Bearing Point Strategy Toolkit

Strategy Toolkit

December 2008

Confidential „ © 2008 BearingPoint France SAS

Foreword

Good strategy is based upon structured thinking. Subsequent action based upon that strategy is dependent upon the clear communication of your structured thinking. Accordingly, this booklet has been put together to help support you in structuring and communicating your thoughts in addressing your (often complex and ill-defined) projects. Hopefully this booklet will: „ Act as a reminder (or an introduction) to a range of useful structuring tools „ Give a clear description of each tool and indicate where it may be most fruitfully employed „ Highlight some of the short-cuts (and pitfalls) when using those tools „ Provide a best practice example which can be adapted to your own situation The aims of the toolkit are simple: „ To increase the quality and insightfulness of the work you do „ To improve your efficiency by avoiding reinvention of standard tools „ To support ongoing training programs „ To create an ongoing store of intellectual capital The tools have been classified in five categories: Strategy design: general approaches and methodologies, Strategic decision making, Financial & economic analysis, business & organization modeling, Figures and results displaying. However, as most of the tools are versatile and can be used for several purposes, you should only consider the classification as a guideline for easier and faster navigation through the toolkit. Perhaps the biggest intellectual challenge in compiling this booklet was defining what we mean by a tool. I am not convinced this issue has been fully solved, and you may discern three types of construct: „ Widely accepted strategy consulting tools (e.g. growth share matrix) „ Approaches to particular types of issue which are less prescriptive; and „ Presentational devices, applicable to many situations All, however, should support you in generating strategic insight. This booklet is intended to be your back-pocket guide to the tools most commonly used on strategy projects. It does not claim to be exhaustive or even comprehensive. However, you will find over 50 tools on the following pages, each one selected for its usefulness and general applicability to the types of project we work on. We are sure that some of your favorites will be missing but this booklet will be updated regularly and your input is most welcome. We believe that development of this Strategy Toolkit is an essential element in building a world-class practice within BearingPoint. However, it is not a substitute for hard work and creative thinking, so do not limit yourself to the tools in this book.

Confidential „ © 2008 BearingPoint France SAS

BearingPoint Strategy Toolkit

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Indicative guide to using the tools

Market analysis Strategy design : General approaches & methodologies „ Structured thinking or Pyramid principles „ PEST analysis „ Porter's five forces „ Capability assessment „ Market definition „ Market entry and exit „ Value chain analysis „ Competitor analysis template „ Root cause analysis „ Conversion waterfall „ Customer experience analysis „ Customer segmentation „ Customer segmentation analysis „ KPC comb charts Strategic decision making „ Growth share matrix „ Portfolio matrix „ Value disciplines „ Prioritization funnel „ Scenario development „ Risk matrix Financial & economic analysis „ Market sizing „ Forecasting techniques „ Growth spread matrix „ Sector charts „ Sources of value waterfall „ Reverse costing „ Economies of scale „ ROS/RMS „ RONA charts „ Dupont analysis „ Shareholder value analysis „ Free cash flow diagram „ Sensitivity charts „ Scatter graphs Business & Organization modeling „ Strategy articulation map „ SWOT analysis „ Activity maps „ Business definition „ Partnering maps „ Asset extension modeling „ RACI analysis Figures & results displaying „ 100% bars „ Marimekko charts „ Parfait charts „ Weighted column chart „ Share momentum charts „ Executive dashboard „ Traffic lights chart Confidential „ © 2008 BearingPoint France SAS

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3 3 3 3 3 3 3 3 3 3

3

3 3 3 3 3 3 3 3

Strategy definition

Business Performance Management

3

3

3 3 3 3 3

3 3

3 3 3

3 3

3 3 3 3 3

3 3 3

3 3

3 3 3

3

Organization Transformation

3

3 3 3 3

3 3 3 3 3 3 3 3 3 3

3 3 3 3 3 3

3 3

3

3

3 3 3 3 3

3

3 3 3

3 3

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Table of contents

Strategy design : General approaches & methodologies „ Structured thinking or Pyramid principles „ PEST analysis „ Porter's five forces „ Capability assessment „ Market definition „ Market entry and exit „ Value chain analysis „ Competitor analysis template „ Root cause analysis „ Conversion waterfall „ Customer experience analysis „ Customer segmentation „ Customer segmentation analysis „ KPC comb charts

4 5 7 9 11 13 15 17 19 21 23 25 27 29 31

Strategic decision making „ Growth share matrix „ Portfolio matrix „ Value disciplines „ Prioritization funnel „ Scenario development „ Risk matrix

33 34 36 38 40 42 44

Financial & economic analysis „ Market sizing „ Forecasting techniques „ Growth spread matrix „ Sector charts „ Sources of value waterfall „ Reverse costing „ Economies of scale „ ROS/RMS „ RONA charts „ Dupont analysis „ Shareholder value analysis „ Free cash flow diagram „ Sensitivity charts „ Scatter graphs

46 47 49 51 53 55 57 59 61 63 65 67 69 71 73

Business & Organization modeling „ Strategy articulation map „ SWOT analysis „ Activity maps „ Business definition „ Partnering maps „ Asset extension modeling „ RACI analysis

75 76 78 80 82 84 86 88

Figures & results displaying „ 100% bars „ Marimekko charts „ Parfait charts „ Weighted column chart „ Share momentum charts „ Executive dashboard „ Traffic lights chart Confidential „ © 2008 BearingPoint France SAS

90 92 94 96 98 100 102 104 BearingPoint Strategy Toolkit

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Strategy design: General approaches and methodologies

4

Structured thinking and the Pyramid principle (1) Description

Structured thinking or the Pyramid Principle is a key method of thinking used on strategy projects. It provides a framework for a piece of research or analysis to ensure that all factors are suitably accounted for and evaluated, and allows you to apply principles of structured thinking to simplify complex problems. Structured thinking is a key method for approaching - and hopefully answering - a question in a compelling way. It helps you to be clear about the key issues you are tackling, to remember the information you have uncovered and to structure the solution you propose.

Typical application

The pyramid should be used early on in a project, once a basic understanding of the issues has been established. It should be returned to and changed as your thinking develops. The pyramid can be translated directly into a research tree to structure the activities that need to be performed. Once the key questions have been established it is usually clear which research method is the most appropriate.

Typical process

The process of creating a pyramid is ideally completed by one person first, then discussed with the team - Pyramids cannot be written by committee. Begin by formally stating the situation your client is in. Then write down the key complication. In other words, define your client’s problem. This should lead to a question which will point you towards your pyramid’s hypothesis or "answer". Write this at the "top" of the pyramid as a positive statement which directly answers the client’s question. Create sub-branches by splitting the top of the pyramid into its natural components (this takes practice). Each horizontal level should contain statements of a distinct category or type; vertically, the ideas should support each other.

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Structured thinking and the Pyramid principle (2) The sub-branches should obey the MECE principle (Mutually Exclusive Completely Exhaustive). This implies that: „ if one of the sub-branches is false then the top of the pyramid must be false „ if all the sub-branches are true then the top of the pyramid must be true Discuss the pyramid with your team as an initial test of logic and completeness, and change if it is required. Once the pyramid is developed sufficiently, each question should be possible to address in a manageable way. Take each element of the pyramid and formulate an appropriate match in the research tree to satisfy the question Example output

BankCo. Loyalty Scheme Redesign The proposed changes to the loyalty scheme will generate significant profit uplift … but will not have the desired impact if the changes are incremental Will generate profit uplift

Can change customer behavior

Can improve customer behaviors

Can increase contribution from best customers

„ Can

identify „ Can identify profitable borrowers, customers and make „ Can retain them them borrow more longer „ Can increase xsales „ Can reduce LLP

Tricks and tips

Cost reductions can be made

Can manage out poor customers „ Can

Can convert more prospects

Incremental changes won’t work

Poor customer rel’nship and targeting

Declining market position

Can reduce costs for sourcing of goods

Can create new revenue streams

identify „ Can identify good „ Can increase poor customers prospects share of wallet „ Can price them „ Can design „ Can increase xout profitably attractive CVPs sales „ Can manage „ Can win converts „ Can partner attrition from competition profitably

„ Sourcing

Rewards do not solicit required behaviors

Can reallocate balance sheet costs beneficially

costs are „ Can legally higher than industry change offer high value provision position goods selectively „ Swap high for low „ Others have value rewards lower provisions „ Can

Can save mistargeted marketing spend „ Posted

materials can be reduced

„ Process

inefficiencies can be reduced

A positive statement, although more difficult to express, is more valuable in developing a proof. Express assertions in complete sentences rather than in note form as they better assist clear thinking. Some first level “splits” of the pyramid occur rather regularly. Typical first level branches are: „ Sales, margins and costs; and „ Customers, competitors and costs See Barbara Minto, The Pyramid Principle Source: Example

Confidential „ © 2008 BearingPoint France SAS

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PEST analysis (1)

Description

PEST is an acronym for Political, Economic, Socio-cultural and Technological. The tool is an aide memoir to ensure you cover all the external forces/risks that may have an impact on the company, market or industry under consideration. PEST analysis should be performed early on in an project as it helps identify and prioritize research efforts.

Typical application

PEST analysis is a simple framework to structure an informal analysis of the EXTERNAL forces acting on a market. It is universally applicable and simple and can provide insight early on in a project

Typical process

PEST is essentially a framework to assist thinking and as such there is no process to work through. Below is a categorized list of the issues, that may be relevant to each case. From the long list of issues prioritize the most important by size of impact on the client and probability of occurrence. (Consider both current and emerging issues). Assessing the size of the impact and probability of occurrence will relate to the type of risk identified. Political Factors „ The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. You must consider issues such as: ─ ─ ─

the stability of the political environment will government policy influence laws that regulate or tax your business (Employment/Health & Safety/Environmental/Industry specific legislation)? potential changes in Government/Government policy

Economic Factors „ You will need to consider the state of a trading economy in the short and long-terms. This is especially true when performing analysis for clients with an international focus. You need to look at: ─ ─ ─ ─

interest rates the level of inflation employment/income/asset holding level per capita long-term prospects for the economy: GDP per capita etc.

Socio-cultural Factors „ The social and cultural influences on business vary by geography and must be accounted for. Factors include: ─ ─ ─ ─

attitudes to foreign products and services changing consumer tastes/preferences/fashions how much time consumers have for leisure? socio-demographic profile of the customer base and its dynamics

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PEST analysis (2)

Technological Factors „ Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points: ─ ─

─ ─

does technology allow for products and services to be made more cheaply and to a better standard of quality? do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc? how is distribution changed by new technologies, e.g. books via the Internet, flight tickets, auctions, etc? does technology offer companies a new way to communicate with consumers, e.g. banners, Customer Relationship Management (CRM), etc?

Example output

PEST assessment

Scale of impact

High

Watching brief should be developed and implications considered. Not immediately necessary to formally included in strategic planning process

Key issues, the implications of which should be included in strategic planning process

Low priority, no action required

Tactically adjust strategic planning process if required

Low

Low

Tricks and tips

Probability

High

Brainstorm all possible risk factors before analyzing each in more detail. PEST analysis can never be complete, apply the 80:20 rule in deciding where to stop. Do not spend too much time in the lower left quadrant.

Confidential „ © 2008 BearingPoint France SAS

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Porter’s five forces (1)

Description

Porter’s Five Forces model is probably the most famous and widely used strategic tool. It is a useful check list of issues that needs to be considered when analyzing and assessing a company’s competitive positioning. The five forces are: rivalry amongst competitors; threat of new entrants; power of suppliers; power of customers; and the threat of substitution. The underlying principal is the weaker the competitive forces, the greater an industry’s profitability. By implication, a company whose strategy and market position provides a good defense against the five forces can earn above-average profits. At root, it is a great checklist for describing an industry. It helps you organize your research and provides a good framework in which to present your findings

Typical application

Typical Process

Porter’s Five Forces is most useful: „ When you are trying to understand a new industry or market „ Before building a hypothesis at the beginning of an assignment „ Structuring and communicating your existing industry knowledge „ Defining the boundaries of an industry and you client’s role within it Begin by reading widely (broad and shallow to begin), with the framework always in mind. Use analyst reports, annual reports; existing analysis and internal experts. Carefully define your industry. Using this definition rigorously, list the main players in each of the five categories: competitors, suppliers, customers/ buyers, new entrants, and substitutes. Continue by carrying out a search on the names you have compiled, and gather company and brokers’ reports. Pull the relevant articles together and get reading! When you are reading the material, think about the themes listed below. Lift the most common comments into a structured Word document. Organize your results into five boxes, summarize and conclude in the light of the purpose of the research as given to you by the client. You should now have a much clearer picture of the market. Where does the work you are doing fit into the picture of the industry you have developed through the model?

Confidential „ © 2008 BearingPoint France SAS

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Porter’s five forces (2)

Example output

Porter’s Five Forces Map

The potential for new entrants and the likely level of disruption caused by their arrival

Bargaining power of suppliers The bargaining power and pressures on suppliers - this category also includes questions over the ease of changing suppliers, the availability of substitute products and any economies of scale

Threat of new entrants

Rivalry among competitors

Threat of substitution

The behavior and market strategies of competitors. Factors include industry growth, product and brand distinctiveness, and barriers to exit

Bargaining power of customers The changing preferences and bargaining power of customers or buyers: the impact of volume, choice, information availability on behavior

How products and technologies may replace current ones and the impact of this - how easy this will be, including the cost of changing product or technology

Tricks and tips

Two limitations to Porter’s model are often encountered: „ Regulation can be a very real sixth force not explicitly addressed „ The model is static and takes little account of the changes occurring in a industry Bear in mind that the model is extremely widely known, and will not impress a client by itself. This is just a starting point to strategic thinking. Keep a good balance between words and data, but try to provide numerical indicators where possible (e.g. “CAGR = 14%” is far more informative than “growth is strong”)

Source: Example Confidential „ © 2008 BearingPoint France SAS

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Capability assessment (1)

Description

Capability assessment encompasses a number of tools designed to focus a client on specific skills that the client or competitor’s company may have or lack, and that therefore may act as a basis for a sustained source of competitive advantage.

Typical application

Capability assessment is an important activity for isolating and ranking capabilities in a particular company, business unit or department. It can be used either to rank capabilities as seen within a company, or as perceived by customers or clients externally. By using tools such as the spider chart in displaying the results, characteristic patterns can be isolated, and the cumulative impact of over- or underperformance in a number of fields can be highlighted. See also: Value disciplines

Typical process

Determine the key capabilities you wish to assess the company by. These may be the three core capabilities from the "value disciplines" model, or other categories (agreed with the client in advance), indeed almost anything that can be broadly termed a "capability". This might include: „ Superior skills in producing high quality products; „ Superior system for delivering customer orders accurately and swiftly; „ Better after-sale service capability; „ More skill in achieving low operating costs; „ Unique formula for selecting good retail locations; „ Unusual innovativeness in developing new products; „ Better merchandising and product display skills; and „ Superior mastery of an important technology Conduct a comprehensive survey of a predetermined target audience (customers, employees, etc.) based on ranking each capability. Average the results for each category to get a single score for each capability. Plot the results of the survey on a spider chart so that each capability runs along its own axis. Join the points on each axis together to form a complete shape. You may wish to shade the area enclosed by the lines to indicate a rough "overall" performance. Annotate your results carefully so as to highlight the conclusions you have drawn.

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Capability assessment (2)

Example output

There are many other ways to present the information in an informative way - take the so-called "wheel of fortune" (below). Strategic fit with ML 4 3

Rapid implementability

Success of EXN

2 1 0

Enhancing fund management infrastructure

Leveraging of EXN relationships

Industry leadership

Industry collaboration

EXN BW

1- low importance 4- high importance

Assets Cash generating activities Operating in a growth industry Fin

Attractive, captive, guaranteed footfall High quality customer segmentation data Airports and lots of space On airport infrastructure e.g. roads and utilities

Hu m

an

ial anc

Experienced and stable workforce

Asse optim t isat ion

Financially strong negotiating position

Phys ical

Customer operations

Location (proximity to capital and entrance to EU)

Looking at the long term

Regu la politition & cal Co & m M m ar e ke rc tin ial g

rt

Realistic

re l tu Cu

o Supp

Generally risk adverse

ion

Good track record of management and investments

d Bran

utat

BAA brand is fairly anonymous

Rep

Very strong airport brands @ Heathrow and Gatwick

t s se ion As rat e p o

Professional Responsible Safe

Tricks and tips

Be aware that selecting capabilities and subjectively ranking them can produce results that are very sensitive for the client and/or generate certain levels of disagreement. Also, take care when reproducing diagrams in final packs as they tend to divert attention and/or cause disagreement. Remember when conducting a customer survey to be aware of the impact of your sample size, the types of questions you ask and the "unrealistic" environment of the survey. Also, make sure to ask open questions so you can provide qualitative evidence to support or bring out your conclusions. Inherently relative, spider charts usually work best when a series of different results are compared. For example, ask customers to rank not only the company but competitors; or compare the results of internal surveys between departments. Source: FSI Project, April 2001, Client project, May 2001

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Market definition (1)

Description

A market is a place, either conceptually or physically, where a series of different products compete against each other. However, it is not always easy to determine which products compete significantly enough to be considered to be within the same market. Markets are characterized by the sale and purchase of specific goods or services that have a certain purpose or meet a certain need. Because needs (and purposes) are subjective and difficult to define, however, we have to abstract a little to arrive at a workable "test" for what a market is not, rather than a neat definition.

Typical application

Typical process

Successful market analysis requires a robustly defined market. An incorrectly defined market will lead to inaccurate assessments of market growth, competition and customers. Begin by creating a realistic definition of the market based on your current knowledge. Based on your hypothesis, define the boundaries of your market by listing ways in which customers can be segmented; and by ways in which it can be differentiated from contiguous markets. Consider whether the market needs to be subdivided to account for differences between, for example: „ Geography: the UK apple market is different to and distinct from the Australian market; or „ Time: the market for morning newspapers is different from the market for evening newspapers Identify a close product or supplier - one you think is in the market or on the market boundary. A strict test to define a market rigorously includes principles of substitution. Two companies are in the same market if a change in one company’s pricing of its product leads to a significant switch of customer to the other company. A "significant" switch is one that materially impacts a company’s profit margin (use expert advice if necessary). Repeat this process for each potential competitor until the switch proves to be insignificant.

Confidential „ © 2008 BearingPoint France SAS

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Market definition (2)

Through this, you should end up with a definition based specifically on the key customer characteristics at play. Be aware of your process at all times - it will explain why you have defined the market as you did if you are questioned about it. And test your hypothesis with team members to check its robustness. Example output

Levels of market - Demand side Percent UK population

100% Total Population

Potential market

- Buyers who have a potential interest in flowers

Potential market

Available market

Available market

Qualified available market

- Those who have a need to buy fresh flowers in bulk - Those who are willing and able to travel to NCG for 5am

Served market (target market)

- Those who are interested in the flowers in stock

Penetrated market

- The set of consumers who have already bought the product

80

60

40

Qualified available market 20

Example - New Covent Garden Market

Served market Penetrated market

0

Tricks and tips

Be sure that the definition is relevant to the client’s situation; make sure that your definition has not been driven by data that is available. Do not confuse markets with industries - a common mistake. Industries are defined from the supply-side: hence, there is a single white goods industry (built from common components in common factories), but washing machines and dishwashers compete in different markets. Be careful about the distinction: particularly when looking at companies that operate in overlapping markets by selling "bundled" products. The "bundle" provider is effectively competing against players in a series of markets, but also attempting to create a new market for the "bundle" as a whole.

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Market entry and exit (1)

Description

The threat of entry into an industry depends on a combination of barriers to entry and the expected incumbent reaction. The threat of entry is reduced if there are high barriers to entry or likely aggressive incumbent retaliation. Exit barriers keep companies in business despite low or negative returns. They can be economic, strategic or emotional factors that keep companies competing in businesses even though they may be earning low or even negative returns on investment.

Typical application

Understanding the size of barriers to entry and exit can help to estimate the likelihood of entrants to the industry/market, or of businesses leaving the industry, thereby helping an understanding of the industry’s structure and dynamics. Entry Barriers Identify current entry barriers „ to understand industry profitability „ to understand how high prices can be set without attracting new entrants Develop actions to change situation „ Raise entry barriers to prevent new entrants (as an incumbent) „ Lower entry barriers (as a new entrant)

Typical process

Exit Barriers Identify exit barriers to understand industry profitability and attractiveness Identify exit barriers when considering exit to allow for action to be taken to reduce them

Taking data from the usual research resources - client data/interviews, conversations with experts, analyst and brokers’ reports, group analysis and supply chain analysis try and determine: „ The factors that make the industry accessible or inaccessible to new entrants; and „ The factors that would restrict departure from an industry Try and quantify each of these factors: including the resources, relationships or scale required to successfully overcome the barrier. Estimate both direct and residual costs associated with leaving the industry. Compare the levels of skills, technology, etc. against those required to overcome the entry barriers; and any steps incumbents may take to raise entry barriers. Compare the cost of exit against the benefit; and any steps that may lower exit barriers.

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Market entry and exit (2)

This should enable you to form and robustly defend a view of: „ The degree of industry vulnerability to new entrants; „ The sustainability of the current competitive structure; „ The drivers of current costs and margins; and „ The existing profitability structure and how it may change Example output

High The most attractive segment- few new companies can enter and poorly performing players can exit easily

When both entry and exit barriers are high, profit potential is high, but is usually accompanied by more risk. Although entry is deterred, unsuccessful companies will stay and fight

The case of low entry and exit barriers is uncommon

Here entry is relatively easy and will be attracted by upturns in economic conditions or other temporary windfalls. However capacity will not leave the industry when conditions deteriorate

Entry Barriers

Low Low

Tricks and tips

Exit Barriers

High

Barriers to entry are either structural (a result of differences in the structure between companies under consideration incumbents and new) or behavioral (a result of expected changes in competitive behavior of the incumbents that run counter to the interests of the new entrant). Major types of barriers to ENTRY „ „ „ „ „ „

„

Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels / property rights Cost disadvantages independent of scale, e.g. – favorable location – proprietary technology – access to raw materials Government policy, e.g. licensing

Source: example Confidential „ © 2008 BearingPoint France SAS

Major types of barriers to EXIT „

„

„

„ „

Specialized assets – low liquidation values or high transfer / conversion costs Fixed costs of exit – labor agreements – spare part capability Strategic interrelationships – image – financial markets – shared facilities, etc. Emotional barriers Government / social restrictions

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Value chain analysis (1)

Description

To understand the dynamics of an industry, it is helpful to analyze the entire value chain and the positioning and strengths of competitors within the same context. The value chain analysis tool shows the level of market concentration at each stage of the value chain, and the value companies create within it. A company may dominate its own market/segment of the industry value chain but be in a relatively weak position because of players further up or down the value chain.

Typical application

Value chain analysis assists understanding of an industry’s characteristics: the linkages between suppliers and customers, the share of value generated at each stage in a value chain, as well as the degree of vertical integration and the structures and level of company concentration. Value chain analysis also enables a greater understanding of monopoly and/or monopsony conditions.

Typical process

Begin by identifying the key activities in the value chain. To do this, isolate the end product you are examining, and list the “raw materials” required to produce this. Then, simply record each of the intermediate steps required to transform the raw materials into the final product. Determine the value added by each step of the chain. This can be determined by taking the selling price, less retail margin, minus the input price. Determine costs and margins within each segment for each player. After this, begin to identify the key players at each stage of the chain. Group together the players that produce equivalent or substitute products, and determine the concentration of competitors at each step. Finally, identify the relationships within or across stages of the value chain. Analyze specific relationships among players and assess the degree of vertical integration among players in the various steps.

Confidential „ © 2008 BearingPoint France SAS

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Value chain analysis (2)

Completing this process in a structured manner gives you a clear picture of: „ The linkages between suppliers and customers „ Where the value resides in the value chain „ The degree of vertical integration in the industry „ Where threats of substitution may lie „ Where barriers to entry and exit are located; and „ The drivers of key costs and profit margins Example output

% share of total value created

Concentration and vertical integration by value added of players in a value chain

100

80

60

40

20

0

Suppliers

Manufacturers

Player 7

Player 10

Player 6 Player 5

Wholesalers

Retailers

Player 10

Player 9

Player 9

Player 8

Player 8

Player 3 Player 2

Distributors

Player 12 Player 11

Player 11 Player 10

Player 7

Player 7 Player 10

Player 1

0

Player 6 Player 5 20

Player 5

Player 7

Player 4 40

Player 7 60

80

100

% share of total value created in Industry

Tricks and tips

Analysis of share of value generated is very time consuming and resource intensive. The tool should only be used where the market structure is such that it will yield insight. Typically, these will be industries with high degrees of vertical integration or where competition, or lack of it, in one segment of the value chain affects preceding or subsequent segments.

Source: example Confidential „ © 2008 BearingPoint France SAS

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Competitor analysis template (1)

Description

A template which aids direct comparison between industry competitors, based around strategically important differentiating factors. This template is not uniform, but is typically structured.

Typical application

Wherever a rigorous comparison between market players has to be made. To address a company’s structure, strategic conduct and performance. There is no “magic” to this particular template, but something similar should be employed in order to avoid uncomparative or non-focused analysis.

Typical process

Review the hypothesis for your current client assignment and agree the key parameters which capture the behaviors of each competitor related to your specific issue. Try the template on one or two competitors. Then simplify and modify it on the back of the experiences you find. Feed the information into the strategic decision making steps in the assignment.

Tricks and tips

If you cannot fit all of your summary onto a single page you have not understood the issue or the competitor well enough. Revise.

Confidential „ © 2008 BearingPoint France SAS

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„

Confidential „ © 2008 BearingPoint France SAS

Source: UBS, March 2001

Retail services

International business

support, trading and technology solutions for independent feecompensated investment advisors

„ Operational

„ Investment

advice to retired „ Services to plan administrators „ TrustMark services

Schwab Retirement Plan Services execution „ Trading, research and support services for institutional clients „ Customised services for HNW customers

„ Trade

Schwab Retirement Plan Services

Kong Ltd „ Charles Schwab Tokyo Marine Co „ Charles Schwab Canada „ Asia Pacific Services center

„ Latin American center „ Charles Schwab Europe „ Charles Schwab Hong

„

„

„

„

„

„

„

„

„

Lower pricing for customers with higher asset bases or trading volumes Looking to expand offering to provide private banking services for affluent customers and access to leading edge technology for active traders. Other new products include Gift Package for new investors (June 2000);and Women’s financial site (Oct 2000)

Marketing Customising the product offering

Multi-year alliance with AOL to become the premier financial services company and brokerage firm across AOL’s personal channels (Oct 2000) Teamed with Ericsson to develop mobile investing products (June 2000) Alliance with the 3 major wireless carriers (Nov 2000)

Alliances Extending the distribution network

Charles Schwab attracted self-directed customers from traditional full-service brokerages and customers new to broking „ 7.5 Mn active accounts, „ $872 Bn customer assets (2000)

Customer assets new broking customers and customers attracted from others

Value creation

Charles Schwab has experienced significant net income growth (5 year CAGR of 33%). However, the recent downturn in online trading has impacted Charles Schwab more than other online brokers because of their greater focus on affluent customers, as opposed to active traders

Profitability Reliance on mass affluent market

Performance

Example output

Schwab Retirement Plan Services

3,000 funds, 32 proprietary Schwab funds „ Investment tracking „ Stock quotes „ Trade orders „ Asset allocation „ Research

415 branches, electronic brokerage

Products

organization „ 24,300 employees

Philosophy „ High tech, high touch „ Technology leadership „ A culture of innovation

Research group Chicago Investment Analytics (Nov 2000) Investment management group US Trust for $2.9 Bn (June 2000) to tap wealthy investors “purveyor of investment advice and private banking services to some of America's richest families” (More than $5 Mn investable). Will retain their separate brands eTrading technology and brokerage CyBerCorp (Feb 2000) (Provides internet based services to highly active online investors) Resource Trust Company HNW bank. (Feb 2001) Requires clients to have $3 million of investable assets

Acquisition Investment / HNW focus

Mission To provide customers with the most useful and ethical financial services in the world

Strapline: “Creating a world of smarter investors“

Conduct

Structure

Competitor analysis template (2)

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Root cause analysis (1)

Description

When trying to understand why a business phenomenon occurs, it is not enough just to ask a few well chosen questions. Root Cause Analysis is a structured, logic-tree approach to asking the question “why?” It enables you to get to the heart of an issue, with a high degree of confidence that you have been MECE, and that your conclusions can be numerically supported.

Typical application

Root Cause Analysis is most commonly used for structuring interview programmes to unearth the reason(s) why individuals display certain behaviors. For example: Why is our customer churn rate almost twice the industry average?; Why do my staff in Sidney lose fewer working days than those in Munich? The utility of this technique is only realized when you reach a question that is actionable and you have asked a large enough population to get a measure of the scale/importance of the issue. Clearly there are other more detailed and statistically more rigorous methods for unearthing behavioral logic, but as a rapid tool for getting to the heart of an issue, Root Cause Analysis is hard to beat.

Typical process

As ever, the first step is to contact colleagues to see what similar exercises have been done in the past, and to draw on expert opinion as to the cause of the issue at hand. Industry expertise is invaluable here. Next, draw your own hypothesis (with numerical weightings) to help guide your questionnaire. Draft a questionnaire and try it on team members and manager/partner. Then test it with the client. If you spend the time to make the questionnaire simple and clearly worded it may be possible to outsource the execution to a third party agency. However, always sit on the shoulder of a third-party agent for the first set of interviews. This is essential, as: you are closer to the issue; you can see which questions work better than others; you will be far more tenacious in getting a result. Then improve the questionnaire. Typically, aim for logic to go 4-6 levels deep, and keep it simple. Use a grading scale of 1-5 for each question where applicable (or yes/no if necessary). Be sure to ask some open questions, as this captures responses you may not have anticipated and (nearly always) provides powerful quotes. Preferably, use Microsoft Access to analyze the results, but use a hard copy questionnaire whilst interviewing. Finally, populate the tree and derive implications for your client.

Confidential „ © 2008 BearingPoint France SAS

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Root cause analysis (2)

Example output

Insurance product provider root cause analysis

Normalized to 100 customers

Why didn’t you purchase further products from us?” 20%

80%

Why didn’t you purchase further products from us?”

“I didn’t consider you” 50%

50%

“I was aware of your products”

60% Poor product features 12

25%

15%

Not top of mind

Recommendation

5

3 52%

Tricks and tips

50% Weak relationship

29%

“I wasn’t aware of your products”

30%

17%

40

3%

Not top of mind

Reputation

Convenience

12

6

2

11%

8%

Poor quality staff

Too infrequent contact

Poor contact processes

Not proactive

10

6

2

2

Don’t let your conclusion be overly colored by one or two impressive/influential interviewees. Remain objective. There is always someone who will say “I’m not sure this is statistically significant”. Two comments: „ This may be true if you have a small population of interviewees. But you will be surprised at how rapidly significance is reached for binomial processes (see any good statistics book) „ Statistical significance is not always necessary, especially if your work forms the early part of a strategic direction setting exercise. Later, it may be desirable to combine this with related technical analyses such as multivariate regression, factor analysis, cluster analysis etc. Be aware of the use and limitation of your analysis.

Source: example Confidential „ © 2008 BearingPoint France SAS

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Conversion waterfall (1)

Description

The conversion waterfall is a tool that helps identify areas of relative competitive weakness and strength, whether between internal factors (e.g. different locations or products) or relative to competitors. The waterfall is a simple way of representing the findings of a customer interview programme targeting six major measures. The conversion waterfall illustrates the attitude and/or behavior patterns of a company’s customer base. It provides insight into where a company is losing or gaining customer interest. By focusing attention towards the strongest relationships, conversion waterfalls can be used to direct a company’s efforts into retaining customers. See also: Customer Segmentation, Customer Lifecycle

Typical application

Typical process

Understanding customer behavior is a very important part of strategic business analysis. By examining customer attitudes and behavior, a business can identify where their strengths and weaknesses lie and begin filling the competitive gap or maximizing a competitive opportunity. Begin by carefully planning your activities. This includes defining the hypothesis to be tested in your interview programme, and determining the interview target population. When setting up the interview programme, ensure the sample size is large enough. As a rule of thumb, interview more than 30 customers. Design your questions to ensure you answer the questions required for the planned output, and include redundancy to check customer consistency. Clearly define each category in the interview plan/questionnaire. If you don’t understand the differences between the factors you are evaluating, the customer never will. Where possible conduct research in more than one market. A variance of results may just show cultural differences, but in some cases it might give an insight into the way different markets operate. Spend some time thinking about the results. Average the quantifiable scores, then seek to explain through reference to what you know of an organization’s brand, image, store, location or product feature.

Confidential „ © 2008 BearingPoint France SAS

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Conversion waterfall (2)

Apply the results with intelligence and consider accompanying the chart with qualitative comments gathered in the interview process to flesh out your conclusions. Clients can take different messages from the results of this analysis. They may wish to refocus their efforts on areas of weakness; or they could change the messages they are taking to market so that their stronger performance is recognised. Example output

Conversion waterfall, combine harvesters, 2001 % of population 100% 90%

New Holland Competitor

80% 70% 60% 50% 40% 30% 20% 10% 0% Awareness

Tricks and tips

Knowledge

Liking

Preference

Tested

Purchase

It is possible to show a repurchase column, representing the number of customers that return. This is a key output of customer satisfaction as customer acquisition costs in some industry sectors are enormous, so assessment of repurchase across segments is critical to understanding customer dynamics. Make sure you identify customer segments and then target your interview programme at the most important segments. It is very important to get the segmentation process right first, as otherwise valuable differences may be obscured during averaging.

Source: TMC Project, March 2001 Confidential „ © 2008 BearingPoint France SAS

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Customer experience analysis (1)

Description

Customer Experience Analysis is a mechanism for identifying the critical decisions, events and actions a customer undertakes during the full purchase process. It helps identify the customer contact points and the key criteria for success at each one. This analysis is sometimes labeled Customer Value Exchange.

Typical application

Useful for any company which has to compete for and retain customers (i.e. all of them). The concept is easily extendable to employees (internal customers), suppliers, partners and other shareholders. Improving customer profitability is only possible if you change the customers’ behavior (e.g. buy more, use lower cost channels, recommend to friends etc.) Measuring customer behavior at every interaction point with the company allows you to advise on where your client must invest (i.e. change things) in order to bridge the gap between customer expectations and delivery against them. Many other tools can contribute to this analysis, including CVP definition, root cause analysis, customer satisfaction surveys, product prioritization, financial return modeling, customer segmentation etc.

Typical Process

The full process for undertaking this analysis can be extremely comprehensive. Below is described a number key steps which are typically undertaken. „ Define and agree customer segments (need-based) „ Develop insight into customer behaviors (e.g. understand customer promise, rank needs, define perception gap etc.) „ Develop hypothesis of how to fill "gap" and estimate $ potential „ Identify all customer contact points (high level, then detailed) „ Develop detailed gap analysis at each contact point – using existing client and public domain data, interviews etc. „ Prioritize areas for investment which will solicit maximum change „ Determine root cause „ Financially model benefit returns „ Design processes for achieving changes in customer behavior „ Develop transition plan and measuring/monitoring system Clearly, the full end-to-end analysis requires multiple tools and techniques, but the fundamental framework of identifying and prioritizing customer contact points can be very powerful.

Confidential „ © 2008 BearingPoint France SAS

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Customer experience analysis (2)

Example output

Key contact features identified for a UK insurance company „ Progress monitoring „ One point of contact „ Telephone problem

Consume

solutions

„ On time transaction

completion „ Effective problem handling „ Follow up contact

Deliver Service

Evaluate

„ Quality of service and

staff

„ Ease of access to

service and efficiency

„ Accommodation of „ „ „ „

Payment alternatives Account set up No additional charges No billing enquiries required

customer requirements

Pay

Purchase

Detailed selection

Interest

Awareness „ Financial

advice „ Advertising and Media „ Personal Recommendation

Tricks and Tips

„ Service

Search for alternatives „ Access to

financial advice requirement „ Price identified differences „ Ease of contact „ Promotional for enquiry materials „ Initial contact „ Overview of enquiry products, „ Marketing services and material options

„ Order taking process

and documentation

Product/Service quality Sales Consultant recommendation Price, delivery times Additional services (e.g. "all in one" provider) „ Ease of access/convenience „ „ „ „

Repurchase

Recommend

„ Service provision

satisfies customer’s expectations „ Performance confidence „ Customer - supplier relationship „ Quality of problem resolution

This is very difficult to sell to a client as an end-to-end solution. It needs to be broken down into it’s sub-elements. Use a value chain to help build the initial high level customer interaction points. One way to identify how value may be generated from changing customer behaviors is to use a "customer contact point matrix". Create a comprehensive list of all customer contact point (list vertically), then list all the profit impacting behaviors you desire of a customer (list horizontally). Use "traffic lights" to indicate "high-medium-low" impact. Typical sorts of changes to behavior you might look out for are: buy more, buy more frequently, buy more categories, submit business, close business, recommend to friends, use cheaper channels, buy higher margin products etc.

Source: FSI Project, 1998 Confidential „ © 2008 BearingPoint France SAS

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Customer segmentation (1)

Description

Typical process

The key to operating successfully in a competitive market is understanding customers needs, values and behaviors and being able to take action. Segmentation identifies groups of customers with homogeneous needs, who can be served by a tailored proposition. From what you know about the client’s customer database, industry analysis, client or expert interviews, and focus groups, begin by developing a number of hypotheses about likely segmentation schema. Segmentation seeks to group customers according to similar purchase behaviors, attitudes and profiles. The outputs of a segmentation schema must be: „ Identifiable/recognisable: you must be able to identify which „ Segment a customer is likely to be in so that marketing programmes can be actioned; „ Actionable: you must present strategic options for each segment which are achievable; „ Measurable: it must be possible to measure segments by key dimensions and assess them for market potential; and „ Stable: there must be an assessment of a segments short, medium and long term viability. Segments rarely remain the same over time When you are happy with your hypotheses develop a questionnaire to test them/validate them. Keep the questioning as short as possible and only focus on the things you really need to know. “Pilot” the questionnaire with a small group of customers to test that it works. The sample size for the actual programme should be a minimum of 50 to be useful, or 30 per customer segment identified. This can be a large task and it may be more economical to subcontract the work out. Analyze your results. Perform factor analysis to group customers and identify trends and similar responses, and be prepared to re-formulate your hypotheses if necessary. Look at the groups to identify the characteristics that can be used to describe them and their purchasing criteria, remembering the objective is to identify a MINIMAL number of groupings. Draw out the implications of your findings as they may require the client to readdress its marketing strategy and/or business model.

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Customer segmentation (2)

Remember that the purpose of segmentation is to identify “attractive” customer segments. Defining what is meant by attractive is key and depends upon the clients business objectives, for example; „ Customers who are currently highly profitable; „ Customers with high lifetime (future) value; and „ Large customer segments who, whilst might not be hugely profitable, support business development into other more profitable segments. Example output

Irregular

x

x Visitors x x x

x

x

x

x

x

Shoppers x x

x Event x goers x

x

x

x

x

Meeting xgoers x (business) x

x

Risk averse

x x

x x Commuters x x x

Regular

x

Vulnerable people / carers (1)

Note: size of bubble represents the approximate size of potential segment 1: Bubble size representative only

Tricks and tips

The client’s views of the existence of customer segments, their characteristics and attractiveness are often based on opinion and not fact and should be viewed with caution. Segments do not need to include all customer data points. There will be some outliers. If outliers look significant or interesting then conduct further research to understand whether they are significant.

Source: Client project, August 2000 Confidential „ © 2008 BearingPoint France SAS

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Customer segmentation analysis (1)

Description

Customer segmentation is the subdivision of a market into discrete customer groups that share similar characteristics. Any product or service potentially appeals to a universal audience. In reality, a company will sell to only a small segment of the population, and may derive value from a subsegment of that.

Typical application

Customer segmentation can be a powerful means to identify unmet customer needs. It allows you determine a client’s customer base and its characteristics in a meaningful way, splitting customers up into groups and ultimately making operational decisions about the allocation of resources for such activities as product development, marketing, selling methods, distribution strategies and pricing. This allows a company to compete only where it is strong and likely to prosper. For example, companies that identify underserved segments can achieve a leadership position by being the first to serve them. Customer segmentation is most effective when a company tailors offerings to segments that are the most profitable and targets them where the company has a distinct competitive advantage.

Typical process

Divide the market into meaningful and measurable segments according to customers’ needs, their past behaviors or their demographic profiles. In many ways, this is the most difficult part of the process. Determining the most insightful segmentation variables can be done through research, customer surveys, or focus groups (see customer segmentation section for details). Determine the attractiveness of each segment by analyzing, for example, the revenue and cost impacts of serving each segment or client retention rates. Use shading and annotation to draw out the key market segments the company should be targeting. Try and identify ways the client can invest resources to tailor the product, service or its marketing or distribution programmes to match the needs of the key target segments. Ultimately, this should allow you to develop a performance measurement programme. This should assess ROI and be flexible enough to adjust over time as market conditions change.

Confidential „ © 2008 BearingPoint France SAS

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Customer segmentation analysis (2)

Example output

Loyalty Segmentation for US Bank 100 Retention (%)

Retired savers

£100m

95

MidAffluent

Lifetime NPV

90 85

4.8%

80 75

MidWealthy Students

70 100

150

Young Affluent

Young Wealthy

200

250

300

350

400

450

Customer annual contribution ($)

Tricks and tips

The most important thing for segmentation analysis is ensuring that the categories you define are meaningful for the exercise you are participating in. The easiest segments to identify - age, region, and so on - are often the least indicative ways of dividing a group of people for a company hoping to achieve a particular objective. Base all segmentation on hard, data-based analysis, not gut-feelings. One of the most difficult lessons of customer segmentation, particularly for the client, can be finding out which customers not to sell to. Types of segmentation and their applications Identify customer needs

Prioritize targets

Develop CVP

Create market position

Reach

Segment by „ Economic value „ Demographics „ Purchase behaviors „ Usage behaviors „ Channel „ Attitude

low relevance

Source: example Confidential „ © 2008 BearingPoint France SAS

high relevance

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KPC comb charts (1)

Description

The reasons that customers purchase products are central to a company’s competitive positioning. KPC (key purchase criteria) comb charts are a way of representing these criteria in a visually arresting manner. They allow you to: „ Evaluate the comparative importance of different purchasing „ Criteria, and which aspects of a client’s product are really valued „ Rank your client’s performance against the results of customer research; and „ Rank your client against competitors They are similar to "Happy Line" analysis that assesses how well a company performs against the product characteristics that are really valued by its customers.

Typical application

KPC comb charts form part of gap analysis and have implications for resource allocation. As such, they are a core part of any market segmentation analysis exercise. Understanding the importance of specific criteria to customers allows a company to align its products and services more closely to those customers and deliver greater value.

Typical process

The data for KPC comb analysis comes from a structured customer survey programme. Any interview programme is a major exercise and should be carefully planned. Take particular care to separate "wish list" needs from preferences that apply in reality: ultimately, every consumer would like the product to overperform, arrive immediately and be free! The survey should be structured so to rank each criteria for each competitor in the market. Create an Excel table with the results and calculate an average score for each competitor on each category. Plot the results on a Bar + Line chart.

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KPC comb charts (2)

Do not forget to set the minimum and maximum for the vertical axis to the range offered to the customers in the interview process (say, from 1 to 10, not 0 to 10). Apply the results with intelligence and consider accompanying the chart with qualitative comments gathered in the interview process to flesh out your conclusions. Clients can take different messages from the results of this analysis. They may wish to refocus their efforts on areas of weakness; or they could change the messages they are taking to market so that their stronger performance is recognised.

Example output

Key purchase criteria (KPC) comb, Industry X, Germany, 1999 10 Score (1 to 10)

9 8 7 6 5 4

Criteria Comp 1 Comp 2 Comp 3 Client

3 2 1

Criteria 1

Criteria 2

Criteria 3

Criteria 4

Criteria 5

Criteria 6

Key purchasing criteria

Tricks and tips

Customers can be segmented according to purchasing criteria. This is a useful technique used by retailers FMCG companies. FMCG companies will develop a portfolio of products targeted at different consumer segments (based on purchase criteria). A retailer’s category will include a range of products which target all (relevant) customers (segments) to the store.

Source: example Confidential „ © 2008 BearingPoint France SAS

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Strategic decision making

33

Growth share matrix (1)

Description

The growth-share matrix - developed by the Boston Consulting Group in the 1970s - is a simple two by two, devised to map business units’ or competitive position. It maps the relative positions of a company’s business units against their industry’s growth rate and the relative market share of the business unit.

Typical application

Among other things, the matrix: „ Draws attention to cash flow and investment characteristics of various types of businesses; „ Encourages you to view diversified firms as a collection of cash flows and cash requirements; „ Explains why priorities for corporate resource allocation can be different for each business. The growth share matrix helps to determine a strategy for each business unit to the overall benefit of the portfolio of opportunities that a business develops.

Cash cow High market share, low growth, good cash flow can be used to fund developing business

Star

Growth rate

Star High market share in high growth market requires plenty of cash to sustain growth but strong market position yields high profits

Hold or build market share Cash cow Hold market share or harvest

Question mark Build market share, specialise, harvest, divest Dog Harvest, divest or specialise

Question mark Low market shares in high growth market needs large cash input to finance growth, but poor yields due to weak competitive position. Dog Low market share, low growth, usually a cash trap

Relative market share

Typical process

Begin by defining your subject for analysis (market, industry, company) and listing the components (competitors, units, etc.). Then, basing growth on product, market or industry size data over three to five years, calculate the compound growth rate for each product, market or industry. Strictly speaking, “high growth” businesses are in industries growing faster than the general economy. Calculate the average size of product, market or industry over time period and plot your results with growth rates against market share. Market share is represented on a log scale, based on the largest data point, with the largest values on the left of the chart. (The size of the bubble should reflect the average size over the time period.)

Confidential „ © 2008 BearingPoint France SAS

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Growth share matrix (2)

The position of the vertical divide is largely a question of judgment. However, the horizontal divide is classically placed at 10-15% and the vertical at 1.5 or 2 Example output

Business Units Product - Markets 25

Star

D

F

20

E

A Market Growth (%)

15

10

?

G

Cash Cow

5

0 10x

Dog B

C

5x

3x 2x

1x

0.5x

0.3x 0.2x

Relative Market Share = $30 million sales

Tricks and tips

Relative market share is used as a surrogate measure for economies of scale and experience. If such economies do not exist in the market, conclusions drawn from the growth share matrix may not hold. The growth share matrix a product of the 1970’s. Exercise caution when using as it may not be strictly relevant to current circumstances. With current capital markets many firms no longer have to rely on cash cows to finance stars.

Source: example Confidential „ © 2008 BearingPoint France SAS

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Portfolio matrix (1)

Description

Helping clients prioritize strategic options in an environment of scarce resources is a key element of our work. The portfolio matrix - a simple bubble chart that plots the value of options against the ease with which they can be implemented - is designed to assist in this process. Typically based on NPV and a pre-agreed set of prioritization criteria, it allows the quick evaluation of which options are the most difficult to put in place and their potential value.

Typical application

Portfolio matrices enable businesses to underpin their choices with a clear, data-based framework. Businesses can choose which projects to undertake now, which projects to undertake in the medium term and which projects to put on hold because of insurmountable barriers. They also help businesses quantify the expected benefits from the projects they plan to undertake.

Typical process

Explicitly define each opportunity. Then identify criteria which provide insight into the ease of implementation of each, based on the business context. Standard criteria might include project scale, systems requirements, skills availability and structural obstacles. Review each of the options either through detailed market research or through brainstorming sessions, and score them against pre-agreed criteria. Meanwhile, isolate the NPV impact of each option. If it is not possible to use NPV for this, you can use cash flow or profit, but accounting techniques and lack of market risk premium mean that these measures will not be as reliable. Remember to use a standard NPV format, for example a five year timescale with nil terminal value. Create the chart and annotate it with key assumptions and a scale bubble; and let the area of each bubble reflect the size of the NPV. Research and brainstorm any softer issues that the options may present (such as the impact on employee’s morale of working away from home). Document the major impacts and present these near the chart.

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Portfolio matrix (2)

Example output

Attractiveness vs. ease of implementation

£56 million Overall proposition 20 Inherently attractive

Basic proposition

£20m

NPV 20022006

15

Financial attractivenes s NPV 20022006 10 (k€)

Back-office outsourcing

Corporate actions Light blue shading indicates key elements of "core" proposition

Smart order routing

5 Trade cost analytics

OMS

0 High

Inherently unattractive

Low Ease of implementation

Tricks and tips

It is possible to segment the chart in many ways (e.g. quarters, waves, grouping or slices) depending on results and the key message. The most common way is in quarters, as shown above.

Source: FSI project, May 2001 Confidential „ © 2008 BearingPoint France SAS

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Value disciplines (1)

Description

The value discipline model helps you position competitors or industries against one another according to three generic capabilities: product leadership, operational excellence, and customer intimacy.

Typical application

Use the value disciplines chart to demonstrate key competitive differentiators. It is a tool designed to aid discussion and thought, whether internally or with the client, rather than in final analysis or in presentations or packs, and usually works better at a high level than in a data rich environment.

Typical process

Begin by carefully defining the market or industry you are assessing and identifying the competitors. Try to be open and imaginative about potential competitors: think about companies that address the same audience, or require consumers to act in a similar way (e.g. bars vs. gyms as places where only a finite and competitive period of time can be spent). Gather data on each of your competitors, in both qualitative and quantitative forms. organize your information against the three predefined capabilities: if your information is quantitative rank against each capability; if qualitative, rank in discussion with your client. Plot the resulting data on a chart in Excel according to the rankings you have identified. You can do this using the Radar function in the Chart menu. Always remember that this is an indicative tool, not a proof of a right answer. However, it can illustrate a point, or highlight a lack of focus in certain areas.

Confidential „ © 2008 BearingPoint France SAS

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Value disciplines (2)

Example output

Value disciplines, Car industry, UK, 1999 Product Leadership

BMW Rolls

Lada Vauxhall

Operational Excellence

Tricks and tips

Daewoo

Customer Intimacy

One major drawback of the value discipline diagram is that it implies a counter-relationship between capabilities: if a company performs particularly well on one axis, it undermines the comparative performance on others due to the shape of the diagram. Be aware of this when you are discussing your results with your client. Make sure you think in advance about the scale you use these should be relative and meaningful in application. Try to shade and annotate the chart to bring out your main conclusions.

Source: Example Confidential „ © 2008 BearingPoint France SAS

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Prioritization Funnel (1)

Description

Strategic decision making is a formal process based upon rigorous analysis, rather than anecdotally supported opinion. Choices between any number of possible opportunities have to be taken where there is uncertainty and severe resource constraints. The prioritization funnel is a tool designed to help clients through the process of strategic decision making with confidence that they have approached it in a structured, riskaware manner. The advantage of the prioritization funnel is that it forces the client to evaluate each possibility in the light of pre-agreed criteria and values consistent with their strategic vision.

Typical application

Any situation which requires identifying and valuing options, then deciding where scarce resources should be invested to generate maximum return. In essence this is the definition of portfolio strategy.

Typical Process

The funnel process begins when a full "universe" of opportunities have been defined (see the appropriate tools in this book for generating and defining opportunities). The first step is to define the key criteria against which each opportunity is to be assessed. Typically these fall into four categories: revenue, cost, ease of implementation and strategic alignment. Grouping aids comprehension. In general only 3-4 criteria in each category will be significant. Draw up a list of these with your team and then get the agreement of the client stakeholders. Complete a rapid appraisal of each opportunity against the key criteria. This should be a ‘back of the envelope’ assessment relying heavily on existing data and expert input from both your team and your client. Represent your findings as a ‘traffic light chart’. Draw conclusions regarding which opportunities could be eliminated and which should command the majority of effort going forward. Draft an approach to any obvious ‘quick win’ projects which may have been identified this stage. Complete a detailed evaluation of each remaining opportunity. Finally, consolidate the analysis into a coherent recommendation addressing: recommended priority opportunities; financial impact; risks; interrelationship of opportunities; and implementation challenges. It is important to keep the client appraised of the process as well as the results of your analysis. This helps to ‘lock in’ decision making on the journey towards an agreed strategy. The key decision points are typically: agreeing criteria, preliminary ranking of opportunities, detailed assessment review, facilitated executive decision to proceed.

Confidential „ © 2008 BearingPoint France SAS

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Prioritization Funnel (2)

Branded confectionary manufacturer conceptual prioritization funnel

Size

A

Strategic fit

„

Incremental revenue/ cost reduction potential for other business units

„

Alignment with ongoing initiatives

B A

B

C

D

Ongoing investment

Growth

Size Competitive positioning

Ease of implementation

Initial investment

C

Opportunity

Share

All opportunities

Investment requirement

„

NPV

„

Maximum investment exposure

„

Payback/IRR

„

Risk profile fit

„

Brand enhancement potential

„

Ease of exit

„

Ability to leverage employees for key management positions

Capability ‘gap’ A B C D Content dominated Multiple partners

Alone

Infrastructure dominated „

Organizational change

„

Management challenge

Target opportunities

Revenue potential

Growth

Example output

Markets

Unattractive opportunities are eliminated

Global asset manager key assessment criteria Financial factors Net contribution (1-2 yrs) NPV over 5 years (upper & lower bound) „ Limited investment cost „ Limited peak investment exposure „

Attractiveness Industry market „

„

Primary criteria

2ndary criteria

Tricks and Tips

„ „

Speed of payback Fit with desired ownership structure

„

Achievability ImplemenIndustry tation support

Strategic alignment

Ability to lead the industry to reshape and enhance industry infrastructure

„

Incremental revenue/cost reduction potential for other business units and geographies „ Alignment with other on-going initiatives

Benefits from improved industry perception

„ „ „

Risk profile fit Brand potential Ease of exit

Limited scale/scope „ Interest/support of change by potential partners and Low competitive barriers users „ Limited 3rd party ─ direct dependency ─ Implied „ „

„ „

Capability fit with EXN/ML/Newco Limited regulatory barriers

„

Observed levels of buy-in

Different stakeholders will have different views on what the key criteria should be, so don’t underestimate the time to complete this step and don’t push too far ahead without agreement. The cost benefit and revenue sections are highly numerate and time consuming. Don’t cut corners - financial performance is almost always the most important criteria. The strategic fit and ease of implementation are usually more qualitative. They should be linked to prior assessment of the articulated strategy. You may find that the process causes you to remove opportunities as you go along - this is OK. You will find circumstances where none of the opportunities in the portfolio are viable.

Confidential „ © 2008 BearingPoint France SAS

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Scenario development (1)

Description

Scenario development is a methodology to help “manage the future”. Where traditional analysis predicts the near future in terms of historic and current trends scenario planning considers large-scale forces that will push the future in different directions. The process is as much a part of the benefit as the outcome, allowing managers to generate and share ideas in a positive environment, leaving a company better placed to react to changing future events. Scenario development suggests a number of distinctively different alternative futures, each of which are possible. These scenarios of the future focus less on predicting outcomes and more on understanding the forces that would eventually compel an outcome; less on figures and more on insight. They are more concerned with understanding the discontinuities in creating alternative futures by recognizing that the structure of the environment may change.

Typical application

Typical process

Scenario planning can be applied to any changing environment, but is generally most successful in industries which face major change to underlying fundamentals of environment and competition. Most famously it has been adopted by Shell (oil), the NHS (health service), and ICL (telco supply). There are many variants on how to run a full scenario planning engagement, but all begin with gaining an understanding of the industry via client interviews, industry experts, and micro and macro environment analysis A “decision focused scenario” process will take the following form: „ Clarify strategic decisions the scenarios seek to address (ie. what would you like to know about the future to improve your decisions?) „ Agree key decision factors „ Determine environmental forces at two levels: market / industry level (micro) and an economic / political / technical level (macro) „ Develop 3-6 scenarios - often called logics. (e.g. global giants will dominate, industry will fragment, boundaries will blur, etc.) „ Describe the scenarios in enough detail to identify implications on the strategic decisions „ Identify strategic implications „ feed back into the original strategic decisions This process is done in teams and workshops with the client.

Confidential „ © 2008 BearingPoint France SAS

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Scenario development (2)

Example output

„ High

technology state control „ Universal surveillance „ Police states/blocks

Non-individual focus Power becomes more centralised

Big Brother

Technology becomes less popular

„ Global media giants „ Control of all content/

formats

„ Increasingly

politically and economically guided

Tomorrow never die

Today

Technology becomes more popular

Technology push

Technology pull Virtual Communities

Technophobia „ Technological

rejection through possible technology failure „ Spiritual Renaissance

Tricks and tips

„ Geographical

Power becomes less centralised Individual focus

boundaries become less relevant „ Change from “haves/ have nots” to “wants/ don’t want”

This is a very interactive process but every client interaction should be well prepared. Typically this means approaching each interaction with an overtly open mind, but a straw-man in your back pocket. Remember, this is not about predicting the future, it’s about being better prepared than anyone else to anticipate and react to change. Help stretch your thinking further by applying parallel tools e.g: bridgehead mapping, ecosystem mapping, value migration, asset extension modeling, BCG growth-share matrix etc.

Source: Halo Group Confidential „ © 2008 BearingPoint France SAS

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Risk matrix (1)

Description

The risk matrix is a simple structure for identifying the key risks associated with an opportunity, and prioritizing the actions necessary to mitigate those risks. There are many possible structures that could be used to achieve this end, however all share the common property of defining both scale and controllability of each risk.

Typical application

The risk matrix is useful for clarifying decisions around complex, non-independent risks which arise from almost every business decision. Typically, any individual investment project or portfolio decision would benefit from such an analysis. A very common situation in which this tool is used is when deciding whether to take part in an alliance venture. In this instance it helps answer the questions like: „ What is my greatest risk? „ How costly will it be if I cannot mitigate it? „ What shape of alliance would minimize my risk exposure. „ For those risks outside my control (e.g. market risk), what is the potential downside? etc.

Typical process

Throughout any financial modeling exercise, identify those variables which most heavily effect the desired outcome (e.g. which elements have most influence on NPV). Determine the monetary value of the loss if the key variables change by (say) 5%. This is a hard measure of risk. Additionally, identify non-financial risks, typically in the following classes: operational risk; brand risk; human capital risk; technology risk; and timing risk. Attempt to scale these risks comparatively. Many of these can only be scaled in discussion with your colleagues and the client. These are soft risks, but are equally real. Use a two-by-two to plot all the risks by Significance (high, medium, low) and degree of controllability (manageable, mitigatable, non-controllable) Use bubble size to accentuate the scale of risk (making area proportional to monetary impact). Additionally, shade bubbles where it adds clarity. This exercise is best performed 2/3 of the way through a modeling exercise. Test your findings with your team and share it with the client – ensuring consistency of logic (especially for soft risks).

Confidential „ © 2008 BearingPoint France SAS

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Risk matrix (2)

Example output

Significance of risk

C

High F

D

E

M

P

K H

L

Medium O

A

B

G

I

N

J

Q R

Low

W U

S

X

V

Manageable risk

Mitigation / Negotiation

Risks falling under the following categories:

Tricks and tips

T

Internal risks Project risks Market risks

Outside OMFS control Potential financial impact

High A. Level of inbound order flows from partners C. Exchange rate changes D. Tie in of OMFS affiliate companies to EA E. Trading role (Sell order-flow or agency) F. Handling of corporate actions K. Partner competence and fit P. DVP and intra-day cash exposure Medium B. Single currency cost transparency G. Merrill Lynch competitive product H. Jiway competitive product I. E-Cortal competitive product J. Market consolidation L. Lack of clearly defined exit scenarios M. Quality of research delivered N. Technology competence O. Custody systems Q. Need to route all overseas business R. Potential failure of EA network Low S. Quality of research received T. Free riding on partner research and orders U. Ability of EA to change fee V. Additional finance W. CLSA directors’ power X. Marketing of EA

Use common sense when identifying risks, consider only those with a realistic possibility of occurring or having impact. List only the issues that are at the root cause of the risk, rather than a number of knock-on effects entirely dependent upon it. Do not be precious about the absolute location of the bubbles. The critical factor is whether the key risks (top right hand side on the above chart) can be borne by your client. Do not stop when you have finished your risk chart. You must drive on to determine what actions must be taken to guarantee minimum risk and to determine the benefits case in this instance. You can use the risk matrix to build individual risk analysis into total risk analysis all risks Breakdown each risk with full analysis and segmentation.

Source: FSI Project, April 2001 Confidential „ © 2008 BearingPoint France SAS

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Financial and Economic analysis

46

Market sizing (1)

Description

Typical process

Market sizing techniques are used to understand the size of a market an entity is operating in or is interested in entering/leaving, once it has been accurately defined. There are three main market sizing methodologies: „ Triangulation - taking the best estimates from a range of sources; „ Top down - taking an industry whose size you know and shaving off parts until you arrive at the required market; and „ Bottom up - building up segments to form the market you are interested in It is recommended that you estimate market size using two or more of these methods at a time, typically top-down or bottom-up supported by triangulation. The triangulation approach involves taking the best estimate from a range of sources providing slightly unequal estimates and applying the five sanity checks below: „ Confidence ranging - narrowing a variety of estimates from different sources down to a range within which you are fairly confident the true answer is to be found (“confidence interval”); „ Feel right test - Connecting data obtained on esoteric issues to more easily understandable dimensions and assessing credibility of implication; „ Materiality test - Putting in perspective the differences between the various estimates obtained typically by expressing biggest delta as % of average value; „ Impact criticality test - Establishing whether the different estimates obtained lead to the same outcome with regard to the question you are really addressing; and „ Body doubling - Choosing one unique data point as the estimate you will go with pending further information Pool of estimates

X

Sanity checks

=

Triangulated estimate

The top-down approach is a method that consists in shaving off parts of something you know until you are left with the rump (e.g. a segment size) that you were trying to estimate in the first place. Confidential „ © 2008 BearingPoint France SAS

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Market sizing (2)

To construct: „ Gather all the available data on the market you are trying to estimate as well as data on broader industry sets; „ Make a list of the cuts for which you have data; and „ Split the starting object into a sub-set by applying the cut for which you have the least data (e.g. split recorded music into digital/non-digital before type). The example below illustrates the cuts you might undertake to arrive at one of the segments in question 3. Estimated size of the global archive footage market 2000 Cut

$6 billion

1. The global market for visual content is estimated to be $6bn. $2 billion 2. The secondary visual content market accounts for approximately - $2bn. $200 million 3. Archive footage represents approximately 10% of the secondary visual content market - $200 million. $80 million 4. Of this archive news footage represents around 40% - $80 million.