawa berkat

oleh Prof. Roy Sembel dan DR. Totok Sugiharto

Penerbit Elex Media Komputindo, Jakarta.

Isi Buku:
Sesuai dengan kata kunci dalam judulnya (BEST WIN, yaitu BEcoming Smarter, Tougher, and Wiser INvestor), buku ini memaparkan kiat dan strategi untuk menjadi investor yang lebih cerdas, lebih tangguh, dan lebih bijak, di tengah lingkungan investasi yang penuh tantangan. Tiga bagian utama buku ini (BEST WIN Investment, BEST WIN Instruments, dan BEST WIN Scorecard) menguraikan secara rinci, terstruktur, dan dengan bahasa populer disertai ilustrasi segar, cara mencapai BEST WIN. Investor versi BEST WIN bukanlah investor yang berhasil dengan menghalalkan segala cara, melainkan investor yang bijaksana dan mampu merencanakan masa depannya serta memilih kendaraan investasi dengan risiko yang paling sesuai dengan kepribadian yang dimilikinya. Dengan demikian, investor itu bisa meraih keberhasilan dan menikmati berkat-Nya serta membawa nilai tambah bagi banyak orang. Itu baru keberhasilan yang BEST WIN. Selamat membaca, meraih dan menikmati BEST WIN!

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Kata Pengantar dari Direktur Utama Bursa Efek Indonesia

Dengan penuh suka cita dan semangat saya menyambut buku ini, Becoming Smarter, Tougher and Wiser Investors (BEST WIN), yang ditulis oleh Prof. Dr. Roy Sembel bersama dengan Dr. Totok Sugiharto, sebagai bagian dari seri buku WISDOM. Setelah saya membaca buku ini, saya menghargai ide-ide dan gagasan-gagasan segar yang mudah dipahami serta dapat dilaksanakan di dalam kehidupan kita sehari-hari, sebagaimana diungkapkan dalam buku ini. Buku ini merupakan kumpulan dari banyak gagasan yang sangat bermanfaat dan ditulis oleh penulis yang banyak membaca, banyak belajar dan juga sarat akan pengalaman di lapangan serta telah mempraktikkan secara terintegrasi konsep-konsep yang dikemukakannya dalam buku ini. Isi buku disajikan secara terstruktur dan komprehensif. Konsep dan aplikasinya dipaparkan dengan menggunakan gaya bahasa dan penulisan yang mudah dipahami serta diikuti oleh contoh-contoh yang menarik. Kalau saja buku ini saya baca saat saya memulai karier dan investasi, kemungkinan besar saya akan lebih bijak dalam berbagai keputusan dan langkah yang saya ambil baik dalam kehidupan pribadi maupun dalam pengelolaan organisasi perusahaan.
Kita semua tentunya ingin mencapai sukses, termasuk juga sukses dalam kehidupan, dengan mencapai kemakmuran dan kesejahteraaan secara lahiriah maupun batiniah. Apa yang dikemukakan oleh penulis dalam buku ini merupakan suatu acuan yang dapat digunakan di dalam perjalanan untuk mencapai sukses khususnya di bidang investasi.
Saya mengantarkan buku ini kepada para pembaca yang budiman, dengan harapan buku ini dapat Anda nikmati dan manfaatkan sebagai acuan untuk mencapai sukses berinvestasi, dalam situasi yang penuh peluang dan tantangan. Selamat membaca dan selamat menjadi pembelajar yang sukses dan investor yang lebih cerdas, tangguh dan bijak!

Jakarta, 30 Juli 2009

Ito Warsito
Direktur Utama PT Bursa Efek Indonesia

groups.yahoo.com/group/pasarbuku/message/66093

www.fisip.ui.ac.id/index.php?option=com_content&task=view…

Totok Sugiharto , Contributor , Jakarta | Wed, 10/28/2009 1:30 PM | Supplement

What is process improvement? A glossary of management defines process improvement as a management technique for improving business results. It applies a systematic method to business activities.

The process depends on carefully defining terms (such as inputs, work activities, outputs, etc.) and particular measurements to identify cause and effect of its inter-relationships. Understanding them will lead to better decision-making in what to change to get better results.

One of the processes of improvement as noted in the world of corporate strategies is the legendary Six Sigma initiative at General Electric (GE) Company. Supporters of Six Sigma point to the impressive results and how it continues to improve efficiency to lower process costs. Nowadays, Six Sigma strongly focuses on discrete process improvement, the essential requirement for sustaining competitiveness in today’s marketplace.

What is Six Sigma?

The word sigma is a mathematical term for measuring variation. One Sigma represents a high degree of variability (seven defects out of 10 opportunities) and Six Sigma represents a very low degree of variability (3.4 mistakes out of a million). Six Sigma is the name of a rigorous form of process improvement that grew out of the total quality management movement of the late 1980s. It is credited with hundreds of millions of dollars in bottom-line savings in many large corporations, such as GE.

Presently, Six Sigma continues to play a strategic role in operational improvement, at a time when many companies face the need for a more encompassing approach to cost reduction.

Cost reduction to process effectiveness

In the business environment, even as economic and business conditions improve, they rigorously focus on cost structure, like working capital and cash flow, which are essential. Companies need an approach that is tangible and practical, enough to catch cost reduction opportunities and give solutions such as Six Sigma. Such an approach focuses on strategic cost drivers that are typically addressed through specific-process disciplines. These drivers determine how far an organization can go in reducing costs without creating negative impacts on the organization’s culture and strategy.

Even enterprise cost reduction begins by the changing of business configuration and is applied in the process and organizational structure. These challenges are not meant to suggest that there is a single solution or a most efficient organization structure. They are meant to provide alternatives to instilled business practices that have evolved over time.

As an example, a group of milk producers recently established a wholly owned procurement division that specializes in purchasing raw materials. By combining the purchasing power of the entire group, lower prices can be negotiated based on higher volume guarantees.

Complexity in business process

Enterprises face numerous issues in their quest to improve process efficiency. In most companies, business processes have evolved from time to time based on technology and human capital constraints. While Six Sigma is designed to improve the existing business processes, it is often narrowly focused and does not contemplate improvement throughout an entire enterprise. Improvements are usually confined to one or two process areas owned by a particular process owner, often not addressing the complexity of the end-to-end process.

For example, recently a leading retailer experienced a decline in sales and sought to reduce costs to maintain current profitability. It launched a series of Six Sigma improvement initiatives. In store operations, the company lowered its overall labor costs by reducing the number of hours worked in each store. The store manager determined which activities could be eliminated to accommodate the reduction in labor costs. At the same time, marketing decided to increase the number of in-store promotions in an effort to increase the sales volume.

The two activities were in conflict, despite being independently developed efforts to improve the profitability of the organization. By identifying the impact of cost management strategies in each process within the organization, and working side-by-side collaboratively with respective management teams in those areas, enterprise cost reduction would achieve the lowest overall process cost to the organization.

Focus on significant costs

From the purchase of raw materials to the expense of a business trip, the dollars that go out of an organizations never return. Improvements in product sourcing and tightening expense controls could be combined to produce significant cost reductions. Many companies spend considerable time focusing on improvements in procurement. The most common activity is negotiating with vendors for greater unit price savings by competitively bidding for goods and services.

The process improvement methodologies will not capture this type of savings because they focus on ways to make activities more efficient, such as for purchase order execution, product supply completion, item receiving and invoice payment. Rarely do they challenge the “what”, but rather focus on the “how” in the process. In contrast, a more comprehensive solution such as enterprise cost reduction typically focuses on yielding greater return.

Value creation method

The steps of Six Sigma are deceptively simple: define, measure, analyze, improve and control. Define the defect or the problem you are trying to solve. Define the suppliers, inputs, process, outputs and customers, and define the process itself as best as you can.

Measure starts with data collection and then setting up the measurements of each process.

Analyze means try to figure out what the data is telling you, and it then becomes your hypothesis. It is essentially the expression of a theory of cause-effect for your organization process.

Improve means you construct an experiment to prove the hypothesis. If your experiment is on target, you will have reduced the instances of defects. End with control. It does no good to learn how a process can be improved if the improvement is not institutionalized in some way so that the problems do not recur.

In the struggle of the global economy, it is very important for an organization to develop and to implement the transformational cost reduction approach that flushes out structural costs throughout an enterprise and provides sustainable improvement through proven methods such as Six Sigma.

Just viewing cost reduction as an incremental of tactical activity is not enough. A strategic approach is needed to truly transform an enterprise. The Six Sigma model along with all processes in the supply chain may still be a part of the solution. Such efforts can make important contributions, particularly in helping an organization adapt to and monitor the effects of changes necessary to achieve cost savings identified by the approach.

Ultimately, an encompassing view of an enterprise’s cost reduction can serve as a path to fundamental, sustainable improvements that companies need today.

Totok Sugiharto , Contributor , Jakarta | Wed, 09/16/2009 2:20 PM | Supplement

The traditional accounting model of valuation argues that particular equity share prices are set when the stock exchange capitalizes a company’s earnings per share (EPS) at an appropriate price/earning (P/E) ratio.

The difficulty is that the P/E ratio of a company changes all the time and this makes the EPS and P/E methods very unreliable as measurement tools for value.

As a consequence, both of the traditional models of performance measurements are inadequate in the sense that neither of them addresses the main concern of shareholders: i.e. is the management adding or subtracting value from their invested capital?

Modern finance literature offers better measurement tools for value, namely economic and market value methods.

These methods acknowledge that it is crucial to generate and measure the profit from operations. It is of equal importance to express that profit in relation to the amount of the capital used to generate it. These approaches then do have special ways to calculate the economic profit of firms.

Economic and market value model

Economists since Adam Smith have concluded that the goal of firms and their managers should be to maximize the firm’s value to its owners.

In light of that concern, it can be recommended that in order for management to achieve an increase in shareholder wealth, it is necessary to concentrate on increasing a company’s economic value added (EVA).

Today, EVA is widely accepted as the main objective of firms, that is, to maximize shareholder value. The financial concept underlying EVA is becoming popular and appreciated by most practitioners in modern finance.

Management’s attempts and decision-making to increase shareholder value is measured by the market value of a company. The roles of management are to continuously influence, directly or indirectly, those variables that affect the shareholders’ wealth.

Even though there are many advantages of the EVA management system, one of its best attributes is that the remuneration of the company’s management can be tied to the EVA of that company. By doing this, a win-win situation between management and the shareholders is created and, in the case of an agency problem, can be eliminated or reduced.

EVA is an internal performance and it reflects the successes of the efforts of corporate managers to add value to the shareholders’ investment.

A positive EVA implies that the rate of return on employed capital exceeds the required rate of return. To the extent that a company’s EVA is greater than zero; the firm is creating economic value for its shareholders.

The key principle of EVA is that value is created when the return on an investment exceeds the total cost of capital that correctly reflects its investment risk.

One can improve EVA as long as one accepts new projects on which the rate of return exceeds the cost thereof.

In 1990, the Nobel prize winner for economics from John Hopkins University, Merton Miller, refocused this goal as the goal of maximizing Net Present Value (NPV). While the NPV is primarily a long-term capital budgeting tool, the EVA method attempts to break this concept down into annual (or even monthly) installments that can be used to evaluate the performance of corporate managers and their businesses.

Finally, Stern and Steward made the EVA method popular in determining value creation. They encountered the problems and disadvantages of accounting-based methods.

In the almost 30 years they have been working together, this method has been well accepted as a powerful tool in determining the value creation and maximizing shareholders’ wealth.

Use of EVA in creating market value added

The question is how EVA as an internal performance measure of a company correlates the best with its external performance measures of the corporation?

Eva is strongly related to the changes in the external performance measure, which is called market value added (MVA). MVA is the difference between a company’s fair market value as reflected primarily in its equity share prices, and the economic book value of capital employed. Therefore, the MVA can be regarded as the external or “market” measure of the performance of a company’s success.

Much literature argues that EVA is the best indicator of market value that has been created or destroyed by management.

The emphasis is not only on drawing a distinction between accounting-based and EVA models of determining shareholder value, but also on the fact that EVA in particular has distinct advantages in determining value created (or destroyed) by the management of a company.

It is logical then to deploy EVA in terms of its variables or components in order to determine and quantify the value drivers within a company.

In theory, the link between a company’s EVA and MVA can be expressed mathematically. Many researchers in financial management insist there is a relationship between them. This can be seen in they way that MVA is equal to the sum of discounted future EVA. The MVA at any point in time is equal to the discounted present value of all EVA the company is expected to generate in the future.

The close relationship between them originated from the fact that these measures are based on the same underlying principles and concepts.

MVA, which is forward-looking, is closely associated with the historical data of EVA. While EVA is used for the internal measure of shareholder value creation, MVA is the external method of determining shareholders’ wealth.

Wise advice for the value-based company is to adopt the EVA-MVA model in determining value creation and discard the traditional accounting-based approach.

The writer is a lecturer at Pelita Harapan Graduate School. Website: www.totoksugiharto.com.

Wed, 08/26/2009 1:52 PM | Management
To date, practitioners in value chain management believe that the Sales & Operations Planning (S&OP) concept is one of the best solutions to achieve operational excellence.
As I explained in my article “Weaving marketing into the fabric of a firm” published on this newspaper’s management page on April 15, 2009, the S&OP process is very simple, that is, it is based on the demand driven process with the objective to meet customers’ needs.
Customer expectation varies from one person to another, such as when it comes to market, product, channel and/or locations. Through this process, by identifying the demand and supply risks and issues early, the roles of the sales and marketing team as well as the demand and supply planner for customers can be more focused.
The S&OP process comprises regular meetings held on a regular basis. Today, many companies hold them monthly. During the process, they conduct three types of meetings.
First is to focus on establishing an unconstrained demand plan and forecast.
Second is to establish a draft of supply plan and a constrained demand plan.
The third meeting is for fine-tuning and aligning the demand and supply plans.
Since meetings are held regularly, usually the process is followed by a fixed agenda in a specified period of time.
The meetings include a review of how well previous plans were met, find the root of past achievements and make an analysis of any plan variances.
The meetings ultimately should lead to a discussion of results in the alignment of “demand-side plans” of marketing and sales with “supply-side plans” of production, supply chain and logistics.
Key Success in Demand Plan: Since meetings need to be conducted regularly and on schedule for a certain duration, they need to be organized by a responsible team. This team takes on a charter to run an extremely disciplined process that starts from scheduling and mediating meetings, setting the agendas and ensuring that the pre- and post-meetings work is done in a timely manner.
A baseline of demand and supply plans need to be carried into the S&OP meetings.
Initially, the baseline demand forecast is unconstrained and then incorporates all known factors that could impact future demand.
These factors include new product introductions, promotion activities and details on marketing and sales actions. At this point, the key element that should be the center of attention by the “demand-side managers” is forecast accuracy!
As the name implies, the S&OP process needs to be cross-functional that involves demand-side managers from sales, consumer and trade marketing, supply-side managers from procurement, production, supply chain and logistics. In line with the focus on alignment, finance staff members are also involved to help consolidate the operational plans established with the financial objectives.
Integration as Key Factor: To ensure that the outcome of meetings is accountable and is accepted by all stakeholders of the organization, a collaborative process designed to lead to consensus-based plans is required.
This means that all stakeholders need to be able to quickly create, review and revise plans.
To ensure balance within joint supply and demand planning, the S&OP process entails developing supply plans that meet the demand forecast based on relatively inflexible marketing and sales plans.
When this is the case, the meetings are driven by supply-side managers largely trying to adjust rough-cut supply plans to meet a pre-specified demand plan. At this stage, there are at least two associated problems.
The first is that there is almost no role for marketing and sales to play at S&OP meetings. They tend to not actively participate.
The second, and the most important problem, is that it tends to hide potential revenue opportunities that could be generated by taking advantage of opportunistic and/or excess supply capacities.
During meetings, don’t forget to measure the performance of the process so that it can be improved upon through learning over time.
In fact, most current S&OP processes tend to measure demand forecast accuracy, which is pro-bably the most important metric to track.
However, to help improve the process, other metrics should also be tracked over time, such as variance in baseline forecasts and budgets, as well as effectiveness of marketing effort, service level, on self availability, product assortment and other operations plans.
Today, many S&OP processes are run and supported by myriad spreadsheets that are not congruous. Companies tend to solve this by implementing a demand forecasting or planning software package.
While this helps to fully support the process, supply-side software applications need to be integrated with these types of demand-side packages.
In the end, the integration of those applications will prove capable as an executive dashboard that is used to bring together the views of supply and demand to the company objectives.
The S&OP processes in place today mainly use internal supply-demand data, such as customer orders, service level, on-hand inventories and plant capacities as input.
More recently, with co-managed supply chain strategy, the information can be broadened to cover Vendor Managed Inventories (VMI), Collaborative Planning, Forecasting and Replenishment (CPFR) and the sharing of retailers’ Point of Sale (POS) information.
Such information gives companies greater access to external information, such as future supply and demand.
In fact, some leading companies are starting to incorporate it all as additional information to support the process.
There are dozens of aspects to being successful in achieving operational excellence. The aforementioned checklist is one aspect that can be used to gauge how well the S&OP process in your organization is doing in improving and sustaining operational performance.
The writer is a lecturer at Pelita Harapan Graduate School. Website: www.totoksugiharto.com.

Totok Sugiharto , Jakarta | Wed, 08/12/2009 1:17 PM | Supplement

Bowersox (2009) defines the supply chain as “a strategy that integrates all aspects of satisfying customer requirements”. It means that virtually no element of the supply chain is totally independent.

Therefore when we change one element, it has a profound effect on the others. For example, a decrease in production batch size will have an impact on the inventory and plant utilization.

Supply Chain Management (SCM) is required to understand the activity and cost drivers within the business processes, the numerous trades-offs and how to drive improvement.

There are many interactions in the processes which must be understood before the supply chain can be managed effectively.

Some examples are: the promotions and marketing behind customer demand in the form of forecasts, prediction of lead time and accuracy of forecast in terms of how much stock is required at each location, etc.

This series of processes is also interconnected with physical storage, distribution requirements, financial needs (funding for the supply chain) and the possibility of new product launch plans.

Effectively managing a supply chain is like managing an orches-tra. It depends on leadership (the conductor), a set of known po-licies and procedures (the music score) and capable people (the musicians).

In some cases a set of integrated measurements have been brought together to facilitate them. The management team is working together to bring sustainable benefits to the organization.

Planning and collaboration of information are the key elements in achieving excellence in supply chain performance. The role of planning is essential in orchestrating the supply chain.

Like any orchestra, the quality of the performance depends on the skills and competence of the orchestra members.

Think of a piece of music, say the 9th Symphony - Scherzo by Ludwig Van Beethoven. Played well it is a thing of beauty, an inspiration; played badly it is simply awful.

When thinking of an orchestra, what comes to mind is synchronisation and team-work as well as individual brilliance and an integration of all the elements of the composition.

The essence of such an orchestra starts with planning and has two main roles.

First, is to convert the business objectives into doable plans.

Second, is to convert the customer requirements into doable plans at each level in the supply chain and then monitoring or controlling or tuning of those plans.

Before proceeding, it is worth considering the role of planning and operations. The relationship is described as follows: The role of planning is to plan the work, while the role of operations is to work the plan. Supply chain planning covers a wide spectrum and must be applicable to all levels within the organisation.

Furthermore, decisions need to be made in different timeframes and the level of data aggregation varies according to the decision being made.

It is for these reasons that we have a range of processes within every planning hierarchy. It is sufficient to understand and handle that through Sales and Operation Planning (S&OP).

Ideally, the result of S&OP should be aggregated in a way that is meaningful to demand and supply in the 24-month horizon.

The first two months’ processes are in “control”. The main purpose is to make resources available; these might be production capacity, transport, warehouse, people and inventory.

The S&OP is fed by detailed plans that start with customers, or more precisely expectations of customer demand, i.e. forecasts.

This demand is then balanced by the availability of stock and the inventory by location. They then pass through the network of warehouses and transport lanes until it reaches either a production facility or a purchase request placed with an external vendor.

Only doable plans should be released to production or sent to vendors. Therefore the capacity and material planning are key elements of the overall planning process.

The deployment and setting of the inventory are also the responsibility of the planning organisation.

Execution against these plans should be measured at each step in the process.

Senior management focus should be at the S&OP and major aggregates for demand relations. Their role is to set and implement strategies, determine what resources need to be made available and approve an investment (which might be in a plant, people, inventory, etc.).

They should not be less concerned about what is happening in the zero-to-two month planning horizon. Within this horizon, commitments have been made and are likely to be difficult to change.

Details of demand, supply and inventory planning occur over the full horizon but the focus is more short-term, in the majority of cases from one to 12 weeks.

In some exceptions, export and import requirements may need to be actioned outside 12 weeks and some components have a long lead-time.

In the near term it is focused on what we are going to make/buy and how this will be scheduled. This also includes shipment to customers.

As customer lead-times are short, finished products that are being shipped today were probably made two to three months ago depending on lead-times, inventory aims and production schedules.

In that series the ultimate weapon of SCM is a necessity, which is integration.

Like any chain, the supply chain is based on a set of interdependent links. Virtually everything in the supply chain has interactions with other elements.

Therefore, SCM involves the identification and quantification of trade-offs, and success can only be achieved by integration! This is the beauty of the supply chain orchestra.

The writer is a lecturer at Pelita Harapan Graduate School. Website: www.totoksugiharto.com

Totok Sugiharto , Contributor , Jakarta | Wed, 07/29/2009 1:07 PM | Management

Achieving economics of scale is necessary to capture the lion’s share of the market. Usually it is expected by focusing on product and promotion.

To gain a stronghold in the market, cost effectiveness rather than uncontrolled spending is crucial at every stage of the value chain process. This can be done by integration, not by separate business functions.

Today, one of the key factors in initiating integration is the demand for value-based approaches. Practitioners in this area seek an approach that is essential to generating greater cash flow and creating value for the firm.

The demand for accountability in the form of balanced scorecards, activity based costing, economic added value and the like is greater now than ever before. All the concepts of accountability and its measurements of financial returns on business activities are fundamental to strategy and are very important.

In view of demand for the value-based approach, one tremendous management model of integration is marketing communication (Marcom). Marcom is a strategic business process used to plan, develop, execute and evaluate measurable, persuasive brand communication programs over time in connection with customers and prospects.

The goal is both to generate short-term financial returns and build long-term brand value. This approach is unique as it integrates all components of an organization around a single factor: to fulfill customers’ wants and needs.

Nowadays, Marcom is very important for several reasons. First, the concept has been promoted from a marketing tactic to business strategy.

Second, it involves the whole organization and spans the entire spectrum of brand, customer, product, channel and service contacts of the firm with stakeholders at all levels.

Third, it requires ongoing measurement, evaluation and accountability for return on investment (ROI), and last, the concept offers a process that boosts performance in the long term and builds relations with customers over time.

Shift in 4Ps

When manufacturers lost control of the distribution channel (Place), the other 3Ps also began to slip from their grasp. The implication was a shift in power from manufacturers to retailers, which meant a shift away from the 4Ps concept.

This implied a shift of funds from media advertising to other forms of Marcom (Promotion). In reality, there are movements away from advertising focusing on mass media to the rapid growth of database marketing.

The objectives of Marcom are completely aligned to a corporation’s goals. One of them is focus on generating cash flow that is greater than the cost of the forms of Marcom used to achieve them.

The aim is to build shareholder value by increasing the brand equity value of a firm. Strength in brand equity is recognized by the financial market and commonly increases equity shares prices. It will provide value for a firm, both in the short and long term.

The expected results of Marcom is the acquiring of new customers, the retaining of existing customers, growth in sales volume, profit from existing customers and to manage them through the firm’s products or services.

The critical factor of these outcomes is: can Marcom have an effect on the behavior of customers and on prospects?

The key ingredient in Marcom is essential to influencing behavior, because behavior can result in income flowing in from customers to the firm. When Marcom is designed to influence customers’ behavior, their behavior can be measured and valued in financial terms.

Once a firm starts to consider customers as an income base, then the next logical step would be to treat customers as assets. That means that investing in customers and/or prospects then following through by expecting return on the investment. Investing in customers through various types of Marcom programs should generate measurable responses in the form of sustaining or increasing a firm’s income.

Viewing customers as a current or prospective income base is the key element in understanding the demand for the value-based approach. In the traditional view, if a firm can get the Product, Price, Place (distribution) and Promotion right, customers will buy and continue to buy over time.

In reality, however, the challenge is in the current dynamic environment. In the new marketplace, driven by the Internet, mobile and wireless telecommunication and other technological advances, customers have the upper hand.

They are able to identify, evaluate and purchase products and service from all over the world using their own time frames and through processes they set up.

Since Marcom puts the customer at the heart of the process, it changes the entire concept of value. No longer is value added sequentially as in the traditional marketing model. While the traditional model focuses on the 4Ps, Marcom concentrates on Relevance, Receptivity, Response, Recognition and Relationship (5Rs).

Using the 5Rs changes the way in which managers think about and develop a company’s Marcom program, and this involves integration. In Marcom integration, value of brand to the customer is taken into account and determined as a primary factor.

This approach offers a new way of thinking, starting with the design of a Marcom program of products and services to meet customers’ wants and needs, and ending with generating greater cash flow and creating value for the firm, through the measurement of return on investment.

The writer is a lecturer at Pelita Harapan Graduate School.

Totok Sugiharto   |  Wed, 07/15/2009 1:44 PM  |  Supplement

Value-based management (VBM) inspires everyone in an organization to make decisions based on an understanding of how their decisions will contribute to the organization’s value. VBM focuses on creating value and increasing shareholder wealth.

VBM has three objectives. First, as an integrated approach to align the vision, strategy, management processes and people in an organization that is aimed at continually increasing share value; second, as a framework to link goals, strategies, resource allocation, performance assessment, and compensation to value; and third, to understand investors perspectives when assessing a corporation’s performance and linking it to the stock price.

In the past, earnings per share were a common key indicator of financial performance and a determinant of an enterprise’s value. At present, economic, cash-based metrics are widely accepted indicators to help businesses more efficiently focus on meeting their financial expectations. One of the VBM methods used in financial measures is the Economic Value Added (EVA) method. EVA identifies areas of an enterprise (resources, processes and assets) that create and/or destroy value. Successful management of EVA works as a driver to increase an organization’s wealth.

To focus on the achievement of operational excellence and to create organizational value, the management needs a tool to translate its vision into strategy. The Balanced Scorecard (BSC) is one of the powerful strategic tools to address such challenges. Kaplan and Norton made BSC popular and, since its introduction in 1992 in the Harvard Business Review, the system has been accepted as a powerful strategic control mechanism to help management define and implement its corporate strategy.

In the BSC framework, there are four perspectives, namely financial, customer, internal business process and learning and growth. The perspectives are used to describe the strategy, so the system is called “balanced”. “Balanced” means that the system comprises performance measures across the four perspectives and provides the essential feedback required to assess performance. Then, the necessary corrective actions can be adjusted and refined in accordance with the organization’s strategy over time.

How the integration works in BSC

The BSC model in a value-based organization normally starts from the board, corporate, executive and goes to the operational level. As a main driver, BSC at the board level is built to describe and manage the strategic responsibilities of the board, and commonly it starts with a strategy map (see figure). Strategic themes include performance oversight, compliance and communication, and executive enhancement. These themes provide the architecture for defining specific objectives of the board.

The second part is the corporate scorecard, which is usually used as a “dashboard” of the CEO. However, it also has a central role in fulfilling the board’s oversight responsibilities. As a CEO tool, the corporate BSC is used to define, communicate and manage strategy. A strategy map is used to describe how the enterprise will ultimately create value. Each objective on the strategy map has a corresponding measurement and target.

The third part is the executive scorecard, which equips the board to select and motivate executives. This tool helps the board separate and evaluate the performance expectations of an individual executive from the performance expectations of the enterprise. The CEO can use this to align the executive team, hold it accountable and reward it based on strategic performance. In a skill-based competency organization, the compensation committee can use this tool to assess individual executive performance and facilitate compensation decisions.

Lastly, at the operational level, the management can use it as a tool to align the implementation of a strategy to achieve operational excellence. Integration at the operational level is very essential and critical in aligning the processes within an organization. As an integral part of the pursuit of operational excellence, many organizatons appoint “Process Integrators” in the internal business process who perform an important role in horizontal integration, which aims at achieving operational excellence.

How does process integration deliver and create the shareholder wealth in a VBM organization? This is the next logical step in integrating each perspective in an organization by using the strength in internal business processes to deliver customer value. Logically, when the customers are satisfied, they will deliver profitability to the firm. Customer satisfaction helps create other business opportunities; acquisition of new customers and customer retention. Both achievements drive market share growth. Major growth in the market share gives value to the organization. At this point the strategic role is to integrate each business perspective through vertical integration, which is aimed at delivering added value to the stakeholders of an organization.

At the stage of vertical integration, the focus of people who are responsible for integrating each perspective are: to link strategic planning to operational execution (i.e. via Sales and Operation Planning/S&OP), to increase efficiency, to drive the right product or services to the market and to deliver customer profitability (i.e. through Activity Based Costing) in order to increase shareholder value. Management is able to view the resource allocated to an activity-based perspective that helps drive true product cost and profitability as an integral part of the EVA model in BSC.

By using enabling technology that is implemented in state-of-the-art management practices, the management can focus the energy of the enterprise on activities, both internal and external, that truly create value for their stakeholders. Finally, the cross integration model in BSC provides corporate leaders with insight, alignment and confidence to effectively manage and develop the value of an organization.

The writer is a lecturer at Pelita Harapan Graduate School.

Topic: Enhancing Financial Reporting Capability Through “Activity Based Cost Management”
Presented on August 21st, 2009

Summary on ‘A Survey of Investors’ Current Perceptions and Valuation Approaches at Jakarta Stock Exchange’

The publication in the ‘International Research Journal of Finance and Economics’ magazine provides the results of a survey of the investment practices and perceptions of major portfolio investors currently active in the Jakarta Stock Exchange (JSX) in Indonesia. The paper also proffers some initial interpretation and analysis of their perceptions of the most important metrics used in valuation and their observation on social, political, economic, regulatory, technological, environmental, and legal (SPERTEL) factors that influence the fundamental factors and values of the equity shares of firms quoted at JSX. The findings of the survey help to shed light on the adequacy or otherwise of the information that JSX provides investors to improve the quality of their hold, sell or buy decisions on their portfolios.

Abstract of ‘Financial Accounting and Reporting in the 21st Century: The Misuse and Abuse of the Pacioli Model’

The reliability of accounting information and the relevance of it to users/stakeholders is of paramount concern in this paper. Our general conclusion is that the Pacioli Model which is the basis for financial accounting and the related financial statements simply cannot provide the type of information that most stakeholders want and need. The inherent structural limitations of the model have been exceeded as a result of the misuse and abuse of the model by GAAP regulators, who have attempted to increase and enhance the information value, i.e. and the relevance of the financial statements.
The practical problem is that relevance is user, time, and situation specific, whereas accounting information is inherently generic. The essential question that emerges at this juncture is: What is the purpose of financial accounting and reporting? In our opinion, the purpose is simply to identify, measure, and record the economic activity of an entity and subsequently provide a stewardship report to the stakeholders: primarily absentee owners. We argue and demonstrate in the paper that it is not the purpose of financial reporting to provide a comprehensive story about the entity as an economic enterprise.
Financial accounting and reporting cannot singularly provide all the information needed to make “an informed assessment of a company” because by necessity it is limited. The information provided is intended to facilitate accountability which, when fully comprehended and combined with other socio-economic-political data, may make a positive, useful contribution to interpretative accounting, i.e., analysis and assessment.
The following discussion explores possible causes for the inability of the Pacioli Model and the classic properties asserted for financial accounting information, that is it is reliable and relevant, to be as useful as expected. We believe that reliability is a function of the financial accounting process, but that relevance is situation specific and, therefore, is a function of the user. We also explore the possibility that accountants and others expect more from financial accounting than it can deliver, i.e., more than a stewardship report. We believe that a different model is needed to meet the demand for information to make a formal assessment of a company. Perhaps a biologist or physicist will provide the conceptual framework. In our opinion, it will not be an accountant.