Executive Strategy Manager - On-Demand Balanced Scorecard Software

SOHO Group

Background and Situation

Faced with stiffening competition and escalating costs, an Indonesian pharmaceutical company sharpens its strategy, undergoes a wholesale transformation, and advances from local to global player.

SOHO Group, one of Indonesia’s oldest pharmaceutical companies, was founded in 1946 as a drug manufacturer by a Chinese entrepreneur. Led today by his son, Tan Eng Liang, SOHO Group currently has 3,300 employees at 25 branches throughout Indonesia.

With 2006 revenues approaching $170 million, SOHO Group consists of two manufacturing companies, SOHO Industri Pharmasi and Ethica Industri Farmasi, and a distribution company, Parit Padang. The manufacturers produce pharmaceuticals (such as antibiotics, analgesics, vitamins, and musculoskeletal and rheumatology products) as well as herbal medicines (including antioxidants and antidiarrheal remedies) and health foods. Parit Padang distributes SOHO Group’s products as well as those of other manufacturers. Today, besides its home market, the corporation serves the emerging markets of Malaysia, Myanmar, Nigeria, Lebanon, and Mongolia.

Despite its marketplace longevity, SOHO Group has not been immune to rising competitive challenges in Indonesia’s pharmaceutical market in recent years. Beginning in 2002,the market exploded—from $1.7 billion to $2.6 billion annually—with some 280 pharmaceutical companies currently in operation. Rising per capita drug consumption has attracted many new entrants to the market, including global manufacturers, putting local manufacturers at a disadvantage. Steep tariffs on patented ingredients necessitate the import and use of raw materials, thus increasing production costs. And transportation is costly in this archipelago nation.

How We Helped

Before 2005, SOHO Group was run as a traditional sales- and bottom-line-oriented business that managed to grow each year despite its lack of a clear strategic direction. Its three companies were run separately without any systematic coordination. There were no structured growth and development plans for employees, so defined career paths and succession plans were basically nonexistent.

Recognizing that major strategic change was imperative if SOHO Group was to remain competitive, Liang spearheaded an enterprise-wide transformation. His vision: to make SOHO Group a global player in the manufacture and distribution of quality healthcare products. In early 2005, Liang and his leadership team adopted the BSC. A corporate-level strategy map and BSC was cascaded to all business and support units within the Executive Strategy Manager. Later in 2005, the strategy was communicated to the entire workforce through multiple channels—town hall meetings, printed materials (in the form of bookmarks, posters, T-shirts, and jackets), and audiovisual materials such as videos and computer screensavers.

Inculcating strategy to employees was by no means the greatest task in ful?lling SOHO’s strategic transformation. SOHO had to overcome the challenges presented by divisional and departmental silos—in particular, the various proprietary strategies and preferences that each entity had developed. Departments were at first unwilling to share data, making collaborative decision making especially difficult. “Change is a way of life” became a catchphrase during the early stages of BSC implementation. By building and using strategy maps, emphasizing the same priorities and actions, and even using the same strategic language, SOHO eventually overcame these barriers.

Results further reinforced the bene?ts of the new strategic framework. Thanks to supply chain improvements—the result of streamlined manufacturing processes that yielded greater utilization rates—SOHO Group in 2005 became the industry’s lowest-cost producer in Indonesia. In addition, the company linked the BSC to budgets and implemented personal scorecards. In 2006, it established an Of?ce of Strategy Management to coordinate strategy management and execution, all within the Executive Strategy Manager.

Results

SOHO Group uses the BSC to help align its performance with that of its business partners(such as other pharmaceutical manufacturers),using strategy maps based on a mutual exchange of information and a shared under-standing of one another’s strategy and planning. For example, in 2006, a BSC was developed to align the performance of Astra Zeneca Indonesia(AZI),one of the key manufacturers SOHO Group distributes through Parit Padang. As a result of this initiative, the company achieved optimized inventory levels through collaborative planning, zero “stock-outs” of nearly all AZI products, reduced delivery lead times, and higher customer satisfaction for Parit Padang.

According to Exequiel Lampa, until recently President Director of AZI, the strategic alignment between both companies has enabled them to “share issues in a timely and transparent manner, set action plans, and follow up on them together. We can see how we are performing towards the target that we have set. It makes the relation-ships between both companies even stronger. ”SOHO Group has also developed service-level agreements with its suppliers to enhance coordination.

Linking Strategy and Operations

To take strategy management to the next level—linking strategy to operations—SOHO Group in 2006 implemented the rolling forecast as an integral part of its financial planning and budgeting process. Driver-based planning models, which rely on operational drivers, are used to forecast financial results. These models (a different one for each of SOHO Group’s three companies) help determine the root cause of performance gaps, ultimately helping to support and shape the organization’s strategy.

Rolling forecasts, which span six quarters, show less detail than traditional forecasts. With their bigger-picture view, they enable a more dynamic allocation of resources as well as continuous planning. Budgeting is now clearer and faster, taking weeks, rather than months. The corporation has also established a budget item for strategic expenditures (StratEx), enabling SOHO Group to better manage and control expenses for its strategic initiatives—investments such as the construction of a new plant or warehouse to meet future demand and satisfy new regulations.

Since 2005, the SOHO Group has successfully transformed itself from a traditionally run family business to a global Strategy-Focused Organization. In late 2006, the leadership team forged its Vision 2015, which focuses on sustaining and growing SOHO Group’s core business as well as on innovating in new areas. To achieve this vision, a “New Horizon Strategy” has been developed that encompasses three phases of execution. Now, with the BSC as its foundation and a firmly established discipline of strategy management, SOHO Group is humming with excitement as it turns to the new challenges of Vision 2015.

SOHO uses the Executive Strategy Manager for managing over 20 strategy maps within the organization, and has over 170 people managing strategic information using the application.