CESSE Mid-Winter Meeting

1. CESSE Mid-Winter Meeting Responding To Economic Changes: Don’t Let a Good Crisis Pass You By David L. Schutt, PhD

2. SAE International • Professional society [501(c)(3)] serving the aerospace, automotive and commercial vehicle industries • Strong industry engagement • 128,000 members in over 100 countries • Core competencies • technical standards/publications • life-long-learning • $60 Million/annum; 200 Staff • Two Affiliates • Performance Review Institute: $28 Million/annum; 85 staff • Industry Technology Consortia: $3 Million/annum; virtual staff CESSE Mid-Winter Meeting

3. Situation: 3Q-2008 On the Upside • 100 year history of success • Recovered from 9/11 • Profitable operations and investments returns (2003-2007) • Strong Q1-3 performance • Net assets approximately $43 million (>70% of ops) • Significant industry engagement and support (pride) CESSE Mid-Winter Meeting

4. Situation: 3Q-2008 Warning Flags Complacent Insular Believed own propaganda Planned in the rear-view mirror “Beat Dead Horses” New product cupboard empty No contingency plan Limited understanding of business model CESSE Mid-Winter Meeting

5. Situation: 1Q-2009 The Burning Platform • Global economy • Going into a deep and likely prolonged recession • The Mobility Industry • Radical downsizing and restructuring • SAE International • Experiencing profound revenue shortfalls • Cultural impedance results in insufficient response to changing business environment CESSE Mid-Winter Meeting

6. Situation: 1Q-2009 This Time it’s Different… The worldwide economy will be slow to recover and consumer behavior will be “permanently” moderated Our industries will be fundamentally different Smaller OEMs/Primes Consolidated supply chain Fewer engineers Different needs and expectations of and ability to support SAE International Expectations of professional/technical organizations will be radically different Demographic shifts will be accelerated Value proposition expectations will be higher New business models will be required CESSE Mid-Winter Meeting

7. Outlook: 2Q-2009 7 2006 Actual 2007 Actual 2008 Actual 2009 Actual Projection Markets Rapidly Deteriorated in 1Q09 Outlook for Balance of the Year Remains Bleak Markets Began Softening in 2H08 CESSE Mid-Winter Meeting

8. 1Q2009 Financials: The “Perfect Storm” CESSE Mid-Winter Meeting

9. Urgent & Profound Action Required • Reserves will be inadequate to redress shortfall as well as invest for the future (particularly if downturn is sustained) • Current business models and cost structures based on premises that will not survive recession • Portfolio of programs, products and services based on evaporating value proposition CESSE Mid-Winter Meeting

10. Situation Ripe for Change Board hired new CEO in the context that change was needed Political capital/goodwill was high Majority of Board members’ companies going through cathartic transformation—recognized that professional society could/should as well CESSE Mid-Winter Meeting

11. Two-fold Strategy Resize (Sustainability) Reposition (Growth) Transform portfolio People/paper to digital/virtual Delivery-based to information-pull Legacy to new value proposition Local to global marketplace Redefine business models Balance short-term mission needs with long-term vision realization • Reduce expenses by $20 Million (35% of total budget) • Staff reductions • Changed operating paradigms • Eliminate legacy ballast—including governance • Significantly reduce fixed costs • Capitalize on vendors willing/need to (re)negotiate • Secured $10 M Loan (Cash Flow) CESSE Mid-Winter Meeting

12. Three Levels of Action Developed Level One: Sustainability Level Two Selling physical assets Exit core businesses Additional revenue loss implications • Focus on core business; reduced offerings • Divest non-core business/activity • Meet financial management objectives going forward Level Three CESSE Mid-Winter Meeting

13. Decision Framework Context for Assessment Evaluation Parameters Mission/Vision/Ends/Strategic Plan Value to future organization/strategy – growth in valued PPS Market performance $, utilization, customer satisfaction Core vs. Non-core competencies Return on Revenue (ROR) Fixed/Variable cost structure • Everything was “on the table”, but in the end all things were not treated equally • Overhead and administration first; Program, Product and Service (PPS) development and delivery second (Target 2:1 – Overhead:PPS) • Preserve existing and sustainable revenue streams, with priority given to those that produce a positive margin • Preserve mission-related activities to the extent possible CESSE Mid-Winter Meeting

14. Financial Performance Scenarios 1Q - 2009 Millions CESSE Mid-Winter Meeting

15. Distribution of $18M of Reductions $2.74 M $7.36 M $1.13 M CESSE Mid-Winter Meeting $6.73 M

16. Cost Reduction Realization Portfolio Restructure Cost Restructure Exit non-core Reduce Outyear Costs RIF #3 Implement Level 1 Reduced Lease RIF #2 Operating at 25% budget RIF #1 achieve FMP Legacy and extraordinary costs carry through fiscal year CESSE Mid-Winter Meeting

17. White Water Ahead! • Reducing member services • Exiting legacy programs • Sacrificing sacred cows • Confronting the unexpected and the unintended • Moving forward in unchartered territory • Not having all of the answers CESSE Mid-Winter Meeting

18. But not without a rudder We had a solid Mission Strategic plan We took the long view We dialogued and partnered with Members Customers Vendors CESSE Mid-Winter Meeting

19. Ten-year Strategy CESSE Mid-Winter Meeting

20. Success Factors The Right (Amount) People Manage the Board Educate! Present a compelling case for change—needs for… and benefit of… Over communicate throughout the process Be clear, honest, and comprehensive Demonstrate progress against plan: get it right going in Equip them to be advocates—especially the President Other Things • “The Bus” • Performance management • Alignment and excellence • Enable and empower • RIFs can be healthy • Cut deeper and faster than you need to • Strike fast and fully—strategically, not uniformly • Be honest about what is core business • Know your business cycles (with respect to economy) • Customer Focus– VoC • Staged performance plan • Keep the long view CESSE Mid-Winter Meeting

21. So, Where Are We Today? Operations Financial Performance • Sustainable operations • Renewed product portfolio—unencumbered by legacy • Member/Staff alignment on a high-value strategic direction and plan • Mission, values and strategic plan embedded throughout organization • New business model(s) in place • Progress against key growth targets • Compliance with 3 of 6 financial metrics—full compliance by 2012 • Retained membership CESSE Mid-Winter Meeting

22. A New, Exciting and Bright Day is Dawning CESSE Mid-Winter Meeting