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贝恩咨询分析方法-businessdefinitionnullnullGisele GarrawaySusan Caraviello, Paul DiPaola, and Todd Senturia bcBusiness DefinitionMarch 1998Author:Contributors:Todd SenturiaReviewer:Copyright© 1998 Bain & Company, Inc. Business DefinitionBusiness DefinitionAgenda The business definition concept...

贝恩咨询分析方法-businessdefinition
nullnullGisele GarrawaySusan Caraviello, Paul DiPaola, and Todd Senturia bcBusiness DefinitionMarch 1998Author:Contributors:Todd SenturiaReviewer:Copyright© 1998 Bain & Company, Inc. Business DefinitionBusiness DefinitionAgenda The business definition concept Applications Business definition steps Client examples Bunker Hill Door Systems JJR Industrial Coatings Key takeawaysBusiness DefinitionBusiness DefinitionAgenda The business definition concept Applications Business definition steps Client examples Bunker Hill Door Systems JJR Industrial Coatings Key takeawaysBusiness DefinitionBusiness DefinitionWhat is Business Definition? Indicates whether two business segments should be operated as one business or as separate businesses Helps identify what drives superior profitability in an industry Serves as the foundation for strategic analysis and sound decision making Business definition delineates the economic boundaries within which companies should compete.Business DefinitionBusiness DefinitionOne Business vs. Separate Businesses Same customers Same cost structure Same competitorsDifferent customers Different cost structure Different competitorsIf two business segments have the same customers, the same cost structure, and the same competitors, they are one business. If they are different on all of these dimensions, they are separate businesses.One businessSeparate businessesCompete in both segments to take advantage of synergiesDo not compete in both segmentsBusiness DefinitionBusiness DefinitionWhy Bain Uses Business DefinitionStrategic insightsTactical insights with strategic importanceShould we buy or sell the restaurant business? Should we expand into China? Are we vulnerable to Japanese competitors? Should we vertically integrate into growing vegetables?Should we drop this product line? Should we cross-train our salesforce? How should we group purchases for VMRs (value managed relationships? How should we configure our manufacturing plants?The correct business definition can lead to case-cracking insights.Business DefinitionBusiness DefinitionConsequences of Incorrect Business Definition Companies that define their businesses incorrectly make poor strategic decisions.CostsCompetitorsIncur unnecessary costs Forgo opportunities to capture synergies Do not transfer experience Underinvest in important R&D initiativesOverlook relevant competitive threats Miscalculate “market share” Set inappropriate performance targets Overlook relevant capacity changes Misjudge true cost positionCustomersNeglect profitable customer segments Over-invest in unprofitable customers Forgo opportunities to capture synergies Misjudge relevant market trends Overlook relevant geographiesBusiness DefinitionBusiness DefinitionExamples of Incorrect Business Definition Some respected companies have missed profit opportunities or suffered unnecessary losses because they did not define their businesses correctly.American ExpressAllegisSaatchi & SaatchiCharge cards and credit cards are separateCharge cards and credit cards are one business - plastic moneyCharge card division lost money due to poor cost position and misguided marketing effortsAirlines, hotels and rental cars are one business - caring for travelers worldwide Airlines, rental cars and hotels are three separate businessesThe combination provided little value to customers: Allegis was split up Advertising and consulting are one business --service to global business executivesAdvertising and consulting are separate businessesCompany suffered severe losses due to inability to transfer experience, lack of focus, and tainted imageCompanyA better business definitionConsequences of incorrect business definitionHow management defined the businessBusiness DefinitionBusiness DefinitionAnalytic Consequences of Incorrect Business Definition (p.1) Business definition must be the starting point of any Bain case because defining a business incorrectly can adversely affect strategic analysis and decision making.If we define a business incorrectly...Incorrect Business DefinitionCorrect Business DefinitionThe underlying normative band will not emergeA business may look deceptively attractive or unattractiveROS/RMSGrowth/ShareBusiness DefinitionBusiness DefinitionAnalytic Consequences of Incorrect Business Definition (p.2) Defining a business incorrectly can lead to problems in conducting E-Curve and RCP analysis.If we define a business incorrectly...Incorrect Business DefinitionCorrect Business DefinitionWe may ignore relevant experienceWe may benchmark the wrong competitorsExperience CurveRCPBusiness DefinitionBusiness DefinitionComplexity of Business Definition A simple catalog of logical arguments is not robust enough to delineate the competitive battlefields for our clients.Is it one business or not?One BusinessSeparate BusinessesTouring quality microphones and speakers Madonna and rappers use both Similar distribution channelsDifferent manufacturers (Audio Technica vs. Bose) Little manufacturing process knowledge is transferable Limited direct cost sharing Cross pens and BIC pensBeer and distilled spiritsBoth used for same function, writing Similar raw materials Some manufacturing steps sharedBrand name sharing opportunities Same distribution channels Sold by same salesforceHigh perceptual barriers to customers Limited customer base overlapLimited benefits of shared R&D Key manufacturing processes are different Different raw materials Business DefinitionBusiness Definition Business Definition MatrixBain uses the business definition matrix to delineate economic boundaries. Cost sharing and customer sharing are the primary determinants of defining a business.HighCost SharingLowLowHighCustomer SharingOne business (charge cards and credit cards)One business with potential for differentiation or niche position (Cross pens and BIC pens)Separate businesses with potential for cost leadership (oil and refinery by-products)Separate businesses (beer and distilled spirits)Separate businesses with potential for bundling (touring quality microphones and speakers) One business with potential for substitution (milk cartons and glass milk bottles) Business DefinitionBusiness DefinitionDynamics of Business Definition Business definition is dynamic. Temporary barriers, such as price premiums and technology advantages, will erode unless they are consistently reinforced.Business DefinitionTechnologyGovernment regulationInput pricesProduct innovationChannel economicsCustomer needsBusiness DefinitionBusiness DefinitionLocal vs. Regional vs. National vs. Global Businesses Global scaleNational scaleRegional scaleLocal scaleProfessional online financial data Overnight package delivery Banking - lendingHospital textile laundering Banking - deposit gathering Residential laundromats Barber shopsClients often cite the need for national or global participation. However, in many businesses, local or regional scale drives profitability.Driver of ProfitabilityExampleBusiness DefinitionBusiness DefinitionExamples of Changes in Business Definition There are several examples of companies that have gained significant competitive advantage by changing the definition of a business.Federal Express revolutionized the package delivery business by introducing an overnight delivery service Charles Schwab dramatically altered the mutual funds business by introducing a no-fee service whereby customers could purchase many companies’ mutual funds through Schwab Calyx & Corolla transformed the flower distribution business by using information technology to cut out traditional distributors and ship flowers directly from growers to customers Starbucks redefined the coffee shop business from providing coffee to providing a social experience The Body Shop revolutionized the cosmetics business by merging the ideas of beauty, health, and environmental consciousness Staples, by adapting the business model of a different industry (grocery stores) and taking advantage of economies of scale in purchasing, changed the office supplies business from a local one to a national one Business DefinitionBusiness DefinitionAgenda The business definition concept Applications Business definition steps Client examples Bunker Hill Door Systems JJR Industrial Coatings Key takeawaysBusiness DefinitionBusiness DefinitionApplications Financial ServicesElectrical and ElectronicsA large residential realty company was considering entering the commercial real estate market and wanted to evaluate the attractiveness of the marketAn electronics company had the opportunity to outsource its electronics testing service but was unsure if test outsourcing would define a viable new businessBain has used business definition in hundreds of cases and dozens of industries. Some examples of our work are: Bain developed a business definition for commercial real estate services which identified it as a separate business from residential real estate, requiring vastly different competencies and economics. Client accepted recommendation to stay out of commercial businessBain determined that the test outsourcing business was not a single business with high cost and customer sharing, but rather six separate business which could be bundled, and defined the few specific entry strategies which might be successful. Client ultimately agreed that critical entry barriers were too highSituation:Result:TextilesA large U.K. textile launderer with 23% ROS enters the U.S. market and earns only 5%Bain found that the business definition is not national textile laundering - there are three separate businesses: healthcare, industrial and linen. All three are regional, not national. Client sold two businesses in New York and made two acquisitions in the SoutheastBusiness DefinitionBusiness DefinitionAgenda The business definition concept Applications Business definition steps Client examples Bunker Hill Door Systems JJR Industrial Coatings Key takeawaysBusiness DefinitionBusiness DefinitionBusiness Definition Steps To appropriately define a business, Bain uses an iterative approach that is both qualitative and quantitative and relies heavily upon data external to the client. The process starts with an hypothesis that is tested along three dimensions.Degree of emphasisLess importantMore importantIs there substantial cost sharing?Is there substantial customer sharing?Does business definition pass the competitor acid tests?Cost sharingCustomer sharingCompetitor acid testsBusiness DefinitionBusiness DefinitionBusiness Definition Steps Degree of emphasisIs there substantial cost sharing? Is there substantial direct cost sharing? Are there substantial opportunities for experience transfer?Less importantMore importantCost sharingCustomer sharingCompetitor acid testsBusiness DefinitionBusiness Definition *On a cost basis only, we must also look at customers and competitors to determine whether the businesses are one or separate.Cost Sharing An assessment of cost sharing involves examining direct cost sharing and experience transfer.Probably separate businessesOne business*Separate businesses*Probably one businessHighExperience transferLowLowHighDirect cost sharingBusiness DefinitionBusiness DefinitionHow Businesses Share Costs Businesses can share costs in a variety of ways.Value Chain StepsHow Direct Costs Can Be SharedExamplesR&DProcurementManufacturingDistributionSales and MarketingAdministrative SupportMultiple applications of some R&D effortsShared raw materials Shared inbound logisticsSimilar manufacturing facilities processesSame distribution channelsBrand name sharing Same sales forceShared info systemsTape and Post-it Notes (3M)Gasoline and petrochemicalsVitreous china toilets and sinks (Kohler)Cigarettes and candy (Philip Morris)Healthy Choice dinners and cereal Soda and orange juice (Coca-Cola)BankBoston NOW accounts and savings accountsBusiness DefinitionBusiness DefinitionExperience Transfer Product AProduct BLessons learned from product A can improve manufacture of product BProcessor CForgeGrindPaintDistributor YCustomersSupplier AProcessor DForge GrindPaintDistributor ZCustomersSupplier B(Raw materials)(Semi-finished product)(Finished product)Firms can benefit from experience transfer when two products share similar high volume, value-added processes. Business DefinitionBusiness DefinitionBusiness Definition Steps Degree of emphasisLess importantMore importantCost sharingCustomer sharingCompetitor acid testsIs there substantial customer sharing? How great is the degree of functional substitution? How great is the degree of customer base overlap? How high are customers’ perceptual barriers?Business DefinitionBusiness Definition Customer Sharing (p.1)Customer sharing analysis includes measuring the customer base overlap and degree of functional substitution, and, to a lesser extent, looking at perceptual barriers.Do different products currently or potentially fulfill the same customer usage needs? product utility analysis cross-elasticity analysisDo the suppliers of the different products share many of the same customers? who makes the purchase decision? who uses the product? what else is purchased with the product?Functional substitutionCustomer base overlapPerceptual barriersDo customers perceive significant differences among the products? Business DefinitionBusiness DefinitionCustomer Sharing (p.2) Customer base overlap Functional substitution Perceptual barriersLow Low Low HighHigh High High LowProbably separate businessesProbably one businessCustomer sharingGenerally, high customer base overlap, high functional substitution and low perceptual barriers suggest one business. Business DefinitionBusiness DefinitionCustomer Base Overlap Customer base overlap can be determined by comparing purchasers or decision makers for the two products. Common Customer Base Overlap CriteriaUsed by same organization or customers Purchased by same individual or group Purchase decision made by same individual or groupLimited customer base overlapBusiness DefinitionBusiness Definition Functional SubstitutionThere are two ways to evaluate whether products are substitutes.Product utility analysisCross-elasticity analysisDo products offer similar value along non-price attributes (e.g., scissors and knives cut cloth well)? Is product bundled with other products (e.g., razors and blades)?How much does share change between the two products as relative prices change? If scissor prices go up will customers buy knives as a substitute?Business Definition Business Definition Functional Substitution - Product Utility If products offer very similar non-price attributes or functional benefits, they are potential substitutes. Business DefinitionBusiness DefinitionFunctional Substitution - Cross Elasticity If a price increase in one product increases the demand for another, the two products are probably substitutes. Demand for ButterHigh elasticityPrice of MargarineBusiness DefinitionBusiness DefinitionPerceptual Barriers Customer’s perceptions can be indicators of business definition; however, what customers perceive can often conflict with the economic boundaries. Perceptual barriersLowHighCustomers’ view : Examples:Products are similarProducts serve different functionsWooden canoes and aluminum canoesWomen’s fragrances and men’s aftershaveBusiness DefinitionBusiness DefinitionBusiness Definition Steps Degree of emphasisDoes business definition pass the competitor acid tests? Do competitors offer similar products and serve similar customers and channels? Does profitability correlate with definition of market share? Do decisions a competitor makes in one business affect the decisions that a competitor makes in another business?Less importantMore importantCost sharingCustomer sharingCompetitor acid testsBusiness DefinitionBusiness DefinitionCompetitor Acid Tests Does business profitability correlate with market share as implied by the business definition hypothesis?What impact do decisions made in one business have on another? pricing investmentWhat products do individual competitors offer? Which customers/channels do competitors service?ConsistencyProfit explanationIndependent actionsTo validate our business definition hypothesis, we use three competitor acid tests.Business DefinitionBusiness DefinitionIs there substantial customer sharing? How great is the degree of functional substitution? How great is the degree of customer base overlap? How high are customers’ perceptual barriers?Is there substantial cost sharing? Is there substantial direct cost sharing? Are there substantial opportunities for experience transfer?Does business definition pass the competitor acid tests? Do competitors offer similar products and serve similar customer/channels? Does profitability correlate with the definition of market share? Do decisions a competitor makes in one business affect the decisions that a competitor makes in another business?Degree of emphasisLess importantMore importantCost sharingCustomer sharingCompetitor acid testsBusiness Definition Steps - Summary Business DefinitionBusiness DefinitionAgenda The business definition concept Applications Business definition steps Client examples Bunker Hill Door Systems JJR Industrial Coatings Key takeawaysBusiness DefinitionBusiness DefinitionBunker Hill Door Systems* - Background Bain used business definition to set a strategic foundation for Bunker Hill Door Systems. The team started with a hypothesis that there were three separate businesses. Situation:Complication:Question:Bunker Hill is a $400MM division of Hills Worldwide. This division manufactures entry doors, garage doors (GDS), and garage door openers (GDOs). Hills Worldwide has set aggressive growth targets for all divisionsBunker Hill has suffered a continued financial decline in recent years and performance varies widely across the product lines. Moreover, Bunker Hill faces a strong set of well-established, low-cost competitorsHow can Bunker Hill grow profitably?Assertion 1Assertion 2Assertion 3GD, GDO and entry doors are separate businesses and therefore require different strategies for profitable growth*Disguised client caseBusiness DefinitionBusiness DefinitionBunker Hill - Direct Cost Sharing (p.1)Source: Bunker Hill FinancialsThe Bain team found that materials accounted for a substantial proportion of Bunker Hill’s costs in all three business segments.CostsCustomersCompet- itorsBusiness DefinitionBusiness DefinitionBunker Hill - Direct Cost Sharing (p.2)*Includes gates and electronics Source: Purchase Price Variance ReportHowever, in peeling the onion, the team discovered very little material cost sharing, suggesting that on a cost basis there were 3 separate businesses.CostsCustomersCompet- itorsBusiness DefinitionBusiness DefinitionBunker Hill - Experience Transfer Using entry doors as a baseline, the Bain team found limited opportunities for experience transfer. Garage DoorGarage Door OpenersCostsCustomersCompet- itorsLowMediumHighExperience transfer potential with entry doorsSource: Management Manufacturing InterviewsBusiness DefinitionBusiness DefinitionBunker Hill - Customer Base Overlap Source: Bunker Hill Customer DatabaseThe Bain team found limited customer base overlap between garage doors and entry doors, and between garage doors and garage door openers.CostsCustomersCompet- itorsBusiness DefinitionBusiness DefinitionSource: Door Systems Customer InterviewsMost Bunker Hill customers bought openers when they bought Bunker Hill doors.CostsCustomersCompet- itorsBunker Hill - GD and GDO Customer SharingBusiness DefinitionBusiness DefinitionBunker Hill - Perceptual Barriers Garage doors and entry doors Entry doors and garage door openers LowHighPerceptual Barriers“Garage doors need to be made of steel and be strong. Entry doors should be well crafted and be attractive.” -Garage door customer “Garage door openers should be bought from a reputable electronics type company.” -Garage d
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