贝恩咨询分析方法businessdefinition

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1、Gisele GarrawaySusan Caraviello,Paul DiPaola,andTodd SenturiabcBusiness DefinitionMarch 1998Author:Contributors:Todd SenturiaReviewer:Copyright 1998 Bain&Company,Inc.1bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionAgendaThe business definition conceptApplicationsBusiness definition stepsCl

2、ient examplesBunker Hill Door SystemsJJR Industrial CoatingsKey takeaways2bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionAgendaThe business definition conceptApplicationsBusiness definition stepsClient examplesBunker Hill Door SystemsJJR Industrial CoatingsKey takeaways3bcBOS Copyright 199

3、8 Bain&Company,Inc.Business DefinitionWhat is Business Definition?Indicates whether two business segments should be operated as one business or as separate businessesHelps identify what drives superior profitability in an industryServes as the foundation for strategic analysis and sound decision mak

4、ingBusiness definition delineates the economic boundaries within which companies should compete.4bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionOne Business vs.Separate BusinessesSame customersSame cost structureSame competitorsDifferent customersDifferent cost structureDifferent competito

5、rsIf two business segments have the same customers,the same cost structure,and the same competitors,they are one business.If they are different on all of these dimensions,they are separate businesses.One businessSeparate businessesCompete in both segments to take advantage of synergiesDo not compete

6、 in both segments5bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionWhy Bain Uses Business DefinitionStrategic insightsTactical insights with strategic importanceShould we buy or sell the restaurant business?Should we expand into China?Are we vulnerable to Japanese competitors?Should we verti

7、cally integrate into growing vegetables?Should we drop this product line?Should we cross-train our salesforce?How should we group purchases forVMRs(value managed relationships?How should we configure our manufacturing plants?The correct business definition can lead to case-cracking insights.6bcBOS C

8、opyright 1998 Bain&Company,Inc.Business DefinitionConsequences of Incorrect Business DefinitionCompanies that define their businesses incorrectly make poor strategic decisions.CostsCompetitorsIncur unnecessary costsForgo opportunities to capture synergiesDo not transfer experienceUnderinvest in impo

9、rtant R&D initiativesOverlook relevant competitive threatsMiscalculate“market share”Set inappropriate performance targetsOverlook relevant capacity changesMisjudge true cost positionCustomersNeglect profitable customer segmentsOver-invest in unprofitable customersForgo opportunities to capture syner

10、giesMisjudge relevant market trendsOverlook relevant geographies7bcBOS Copyright 1998 Bain&Company,Inc.Examples of Incorrect Business DefinitionBusiness DefinitionSome respected companies have missed profit opportunities or suffered unnecessary losses because they did not define their businesses cor

11、rectly.American ExpressAllegisSaatchi&SaatchiCharge cards and credit cards are separateCharge cards and credit cards are one business-plastic moneyCharge card division lost money due to poor cost position and misguided marketing effortsAirlines,hotels and rental cars are one business-caring for trav

12、elers worldwide Airlines,rental cars and hotels are three separate businessesThe combination provided little value to customers:Allegis was split up Advertising and consulting are one business-service to global business executivesAdvertising and consulting are separate businessesCompany suffered sev

13、ere losses due to inability to transfer experience,lack of focus,and tainted imageCompanyA better business definitionConsequences of incorrect business definitionHow management defined the business8bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionAnalytic Consequences of Incorrect Business D

14、efinition(p.1)Business definition must be the starting point of any Bain case because defining a business incorrectly can adversely affect strategic analysis and decision making.If we definea business incorrectly.Incorrect Business DefinitionCorrect Business DefinitionThe underlying normative band w

15、ill not emergeA business may look deceptively attractive or unattractiveROS/RMSGrowth/Share9bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionAnalytic Consequences of Incorrect Business Definition(p.2)Defining a business incorrectly can lead to problems in conducting E-Curve and RCP analysis.

16、If we definea business incorrectly.Incorrect Business DefinitionCorrect Business DefinitionWe may ignore relevant experienceWe may benchmark the wrong competitors$1$2$5125102050100Cost per TransactionNow AccountsSlope=70.1%R=0.98$1$2$51020501002005001,000Cost per TransactionNow+Savings AccountsSlope

17、=57.2%R=1.00Experience CurveRCP10bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionComplexity of Business DefinitionA simple catalog of logical arguments is not robust enough to delineate the competitive battlefields for our clients.Is it one business or not?One BusinessSeparate BusinessesTou

18、ring quality microphones and speakersMadonna and rappers use bothSimilar distribution channelsDifferent manufacturers(Audio Technica vs.Bose)Little manufacturing process knowledge is transferableLimited direct cost sharingCross pens and BIC pensBeer and distilled spiritsBoth used for same function,w

19、ritingSimilar raw materialsSome manufacturing steps sharedBrand name sharing opportunitiesSame distribution channelsSold by same salesforceHigh perceptual barriers to customersLimited customer base overlapLimited benefits of shared R&DKey manufacturing processes are differentDifferent raw materials

20、11bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionBusiness Definition MatrixBain uses the business definition matrix to delineate economic boundaries.Cost sharing and customer sharing are the primary determinants of defining a business.HighCost SharingLowLowHighCustomer SharingOne business(

21、charge cards and credit cards)One business with potential for differentiation or niche position(Cross pens and BIC pens)Separate businesses with potential for cost leadership(oil and refinery by-products)Separate businesses(beer and distilled spirits)Separate businesses with potential for bundling(t

22、ouring quality microphones and speakers)One business with potential for substitution(milk cartons and glass milk bottles)12bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionDynamics of Business DefinitionBusiness definition is dynamic.Temporary barriers,such as price premiums and technology a

23、dvantages,will erode unless they are consistently reinforced.Business DefinitionTechnologyGovernment regulationInput pricesProduct innovationChannel economicsCustomer needs13bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionLocal vs.Regional vs.National vs.Global BusinessesGlobal scaleNationa

24、l scaleRegional scaleLocal scaleProfessional online financial data Overnight package deliveryBanking-lendingHospital textile launderingBanking-deposit gatheringResidential laundromatsBarber shopsClients often cite the need for national or global participation.However,in many businesses,local or regi

25、onal scale drives profitability.Driver of ProfitabilityExample14bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionExamples of Changes in Business DefinitionThere are several examples of companies that have gained significant competitive advantage by changing the definition of a business.Feder

26、al Express revolutionized the package delivery business by introducing an overnight delivery serviceCharles Schwab dramatically altered the mutual funds business by introducing a no-fee service whereby customers could purchase many companies mutual funds through SchwabCalyx&Corolla transformed the f

27、lower distribution business by using information technology to cut out traditional distributors and ship flowers directly from growers to customersStarbucks redefined the coffee shop business from providing coffee to providing a social experienceThe Body Shop revolutionized the cosmetics business by

28、 merging the ideas of beauty,health,and environmental consciousnessStaples,by adapting the business model of a different industry(grocery stores)and taking advantage of economies of scale in purchasing,changed the office supplies business from a local one to a national one15bcBOS Copyright 1998 Bain

29、&Company,Inc.Business DefinitionAgendaThe business definition conceptApplicationsBusiness definition stepsClient examplesBunker Hill Door SystemsJJR Industrial CoatingsKey takeaways16bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionApplicationsFinancial ServicesElectrical and ElectronicsA la

30、rge residential realty company was considering entering the commercial real estate market and wanted to evaluate the attractiveness of the marketAn electronics company had the opportunity to outsource its electronics testing service but was unsure if test outsourcing would define a viable new busine

31、ssBain has used business definition in hundreds of cases and dozens of industries.Some examples of our work are:Bain developed a business definition for commercial real estate services which identified it as a separate business from residential real estate,requiring vastly different competencies and

32、 economics.Client accepted recommendation to stay out of commercial businessBain determined that the test outsourcing business was not a single business with high cost and customer sharing,but rather six separate business which could be bundled,and defined the few specific entry strategies which mig

33、ht be successful.Client ultimately agreed that critical entry barriers were too highSituation:Result:TextilesA large U.K.textile launderer with 23%ROS enters the U.S.market and earns only 5%Bain found that the business definition is not national textile laundering-there are three separate businesses

34、:healthcare,industrial and linen.All three are regional,not national.Client sold two businesses in New York and made two acquisitions in the Southeast17bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionAgendaThe business definition conceptApplicationsBusiness definition stepsClient examplesBu

35、nker Hill Door SystemsJJR Industrial CoatingsKey takeaways18bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionBusiness Definition StepsTo appropriately define a business,Bain uses an iterative approach that is both qualitative and quantitative and relies heavily upon data external to the clie

36、nt.The process starts with an hypothesis that is tested along three dimensions.Degree of emphasisLessimportantMoreimportantIs there substantial cost sharing?Is there substantial customer sharing?Does business definition pass the competitor acid tests?Cost sharingCustomer sharingCompetitor acidtests1

37、9bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionBusiness Definition StepsDegree of emphasisIs there substantial cost sharing?Is there substantial direct cost sharing?Are there substantial opportunities for experience transfer?Less importantMoreimportantCost sharingCustomer sharingCompetito

38、r acidtests20bcBOS Copyright 1998 Bain&Company,Inc.Business Definition*On a cost basis only,we must also look at customers and competitors to determine whether the businesses are one or separate.Cost Sharing An assessment of cost sharing involves examining direct cost sharing and experience transfer

39、.Probably separate businessesOne business*Separate businesses*Probably one businessHighExperience transferLowLowHighDirect cost sharing21bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionHow Businesses Share CostsBusinesses can share costs in a variety of ways.Value Chain StepsHow Direct Cost

40、s Can Be SharedExamplesR&DProcurementManufacturingDistributionSales and MarketingAdministrative SupportMultiple applications of some R&D effortsShared raw materialsShared inbound logisticsSimilar manufacturingfacilitiesprocessesSame distribution channelsBrand name sharingSame sales forceShared info

41、systemsTape and Post-it Notes(3M)Gasoline and petrochemicalsVitreous china toilets and sinks(Kohler)Cigarettes and candy(Philip Morris)Healthy Choice dinners and cerealSoda and orange juice(Coca-Cola)BankBoston NOW accounts and savings accounts22bcBOS Copyright 1998 Bain&Company,Inc.Business Definit

42、ionExperience TransferProduct AProduct BLessons learned from product A can improve manufacture of product BProcessor CForgeGrindPaintDistributor YCustomersSupplier AProcessor DForge GrindPaintDistributor ZCustomersSupplier B(Raw materials)(Semi-finished product)(Finished product)Firms can benefit fr

43、om experience transfer when two products share similar high volume,value-added processes.23bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionBusiness Definition StepsDegree of emphasisLess importantMoreimportantCost sharingCustomer sharingCompetitor acidtestsIs there substantial customer shar

44、ing?How great is the degree of functional substitution?How great is the degree of customer base overlap?How high are customers perceptual barriers?24bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionCustomer Sharing(p.1)Customer sharing analysis includes measuring the customer base overlap an

45、d degree of functional substitution,and,to a lesser extent,looking at perceptual barriers.Do different products currently or potentially fulfill the same customer usage needs?product utility analysiscross-elasticity analysisDo the suppliers of the different products share many of the same customers?

46、who makes the purchase decision?who uses the product?what else is purchased with the product?Functional substitutionCustomer base overlapPerceptual barriersDo customers perceive significant differences among the products?25bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionCustomer Sharing(p.2

47、)Customer base overlapFunctional substitutionPerceptual barriersLowLowLowHighHighHighHighLowProbably separate businessesProbably one businessCustomer sharingGenerally,high customer base overlap,high functional substitution and low perceptual barriers suggest one business.26bcBOS Copyright 1998 Bain&

48、Company,Inc.Business DefinitionCustomer Base OverlapCustomer base overlap can be determined by comparing purchasers or decision makers for the two products.Common Customer Base Overlap CriteriaUsed by same organization or customersPurchased by same individual or groupPurchase decision made by samein

49、dividual or groupLimited customer base overlap27bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionFunctional SubstitutionThere are two ways to evaluate whether products are substitutes.Product utility analysisCross-elasticity analysisDo products offer similar value along non-price attributes(

50、e.g.,scissors and knives cut cloth well)?Is product bundled with other products(e.g.,razors and blades)?How much does share change between the two products as relative prices change?If scissor prices go up will customers buy knives as a substitute?28bcBOS Copyright 1998 Bain&Company,Inc.Business Def

51、inition Functional Substitution-Product UtilityIf products offer very similar non-price attributes or functional benefits,they are potential substitutes.29bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionFunctional Substitution-Cross ElasticityIf a price increase in one product increases the

52、 demand for another,the two products are probably substitutes.Demand for ButterHigh elasticityPrice of Margarine30bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionPerceptual BarriersCustomers perceptions can be indicators of business definition;however,what customers perceive can often confl

53、ict with the economic boundaries.Perceptual barriersLowHighCustomers view:Examples:Products are similarProducts serve different functionsWooden canoes and aluminum canoesWomens fragrances and mens aftershave31bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionBusiness Definition StepsDegree of

54、 emphasisDoes business definition pass the competitor acid tests?Do competitors offer similar products and serve similar customers and channels?Does profitability correlate with definition of market share?Do decisions a competitor makes in one business affect the decisions that a competitor makes in

55、 another business?Less importantMoreimportantCost sharingCustomer sharingCompetitor acidtests32bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionCompetitor Acid TestsDoes business profitability correlate with market share as implied by the business definition hypothesis?What impact do decisio

56、ns made in one business have on another?pricinginvestmentWhat products do individual competitors offer?Which customers/channels do competitors service?ConsistencyProfit explanationIndependent actionsTo validate our business definition hypothesis,we use three competitor acid tests.33bcBOS Copyright 1

57、998 Bain&Company,Inc.Is there substantial customer sharing?How great is the degree of functional substitution?How great is the degree of customer base overlap?How high are customers perceptual barriers?Is there substantial cost sharing?Is there substantial direct cost sharing?Are there substantial o

58、pportunities for experience transfer?Does business definition pass the competitor acid tests?Do competitors offer similar products and serve similar customer/channels?Does profitability correlate with the definition of market share?Do decisions a competitor makes in one business affect the decisions

59、 that a competitor makes in another business?Degree of emphasisLess importantMoreimportantCost sharingCustomer sharingCompetitor acidtestsBusiness DefinitionBusiness Definition Steps-Summary34bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionAgendaThe business definition conceptApplicationsBu

60、siness definition stepsClient examplesBunker Hill Door SystemsJJR Industrial CoatingsKey takeaways35bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionBunker Hill Door Systems*-BackgroundBain used business definition to set a strategic foundation for Bunker Hill Door Systems.The team started w

61、ith a hypothesis that there were three separate businesses.Situation:Complication:Question:Bunker Hill is a$400MM division of Hills Worldwide.This division manufactures entry doors,garage doors(GDS),and garage door openers(GDOs).Hills Worldwide has set aggressive growth targets for all divisionsBunk

62、er Hill has suffered a continued financial decline in recent years and performance varies widely across the product lines.Moreover,Bunker Hill faces a strong set of well-established,low-cost competitorsHow can Bunker Hill grow profitably?Assertion 1Assertion 2Assertion 3GD,GDO and entry doors are se

63、parate businesses and therefore require different strategies for profitable growth*Disguised client case36bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionBunker Hill-Direct Cost Sharing(p.1)Source:Bunker Hill FinancialsThe Bain team found that materials accounted for a substantial proportio

64、n of Bunker Hills costs in all three business segments.CostsCustomersCompet-itors37bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionBunker Hill-Direct Cost Sharing(p.2)*Includes gates and electronicsSource:Purchase Price Variance ReportHowever,in peeling the onion,the team discovered very li

65、ttle material cost sharing,suggesting that on a cost basis there were 3 separate businesses.CostsCustomersCompet-itors38bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionBunker Hill-Experience TransferUsing entry doors as a baseline,the Bain team found limited opportunities for experience tra

66、nsfer.Garage DoorGarage Door OpenersManufacturingR&DDistributionProcurementCostsCustomersCompet-itorsLowMediumHighExperience transfer potential with entry doorsSource:Management Manufacturing Interviews39bcBOS Copyright 1998 Bain&Company,Inc.Business DefinitionBunker Hill-Customer Base Overlap Source:Bunker Hill Customer DatabaseThe Bain team found limited customer base overlap between garage doors and entry doors,and between garage doors and garage door openers.CostsCustomersCompet-itors40bcBOS