Strategic analysis tool

Business Definition

3C

Penetration Curve (S-Curve)

Ratio Analysis

Product Line Profitability

Profit Pool

Relative Cost Position

Relative Market Share

Value Chain

BDP (Best Demonstrated Process)

Reengineering

Variance Analysis

Table of Content Download the entire document at: www.gazhoo.com

Business Definition Download the entire document at: www.gazhoo.com

Business Definition Agenda

The business definition concept

Applications

Business definition steps

Client examples

Bunker Hill Door Systems

JJR Industrial Coatings

Key takeaways

Download the entire document at: www.gazhoo.com

Business Definition Analytic Consequences of Incorrect Business Definition (p.1) Business definition must be the starting point of any ABC Consulting case because defining a business incorrectly can adversely affect strategic analysis and decision making. If we define a business incorrectly... Incorrect Business Definition Correct Business Definition

The underlying normative band will not emerge

A business may look deceptively attractive or unattractive

ROS/RMS Growth/Share Download the entire document at: www.gazhoo.com

Business Definition Analytic 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 Definition Correct Business Definition

We may ignore relevant experience

We may benchmark the wrong competitors

Experience Curve RCP Download the entire document at: www.gazhoo.com $1 $2 $5 1 2 5 10 20 50 100 Cost per Transaction Now Accounts Slope = 70.1% R² = 0.98 $1 $2 $5 10 20 50 100 200 500 1,000 Cost per Transaction Now + Savings Accounts Slope =57.2% R² = 1.00

Business Definition Experience Transfer Product A Product B Lessons learned from product A can improve manufacture of product B Processor C Forge Grind Paint Distributor Y Customers Supplier A Processor D Forge Grind Paint Distributor Z Customers Supplier B (Raw materials) (Semi-finished product) (Finished product) Firms can benefit from experience transfer when two products share similar high volume, value-added processes. Download the entire document at: www.gazhoo.com

Business Definition Bunker Hill - Direct Cost Sharing (p.2) *Includes gates and electronics Source: Purchase Price Variance Report However, in peeling the onion, the team discovered very little material cost sharing, suggesting that on a cost basis there were 3 separate businesses. Costs Customers Compet- itors Download the entire document at: www.gazhoo.com

3 C's Takeaway Slides - Customers (1) Attractiveness A B C Target segment Segment Financial Attractiveness Ease of Implementation Hi Lo Low price High quality Fast delivery A B C D Segment Needs Segment Segment Share Total market = $ Competitors (% of Total Sales) Client $ $ $ $ $ Satisfaction Over Time Value Proposition Segment A Segment B Segment C Segment D Product Service Channel Size of segment Revenue and Profit # $ $ Client Competitor Comb Chart D 3 C’s Download the entire document at: www.gazhoo.com Percent of Replies 100% Time Good Okay Bad Price Positioning Product A Product B Product C

3 C's Takeaway Slides - Competitors (1) Geographic Segmentation Market Growth Cash Flow Net Cash Flow $ $ $ $ $ Sales = $ 100% 3 C’s Download the entire document at: www.gazhoo.com Market Share by Product Type Revenue/Profit Over Time Time Dollars Sales Profit CAGR % % Stock Price Indexed Stock Price Time Competitor A Competitor B Industry Average Market Marimekko Sales = $ 100% Market Competitor C Competitor B Time Competitor A Sales CAGR % % % % Opportunities Strengths Threats Weaknesses SWOT

ROS/RMS Relationship Companies with higher relative market share tend to have more accumulated experience. Higher accumulated experience gives the potential for lower costs and higher profitability. Higher accumulated experience is positively correlated with RMS Higher accumulated experience provides an opportunity for lower costs and higher profits RMS is a proxy for accumulated experience. RMS is positively correlated with profitability Download the entire document at: www.gazhoo.com Accumulated Experience RMS RMS Profitability Accumulated Experience Cost per unit

Relevant Competitors - Incorrect Business Definition An incorrect business definition may exclude relevant competitors from ROS/RMS analysis. National Textile Laundering It appears Gibb has three major competitors and is underperforming Download the entire document at: www.gazhoo.com