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Sharon Poerwanto Brian J Chen Anusha Bhagnani David Z Wang At the forefront of innovation  Red Bulls
Main recommendation Create JV with  bicycle manufacturer  while reducing lead time Product creation  paves way  for expans...
What Motivates Shimano? Risk  Management Motivations Motives drive  decision making Strategy supports  these motives Finan...
What is Shimano Good at? <ul><li>Innovation leader for mechanical components </li></ul><ul><li>Forefront of consumer trend...
What are the constraints?  Constraints Direct Competition  Long lead time 120 days Product to market Product  development ...
What does Shimano need to do?  Need to increase  market  share increase Need to be technological leader & Development of n...
Criteria to Evaluate Options  Criteria & Options Financial gain Innovation and  technology Risk  management 1 3 Highest NP...
What are our options?  Developed Rest of  World Road bikes Mountain bikes <ul><li>Option 1: Low cost </li></ul><ul><li>66%...
Option 1: Low cost strategy  - Dilution of R & D capabilities - Shift to new emerging markets -  Pressure to outsource man...
Option 2:  Hybrid bicycles Developed Rest of  World Road bikes Mountain bikes Hybrid bikes Raw materials Component  Bicycl...
Option 3: Innovate high end  Developed Rest of  World Road bikes Mountain bikes Hybrid bikes Raw materials Component  Bicy...
Options Utilise resource capability Defeat direct competition Forefront of consumer trends 2. Hybrid 1. Low End 3. New Pro...
Trek Carbon fiber frame maximizes power, minimizes weight Innovate full bicycle architecture, not just components! Compone...
Preferred Option: Joint venture with Trek  Raw materials Component manufacture Bicycle manufacture <ul><li>No. 1 frame inn...
… Superior pricing COGS 60 Additional benefits from JV Increased COGS to 70% Current Targeted Selling Price (%) COGS 70 Gr...
Short run strategy  <ul><li>Plan headquarters in Waterloo, Wisconsin </li></ul><ul><li>New X team division for JV </li></u...
Medium run strategy 2-4 yrs 150-200 scientists to Team X R & D lab in Waterloo, Wisconsin R&D Prototype in year 2 Test on ...
Mid to long run strategy <ul><li>Expand division: </li></ul><ul><ul><li>Industry standard innovation </li></ul></ul><ul><u...
Increasing market size Financials
Looking into the future x Financials
Market Penetration for High End Net Income Market Acceptance of Trek-Shimano X Sensitivity Analysis
Timeframe  Impact of  Recommendation 2006 2007 2008 2009 2010 2011 Global  Expansion Continuous research on niches Roll ou...
Recommendation revisited Product creation paves  way for expansion Boost future  Innovation One step ahead  of the competi...
Sharon Poerwanto Brian J Chen Anusha Bhagnani David Z Wang 24 Mar 2007 At the forefront of innovation  Red Bulls Q & A
Environment <ul><li>Define the market </li></ul><ul><li>Competitor </li></ul><ul><li>Why not emerging  market? </li></ul>F...
Defining the market Low-End Mid-End High-End <ul><li>$500 – $4,000 </li></ul>$300 – $500 < $300 Mountain Extra traction & ...
<ul><li>SRAM : </li></ul><ul><ul><li>2003 came up with updated trigger shifters  </li></ul></ul><ul><ul><li>Much smaller t...
<ul><li>High end product </li></ul><ul><li>Demand yet to be established </li></ul><ul><li>Complex distribution channels </...
<ul><li>Customers are: </li></ul><ul><ul><li>Always seeking innovation updates to improve cycling performance </li></ul></...
Key Financial Assumptions 1.
units sold 2.
units sold 3.
Market Share Projections (x) 4.
Pro Forma  In USD mln. 5.
NPV for the Trek-Shimano JV : 995.77 million USD In USD mln. NPV for Low End Market : 628.38 million USD In USD mln. NPV f...
7a.
7b.
<ul><li>If JV with Trek fails to proceed: </li></ul><ul><ul><li>The need to tie in with bicycle manufacturer is immense </...
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2007 1st Place

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2007 1st Place - National University of Singapore

Published in: Business, Economy & Finance

2007 1st Place

  1. 1. Sharon Poerwanto Brian J Chen Anusha Bhagnani David Z Wang At the forefront of innovation Red Bulls
  2. 2. Main recommendation Create JV with bicycle manufacturer while reducing lead time Product creation paves way for expansion Boost future Innovation One step ahead of the competition 1 2 3
  3. 3. What Motivates Shimano? Risk Management Motivations Motives drive decision making Strategy supports these motives Financial Gain Innovation and Technology 2 1 3 “ Inspire ourselves to think creative , improve technical skills and achieve objectives through innovation and responsiveness to challenges .” Shimano
  4. 4. What is Shimano Good at? <ul><li>Innovation leader for mechanical components </li></ul><ul><li>Forefront of consumer trends </li></ul><ul><li>Mechanical component (Drive systems) </li></ul><ul><li>Shifter, hub, crank, derailleur, cassette & pedal </li></ul>1 2 First mover advantage Integrated components Motivations
  5. 5. What are the constraints? Constraints Direct Competition Long lead time 120 days Product to market Product development 1 2 80% <ul><li>Saturated high-end segment </li></ul><ul><li>Threat to market share </li></ul>0 days
  6. 6. What does Shimano need to do? Need to increase market share increase Need to be technological leader & Development of new products Leads to a b Constraints
  7. 7. Criteria to Evaluate Options Criteria & Options Financial gain Innovation and technology Risk management 1 3 Highest NPV Capabilities for every component Maximise Resources Criteria derived from goal to increase MS 2
  8. 8. What are our options? Developed Rest of World Road bikes Mountain bikes <ul><li>Option 1: Low cost </li></ul><ul><li>66% of global demand </li></ul>Hybrid bikes High Low Raw materials Component Bicycle manufacturer Supply chain <ul><li>Option 2: Hybrid bikes </li></ul><ul><li>740,000 customers by 2011 </li></ul><ul><li>Option 3: Innovate high end </li></ul><ul><li>Increase market share to 85% </li></ul>Criteria & Options
  9. 9. Option 1: Low cost strategy - Dilution of R & D capabilities - Shift to new emerging markets - Pressure to outsource manufacturing - Need massive global integrated operations - Decrease in margins - Increase price competition Business Risk Innovation capabilities Financial gains $621 mil. Developed Rest of World Road bikes Mountain bikes Hybrid bikes Raw materials Component Bicycle manufacturer 1 3 2
  10. 10. Option 2: Hybrid bicycles Developed Rest of World Road bikes Mountain bikes Hybrid bikes Raw materials Component Bicycle manufacturer - Hybrid not a breakthrough product - Presence in all 3 product lines - Giant present in market - High fixed cost and capital outlay - No first mover advantage - Fighting on cost Business Risk Innovation capabilities Financial gains $763 mil. 1 3 2
  11. 11. Option 3: Innovate high end Developed Rest of World Road bikes Mountain bikes Hybrid bikes Raw materials Component Bicycle manufacturer - Able to impact product innovation - Potential to change consumer trends - Adoption problems - Partnership with potential JV - First mover advantage - Market leader in high end Business Risk Innovation capabilities Financial gains $996 mil. 1 3 2
  12. 12. Options Utilise resource capability Defeat direct competition Forefront of consumer trends 2. Hybrid 1. Low End 3. New Product Factors Weights 2. 3. 1. Maximise financial gain Preferred option: Innovate high end TOTAL 100% 1.80 1.40 2.80 Criteria & Options 20% 20% 20% 40% 1 3 1 2 2 3.20 3 2 3 3 1 2.20 2 1 2 1 4 3.00
  13. 13. Trek Carbon fiber frame maximizes power, minimizes weight Innovate full bicycle architecture, not just components! Components Shimano Innovation in linked component sets Bontrager Focus on comfort, weight, aerodynamics Frames Mechanical Parts Non-Moving Parts Preferred option: Trek-Shimano X Preferred option x
  14. 14. Preferred Option: Joint venture with Trek Raw materials Component manufacture Bicycle manufacture <ul><li>No. 1 frame innovator </li></ul><ul><li>High end market </li></ul><ul><li>Threat: Competition </li></ul><ul><li>from Giant, </li></ul><ul><li>Specialized </li></ul><ul><li>No. 1 drive systems innovator </li></ul><ul><li>High end market </li></ul><ul><li>Threat: Competition from SRAM, </li></ul><ul><li>Campy </li></ul>- Jointly sponsor Lance Armstrong - Combined R & D team - Integrated selling NPV: $996 mil x
  15. 15. … Superior pricing COGS 60 Additional benefits from JV Increased COGS to 70% Current Targeted Selling Price (%) COGS 70 Gross Profit 40 Gross Profit 40 +Gross Profit 20 130 100 Preferred option x
  16. 16. Short run strategy <ul><li>Plan headquarters in Waterloo, Wisconsin </li></ul><ul><li>New X team division for JV </li></ul>Marketing Sales Production Engineering X team CEO Bicycle division 1-2 yrs <ul><li>Reduce lead time by increasing production facilities from 120 to 90 days </li></ul>5 yr implementation x
  17. 17. Medium run strategy 2-4 yrs 150-200 scientists to Team X R & D lab in Waterloo, Wisconsin R&D Prototype in year 2 Test on professional racers & patent Develop Launch final product in Europe Sponsor Tour de France Teams Launch Through Trek stores Distribute Endorsements by Óscar Pereiro Enthusiast Magazines Market 5 yr implementation x
  18. 18. Mid to long run strategy <ul><li>Expand division: </li></ul><ul><ul><li>Industry standard innovation </li></ul></ul><ul><ul><li>Increase adoption rate </li></ul></ul><ul><ul><li>Constant R & D </li></ul></ul>4-5 yrs <ul><li>Expand markets: </li></ul><ul><ul><li>Developed  demand for high end </li></ul></ul><ul><ul><li>Tour De Swiss, Commonwealth games </li></ul></ul>x
  19. 19. Increasing market size Financials
  20. 20. Looking into the future x Financials
  21. 21. Market Penetration for High End Net Income Market Acceptance of Trek-Shimano X Sensitivity Analysis
  22. 22. Timeframe Impact of Recommendation 2006 2007 2008 2009 2010 2011 Global Expansion Continuous research on niches Roll out in developed regions Current product $100 mil investment in production facilities Review/ Feedback Trek-Shimano X $50 mil initial JV Investment with Trek Prototype & test market Roll-out Trek-Shimano X in Europe
  23. 23. Recommendation revisited Product creation paves way for expansion Boost future Innovation One step ahead of the competition Net Profit (mil $) Relative market share 250 85% 80% 190 Value Achieved x Improved Position Strong Joint Venture
  24. 24. Sharon Poerwanto Brian J Chen Anusha Bhagnani David Z Wang 24 Mar 2007 At the forefront of innovation Red Bulls Q & A
  25. 25. Environment <ul><li>Define the market </li></ul><ul><li>Competitor </li></ul><ul><li>Why not emerging market? </li></ul>Financials <ul><li>1. Assumptions </li></ul><ul><li>2. International sales </li></ul><ul><li>3. High end projections </li></ul><ul><li>4. Market share projections </li></ul><ul><li>5. Pro forma </li></ul><ul><li>6. Cash flow NPV </li></ul><ul><li>7a. Cost bike </li></ul><ul><li>7b. Cost bike </li></ul>Trek-Shimano X <ul><li>Assumptions </li></ul>Index of further analysis Mitigation <ul><li>Plan B </li></ul>
  26. 26. Defining the market Low-End Mid-End High-End <ul><li>$500 – $4,000 </li></ul>$300 – $500 < $300 Mountain Extra traction & shock absorption, wheel suspension, saturated market Road Racing, touring & utility bikes, saturated market Hybrid In between the two ranges, including comfort bikes & small wheelers
  27. 27. <ul><li>SRAM : </li></ul><ul><ul><li>2003 came up with updated trigger shifters </li></ul></ul><ul><ul><li>Much smaller than Shimano </li></ul></ul><ul><ul><li>Strength in mountain bike shifters </li></ul></ul><ul><ul><li>Constant battle with Shimano on patent and anti-trust issues </li></ul></ul><ul><ul><li>Potential shorter lead time </li></ul></ul><ul><ul><li>About to release 1 st bike component group </li></ul></ul><ul><li>Campagnolo (Campy): </li></ul><ul><ul><li>High end components for racing bicycles </li></ul></ul><ul><ul><li>Focus on lighter carbon-based materials </li></ul></ul>Competitors
  28. 28. <ul><li>High end product </li></ul><ul><li>Demand yet to be established </li></ul><ul><li>Complex distribution channels </li></ul><ul><li>Poor buying power </li></ul><ul><li>Different market needs </li></ul>Why not emerging market?
  29. 29. <ul><li>Customers are: </li></ul><ul><ul><li>Always seeking innovation updates to improve cycling performance </li></ul></ul><ul><ul><li>Not price sensitive </li></ul></ul><ul><li>Customers’ concerns: </li></ul><ul><ul><li>Speed </li></ul></ul><ul><ul><li>Efficiency </li></ul></ul><ul><ul><li>Strength </li></ul></ul><ul><ul><li>Comfort </li></ul></ul><ul><ul><li>Ease of use </li></ul></ul>Assumptions for Trek-Shimano X
  30. 30. Key Financial Assumptions 1.
  31. 31. units sold 2.
  32. 32. units sold 3.
  33. 33. Market Share Projections (x) 4.
  34. 34. Pro Forma In USD mln. 5.
  35. 35. NPV for the Trek-Shimano JV : 995.77 million USD In USD mln. NPV for Low End Market : 628.38 million USD In USD mln. NPV for Hybrid Option : 763.97 million USD Cash Flow Projections 6.
  36. 36. 7a.
  37. 37. 7b.
  38. 38. <ul><li>If JV with Trek fails to proceed: </li></ul><ul><ul><li>The need to tie in with bicycle manufacturer is immense </li></ul></ul><ul><ul><li>Other possible partners identified: </li></ul></ul><ul><ul><ul><li>Colnago in Italy, Europe </li></ul></ul></ul><ul><ul><ul><li> known as Ferrari of the bikes </li></ul></ul></ul><ul><ul><ul><li>Seven Cycles </li></ul></ul></ul><ul><ul><ul><li> custom-built bicycles, operations in North America, Germany & Austria ($475 mln revenues in 2006) </li></ul></ul></ul>Mitigations: Plan B

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