-r ee ev se VUUUUUEUUUUUU Strategy Frameworks Manual Second Edition PRICEWATERHOUSE(CoPERSTable of Contents Scion 1 Ines Sito 1 2 “arate ‘ 2 = Ans Mitr nl 22 taend Seer ® 2a -acsnste ® 24. Compete Co Shetres 2 25: Coser Seqneraion- Audra Behl Saresaton 23 26. ca Congeenes = 27 ic aes 2 2: Dae Tees “ 25. DavintonSooeay 8 210- Dror fvasPrt Tie @ 214 -tay Une 3 212-Paenng Aseria ” 213. Parrs Five Frc nd Gare Steps 2 214-rngsilagen « 218-RONA Chas 1 2:17 ROSRIMG Mai ‘or 2:10-©es eos Peetaon is 219-secu Gnas ie 220 Seape Pontoon Asesenent eGeny/GEMan) 28 ey Rarer Mi ac ten Prcewstenoust(ores & Table of Contents 221 Value Chas a 222-Value Cures 136 3 ‘Tae Project Process “41 1 -MartetDaaon Detours 149 3.2: Retl Stor Turnaround Stony wr ‘ thor Use Toot 11 41-Lanst Squares CAGR 182 Sou Pres Vl -Seont Ean Eee amet etn 21 RanetenSection 1 Introduction and Structure TRANSACTION SERVICES 1 Pricewnterwousé(Gorens Seaton botnets SB tacttotiona rae Purpose of the Manual * To assist you as Strategy Group practitioners in your work on strategy projects by: — Providing an overview of potentially useful strategie frameworks Describing when and where these might be used — Explaining how to use them = Giving examples of projects/cases where they have been successfully used in the past — Suggesting people and sources that can help you further * This second edition of the manual describes 24 frameworks in detail ~The frameworks covered will be expanded over time as the manual develops : Prceitour(ores &Structure of the Manual = This manual is structured to guide you through the strategy making process in a flexible way: = Section 2: Analytical Process sets out a number of frameworks which can potentially be used to assist you in your strategic analysis and design. This section includes frameworks for uso in the development of: + Business Unit Stratagy — where the process is divided into four key areas: > AnalysisiDiagnosis Creating Value Capturing Value Sustaining Value + Comorate Strategy + Functional Strategy — Section 3: Project Process sets out a number of frameworks which can potentially be used to help you manage each stage of the strategy process. This section splits the project process into four key Stages: + Hypothesis Generation + Option Generation + Option Selection + Implementation = Section 4: Other Useful Tools will in time grow to include other helpful information and tools to assist you on strategy projects/DDs. At this stage, we have Included a section on Least Squares CAGRs F al PrcewmoustGore Section 2 The Analytical Process 7 : TRANSACTION SERVICES 4] Praceaerouse (GoresSecon 2th he Poses The Analytical Process: Where Does Each Framework Fit? cd are fully developed in this en aii PrucensemnouseGores 6 noodooDDDODDODN ORC CATE Section 2.1 Ansoff Matrix PrceweGorts TRANSACTION SERVICESg9088: Ansoff Matrix: What is it? + A tool that helps to evaluate the possible strategic ‘growth diractions for a business + In summary, there are four basic choices to drive growth: |. Grow existing products in existing markets Introduce new products into existing markets Enter new markets with existing products, Develop new products and introduce these into now markets, Not: ew = afr bins (ool ne othe consumer er compen) Ansoff Matrix: How to use it "This fs very much a qualiatve too that helps one to think bout poterial growth opine for a business 1 Always sat by defring the exiting business and placing tin {ho top left hand comer ' Define what each idealopton (1.23.4) means in practical tome forthe cient + Assoss the feaciblyfek ascociatad with pursuing each option 1. Good start (and lowest rs) far most businesses leverages ‘existing competencies and resources. Might be dificult due to ‘saluration, regulaon or costs. Consolidation is useful ‘strategy ifthe produc in alr sieges ofthe life cycle 213, Whether mackels or products should be developed wil ‘depend on competencies of the business, 1e. R&D versus ‘marketing. Capita ntensveIndusties tend to develop markets {olncrease the sale of aeady developed product. This option |s appropriate where a companies" core competencies ara ‘elated more to products tian to specie market segments Developing markets may be dilfeult in markets wit Nigh bares to entry (eg. dealer netwerks) or wth low demand, In such siuations fms might focus on product development. Product developmant is more approprate for frms that ara Songer in cuslomer relatonships than in @ specific produc. “Thasa fms can leverage thelr strength to taller new products to thelr existing customer beso 4, Diversification Is the highest risk stratogy and is best uted for ‘businesses with fedble culture that are wing to lea, Thera _are we main kinds of version: PRESENT NEW PRODUCTS PRODUCTS PRESENT MARKETS | Pricewieresouse@orens DODOHDUODOOOOCOLEEH BB secctoromarace + Leave traditonal market and products but remain ia your sector. eg. verical inegraion (supermarket ‘une a food manufacturer) oF horzontal integration (supemarket sels francial products) + Leave sector: e.,bullng ofa congiemerate Common Uses Generate ies for ure grow 1 Assess achlovabily of cferent growth ststag * Decide which growth options a cient should pursueAnsoff Matrix: PwC Expertise/Other References Examples: Littlewoods Remote Retailing = Used to present options for growth to the client ‘Client liked the presentation of the ‘options. However, shorly afterwards, the business was acquired by the Barclay brothers Our experts: + Chris Temple Oliver Rowson + John Boxall ‘Additional References: + Harvard Business Review on Strategies for Growth + implanting Strategic Management by igor Ansoff og Panevan Sacre en Prostar PEPPLE PPPOE CCE CEES Section 3 Balanced Scorecard TRANSACTION SERVICES || PrcenwesuoustGores @‘Seen 3a con SB cero tame race ‘The Balanced Scorecard ~ What is it 7 ‘past perfor ‘about te future directo Ga ne Bes Pgeie a [Gers [esi = coaster wil Pacinos B DOODDODIDOTONTTOR CCL ECT The Balanced Scorecard — Defines a strategy's cause and effect relationships alate wheter acamoeny/s sata), eytamertaon ard exedton ae cnet btarne perfomance krerevorent asazes how a companys vewea bys estes provide pho egardng tr ay contr grag, earings ett 1 arapes a mento th hey frsors that list alec! ne Coster apace a ne empany (, devarylead tinea) ‘hcp arms ea tam‘The Balanced Scorecard ~ How to Use It ‘Some commonly used goals and measures are 2s follows: Learning and Innovation Perspective Customer Perspective + Led Times ~ 9. to process and delver onto + Quality of samvice or dabverlas 69, defect rates '+ Performance & Srvica- how the company helps to ‘reals value fr is customers e.g. degree of joint working + Cost—do customers see ths company as high or low est comparod io the value they add? ‘By acking customers to |) fine aocoptable performance ‘and i) caiy whal they consider to be te most important ‘measures of performance, saisfacton can often be Ienprovad by simply shifting resources from areas in which the company is over delivering lo those in which itis under elverng Internal Business Perspective Include goals ard inatves fr those intemal processes that wil have the greatest impact on achlevingmproving the ‘goals and measures set outwit te Customer Perspective. For exam “Tighten Quatty Conttol 6.9, reduce defect rates + improve Productivity ~ 2.9 reduce casts to improve proftabily or enable prices cus DUTDOOTDDOTOCOT TTT E TTT e Could include goals for: + Sales eonerated from new products, oF + Pertiipetion in knowledge sharing intatives ‘Management should also consid what maacures can be ncked that wal help the company to continue to ‘eet the Goals set out within the intamal Business. Perspective. For example, inllalves and goals tal {he workforce In + Tots! Gualiy Mensgement concepts + Now manufacturing tochniques Financial Perspective "ye narra dh ingore ta, «Go «State Titec een hes regen Reser Smears. reeticteceea neces’ iy corer sere Septet ce ‘sualegy fs wrong or thal a crucial area of importance thas been overlooked al Prucennences Gores & (= eed The Balanced Scorecard of a Semi-Conductor Company Each of the gonls and measures was, Financial Perspective Luncerpinned by spect itaives to to assess whether the Goats | Measies help devas tham. The reward sucture ofthe company was also reworked to Serie [Cit Fiow Divison Customer Perspective New | sess fom new prods “M Suecsed | Quarterly sles growth by Incenthise employees towards achioving the geal, Internal Business Perspective a Proper | nese tt sare ‘Gat | main sin semen exity [Fectmology finer capabiiy a the products | fom propery produ espensive| On time delivery supply Pretered_| Shor of key account Jesabtiy” | competion Production | Cyctesime & Uniteast fexcelence | ie Design| Siconefciency spies | al prcanes| productivity | Engnesing efficiency Learning & Innovation Perspective New proces] Actua ineucton Partaership] No of cooperation fons Goats [ Measures nimucsion | schedule ve plan Technology Tie wo delop Seaderabip | senection Prodction | Proves time 0 # seaming foews | for MGof sales market [soipettion Prodvet | 44 of rducts Unt acount Time w | New prodac intos vs he raturey duce the dala needed fa manag‘The Balanced Scorecard ~ When to use it When to Use tt (ther Referenoas + Weare untkaly to implement a Belancod Scorecard ‘+ “The Balanced Scorecare Measures that Drive fora chet. itis more important that we understand Performance’ Robert Kaplan and David Norton, HER ‘enough ofthe eanesp to allow us to erlqua one, February 1992 ‘other during a Commercial Due Dilgence ora eee buena ee en ee “The Balanced Scorecard: Translating Strategy Into ‘Acion” Robert Kaplan and David Norton en; ato om See Een PrcssoGores B PUQDDDDDODUOOOO CCC ECoTS Section 3.1 BCG Matrix TRANSACTION SERVICES Pricewwrisnoust(Govens &sus asa 58 easter ‘The BCG Matrix: What is it? +A framework that: = Enables one to judge the overall ‘health’ of a porttoto of businesses; or = Facilitates the decision making process for the allocation of resources. emong business units (or High products) + There are four basic positions that a business unit or product can occupy en the matix: ‘Annual real 4. High market shere end high market growth rate - rate of ‘Slr’ Market 2, High market shere and low market growth rate — ‘Cash Growth (%) Cows! 3.Low market share and high market growth “Question marks! 4, Low market share and low market growth rate ~Dogs’ + While the Strategic Position Assessment (McKinsey matrk) measures a large number of factors to assess the strategic attractiveness of a partfolo, BCG makes the implicit assumption that RMS is the key driver of competiive advantage and Market Growth is the key criver of market atractveness. This is not always correct - hence the broeder perspective taken by the SPA may be superior Low Shay Fremont Ss = al Prous Gores DODDDODDODEOODCCCCEO CEOS ston 206 ne BB excite tome Pane ‘The BCG Matrix: Why is RMS a key driver of competitive position? + Ife business unit has a high relative market shere, this Indicates that it has sold (and therefore manufactured) © yatenat signfieant amount of product + When compared to is competitors, this means that the business unit has: = More experiance in optimal production methods (work steps, types of materials used etc.) = Sufficient history of demand to forecast future {emand and optimal stock holding levels = Greater economies of scala + These advantages should lead to lower unit costs for comparable (type and quality} products + The theory therefore goes that companies which are further along the experience curve (have sold a greater ‘amount of product) will generate larger amounts of cas ~ hence they have greater competitive advantage asada I Presvenousome‘The BCG Matrix: How to construct the chart, Relative marketshare * Note hatin many ease, itmey be preferable 6 usa vlne Inateod’ of vale ahares In oréer to. slip out prichg + 1 very important to. seloct the carect met diferences ‘between compatios wher"makng these defntone forthe individ) bushesees in onder {2 Calauatons, nce these do net rive laring economies or Calcio he corot RMS and growth aes fconomies ‘of scale and hance do not ive compete + There ate wo mal mathods for ealesstng relative ‘seventage mane share 1. Sat company nr conaton st RMS = at owt Rate and calaaaa the eave shares of Is compeiors: saccinain na Sai SaaS + Calculate the CAGR for the relevant markel/segment in + Company under conlderaion: Sales 100 > set Naesittuanes wairauetoeeane toRMS=1 + Company 8: Sales 150 > RMS = 150/100= 15 + Company C: Sales 60 > RMS = 60/100=0.5 2, Sot the largest competitor at RMS = 1 and caleuate al oer shores relaive to tat player: + Largest compottor is company B: Sales 160 > ‘et to RMS = + Company under consideration: Seles 100 > RMS = 100/150 0.7, + Company C: Sales 59 > RMS = 60/150 = 0.3 =a sacnd Coke intl Pricewiewoust(Govens DOCDDHDDHONNONTTTT COCOONS sn 31-90 ne BZD cccssortme race ‘The BCG Matrix: How to interpret the chart ‘Common Uses + Despite is mations, the BCG matix isa useful tool to determine + Feruse in corporate stralogy projects/DDs ofa parent the relative postions of a portfolio companies, business units or owning muliple business uns Prodicis: Kis un soratitng abou: ~ Framawork for alocatinglessessing allocation of = The atraciveness of individual businesses win the resources among diferent busines unis Lobel ~ Framework for understanding which pets of a ~The overll healtvbalanoe of the porfose. Any patito business porfolo are ofkey strategic importance; ‘should comprise balanced ‘sysamy of eash generators end either as Cash ganaratars for today or tomorrow phen — Framework for compaing the performance of 1. While Stars may gonorata cash (atleast in the longer lem), they. compeny/s porto to that of key competior wl equi investment to maintain or build thor cong postions If successul, 2 star wil convort Into a cach cow when Industry growth lowe down 2 Question marks roqulro cach to grow market shore, but It is Unknown whether they wil be successful and convert ilo stare. “The fow thal may have a chance shouldbe golecied (by assessing future market potent and tkely RO!) and given suffcent funding to convert ino stars, whe tho remainder should be divested 3. Cash cows requie lie investment and generate cash thal can ba Used to invest In olher business us sulfcient investment to keep Tt compeitive ~ otherwise the cash vil ey up! 4. Dogs do not grow and therefore do not need a fot of cash, but thay {ie up capital at could be better spent elsewhere > divest? Sierra comets * peaveeiene‘The BCG Matrix: PwC Expertise/Other References ‘Examples: Project Gunner See Fork inFrog essTS Statgy rou ctvelOld Pees bye are [Sis ands ay & Sinei9K0 - Gomer PrevetthnaPreeet Gunner Phase 1 Faeubeck pr fbr ctls “igh ean att oe 30 tarrnsee ial ‘Additional References: + The Boston Consulting Group, Perspectives on Strategy: The “Product Portolo the cont wah further information! GBB et otime eae Gunnor publishes 828 magazines and organises Industry exhibtons & conferences. Ithas a broad ‘ange of product in numerous gecors~ from wine to holais lo eubmarnes to electronics During the fret phace review, became apparont that thare wore 2 key succoss factors for Gunnars products he underiing demand fr B28 products and tho compettve positon and rpuaton of product within that sector ‘We used a version of the BCS Matix to give combined picture of how Gunners potilo meesures Up against ese success factors nour opinion, end in that of the cent, Gunner's breadth of seclors was not sustainable. A beter ‘Stetegic direction would be to build on presence in ‘seclors where tie opportunity was strongest, ‘expanding the product offerings within tha vetial, ‘nd fo exit weaker ones ‘As a result, one ofthe lan’ key questions was which sector to dich. The impact of Vis ma was to bighight clearly which ones to exit = the dogs, — wach ‘ones to hold ono inte short tem atleast cash ‘cows, and which ones to Invest some capital n~the stars {talso highlights a few sectors where the chee isnot daar areas where PwC ean do more work ta provide Pracewaienriouse(Gorers DDODTODODONONOT OCC C CEOS © encase hase ‘The BCG Matrix: PwC Expertise/Other References ‘Additional References: ‘+ The Boston Consulting Group, Perspectives on Strategy: The Product Perticlio Sttgy ren amas Gaon ‘Manor Way Toots first products were fh hooks ‘wich were made from De fesibla wire that they were ale to produce (Over the years the product porto graw to Include ‘anything that ther operation could tum ts hand to, uch as Javelns and ralings. Today, they focus thle ‘operations an the manufacture of tols for Professionals and enfusiasic amateurs, Core products include handsaws, dil bis, scroucivers, Bowsaws atc. Manor Way main compator is Olvors Tools. They are the market leader in many simiar areas ofthe rmarkot “The matix onthe lft shows that in the cach cow ‘segment Menor has a higher share in hendsaws than Over, ahough it appears tobe ina sighlly lffeent segment of te market (aferent markst ‘grow. The opposites the casa inthe star secter, ‘where Olver dominates ‘Manor Way's Wayplate sandpaper has no direct ‘competion fram Olver and wil hopeful continue ‘rowing share to eventually tum into a star ‘Manor Way's barbed fish-hooks are now banned in some markets and are the dog of the potola 2 PrcswevoustGoresSection 3.2 Competitor Cost Structures TRANSACTION SERVICES Pocenseoust ovens & QUCRDODODNTANTCTE TET tOOS Competitor Cost Structures: Why is this important? + Inour assignments, we rarely consider anything that happens below the gross margin ine + However, the success of a company in an industry is critically dependent on how iis operations, and therefore costs, are structured + Even within industries there wil be significant variation in these cost sctures between diflerent companies (with different operatonal structures) = you just consider gross profits, you miss hai the story ~ Two companies with similar operating margins may be echioving issues facing them/key levers for improvement may be very different — ©. in electricals retaling, internet operators achieve roughly half the gross margin of bricks-and-mortar Players (due to significant lower prices). Nevertheless, they manage simlar or better operating margins and Phenomenal ROCES dus to their low cost structure + During the course of our work, i will become increasinaly important to benchmark costs and cost structures in order to gain a real understanding of: ~The competiive environment (and the way in which different players compete) within @ given market ~ The reasons underlying the success or demise of diferent players within an Industry (and the fuure strategic ‘options avallabeliely o be pursued by each of them as a result) in very diferent ways; hence the key Pricewwséenoust(GorensCompetitor Cost Structures: How to do it 1. Have a clear understanding of how costs are built up: Have publicly vailabisfrenciel information ~ Are PC Comparators — hence data is avaleble ~ Also note the ned for organic, recuring figures as fara possible. 2. Draw out al evllable costrelated dats (rom accounts an fotos tothe accounts) - understand what s incuded fr each line across differant companies. Saniise the data to make it ‘comparable acess companies => otherwiee you risk the analysis being ivald. Relevant numbers vl inch “fSliepse “Nee sGommmn Daron = Grose and porting pro Sie Glues atene”” = amt, = Staff cnet & numbers, depreciation, amovization, lenses ssompes EEE someone SEES Omer ey conte =e et 4. Caleulate appropriate ratios -> which ones these are wil ree what are you tying to achieve? Benchmark Ranges for Costs as a % of Sales for a Newspaper Company + The data available and therefore the analysis you can carry out 2. Present results in chartform wherever possible, The Content of the charts could for example be: + Costs for ciferent activities in the value chain (i sourcing, picking, packeging, distribution) as % of sales for target end comparators, oF across the whole industry range (see right) + Gosts_as % of total costs for target and ‘comparators (or across whole industry range) + (Ustccninus oven editorial costs 25 Yo sales) across teins range rom 8% to ner 16% Stony Maia Mises Scent atinsecon 32- Conga cat siete Competitor Cost Structures: The output (2 of 2) + (Ustcontied from previous page) + Gross and other profit margins for target and comparators (see top right) + Different costs and profit measures shown as ranges across the industry (see below right) ene Comp ETA Monts ‘Aber inpenennton fe btn phe, ‘Acon’s EBIIDA mas wl ve om ‘Beteuba ats competion 09% ‘3. In every case, having en understanding of cost ew Sastre will help us fo get a better grep of why 2 metre gen compater is coing ber or worse than the fget PEPER PO TE 4. The analysis: &f ~ Tels us how a trges business mode fer from enn np acai ethers inthe ety e st ~ Supgests potential levers for future perfomance improvement (eho medi term) = Opens our eyes to longer tar stretego hose eptorsatematve bushes modes : = 4 iy feomiszempit insite Te Sm ae ays co cena ve ergo SA {sat the tp of te inky rnge cmutataareas BOHN gas A Sratoy Fanawens ana Sears en nl Prucenoereouse(Gorers (3 CB enatsnontne Competitor Cost Structures: PwC Expertise/Other References Examples: Project Raven. 'BpaxdCandover bid forthe Dally Telegraph and we cid the cop = Candover's pian was built upon a 25% rauction in edie headcount The reason fortis analysis was lo get an understanding of| ‘editorial headcounls across the cferent newepapers in the UK o test the feasbilly of Candover's plan * We analyeod the number of pages and adipages aowss a large pumbor of newspapers ‘The numberof edtoial sta for each newspaper nas taken from accounts, although some assumptions wore required * This enabled us to calcula the average numberof pages produced per ecliral staf member and compare the ‘esuils across Key compels fo assess relative efleancy (end tence the potential fr staff cs) ‘+The key conclusions frm this exercise were that: ‘= There was room for some editorial taf cuts But not of the order of 25%6, as envisaged in the business plan Our experts: Sarah Wiliams . PrevincsioresSection 3.3 Consumer Segmentation — Attitudinal or Behavioural Segmentation TRANSACTION SERVICES »| * Puen ora DOGODODODOTOOOOOC ETCH ‘Sec 2.3 Conary Ain eta Sepnsson SB cxtiotioma rave Attitudinal or behavioural segmentation — What is it? *+ Segmentation sequent used to aflor roduc characterises! ‘markeng ecules oa numberof letine| consumer groups, Potontial eontumor segmentation for “+ Traaonaly, demographics have bean used to detente between Financial Services Products consumer groups. However, whee spproat cheap and easy ‘es no entydiferencas between consumers behaviour oars tho neres roduc of he matvatons for purchasing vee * _Attuinal or bshavloura segmentation ins te group concumers ‘sezaring to thor behaviour foward to produc ele a the pinto purchase or atewarde ferent segments of consumers ae ploedagaintpararetors ‘considered i be imprint drivers af tar behaviour = THisallons a comany to understand and anpate what consumer neds ren each segment * Gree the sogmants ae idntfed, certain characteristics canbe used © ve avactveness of each = Potenia segment profily “= Potential changes ove in including tends n tere of sogment ste Speco in toa ~ Ease oftrgsing/estomer propensity to buy, eer essing bard strenghs and competencies, ‘+ As hs ype of cagmentaton identifies cansumer groups with diferent tudes or behaviours ean provide an ndlation 23 te ey ‘markeingpradicteraacterte required to arpet sesh egret = Ep The pressured provier segment oppose enti 3 ‘corse grou wit igh erest nthe product bat tse Purchasing expertise, suggesting that an aie evan marketing ‘nproach ould be suczesfal Sino Pom it Soon me PrcccustGoras‘Sem 93: Gonume open How to use it For segmentation to be useful segments have to be: = Sizaable + Isthe segment big enough fo justly a distinct smesketing project? = Actionable + Isitclear which customers fll into which segments? Diferentin tems of meaningful charactristios * Is the offering raquired by oach segment sufcenby diferent fem that required by al others? = Stable and reproduce, wt lasting vast inthe market piace Bought into by the organisation + Gan the cfent focus on these segments, changing is culture and structuring tself arcu thom? OnooDoDND si Comune Segment Aural or env Segnention PwC Expertise/Other References ‘Where we've used it: . 1 remote ella (rots: more ofa ‘characters! en ‘lla! of bai rk UK consumer base was segmented ino 15 ile stage and fluence consumer group ~ Behaviour ofthese was ranked to give en atireciveness ranking. Behaviour incuded assoeement of usage of mall ‘order, inlemet usage and epend per head Segment size and tsnds ovor time were alo considered 'o deduce the stracivences ranking Koy target groups were kentifed (as shown opposte) Our experts: + Kien Tan, Beb Muir ‘Additional References: + wwrtangenistmieay com Bock Hone Fase Possible toole and Information sources to help you dovolop useful segmentations include: = TG surveys: These have c, 1000-2000 respondents and form a represeniaive sample of ‘he population SPSS cluster analysis: TI is used fo develop detaid segment profs (inclucing product holding, meda usage ard other Inccatrs) ~ Customer database and consumer questionnaires Common Uses Strategy eviews and development sal Preceieeus Gores ODODOTOOOCOC TEER ZB scctorome rane Over traces asking eee = Slsle Femiy | Ful | fami [Nester | °° a BS =i fA fambe of ates fm LS traning avaebe fom Emma Sage nc LBS Segmentation ane targling presentation, HBS ‘Note cn consumer make! sagmeniaten, HBS Analyzing consumer perceptions, INSEAD Fare cose sey ‘Marketing by Matte, Malcolm McDonald & John W.Leppard (Speak to Kien Tan) * Holy Centre presentations on consumer segmentation (Speak to Kien Tan) Priceiieroust@ovsesSection 3.4 Core Competencies DOQDDODDOOEDODTOCEEEC IOS Core Competencies * Gore Competencies are the foundations upon which a firm can bud its unique competitive advantage + Roore competency is a discrete activity, skil, technology (or asset whieh: = Is performed better than the competition =. Enables the generation of significant customer value = Provides access to a wide vatlaty of merkets + Gore competencies may be embedded in: — Technologies - eg. Inte's microprocessor = Brands - e.g, Coca-Cola ~ Processes - e.g, Toyota's JIT systems ee conoecns ~ ITinfrastrcture e.g. Boeing's paperless alrraft ‘esa somes, + Core competencies are valuable for understanding Managerial systems -e.9. McKinsey’ hiring & = Which strategies il best capitalise ona fim's strengths ‘mentoring practices = The susiainabilly and ‘exereblly’of eurent compettive ~ Training & education - e.g. Unleve’s brand sdvantares management anny ~ Temes ronan erento deioing tre Keonledge struts «0.9, Andersen Consulting's ‘Best Practices database ao . Pree vtousGores‘Sic 34-Ca Consnances Core Competencies: How to use it + Methodology: deni the orgaisation's core activites: + Ust core acts involved in production of each '~ Summariso and evaluate the core competencies ident How susainable are th Identied compatencis? ose te «Laon ela sbo oe hn ‘Combine lists constructed for each product to ‘capebility gaps? be al pe ements ) Metab kame cieetionenme Rocz et cau ean ees ich Speman ane bar mtr mor + common Une! = Teun tech ony ageele fsoueg ~ Deapng emai potion an abate a eka) och ay gs Sekt ear onae +s the activity dict or compotitors to imitate? + Does the actity make a significant contibuton to perceived customer value? + Doos the actly provide access to a wide varity of rmarkats? = Draw conclusions as to which activites can be ‘considered core competencies ~ Making outsourcing and divestment decisions; Which activites are non-core and so shout! be ulsourcedisoid? = Spanning new business development opportunites; ‘What new businesses wil our core competences support? Making decisions about which new technologlos or ‘capabilites must be acquired or brought in using Patinership arangements, * Which activites are important tous, but curently weak, meaning hat we need 1 Md new ways ot ‘ocassing inom? (Care Competence Eiijncntegestny Panevan eed ain -3 Fema Pacts Gores QURDDDOUDOTICIIOHHH ‘Secon 34 Caro ampetroee SB cacuieamerane Core Competencies: PwC Expertise/Other References + Examples: + Additional References: Project Metin: ~_Aasiews, Kenneth. The Concept of Corporate Strategy, + Commercial due dllgance on Menyehef, an English ‘company manufacturing microwaves for commercial - (ie. nonosidenta) use, fr 3 *+ As part of due dligence wo considered a ee Secondary riche markot nthe disk drive market. Each time Incumbent competitors did not recognise the threat and did not survive Erica wenn | Present Gores @ DODDVODDDOTDOOTOC EEE ES Srcon 2. pnp atin Disruptive technologies - What are they? Theory + Disruptive technologies entor markets and displace boule, mare eset by oing canes iialtecnaosy” Disruptive ecnclgy ‘Something new and valued (Ihereby effecvelyredetning the market). They may: = Redefine or expand the desired functonaliy af aproduct ~ lnaty be deployed in anew or remote market segment ich values diferent perionnance charactestes han 3 = ‘be mainstem 82 = ivade the mansteam market ater easing ateelor 2S ‘commercial scale and maturity such that they eventualy ‘supass the ol technology, even against tational performance parameters Timea inal ton “+ Disruptive technologies may be cific to ianty andthe treats cten meses eng payer ah AB vert rtotines technology typical operates in ferent spheres fom tho ‘figinal ~ Disruptive technologios may bo wore’ than existing technologies when assessed againtexietng perfomance parameters, at least inthe early days — Roacton by existng players may bo diffeut, requiring fren sels of skills ad high aves of investment * As products within the mass market become more sophisticated they incur higher overhoad costs. Margins that were ence alracive erage under new cost structures leaving the low end ofthe markat open tobe used as a foothod by ew emerging (potently isrupve) technologies Ey Perma -Srns een ‘a eater te tochotony achnol teaahy eee e Ltt ‘uneompettv, with Perormanes maturing ae 90 as itd ope or rer improved beformance. Tina aHow might this be relevant for us? ‘Whore would we normally think about + Dieruptivo tochnologlos are commonly considered in our acietraets ~The matke sells into “ist to same? Do some customer The ntemetisa commonly discussed dlsrupive technology __sogmante value ferent performance atrbutes isthe maln + Conventional bookshops compared to Amazon beamed = The framework koperstes in ~ are there diferent business and technological systemsinterelations? F crowsing and immediacy > bow pon meester * HOW can clots fight or adapt to disruptive tachnologios? Iggeenlpoer fone aa GOBCH ya nado be gia + Pepernewspapers compared to onineeditons ~ Sapna ka acto aad ta na CED, . 7 Barta as dlspive echloyos cen aque the eee! 7 (Ot pes eens ectiben evelopment of diferent skils and competencies ~The theory muy be expanded o examples such a value role (hea, Wala) andthe ways hat hese might ~The busines structure may need tobe reaignd -are threaten stn eaters Ses mn pe on evoengherenrg tv tchnoogies conevalned by ar exsng + The ally ofthe product may not appear competve, rete bei oues oneras tutes conser pois sit ming pce moe bouasnes ey ere proved wit? Important, tne matkol pace is offacivalyredtned + Are KPI's inappropriate? + Buying and lw ost dctibution become the ccd ee sucess facors rather than qually and sence 5 ara inte ie gerimnsiakopatenee, inappropiot? How can we help clients think about potentla threats from disruptive technologies? ~ Thabane wit pando dec hota fe cnaiios * Consider when is an emerging technology disruptive? develop the now disruptive technology el ior ook st thee eloments: veloped inhouse: ~ Tho so of sls to mestorit— ar these diferent? * Gore competencies must be considered in oder to determine the most appropri gree oF integra ‘np Fnews Mr -Sexre atin all Procewrereouse(Gorens| ‘paknaoqeronyyFevmah Melt toe -3 homme PwC Expertise/Other References Although we have not used the theory of disruptive technology directly, we have complotod a ‘umber of projects that have addressed the Issues involved * Auta (Osvi Trunils, Eleanor Sat Autotrader has had fo contend wih the intamet as an atterative mesns of plachg dessifed adverts | ~ However thes recognised the treat and crated an inteme civsion ~ Consequently has entered a new compete sphera + Seoa ~ Now consoies canbe consiered derive, soe they change consumes expectaons of to ‘product and force old models out of the market as ae Sega was forced from the console market asi didnot keep up wth new technology developments = 2a r Project considering the short bresk holiday market ~The intemet and iow cost aiinas have acted as clsuptve technologies in thie market ~ Tonal tay compares hav ben fred ta fos on hose eensumer serena vue higher levels of service ae ur spares Enna Sage Eun Cameron sa ion Addtiona Reterencos: + UWS eating tera ie Daconimue Tecnsises, Stand nd Value ‘pang the ns ef ecco eve Ema Sage) Marton and Tecpel Oconee presentations (Emma Gepe)Section 3.7 Distribution Strategy TRANSACTION SERVICES DUGUUORRDRRERRe eee eeeae Context Setting: Introduction Introduetion : + Disirbuions the actof getting goods from a ‘manufacturer os suppers or customers. As such, I sa key aspect of any company’s supply chain ane secs other operacnalsralogy elements euch as ‘ateriels management, purchasing and supply ets of supply chan __Sunny aia mages Pry ton What s a distribution channel? +A chanoet of distribution i an organisational structure {trough which goods and services move to consumers crinduetial buyers from producer. Wis “path to marker 7 al Pracewrennoust(Gorens [A channol of dsirbuttonis a eystom, a group of interelated components seeking th same objective — profiabiy through customor satisfaction. To Accomplish this requires 2 fow of actives emong the four cistbuton system components: customers, sells, ‘eciitators and supervcors: ~ Gustomers- persons or organisations tha wll purchase and use a product = Sells ~ producers and intenmedares such as ‘wholesalers and relaters; = Faciitators— transportation fms, warehouse providers, communications firms, banks, cect ‘and leasing companies = Supervisors — industry associations and ‘goverment bodies providing guidelines and ‘regulations for managing and controting the dlstbution procass ‘The objectives ofa distribution stratogy: ‘To provide customer satistaction by satisfying human nee: Toallocate scarce resources betwoon customers; ‘Toencourage and direct damand by persuading buyers to purchase goods end serves; and ‘To provide for physical distribution by moving products from producers to buyers a Pricewwrinwoust(GorensContext Setting: The role of distribution in satisfying customers ‘A company’s distibuton stalagy must focus on making praducts avallable when and where consumers caguire them. i must ‘also enable the transfer of product ownership fom producer io buyer: Making products available whon buyere want them + Consumers donot requie winter clothing inthe midst of summer rire ‘However, when the weather bogins lo delotirate, consumers desire warm winter lating ‘+ Aros eistibuton oystem must therefore ensure that roars are wel stocked wih warm lathes et the time when consumers want to buy them. This acivity is known asthe ‘croatian of time utility Making products available where buyers wantto purchase them + Most consumer are unebe or unling fo seek ou a manufacture to buys product Place Utility dea + Therefor, thousends of real cules have been eslabished fo meke goods and servons vated fo consumers in conveniantocatons, Tis lskrown es fe eeaton of pace ay ‘Transferring ownership from the producor to the buyer B= When consumer buys a product fom arta daar, bs buyer cba physical birecsnstonmLirr is possess, and fe Hight to use the prosuct + When. consumer makes a elephane cal, the consumer oan” the use ofthe phone empany’s faves fe the craton ofthe cal. When a concumer purchases er ane chet th passenger “om the ight sina seat ra spect ight. Thesa examples ilystts the concept of possession uly Sieepreree re -Seve an aa Praceneeroseores CUCVITIIVITOORCUCC ETC E Oe Seino ty SB eesti Context Setting: The role of Intermediaries 1. Market without Intermediaries Role of Intermediaries - Example + Inagiven market fora product, there are four manufacturers and four customers: 41. Market without intermediaries + Each customer as to contact each manufacturer crac i they want to compare product ne price: = _ Number of potential contacts = 16 But each playor ‘must potently contact upto 4 oters) 2. Market with intermediarias * Intormediaies create time, place and possession uly by: ~ Reducing search time and enste: *+ Each manufacturer suppis producto the inlermadiary. To fn te best eal the ‘customer ony hasta make ane contact withthe Internado: > Number of contacts = 6 (Now each player must only contact + ther) ~ Facing the transfer of ownership of products fram manufacturers to customers 2 Market with Intermediaries = ‘Spyro Sond aI Priceniteesoust Gores &g909 irra, They. Seo omc ot emeraancs SES my pet ce ‘ie ssn tle sa Shiga sei poet tg) ewer Menus Gan aon ‘Seen 27 Duo Steg Context Setting: Direct Marketing + Byer be fastest groning form of derbuton is rect ‘market, Diect marketing bypassssestblshed eetbuton ‘tems io delve: geods and eaves Grecty fom eaters to buyers. This approach focuses on ulling and mating ect customer relalonships at osutin repeat esas vor fine *Drect marketing uses mal elephane or elscrore media to ‘estsbish are relaoship wih the customer, Recent lechnologiealadvancoments have soon he use of ecommerce Ingrect marketing gow rapiay * Some type of specif, immediate atone the desied end ‘esulof eect marketing = ypicaly the sale aa product, + iret markoing has a numberof avantages: ~ _Cost—when compared ts talons fame of strbuson {and promo, « major strength of deect martini abity i delver individu eolleg messages to specs ‘rospecs or customers alan afordable coat ~ Talting of message io aferentcustoare-s mane {hat busses oan segment corsumers and ixget ‘multiple groups elfen st much lower costs Feedback direct marketing ves feedback o mating managers because a measure reaponee is usualy, ‘ulti every rect marketing at. Asa result, rane ‘esponsve customers and iafectva approaches con Bs eleted fom fui dex marketing seven Stag) ores tu -Sae al Press ores B DORTDHTTITCCCE EEE BB excrromame zion "Del has founded te cuccess nthe personal computer market fn 8 dreetmerketng ana drortderioaon sytem. ih Ive hey ene: = Most ictnt Patho te Customer - Dell besoves that the mosteffcier pat ote customer through a Grect felaonship, wih no nirmedaies ose! confulon and = Shngle Pointe Accourabity Dell makes is the ‘Single point of scountabity 0 thal asoures eeessary to meet cusicmsrneods an be easly ‘marshals in supporto ay enaberges ~ Bulé.o-Order-Del proves customers with what they want Brough ewstom confguraten and ordering. Bul {o-rger tsa means that tay dont alain menihs ef ‘ageing and expencve inventory and ss areuit are able {wom lower pene ~ Low-Cost Leadership Proving eustemars wth rodut at ow pica, duo fo savings inition and ‘marketing cous atcan bo passed on lo consumes ~ Standards Based Technology ~ Providing equipment wit ncusty stander techrclogy ensues tal unlomors have adoquae level cl supper "Also, a¢.aresu oft dost approach, Delis able lo denver now technology tis customers wits greaby reduced load toes, hence I stays ahead of compat by ering leaing edge process components, Prcenierouse overs &parse iug CB ss nssmatie Developing a Distribution Strategy: Summary of Approach ‘A fim'scistrution strategy must be consistont with is overall eomperta skatogy, and hence its sole, merketing and ‘operational strategies. A numberof factors must be evaluaid and a rumber of Key decisone mace when selecting or designing ‘a dsinbutlon channel Se -piveute ray a Developing a Distribution Strategy: Key factors to consider (1 of 6) Background: + Perishabany + Designing distibuton chanel voles the cnsieraton of = Paihableprosvets ypiealy have very short many factors ‘sirbuton channels ogo product consumers as ‘chia possible Market Chorateristios +The number, ype, geographe dtroulon, and buying habs of Diesel ie) tho imate buyers twat ndcate tne complexy ele of Total volume sales of Coke oretalrs ar tsae the dstbton chatenge and may imply that more han ne nought uetly det dlerbuton, oven though the Sstatgy channels required 9 reach ther Customer Ui value o each product tw Preferences sola) ‘+ Buyers’ Instance on repair andor nsillatlon series and edt ers ~ this may necesslate sore patof he astibulon ‘Company Resources and Reputation Most small manufactures wih resowess tod Uhemeelves fed to merchant wiolsslers or agents order hanna! heli gecoropicay cose oe Baer toga access tobroad dro oufes/alrge ane + Contumer god v. business product - his wil have sdeperse market, eventhough cect seling would be mare lmplatons regarding the need fr ‘physica dstuton and ‘esvable bells laceeabalaenia + Aeampany whoeo rare and products aro wall known sin Product Features ‘a much beter rosin to secure tw channels most sable © Une forts products than 2 relatively unkown preducer In ganera the lower the unt valve fhe produc. the Ee eects ‘mote intrmedirios ave used ali because efizency * The avail and sulabty of existing dstibuon It cttea soar faer ilomestre wil la aflet a companys secsion intents competion post pace ia paricuar ~ Expense produts especialy many bist goods) ma ‘may reqae roe personal eng, tao, For Imereti ay frees company ty a ferent chane! Such oct, more est chameh are olen ae Secote contol oa he matt stato aster ioe he cca aves ect ‘Srangy Framewerks Manact« Sacra Eétlon Pricewatersnousé(GorersDeveloping a Distribution Strategy: Legal Restrictions 1+ Federal, state end lca goverments may place resttons onthe distibuton of eran products; alcohol and rears being wo commen examples. Ths lis the eoces ‘valabe lo companies when choosing between avaiable ‘lstibaon channels, Coste + -Aiough costs should naverb tho sot termining factor Ing dsuibuion decsion ey are & key coniceraton (Channel Economies ce ster) ‘Koy cost consisertions: + Troost impleatons of any potntal etsutlonsategy ‘mustbe conldered under thee hay headings ators = Capt Cost -inereases factory sorga, naw depots, new equpment or new vn are requied, ‘hen adldonal capi may be requres. Ary requiesIerease n working capital ough Ineteased stock hong) may aso make seme ‘optens uranable = Operating Costs — labour costs, procatsing nd trensparation cons mut tbe conelieed Customer Srviee~allcosis shoul be corscered in ‘he context fle cost! Bene ot improved I eden loves of castemer sence ‘ey factors to consider (2 of 6) Deciding between direct dstbution and use of Intermediaries: ‘hana frm eeiabshes ts own dtibuon suture startup costs ate High ale representatives most be hires and tne, suit facies must be ull, assed or purchosod Because o high sar-up costs, mary compenies, espciay smal manufocturers, pref: use Independent inirmedaes. However, because these ivermediesrecee commissions ormarcups er tel eevee, tisha an Impact cn product Proftebiy and otal ses of dtibuton are Bly io be higher ‘ver he ong un Boiling of erm fa secaearpenis Mower eo rts Fert ay ince omei nt oe “terse eof termed @ Prcaveeut ores SB aaitattoma rane Developing a Distribution Strategy: Key factors to consider (3 of 6) Coats (ont Decieing on the right numberof eal outets + Thosumber oft outlets tha company wes to istbut is products impacts eatbuton cess in a numberof ways (so char on ight eran Mutt exami = Outet costs es the numberof utes nereases, cals wl neeasa n ale fashion. Th edie fo {actors such as te startup cos ofa new soe, and tho fect that ari stove wl require a cule of ew members ofaiaftorun t Hanaing,ientory and oder processing oo eve cost ise proporbortal asthe numberof ‘eualloslets increases. Tess because the abou ‘and lock requed 0 Seren 8 new ae ean bo ‘ed incremental Local dalvry cos ‘ypcaly every costs ean be reduced win sale. Fed ose (euch as delvery vans) canbe bate utlead sero ages umber ‘foutets. with an eusourced opiates provider, Feduced crate rates can be nepotaie for higher voumes ‘The Total Cost of Distebutin fora Firm as its ‘numberof Real Outlets increases Tos Disb Cons ‘Optimum aumber oF rail outs ros a cost perpective, however, there maybe other more important considerations a . Owleecosss Local Delivery Coss a ‘Nunber oF Retail Outs PrcsvewousGores‘Before deitng cna parca chanel st up, the economies a he vanious chante needs 10 Be examined DDevelping a tue pure of channel economies stars wih tudorstanding the costal serving sini customer (oro! proving smar product) cerss chennai to. onse often oveockod coat ealageris such a feght Band reums; seemingly atractiv channae may an out Bless than desabe or vcore Disguise example of industrial company, ‘% of ist rice no lm — om ar — mom: — amr — <<: a * 1h is example, higher rium on eles ae genes by dice channel de othe mination oft cos of the desler souk, Sac ery ely tS pled the ‘Shae Panmure antacid ito QUCUDGUODOTDOOT ATCT ‘Once company makes its "eppies to apples" comparison ofthe costof serving smi custorers across various hamel,f should ike ln aesnunt the deeranca nthe ‘quam of customers dun them Examining margins per customer and te evs of ‘chum esspeaied wih diferent channels, may help to ‘eendty wii channels help «company acqure and ‘olan ho most atractve cutee. This can help focus atten developing tbe most propriate charnle Since customers jump between channae a they move ‘tvough the purchase process, companies ean gis them ‘efectvel only by underiading the economies ofeach ‘chanel et every slope of sale ac process te necessary, for example, to know how much sme teleeaes people spend goneralng leads es opposes ‘a povdng customer eevee say nein ot fe return tat time, To da thi, companies muct have wansactor-ovl cos and evenve Spe or ataare ard tod, estimates “ Procewscus Gores Developing a Distribution Strategy: Key factors to consider (5 of 6) Customer Preferences Custrirs raquanly prefer some channels acters er certain ltaneacions, and paste channel combhaton ofion engender loyally ar rate crse-selng opportune, Research on ‘siomers an statsteal analysts can felp Wendy prefored Channel comaratons Maryn sighs rom chan exami are customer preferences canbe very worse. Understanding he ral ‘ost and bonais of serving customers can hep dive sales lait rodcing cost, by improving eusomer retention, end ‘reducing emphasis on nappropdat channels Dispused example of industrial company common sue hat arses fam analysis of customer Dreleence analysis shat custamers want more ‘etsonased sais and eevee fan he company can provide economically, in tis stsaton, te keys prowde ‘neonves that uch gude estomers toe rit place Incentives Incentives equonty combine "caret and ase", The caotis someting (ypcaly,clecaunts ar proved Service| iat customers valloRighly and recave any when they use the prefered channel. This sc ight be fees or reduced seria, bth of which werk best when tay are Feasonablyopazue and slistng cst ere embedded the product or eeniee = Mary afnosrrautng sell eric checkin for a ‘example, installed large numberof Kosks to ofer entepyat new nnetmnten ‘customers the carrot of exremaly short wail mes for ew fulomated service. Bul they aso employed a stick - te longer wait tines fer service at counters (asa result ee = ‘of reducing personnel eves there) paar SE; + Customers are not aloe in raqutng ireentves, A = ‘company's eales force must receive thom as well. Fewy = salaspeaple abject io using a channel that res them to focus on her highest potental customers end leaves ont athe service and the generation of leads to lower-cost en allematves ~as long as thir compensation doesn't ip ‘Soe Meine Qarly as Steyr Mena: Send Sin | PricenstouséGorersDeveloping a Distribution Strategy: Key factors to consider (6 of 6) +The tought use of ncentves can also be used to help companies manage be response ef tel channel prin ‘hanging channel swusuee, pment mancfactuer fered ite work Ps exeusive ight o post sales ‘Rspeatan and serves an tans purchased though the new Chanel Kaleo ofered them exclusive nghis fo ean productins. Ine end. bot pares benefied reat from he arangement + "Whe Incantves dant ainays exist. n hase cates, ‘companies shoud oatmat the ue mognto of the baclesh ‘ik by lal a har look atthe realise loaves avalible ‘ch partner. Sometimes tay wil conclude hat toy must ren {tom erksing th an exising channel setup. but often thy wi dete hat tis ask worth hing Pricewmerwouse(orens DOODODODINROTOOCET Cot Developing a Distribution Strategy: Key Decisi STRATEGIC DECISIONS ‘Shenne! Length = Direct vs Inet Thar re 3 major factors to consider when deing on ‘hanna lenge * Customer requirements As discussed eri, ferences in customer requirerrants (such a tha need + Account concantraton~ fa few customers represent the bask of sales epportses (eg. jot engines), diet seling Approach canbe cat alle. Ith eget group per [number and mare ale (ag. tootpasie), than the ‘ervoes of somone Ie alae, who ean spread he oss ofan account rolatrship over meny prodets, warranted + Degree of cont and importance of direct customer jontact~ One reason ogo cect maybe a lack oF Inirmedires rom whom ha frm ean oocire adequate terion = the frm stable o exert some conte ver is Irermedvas twa be unto fo eneue at ceriain necessary lsks are performed or at marketing aces are cared cut in tre way they need be. Also. rot ‘ustomar conic may be Seon as a efeal way gin mmaret understanding a5 annua fare development fe BB necro tionaane +The niensty of stout refers the degree of market coverage a distnulon channel wl rovde.‘Tere ae lives possbies:niensve, sleveand excuse ‘+ Exclusive distribution is where ane (or very few) tistbutrs ar used winin a wen mara res = Ws typealy used for spesaty goods and business prods — Oftan a manufacturer fenchisos a desler asthe cexclcive tio of fi products. Through ts eine mama desler oy snd an! over ton = Sometimes, changing marketplace condtons may ‘make exclisive dstibuien arargerenisuntenbie Tpateeive. The auiomotte retallg markets an example oft, wih consumers ro longer wll ralyaely on dealer networks arid intond ung the Inert car warehouses, ueton howtos and giont ‘car rta chans of a ight deal er them a Pricenwesnouse(Corers|Developing a Distribution Strategy: Key Decisions (2 of 4) + Intensive disubuion is stategy designed io cbial ‘maxinon market coverage: = The goa of rtnaive dtibuton ito enable the wedest possible exposure ofa prods by making ‘valet in every ecaton where customers ma ‘wantto purchase hence maximising place uty ts used fr proucts suchas bread, soft inks and ‘ther consumer convenience goods = Venuing machines se on example ef nonce latibuon thet neve boen use increase markt _avalebaly of products such as newspaper, sack lems rd ett = Acomeny operating an tensive csitsion Statagy sts to many wholesaler ad elas — Products that are estibuted rtensively seldom ‘benef mach fom wholesaler and retaber promotion ‘cai narmediaes are usualy reliant o push ‘rs ear bythe majory of ter eompetiors —nstad the fr must ey heaviy on advertising and sles proroton "pur the product though te chanel to eoraumers Selective istributon I used by many producer of higher valve consumer goods, sudhe tng, ovens re ‘sporting goods: ‘Thee products are more expense han conerie oar buyers we Were wllng to spend be Searching fr em. Consequany, 2 maruactrer can {se fewer ntrmedivis fo lsibvie s rogucts ‘Greater cas akon select ntrmedivies who can ‘roid he promotion, essorimnt of merchandise and ‘ther serviegs tat customers want Prodcts ave alo atroted selectively if manuactrrs ‘sh to matin more contol over dstbuson For example, Panasonic sel te electrons products (trough seleied loge retailers and desler newerks ® Pracewateouse(Gorens DOCDDDODDOTOOCCO EET EtEOt ston. Datum Stegy Developing a Distribution Strateg) ‘hone ein the same product tough bv or mare fistbuton channels. Tis approach i Used by fr tht nists let emedtaras reach deen ops = Telecoms providers often use mutchanne! Asrbuton systems, using) tect channels and ‘ela cult o ea product to ndviduelconecmers, i ident desler and dtr oe posuets to smal businesses and i) hel vn sales ‘orc to sal prcucts age burnastoe ‘+ Muttchanel systems enabie companies fo each a wide variety of customers However they may cent confit between Inirmestaes, ite rlermdariesbaleve tal hey ae competing fr the same cutomor = Tres aso aris hat marketing /premotonal ategles none channel can undermine hess in {rather e.g. lhe pre poisoning of product in (ferent channels fs dferent and consumers have ‘ity ofthese diarences (reine emai Sn eo meet GB canineDeveloping a Distribution Strategy: Key Decisions (4 of 4) ‘TACTICAL DECISIONS. + Whan choosing a retaer al of ese taco a wed as 1 Alter tey staegie decors have been taken, a company eee ‘rust goon fo make srumoer of ore tact deine veloping a Prom: Soll sersinar iaetels + Aroher key decon I the selection of an appropisa ‘Selecting Individual ntemediaies promotonalsrauagy. Tare sre to primary options: + etermeseros shouldbe chosen to match he products = push statogy relies heal on percnal sling rmartling satay. For example al the most bast level fe ncenves fo promot prod fo ceebuton Rolo vatehoe oudbe eld mexchsve sores, nln intermesaries, and than rele on tem i pus ddscount sires product outta and conser Choosing te covet iniermediaes volves asking @ = putt strategy notes promotoral offers umber of questons: ‘Simulate amand by end users. in tu, they ao ‘expected io exert proscure on stibuion ~ Dosa itmeday seve the fv decestagst eee aa rie Ittough te channel = Arethe ober products handled by he ntommediry tp oege eee por = -Reembinaton ef push’ ane pu satgis I also posetle = Rabe tnte piece empire a + Some manufacturers are revng towards mor enightoned ee eek ae by os HN ‘ways of managing her relatorehips wih Bstbuton Does the itera provide tie necessary ‘Shanls, Co-marketing ivlves te reaton of ‘saris such as spect trago, crea repair parhereire bebween manufacturers end interes to Fhetaee bot partes’ revenues ana prefs. Ineuges jt {actos or pomotonal rpertee = bom putes in ‘ering, sire verry management, nary = tethere adequate staffing to ve proper attention to en the manufac produc? eae ae Sse «l PrcenvousGores Scion. -Dettn Stator Developing a Distribution Strategy: PWC Expertise/Other References Exampes: Our Experts: + Proict Octons Phoenix (artdenti ‘Mork ary, Daud Walsh, Euan Cameron, Clare Maxey. = TSG assist 2 consume: goods company Daniel Guinan, Eleanor Scot sevlping ts stolen satay forts products in (otnorRoferances ve makes (UK Franco, Geary, Span an rt manne a ‘Distribution Poteies and Strategies,'E, Johnson in = Ta moved: Fundamentals of Marketing (2002) + Acetaed review ofthe product market * Noes on Marketing Stategy. Harvard Business Review “+ Anintarview programme targeting product ores purchasing directors ef major retaders sired ‘+ Steering customers toto right cher J. Myers, A Ss uncerstanding cent (end hay fare) keri and Van Met n The MetGnsey Guaraiy Product purchasing practces (20nd) + Astor vt programme incksing sl major ‘etre ‘+ Daveloing a blueprint or tibson in each matt (eg In-hause v ousoured,approsch tebiling physical astbuton, marketing ane merchandising et) 7 BedeetNew Wet TSG assisted Alod Domecq o develop a Spanish chanel statgy fr ths gabal wine an sie company ‘Stofanetout Senin al Paces epee rteSection 3.8 Drivers of Value/Profit Tree TRANSACTION SERVICES DogvoanD Drivers of Value / Profit Tree What ie i? Profit Trees help us to understand what is diving the proisbity of a company industry and why differences In proftabiliy exe betwaon cerisin comperies / industios "+ Rotum on capital empoyed i the predominant ‘measure Used lo compare the past perfomance of ‘ompanios. By comparing the rate of rem lo tre cost ‘of capital, we can determine tho exten lo which any business is eaming economic rot, ‘+ If profi performance is unsatisfactory we neat to sdagnose the sourees of poor performance so that ‘management can lake corective acion. Such Aiagnosi rcuies us to cisaggregate overall retum on ‘copia ino its constituent elaments in entero ently ‘he fundamental "value drivers"Drivers of Value / Profit Tree: How to use it + Methodology: Decide on top level performance measure anc brake down inta constuent elements (daw the Wee) = Got company financials and plug relevant dat into spreadsheet — Populate tre with relevant numbers = Draw coneluslons on key value / perfomance divers for business industry Sheey Famer Man Seant aban + Common Uses: = Profiablity Analysis —Disaggrogting th financial periornence of s company industry to understand the ‘vers of profit / value = Compottor Benchmarking — Comparing pofsbilty nd rivers of poftabily between companies! industries Drivers of Value / Profit Tree: How to use It + Mustrative Company Example: = To understand the causes of Compaq's low ‘tun on capital compared to Del, a isaggregated comparison of Compaq) financial aos t tose of Dll might Fighight: + Compaq's tower operating margin caused by: > Higher COGS (50% vs. 40% of sales) > Higher Sales, General and Admin ‘costs (20% vs, 18% of eal) + Lonor level of asset tumover caused by > Loner fixed assot tumover (50% va.67%) > Lower inventory tumover (125% ve. 167%) ~ The example hihighis where diferences In profiablty aise. This can be used to focus ‘management altenon on areas that need. remedial actionDrivers of Value / Profit Tree: How to use it + lustrative Company! Industry Examp! ~ Thecame satel ‘analyes can be cant fut using a moro generic profi growin toe Note: This typeof toe ‘can equally be applied at thelnduoyercomeany = This exemple hightghts that profit growth is being dhven by revenue growth with no change in cost base = Revenue growih is being dhven by market grow ‘and market share gain, the lator being driven by ‘decreasing competion Do000 Drivers of Value / Profit Tree: PwC Expertise/Other References ‘+ Example: Project Pudding The clent was Clayion, Dubifer& Rice (CDR) and the target was Brako Bros (a privately owned foodservice business). ‘The main atracton of Brake Bros fo COR was the higher than ‘average margins inthe company and one of our key CDD ‘objectives wes lo uneeth te origin and sustainabily of tis, liferoncerelave to UK, US and French compotiors Saegy Framer lS Eten ~The profi tree structure was used to group the main vers of gross margin. We then used traf ight scheme to indicate the impact ofeach element on gross margin The ree helped us o deny the main reasons for Brake Bros’ higher margins. ‘These included: + The fact thal they were seling lo independents rather tan chains + Thelrmik of value added proccss + Their sales proportions in each temperature category + Thelrstrong brands which atraciod a variable ‘remium (e.g. Walson & Philp fr fresh prodica) + Ourexperts: ~ David Trunki, Ross Bryan + Addtional References: Contemporary Strategy Analysis’. Grant (2003)Section 3.9 Industry Lifecycle TRANSACTION SERVICES Pracewmeenoust(Gorens PESEDEDOOOEDODOGCCCCCOD ‘Secon 39 aay ae Industry Lifecycle: What is it? [AS an industry dovelops over time, it passes. trough a ‘umber of eiferent pasos in ‘elie mow Inusty amor Syer = Secu" (ua) = Maturity (M) = Docine (0) During thoso stages, several 33 fellows: feciors fer nd aierent Sion Pepe ine SentEan | PricenatousGovenscn 26-nty Leeo8 Industry Lifecycle: How to use it * Dotine where the industy Is in is fe-cycle in terms of ‘Common Uses cd + Test whothera curent strategy isthe most eppropriate = Sze fora cfent, ven the current Ifecyce slage of ks = Number of compatiors ‘natty = Develop strategies for a cllnt which are appropiate to = Boa ale is compative envionment and IncustyIecyle stage = Level of innovation These factors can bo potiag agains! me fo create the He-eyle chart * Define what etratogy ie most appropriate given the Ie yee cage i {ie Total rot costo protec = £100 ‘Sia rie = £200 ost otprduct= 2109 Vota soe ny ve is + SS auanaty etume sols at 200 2a vow Ye fells Solgar Sol . exe nn, + Inthismutiple price mode! the company ods @ coewmevaeno Moyo cag ferent canter gop een + Less price sensive customers that would py brn coring he af aceon he above £200 are not exploited - ‘consumer Supls! oa = + Some ofthe less price sensitive consumers that + te psn ona et ht woul poll £200n he prevous mel aropordedo buy the product at a ewer pe but stil generate a ay £260, thereby crving inceased profit preftfrtho busines Ths represents oat + Iieddtion some of the pice senstve consumers Busine (known ao doad weightloss) thal woud not buy at £200 are captured wth 3 E150 price, eving increased business a al PrcunmousorasSteen Peg Seana Pricing strategies — How do companies do this in practice? ‘+ Thare are a number of mechanisms that may be ulisod by companias to charge diferent prices to High margin High ROS ‘Two companies ‘Low volume > Low assert withthe same RONA, but schieving itn very diferent wy ‘eg. Prada/ igh ed etal TRONA 10%: * Low price > Low margin > Low ROS ‘High volume > High asta + eg. Top Shop Law end eae ‘og Sea). Pe a Pricey ecuse Gores acn 52-RONA Ses GB acatosoms ace RONA Charts: How to interpret them (cont) Digging abit deeper: a element gates cn ne Soe | an aia + Netassot tumovar can be thought of asthe ‘number of times that capital being turned over ‘insoles rovenue ina period. Its Ue number of ‘pounds! worth of sales that each pound of ies Investment gonerates on average na year Paes + Netassottumover can be broken down toforma | SH further pyramid of ratios. ‘These can hep to = dont what is driving differences in asset tumovereg.: = Poor menagement of deblors cash = Overinvestment in plant and machinery Siang) Fanos Mis Secon en ‘al bovaagadoougeggs Sea aSEay RONA Charts: How to interpret them (cont,) Digaing # bit deer (cont: * The profmargin can also be broken dovn to ‘cently aifrenes im pertormance a th goes roti and operating expense lvels: eae peeing Epes ier This can help to identity what is driving ose a ‘lornczsihrekim on sales Sass ~Diferenes in reduction overhead / labour cos _Dilfering loves of ivestmentin R&D ‘+ Foramore in sotto RMS =1 Company B: Sales 150 > RMS=150/100=1.5, Company: Sales 50 > FIMS=50/100=0.5 ‘Sel the largest compatitor al RMS = 1 end catulate all other shares relative to that player Largest compatior ompary B: Sales 160 -> set to RMS =1 ‘Company under consideration: Sales 100 > RMS=100/150=0.7 Company ©: Sales 60 -> RMS=601150=0.3 2 Note that in many cases, It may be preferable to use volume instead of valve shares in order fo stp out pring ‘diforoncos, Precious ores B QCOCOCTO EB tacsta sma Paar prtay fa hshare nin on acy Seca + Tshebs wih stage cocson regarding 2 mapoerenan . ae rod Scale drives proablity = tvasinnt + inion whee eal ely o have an imped on those that: ae = Are asset rich e.g. require large machinery. These oa ot he Pip le hem pm id somtpetoeeeplls ~ 80 conadios oF moss mail produc 0g. gear Thee Docresns eed sea to abe sSpaa irponea Regeeestuyacinioe kes rks ovo compete * There are also businesses that are less dependent on scale. mt Se Bam Sosa ek ane ‘These include players that sell differentiated, lunury, niche or profitability Heese aS oe al PracenntmoustGores00000 ston ROSAS Ma ROSI/RMS: PwC Expertise/Other References Examples: Project Henley AG a eins Meher mr compos (2) ROS/RMS: PwC Expertise/Other References Examples: Outside Example Airing Industry: Relationship between Experience and Profitability ‘haben emer ne tan + Part of a “secret assignment for an ‘undisclosed eliont + We used this chart to show tat BAO is doing wol compared to the competion due to is 20, 2 part ofan overall review of te strategy In the DIY industry, it appears that size is ‘generally an important river of profitably {e.g du® to economiae of scale ft coureng of products) (Our experts: + Ashwin Assomoul = Daniel Gutinana * Olver Rowson ail Pacers ome DODDCTOOOD OCC COREE 5B sectstmarmae + Witin the aire industry, t appears that citical mass isa key diver of rofiabilly (since high fed costs eed tobe covered) ‘Exceptions Southwest, which has ‘adopted a diferent model tothe rest ot the dusty a2 Prceniemcus CoresSection 5.5 S-Curves and Market Penetration TRANSACTION SERVICES al Pacis Gores QUDGDRNRTAC OAR R EC e eos S-Curves and market penetration— What are they? ‘Research hes shown that as new technologies become established, they typically display a time path of cumulative adoption that is S-shaped Mustrative S-curve Now invention period } Explosive growth period } Maturation period Beereasigh speed of penetration, Fotavatinn mat Market Penateatin STATE OF — Fluid state Product maturity tate TECHNOLOGY * Itefined technology, product + Highly standardieed product DEVELOPMENT | snémerkel ‘ATEAGH * Frequent end major design 1 estabsshed market {+ Focus on cost reduction and stactor changes performance and product process innovation ADOPTION —* Manufaciuring process losely | improvement. ea poor i structured Dominant design coalesces | technology eaming curve means lite risk ow unl costs and a large market market resuling fa rapid grow eee ional0000 ‘S-Curves and market penetration- Why do they Customer heterogeneity: ‘Customers have citlerent psyehoogica profes and hence ‘ierent inden fo adopt naw roast, Customers ty be ‘Mapped eno detbulon curva aa shown, th progressive opto by each respecive group cf consumers arg he Shape of he Scurve S.curve: cumulative effet of technelogical adoption rersion petite femect thee sare apo abe rts tsi ‘Sino sn ‘ilereces In cont of adoption across customer groupe ae also Hal resutin lang rts of ke of nen eens, ay out eeeition cous") ce. ile oe ce isp» = Setup, user eosis > fr in cael ote ve = Switching east venecsunng te and fer she = Opponuriyentts J npn ‘Dierot customers ple diflerng vais on products, Therefore ‘veshds below whieh pees have io falbetoe customers are __vilng purchase sprout vary Zee eae How might S-curves and market penetration be Future strategic opfons can be developed based on an understanding of 1. Where a product cureniy sits on its Surv 2. What i rquied to dive the S-curve forward in terms of ‘is next phase of growth occur! Why are they the shape they are? Time led for Information wansmission Product wereness does not gow ala corsistet rate ‘alowing launch Time requests buld customer ‘verona, then, Be end satiation cect, goserating meane ‘Customer assurance! ust ofthe new reduc may also ‘etd tobe bull For example when care were nvedused ‘m Ametea, awareness wae but wel lor ears became ‘onuar party as acsurance of sooty and berets Seveloped more sow ‘Time required to establish the market + "Marka may ake ins to bacome eatalshed as products ‘gradvaly become accpiod ss part of fe by cuter Noten fects may resulta nezezsing valu of product 235 adoplon tereases eg. Pax maces, Metis pros Development cf complementary goods alongside he main product may make fo moln product more etrasive ever Incteating economia af sla and progression along tha Ibsning curve aver Ue resus Fr ineeasing return ach {canbe pesood on lo earaumara nto fom of educed bees-ths diving father adoton ‘omer Harder to gelto the top ofthe possible S-curve (panels ‘he maximum pssble mara) ivestnert in promon and Inprovernent of reduc reqlod. Wao, ‘mark! penetson may fen prematurely Because ot ough has been done opesuace hard ore gauos (ste rjorytagards fo adopt the product PricenieouseGorans DO000CC ICH GB xcrtarame race relevant for us? ~ Is thore a sk of disruptive technologies? [See sisrplvo tochnelogy section} Are there any poienialbotlenecks ingrowth caused by ‘maturing technologies? * These questions should ba considerad in order to assess future oath prospects and thus etabish conctusions with respect a atlevabiy ef promcions ~ forerampe te Scune ofa pati Ststeqy Dus coms iis mantras vere RAD and marian epend Stromal ioprovan gestes oman eeetrent —* S-ces can hep o epahteunderbing eves at ~ As shown below, dforentaroas of focus are ecessary at diferent stages of the product Mecyde Investment $-curve ‘mover advantages ~The expunental growth avadabe curing the eariy slages of markt panetraton can benef ital orirants, allowing them to estas cefine the market and the basis fr competing within it such that they can tke a ‘dominant share, hereby inezescing barre to new cnirants However, thre is tle evidenco that these enkrants enjoy sustained long-erm fret movar advantage 2s incumbent managemont are frequendy susceptible to ssrptve technologies and newer entants may ‘Due diligence — Busingss plan analysis ereeive fewer risks in entering established markets, * Sccurves should also be considered whan assessing Father than having to go through a process of business plane ‘developing new ones, = Where isthe procuct within ts lecye? ‘+ Assossment of any fret mover benef andthe potential ~ Het adeaustay suppor? longevity ofthese can assis usin drawing conclusions = Axa there adc-an or complamaniary products ‘regarding potential market freais and opportuni rom cmengttltimey asst win grow? z _the porspectve ofthe cient target or their competiors PrcennemnouseGoresSecon S.C we aa Paeen PwC Expertise/ Other References 7ijPeseet Robi ‘Country performences er estibuted along the certification product fecyele ~ S-euves were used to dopey ferences in matity eft caicaion |" markatn various counties and so the growth prospects ‘and ervars ofeach = though tis project dd not complete, use ofthe S.curve was avaliable tol bringing together our thoughts ans cisplaying ‘conclusions * Technology and competion: the fusion of new technologies, LBS (see Ema Sage) * Innovatvenoss and adopter catagories (see Emma Sage) * Introduction to Swateny 10, LBS (see Emma Sage) Fret Mover advantages, Stratgic management jours 1988 (see Erma Sage) The tiring of new technology adoption, Hoppe 2001 (see Emma Sage) Serena sence aa Proceevous Gores QOCRTGRTNTTOCOOOAE CA Coe Section 5.6 Sector Charts TRANSACTION SERVICES w Pacewiemouse GoresSector Charts: How to construct them Introduction + The sector chart ie used to essess the compaliive ‘dynamics of a given market and each competitors pestion within it Methodology: 4. Define market and players within 2. Gather sles data— volume / value (cuent year+ 2/815 years historic) —whalaver you can get! is most appropriate given the analysis you are undertaking ‘3. Caleuata th flowing thee values foreach company Included in the analyse: Relative Market Share (pit on x-axis log scale) 1 Setthe largest competitor at RMS =1 and calculate all, ‘ther shares relate fo that play: i = Largest competitor company B: Sales 150 > set to RMS toro) (Usually 5 ys & z e 8 : < g = Company under consideration: Sales 100 > RMS=100/150-07 = Company C: Sales 50-> RMS=60/150-0.3 _ NB. Choise tween volume or value analysis; In many cases, tmay be preferable to use volume insioad of ‘value salos in orca to stp out pricing dferences between companies and understand market sharofeal [grow year-on-year once theca have been removed tay mena Vena Seren aten Note: es asa Morket Share (Relative to Largest Player) {Log Seale) Real Sales Growth (oleton yas) “Take 2//5-year (as appropriate) historic salos igures for f8ach company and calculate compound annual growth ates. Ifyou ee analysing valu growth ensure that you calculate real growh by sipping out the effects of inflation CCurrent Year Sales (use to determine relative bubble sizo) ‘The bubbl so rofects the most recent year's revenue for cesch company You might want to repeat the analyse for diferent ine petiods fo compare / understand how attr dynamics re hanging over lime wel Paces DOCDDIO CROC ‘Sector Charts: How to interpret them 2s elas rong erasing insights reperdng the ritve eromnanc of fren compels the oval hapa’ ofthc Can provide some useful information about overall market dynamics for example: it Pe eee eet Fragmented Market Growth to 0s) a3 oka Many small player, with “Others” + {aking a large share of averell ‘market ealee + Company gronth ditibuted ‘andomiy aroun the average ~ 90 the overal ‘shape of the market looks unikely a enange signicanty anytime soon s Consolidating Market Psion 10 0s 032 at 10 08 032g Players of vaning size—irombiglo = small Largest companies growing at above ‘erage market grow rates and smaller companies growing at below average marke growth rates . “This means that overtime larger layers wil take an increasing ‘share of he overall market ie. the ‘markat is consoling Mature, Consolidated Market ‘The matkets highly consolidated with afew large payers ‘dominating and “Others” ‘comprising a small eomponent of total market sales ‘Company growth i dstibuted osely around the average market gromh rato, uggesting again tat the overal shape’ ofthe market, looks unikely to change ee : one, ——- cenasecon Se Cnn BB sectotnersae Sector Char wC Expertise/Other References fears sample duty Mae Analyt: + PletAspin~ Rev fhe O70 heals etr Pitces Ohaus Dowlprentbay Unde aeons vs Ineo Chater é a 1 Becdeccyanciadarmancainienpale Underage ova ma eure ae Stiga pnd vs nna eave + Competitor Analysis: Understanding @ company’s postion relative to ‘other players inthe market and how his could potently change Inthe future or how thas. hanged over me ur Expor + Emma Sage, Ashwin Assomull Sop Faces al Seo on pal Pricewatenouse@orens DOODDODODOT OOOO EHH Section 38 Seco Chae BB csrto home tome Sector Charts: PwC Expertise/Other References Examples: * Sector charts were used tilt the fogmented + PislectRose-Rvew of Westminster Senior Ling nature ofthe market, and diferent competion (Givin of Westminster Helbicare), a provider of sategioe heatncae senices, for 3 ~~ Westminster's compettors appeared io be ‘ving sales growth tough acculslon, consolidating the market [ESR ETS mai ae i ave Seve aa ga ne ements hav ber on pth gh scatiot ‘ait Snes tony ravers Mana Sco aon Seo Ramen al PaceoeonesSection 5.7 Strategic Positioning Assessment (McKinsey/GE Matrix) DOOD DUDODOODODODOCE LOC The Strategic Position Matrix: What is it? Ditferent business units are plotd on 2 gr ‘accoring fo the atiractvonass of ther markats ‘and thor srengl relative to the compotion + Daveioped by McKinsey ffom GE in the 1970s (GeiNicKinsey mati), this isan extonsion of the BCG matte, + Ieis sinlar to the BCG matric in that It mape Dusinessesipreductefbusiness units on a gt The GE matic i, however, an example of 8 multfacor portolo model, which roquioe the conelderation of @ number of factors along each “Its superior to the BCG matic in that it us 10 develop a mere ‘sophisticated definition of markat atractvenessicompeive poston, which ‘ean be talored to tho specific Industry under consideration = The cisadvantage is thal many inpis into the matix are subjecive and. tho posloning of indvidual Business unlts on the malix is therefore open to some debateCooeoeooneee ‘scan 87 Sri PetorngAeseconen EieNSE Ma) The Strategic Position Matrix: How to construct the chart 4. Dolemine which factors mako th ghen market atractve 2. Weight the relative importance of each chosen factor ‘0 thal the sum ofl factors equals 100, © + Market Grow 40 *Intansty of Competition 30 + Stengih of Baers ta Entry +0 =. Market Size 2 ‘3. For each business unllproduct, score the associated ‘market agsinet each factor on @ scale from 0 t0 1 (attractive, O-unatracve) 4. Mulply and add the results of polis 2 and 3 values for the ans + MakatGrowh —— 40x0.520 + competion 20x08 i * Barriors to entry 10x 0.86 m4 + Margins 2010208 5. Detemine the ileal success factors for @ bushes uniiprecuct 6. Weight the relative importance ofeach chosen factor so that the sum ofall factors equals 100 (as above) 7. Score each business unifproduct interme of how wol thoy rate against these factors compared to tha compatiton on a scale fom 0 to (as above) 8. Multiply and add the results of pols & and 7 > value for tho y-ans (a8 above) 8. The acie-size of each business unllpreduct should equal tha size of he market itis operating in 10, Noto thet many representations of this matik also odé sector to tho eice, depicting the market share of the ‘business univpredut within tna market + Market Grown = 05 Competition 03 + Banierstoemry — 08 + Margine 02 Etegy rena Mars Scone aon ‘Shan SS Poston Aas Menon Mah The Strategic Position Matrix: How to interpret the chart Different strategies may be most appropriate fora business ‘depencing ons locaton on the gi: 4 Protect and Refocus: Manage for current eamings ‘concentrate on atvactva segments; defend strengths 2. Build Selectively: invest heavily in most attractive segments; buld aby to counter competion; inrease profabilty by nceasing producthity 3. Protect Position: Invest grow at maximum digesible ‘ale; foes on maintaining etength 4, Manage for Earnings: Protec positon n proflable ‘segments; upgrade progct ne; minimise invasiment 6. Manage for Earnings: Protect existing programme; Concentrate investments in segments with good proftaty ‘ara low ik 6. Invest to Bull: Chalenge fr leadership; bul selectively on strengths; reinforce winerable areas 7. Divest: Sol ata tine that wil maximise cash; meanwhile (8 costs and avai investment Spezia Limited Expansion/Marvest Look for ways to expand wlo sk: otheraise minimise inasiment an rational operations ‘9. Build selectivoly: Spaciai¢e arcund limited strengths; seek ways fo overcome weakness; withdraw if indicators of sustainable grawth are lacking Competitive Position ‘Market Atractivoness PricewovieinouseGorens @GB ottntomrmar The Strategic Position Matrix: PwC Expertise/Other References Exampl Defined hoy driver of market atracivoness as level of industy ad spend, underying dvors of which identi’ as rathetciza and growth, degree of consoldation and rate of Industry chango Defined compettive postion 2¢ even by 2 pubieatio’s relative qually (of canton, brand etc), the qualiy of ts ‘eles toom, is Greulaton size etc. Resull wae’ cloar groupings of publications — =" Broadcasting and Communications with weak compeltive postion ina highly atteclve market ((ecommendation: invest for gronth) = Group of 7 publcallons holding dominant posions in low to moderately atractve markats (recommendation: conte to inves!) = Group of 3. publications with wesker compeiive postions in low lo moderately attractive marks (‘ecommendaton: consid divesting) ‘summarseteommunicale out view of fe portfoio ‘+ Recommendations and_dscussion_at_ cient presentation ‘focused around ins sig + Looked at DMG's Buslness Media Publishing porto wich covered a wide varoy of diferent 228 pubscations ‘Our experts: + Worked to assess which publications wihin te portolo | enim cage ‘wore worh keepingldvesting post-acquisition ise Parent Stand Eaton m Pracevoerouse(earens 000000 D000 con Sanpete Aetna enn ate) —_ The Strategic Position Matri Examples: Project Rupert PwC Expertise/Other References Assessed he attractiveness of variety of consumer brands in RHI food portfoto "+ Idanifed the key ervers of market attractiveness 28 market tizo and growth, plue the presancelassence of favourable demographic/soclalbohavioual Wonds {hat might point to longor tor market growhidecting ‘+ Dofined competive positon, in thie case. quite imply, in toms of market share + Wentfied a number of dominant brands in unatiractve markets (0.9. Bist), rasing the queston ‘of potenti dversifcalon to capiaise on stiong brand ecuiy in other more attractive markets * Alco identfed a number of week brands in atvactve, but highly competive ard hnoweasingly polarised mattels (e.g. Mother's Pride), tus. raising the question ofa potendal ext * Framework helped us to pul ogether a_number of ‘iffewnt_charactersics_of_seach_prandimatkat_io Our experts: + Emma Sage ‘Additional References: + Harvard Business Review on Corporate Siratogy Sly ramen Maus Sacan ten ‘ive ata coherent view ofthe rorfoto and cevsion ‘commendations for ure development ; eee a0} Pricewwsennouse(Gorers|Section 5.8 DOODDODDDOSOOCCCC OOOO Value Chains What are they? What do they look ke? ‘Value chains break a business or an industry down into a Satis of tise stages / actviies which add value tothe ‘cerca vin cvs fore product / customer Value chains enable us to: ~ Describe the suecessiva phases ofa production process = Analyso which phasos add the most value or contribute the most cost —Ienty key success factors or real points in the production process ~ Make commercial decisions about key opportunities forperfomance improvement Industry Value Chain wal PrcewwieeyoussGorersValue Chains: How fo use them Industry Value Chaine Industry value chains mile company vale chains, by breaking down the chain of actives that an indus eek inte ate toe Te ps tage ~ Tne ancien Se ete tate hy — oeecmame nn cee counter cee™ + Company Valuo Chaine saber vee 2 rouonel ‘assembly / production, cistbution, real and service ~ Porters value chein canbe used to break down 8 company’s activites Into detailed discrete ecvtos Tilsen se rei 1 hace crabs pbvary ool ch tae ‘+The players compoting al varous stages ofthe value ‘secondary acviies which together form the value chats ‘hal for every fr > Including assessment ofan industy’s degree of When a company’s value chan is broken down to& ‘vertical ilegraton sufcient evel of detail, the riatve strengths and +The breakdown of industry costs across actives in weaknesses of a company al each stage ofthe chain ‘he value ohn San be Getsanined ean belo kt +The most profitable actives in the value chain (in + Iently areas of compatiive advantage or ‘carjunetion with proft pool analysis) lsacvantage + Common Uses: + Genie putin poston ites ot copes = Bushoss Unit Analysis ~ Kdentiying sources of + Establish polenta matchas far M&A or strategie compative advantage allances: Strategie Mepping Kontiyng future eluctural changes / i. ‘stalegi opportunities within the industry Integration Analysis — Analysing potential of soquiion = targets / strategic partnors: Pacer Value Chains: PwC Expertise/Other References ‘+ Example: Cinven pitch + Example; Project Alox The value chain was used ina pltch fo Cinvon for work ~ Uys Davelopment Capital asked us to perform regarcng a tasting and inspect business ‘commarcial cue diigence on the Sting Group, 2 ~The anaiysis was used to highlight the fat that teeing Unease thing menutactrer: ‘and inspection occured at muliple stages in & ~ Value chain analysis wa used to highight the role ‘company’s value chan played by the two String businesses (Bentwood ‘and Tamarind) inthe industry value chain and how ‘cost was bul up atthe vais siages inthe chain Testing & nap ea f oy Ee BPE > vm! Prcenatetous Gores §Value Chains: PwC Expertise/Other References + Example: Project Acorn = Reom was posoned at a weak pint in Cee eee {he incusty vlue chain, where ventions ~The cent was the Kowa Investrent Offs. PaC provided freee eeteoreeire Vendor Due Diignce fortis proposed dsposal ot Aula, oe cece earanatey 2 provider of ig lsc packaging forth food industry Seon eat not have bmaratle Bs thom on tots customers = Travan haart ee do 5 Ihe nosed pesos exp cog on 2h ee gaa tne rn bn yom avg patn a ea ie 2 ee i = — tung al mat na Se ‘Rot as susceptible to margin pressure as Ryman itbevaie Sunsie ba Sew col Paevenousteras DvODOdO DD ON RONG HHH Sins e BB eastatsnetn Value Chains: PwC Expertise/Other References + Outside Example: P&G = PAG Is leading its industry in Outsourced eorporale the development of a facies management end ‘Cutsourced computer networked business model project management systems and data conioe ~~ “Our core capabity sto develop and commorcaize Seouced dota inning © Branding sa cor eapebily ‘employes sorviees r outsource, Customer businese yo1104 payables: Aevelopmontis2 core ‘zpabaity, We concluded in ‘lotet areas that ‘manufzcturng font, ‘Thereor, Ils the business {90 do more cutzourcing, ‘We conctaed that running a backroom wasn'ta core ‘capability. You do what you — ‘Outsourced Partners include ‘Don ord condo Roomcewtaital’) | “parsoop | | Peiieeinc Sour Ao Laloy SESE | Lemetee! | Sees Chairman and CEO, P&G Viewod as diferentiators Sey rong Se sn eI Pacenwiouse Gores & ESET pe ce tenantBB extetons rice Value Chains: PwC Expertise/Other References + Our experts: = Euan Cameron, Louise Herring, Stuart Gale + Additional Reference = ‘Compottve Advantage,’M. Porter (1985) ‘Designing Interacive Strategy: Frem Value chain fo Value Constatation,'in Harvard Business Review on Managing the Value Chain (1990), R. Norman and R. Ramirez (1984) Section 5.9 Value Curves TRANSACTION SERVICES 1 Pricevwrienouse (Gores‘eon 89 vous cams GB corte tome race Value curves ~ What are they? ‘A value curve is a graphic depiction of a company's relative performance across each ofits Industry's key succass factors ‘Avalue curve can be used to depict an industY’s gh characteristics (ypicalpattembesis of competion) and dently new spaces and opportunites for value innovation ‘ttwarn Key success factors are determined ant aifrent company performances are ploted ‘against thes —entcation of new opportuni ie ‘dependent on identifying Important and tunexpoted commanaiios In trms of what customers value + Once ested anew value curve will come under attack overtime as compettors imitate the cue ‘+ Customer pronies alco change overtime, so the curve needs to be regularly ro-ovaluated to callbrated cael ~ This prooss may assist in eeating! Idontiying deruptivetechnelogios ‘+ Monitoring value curves keeps @ company from pureuing novation whan there is sil profit to be Price Easeof use Optional Speed Accuracy ‘generated fem is cument offering features Srcem ranean sec ten a PrcetcustGoras DODDDODDDCOODODCTLOCLD ston 59. Vae Caner EB scxin vn rane Value curves ~ What are they? An example of changing curves over time ‘Sian Senet Pruceivouse@Gorens BEES net: ttreHow to use them Consider three areas: = Product Define key performance = Serica F cater within ach area = Delivery Plot client and competitor performance against key cit As ~ Whi fore a oko or grartedin he nusry ‘ani chould be elerinatod? ‘Which factors are highly valued by customars and so ‘SOU be raised wall above industry standards? hic factors are less value by customers an so shouldbe reducad wel below industy standards? What other factors should be created which matir to customers but urich the Industry hes never offered? Ifthe ellont’s value curve fe diferont from that of ‘competitors: Ask [5 the cifrence valued by customers? itso ‘then Innovation should be resisted and geographic ‘expansionfoperatinal improvement considered 0. Tully explo the existing markot, + Those stratogics maximise economies of scale and market coverage to discourage imitation ‘and encourage the Company to tap curry ‘thexplied market potent PwC Expertise/Other References + Broiect Bowen i = Avalue curve was used to look atthe propostion of the target lative to other playars in tye market ~The curve showed that key areas of eifereniation \were reducing, indicating lov sustainability ofthe {argets postion within te market . rn i ‘we might useful use vale cures in a proect — Fomnule1 was created a Accor identified that there twas a gieup af customers interested in good night's ‘slogp with nos Through looking at the key elements tradienally ‘fered by he ndusty they could identfy potential ‘cost eavings in aroas such ae eivinalion of eating facies and lowering rocoptionistavaabity tha lowed them to oor cuperor bed quabty for an ‘equivalent price 1+ Wo could usefully ee this fo shape our thinking re: Polenta new eppartunits for our elionts to explat Our experts: Common Uses = dentfcaion of opportunites and growth strategies + Can dently strengtns and weaknesses of arrent models) relative to customer requirements *+ Can identity potential opportunites for growsh ‘and differentiation whi an industry Porto reviows + Value curves may bo used to identity businesses winin a porto which afer from their markets and aro therefore polenta ‘sources of profitable growth ano those which ‘conform io the basi shape ofthe industry and ‘are 6 loss kel tobe able to contrbute wa Presuntasousones 8 ating oes “yptcar resect seston ‘Budget hotel Lowrae ‘mata of acesons ty Hygiene Formule 1's value curve ce Emma Sage, Ofvia Gian, Euan Cameron, John Boxall, Louse Hering ‘Additional References Value Inve 2 strategic logic of High Growth, Harvard Business Review Jan-Feb 1987 Eetey aero Mon-Sun en QU0CTCCCosSection 6 The Project Process TRANSACTION SERVICES Pace ecu Cmes & DOOD DODIDODOOOOOON TOI ICD The Project Process: Where Does Each Framework Fit? Note: Frameworks underlined are fully developed in this second edition of the manual PrcerencusGoresSection 6.1 Market Definition Dartboard DODDOUDDDOUOUVOTOOOOOIS ‘Market Definition Dartboard ~ The Issue ‘What business is Shollin? ‘Theres noone right answer, however, management teams \ypicaly have fed or lng scoapted views of tele markel, ‘= This can moan that they miss now opperturies or leave thamselves vulnerabie fo compattve treals, This can oad to issues of incumbent ineta (see disruptive technologies section) ShelP'e Business Definition ‘What are tho benefits of concidering new/different market definitions? ‘For example: f Shell ony defines itself as an oll company, it may not = ‘Spot a new opportunty in the energy industy (or potently {the wider vansport industry which would be Kelly iled its sil, brand or core competencies = Spot new competitors who are curently operating in 2 ferent par of the energy market but may in fuure enter She's core ol market Sey ramen Sec ton soqeuae wal Prcnsous Cones SUAS,econ iat ein aeons Market Definition Darthoard ~ The Tool ‘When touse it = The market defntion dartboard \s tool that can be used: By usto inform our oan work /challnge or broaden our own thing about a business = Inourmectings wih manegament to explore their own peroeptions ofthe market in which they operate an challenge thet viowe! thinking ‘Market Definition Dartboard ‘0.3. Uso in management meetings «Start by asking the question ‘which business are we in? Note oun tye alemalives offered. aly note the breadth of ‘tamatives this lea key measure of the management toa’'s fienbity in the way in which trey die their markat + Push the management team for altemstivas using questions such how could we defie ur market more broadly? and what ‘Shout If we datined the market as X7. Note down responses ad as sections of the dartooad to facliateciscussion + For each potential marks dofinon open up a discussion wath franagement around any key implications in terms of: = Ourcompetiive eat/key compete threats = Potentstnew gronth opportunities ~ Koy skits gaps tat we need to flo compete effectively fn this marke ns See val Prrwuetores GEOCRCOVOOOVONOTCTCCOODD ‘Sean vee omen Cana BBP exsotmersce Market Definition Dartboard - Example Initial question: What business Is the Strategy Group In? Market cue ciigence?” ~ Compete st Other accountancy fs e. KPMG, ‘specialists such as Burlington ai Strategy consulting? — Compottive sot: Statogy housos such as LEX, OC: NeKineay sa + Businoss consulting? = Compattive set: Wider business consulting fms including ‘those wih operatonal, IT ete focus Stratogy Group's Business Definition What are the impteatons? * Our compote propetion needa natorly moot the noode of Sur COD cstomrs aa poston uso olpavom cur ato 80 compotion mun aio concider the abe mara rrmentin cn wo pert: = Wha opportunites and Bresso for TSG we conader the broader strategy market? a = Wat opportunites and treats ei for TSEG we conader Theil eadorunosseonsuling mana?Section 7 Retail Store Turnaround Strategy QOUDDODTDUOUODNNONC OCCUR Retail Store Turnaround Theory: What is it? + Amodel forthe dovsiopment) Gromth "Seay forgoing {imaroiné and subeoqcnt eels of pa 1 eal loving tvosiont y 8 eetag private equity house growth, high profit, + Through he tro tags shown the ch poeranne inet sins to uated finesse Radin the tisk exposure of the private equity house by Initial position Pore Increasing the abisty ofthe frm . “Operational to cent debi trough | pete” taht inprovement css rents low Increasing operational ae © Micrel esoehany of Uteough the development of slorepropostion @ Promoting grat win he ‘umed around business before acteanad eee omulathg an appropriate ext ‘rcnes comes ow govt Pro strategy forthe equ house Tow prof ut ight ark wenerae Shay remnants ten tal PhcewaerouseCoresRetail Store Turnaround Theory: How to use it ‘Stage 1:“DeRisking and De-Leveraging” ‘Stage: “Operational Efetiveness” 1+ Promate a estomar oreration + Revie etn co ste ee Ensure focus remains on the drivers of sales: + Enoure management assure, ‘FReaponssiy and Rosourabliy fr the rescue (pave Har ta and voauae open cae Manage cretorgebior sangemens opus on Ineasng cash fow lo servce Bett hase cor carpelenees trough ers! infest matabts = Tacnie ranasoion vale ih aoe NSe pete scaent and moans + Provide sates Incentives 1 ign ea goals wth ite ortho management + Analyse paoonance diverse detmlne Sepa Copae 1+ Adjust oats promote eiciency [> Wianape coats rreuphou he sunny chain + Promote calaborative buyertsupler ‘elalorships 7” Ube sop oor night oat improverent + a jous Capex and sat challenging Roee erp + rere managers act ae owner, rot Ensure shop ope is effectvely used a «anor nant tag onde « famusaten oer an spate ea a | a PeawoGooe BOCLRGRLVV TONKA GCOTESGY eee eae! a Retail Store Turnaround Theory: How to use it, When to use it Stage: “Strategy for Growing the Business” Potential Us + Usoka when sping pehing/ delverng private equty rt jobs: = Rated DD: The mode fers improved undertandng cf PE Use core conpetaney eos overage brand feae abjecbves post easton, Te del aut any seer fe tenon at toraton tate tbe of hat vee to fect ‘sng co competences iequslion ane gues cara and ec ower patey inentyng opsoraiios nares 7 a ~ _Sretgy cevlopment The medal fers res of cus or fos otal exunon as rah ‘Stoop development a seigy WR pox sesuatoy ~ Went ptetal aan candestee:Unéeranng Invetgotsateratve methods of growth PE home eects pos ccquson ay hab hee ot rcoing proceso pon sequston candles once coral ecdbacbeinoan ~«*~—«snbh cae he model oles a worg wih PDS to lacbay Imanageren(erderleve Sten cistmers ‘les setepicand operator elements and cones ‘Test potential growth stratesles to encourage a Outside Example: Halfords PLC “team by bang meray +) Thmamowor nes developed by Rob Tereleman, Chatman ot Implement 2d growth strategies quick! oe plement planed grow states Uy o BTeea i acekistarais bevlement lined ron 1, copeenated on ct cena costs and roman appropriate prompt an “Owner Altitude rather than an employee mentality” to . Use resco managment proses to refne fur cath geen ‘nplomered eign ~ Stage 2, employed perfeanc nantes tive peremasce at charge nent mabe whl tng Cerio elie aii ‘tin end shop sa athe o oes cpanel ory ‘Assess various methods of owner exchange ~ layed deed grove stands in res such as 828 and*h- Eeasscaane ai neter eecnet etn Temmant nis ecenng care copes & reg use ura ough tr ‘laa weilrt te and Wel ChE creeps earitemartae gern Pet hs enn Seay mere Manet Sec een v0 Pracewennouse(Gorens &Section 8 Other Useful Tools TRANSACTION SERVICES as Prcewaernouse@orens COUR UO TROUT COUN UOC OC Cae Section 9 Least Squares CAGR TRANSACTION SERVICES 1 Priceuaserouse(Gorerscn ___ So aneemnn ‘Least Squares’ CAGR calculations can be a more appropriate method of calculating growth over a long period where there are fluctuations which would distort ‘end-point’ CAGR calculations Mastatve “Least Squares’ vs‘End-polat’ CAGR Calculation Ioyear CAGR (4) 0 By diferent methods Conventions! | “Lenst “Endpoint” | squares” Method | Method wepas | 20%pa, Temes 6p ats ae “Least squares” CAGR method ussall data plats inthe eres ‘etacson ct rath oe he betes, oe Rca he [CAGR =slope of leat-aquares, best ne se ipe----ee- ae eesti -oe--Chaeeso Year Senet eas wl Prucewiious. Gores COU UU UU URRY Secon Las Seas CAG, EB cxcxntima tone ‘Least Squares' CAGR Excel Formula ee Least-squares 1895 1996 1997 1998 CAGR(%) sas 1008-65 as] “EXPSLOPE(LN(A2D2),ALDI)-4 ‘Where (A2:D2) edhe series of sales and (ALDI the series of years, as Formal precudes the nee for running a regression ‘kl iettegeigy Frew al Send Es 24 Fremewoh Ls on oneSome thoughts and tips ‘Most important, think carefully whether itis appropriate fo use the leas! squares method of CAGR caleuation = ehould be used only when there are enough datapoints e.g. a east 6) = tevoms best to use when there are medrate fuctuaons, and you want fo understand the overall trend = Forothor stuaions such as exponential growth dosine or marked changes in drecton or rato of growth deine, iis likely that saveral normal end-point CAGRs for he appropriate phases of gronth/dectne wil be more sultable + You should agre wih your project team up frontif]end where its appropiate to se least squares CAGR, and then bo ‘consistent eeross all team members in your use of them + To avoid crowdlng on sides, asterisk the CAGR data and refer the reader to an appencix where the Least Squares CAGR ‘method can be explained by using side 1 of this pack (no need to show the excel formula to the cent, keep us looking ever) + Be careful withthe excel formula You cant dragitin he spreadsheet as easly as the normal end-point CAGR formula ~The time sries needs to be numbers e-p.2003 but not FYO3) = Gatitight f you're tying tobe clover using tis, tis worse to get it wrong ‘Seow roneves Manu Send Eton wal Pricewieenouse(Goeens Sonus C86 CEB extiotsme race Example ‘+ Hore we show the least squares CAGRs of Passenger Volumes by Route passenger volumes on various routes, most of 1997-2003, cacr* cack which show fuctuaons tal would cause end-pohnt m0 ma oi ‘CAGRS to show dforing and misleading resuls, ‘cependng an which year yOu ike as your slat Toul 45% 60m ‘nd end ports + Note that wa aso show the growh between 2001 z ‘and 2003 using the normal end-point CAGR to ‘ iterate the avant en i. + By putting an asterisk and referring the reader to ; am the appendix for an explanation of least squares i AGRE hoop fe prvertaton oth side i Siean (96 Our Epars = Max Livingetone-Learmenth “Lan Squares CAGR.- So Apne Ep rer ats an ail Poco