The Strategy Analytics Toolkit

1. DRAFT The Strategy Analytics Toolkit Gemini Consulting Beta Version: October 1998

2. Contents Page • 3 • 9 • 35 • 39 • 113 • 159 • 206 • 226 • 247 • Introduction - what it is, and what it isn’t • Gemini’s Approach to Strategy: • Strategy and Results • Understanding a Client’s Strategic Position • Analytics to Understand a Client’s Strategic Position • About the Toolkit Structure and Contents • Toolkit Analytics: • Competitors/Industry Stream Analytics • Customer Needs Stream Analytics • Profitability Stream Analytics • Capabilities Stream Analytics • Developing and Evaluating Options • Next Steps and Feedback Process

3. Introduction—what it is, what it isn’t

4. INTRODUCTION The Toolkit describes key analytics used by Gemini in strategic work with clients • Designed for use by all Gemini consultants: • Most frequent users are likely to be strategy consultants. • However, we hope that project managers, business development staff, and consultants from other disciplines will find it a useful reference tool. • Contains analytics that, in our experience, are the most relevant and useful for strategy work: • Analytics and content developed in consultation with all Gemini POAs. • Does not deal with the process of how to engage the client organisation to achieve the desired outcomes: • This topic is addressed in more detail by the LMRa discipline Kbase. • See also “Gemini’s Evolving Change Model”, on Gemini Compass. • Does not provide tools or frameworks to understand the emotional and political domains. The toolkit is intended as an “aide memoire”, and will supplement Gemini strategy training programmes. a. Leadership Mobilisation and Renewal.

5. INTRODUCTION The Toolkit draws on Gemini’s heritage United Research 1991 Mac Group 1991 Bossard 1998 SIAR 1998 Eurostart 1994 Svennerstal & Partners 1996 IKO (Norway) 1991 Asia Advisory Services 1991 Ç Ç Ç Ç Ç Ç Ç Ç Ç Ç Ç Ç Ç Ç Ç Ç Ç Ç Gamma International 1991 Ç CESAT 1995 GTP 1993 With the Toolkit, we hope to build a common language among all Gemini consultants around fundamental strategic tools and techniques.

6. INTRODUCTION The focus of the toolkit is on core analytics Strategy Competency Group Structure • Segmentation/Data Warehousing • Marketing Effectiveness • Customer Value Management (CVM) • Channel Strategy and Management • Market Focus/BMFO • Sales Effectiveness/ Pricing • Balanced Scorecard • Shareholder Value/EVA • Activity Based Management (ABM) • Corporate governance and multi-business role of the centre and organisation • Growth Strategy • Value Innovation • Vision Engineering • Strategic Intent/Core Competencies • Corporate Strategic Planning • Transformation Mapping • Acquisition Screening • Alliance Management • Joint Ventures • Applied Knowledge Management/Performance Innovation • Post merger integration Strategy Development & Planning for Growth (J. Schmidt) Partnering & Managing Capabilities (TBD) Strategic Marketing (A. B. de Jaegere) Guiding & Measuring Success (M. Tattum) Link to IM Strategy Link to Organisational Design • Industry/competitor analysis • Profitability analysis • Option formulation and evaluation • Capabilities analysis • Customer analysis Core Strategy Analytics Toolkit Focus The strategy competency groups provide a structure for knowledge management.

7. INTRODUCTION Strategy competencies will be built-up from core consulting and strategy skills Strategy Competency Group Overview Partnering & Managing Capabilities Strategic Marketing • Covered at GU and project based learning Core Strategy Analytics(Tools & Frameworks) Core Strategy Skills • Analytical Problem Solving Process Strategy Development & Planning for Growth • Toolkit Guiding & Measuring Success • Gap filled by toolkit • PoA based training to be developed • Covered at GU Core Consulting Skills • E.g.: • Presentations • Interviewing • Researching • Modelling • Etc • Covered at Induction, GSW and PoA based training 6 months 1 year Time with Gemini The toolkit plugs a key existing gap.

8. INTRODUCTION The toolkit supports each stage of the Analytical Problem-Solving Process Develop Conclusions & Recommendations Analytical Problem-Solving Processa Develop Insights • Which option should your clients select? • How should they implement it? • What are the risks? How can they be overcome? • How can they measure progress? Analyse Data • What is the situation? • What are the options to resolve the issues? • How can the situation be improved? Gather Data • What is the actual strategic position? • What supplementary analysis do we need to do? Form Hypotheses • What evidence do we need to confirm/refute the hypotheses? • What analysis will we do, and what data should we collect? Define Issues • What do we believe the strategic position to be? • What are the boundaries of the businesses? • What are the drivers of value? • How are we positioned? • What are the options? • What might we do? • What is the stated issue? • Are there more fundamental ones? Main Toolkit Help The Toolkit is particularly helpful in understanding how to gather and analyse data. a. See Gemini University Strategy Skills Course for further details.

9. Vision Goals Corporate Strategya Business Strategy INTRODUCTION In any business, there are different levels for which we develop strategy (and vision) Strategy Analysis Pyramid Toolkit Focus The toolkit focuses on business level strategy, the key building block. a. Defined as multibusiness. See also corporate level strategy initiative document in German POA, and Koch Training Sessions in South African POA.

10. INTRODUCTION We must be aware of some important caveats . . . • The toolkit is not a cook book. • “Blind” application of many of the analytics could lead to the wrong, or indeed no answer: • Analysis, particularly the output, needs guidance and thought. • There is no substitute for experience—both in strategy and industry knowledge: • The only way to truly develop strategy skills is through an apprenticeship model. • There is an “appropriateness of robustness” for all analysis: • Analytics can be used with different levels of data, for different situations, e.g. business development, A&D, and RD. • Strategic position changes and an industry shifts: • It is easy to get stuck in an old paradigm, leading to wrong assumptions and solutions. • Beware of accepting industry assumptions without challenging and seeking evidence. • Challenge the “status quo” by testing the feasibility of the complete opposite of existing industry “modus operandi”. . . . and don’t forget creativity.

11. Gemini’s Approach to Strategy • Strategy and Results • Understanding a Client’s Strategic Position • Analytics to Understand a Client’s Strategic Position

12. STRATEGY AND RESULTS Gemini is in the business of helping our clients improve business performance and delivering results Three Key Levers For Improving Business Performance Longer Term Unique Capabilities and Assets Strategic Position (Toolkit Focus) Operational Effectiveness Shorter Term An effective business strategy focuses on improving these three fundamentals.

13. Robust and creative strategy that can be implemented Strategic actions embedded in day-to-day business Organisational understanding, momentum, and enthusiasm Capability to adapt and evolve strategy as market and industry develop STRATEGY AND RESULTS Gemini’s strategy is about the right results not just the right answer Characteristics Required for Strategic Success Results are realised only when strategies are implemented.

14. “How should we respond to/take advantage of . . .” “We need to fix our performance . . .” “The issue is . . . Can you help us . . .” “We want to be in the X business, how do we develop it . . .” Make explicit assumptions about the future. Provide and assess alternate options. Understand the trade-offs of “what to do” and “what not to do”. State the financial impact of alternative options, including doing nothing. Provide milestones and measures to track performance. Detail actions to ensure the organisation fulfils its ambition. STRATEGY AND RESULTS Good strategies provide measures to monitor performance on a variety of client issues Different entry points/questions asked by clients . . . . . . but with common elements to the solutions All require an understanding of the client’s unique position both internally, and in relation to its competition and industry. Most importantly, strategies should deliver results.

15. STRATEGY AND RESULTS Our approach to strategy development embraces the emotional and political issues as well as the rational ones • Rational domain: • Strategic position. • Operational effectiveness. • Capability development. • Emotional domain: • Development of consensus and commitment at each level and in each area. • Political domain: • Shifting of power within the organisation. These elements are interdependent, however, the toolkit focuses on rational analysis tools.

16. STRATEGY AND RESULTS In an A&D, we assess the company’s strategic position to identify improvement opportunities and issues to address Understand Strategic Position Characteristics Required forStrategic Success Robust and creative strategy that can be implemented Strategic actions embedded in day-to-day business Define Key Strategic Issues to Address Review Existing Strategy/Actions Organisational understanding, momentum, and enthusiasm Capability to adapt and evolve strategy as market and industry develop Understand client mindset, assumptions and issues Operational effectiveness probes and diagnostics identify other improvement areas.

17. Robust and creative strategy that can be implemented Strategic actions embedded in day-to-day business Organisational understanding, momentum, and enthusiasm Capability to adapt and evolve strategy as market and industry develop STRATEGY AND RESULTS In Results Delivery, we assess the strategic position to resolve key strategic issues Political & Emotional Rational Define Strategic Issues Understand Strategic Position Develop and Evaluate Options Results Implementation Capability Strategy development is not a simple, sequential task—it is creative, interactive, and iterative.

18. Gemini’s Approach to Strategy • Strategy and Results • Understanding a Client’s Strategic Position • Analytics to Understand a Client’s Strategic Position

19. UNDERSTANDING A CLIENT’S STRATEGIC POSITION The key to strategy formulation is understanding a client’s unique strategic position, and how that is changing over time • A company’s strategic position shapes on its ability to create more value than its competitors: • Customer value. • Economic value to reward other stakeholders (shareholders, employees, partners, etc.). • The drivers of strategic position in an industry or industry segment shift over timea, but are a function of: • Industry attractiveness, competitors’ strength. • Ability to serve customer needs. • Cost position. • Capabilities and resources. • It is vital to understand the company’s unique strategic position and to choose what it will, and won’t do: • How do we position the client as a player among other industry players. • What are the specific trade-offs it must make vis-à-vis its unique capabilities and position in the industry? a. See also M Porter’s article: “What is Strategy”, HBR November–December 1996.

20. Present Structure Driving Forces of Change Dynamic Pressures and Competitive Actions UNDERSTANDING A CLIENT’S STRATEGIC POSITION The actions of companies influence industry scenarios and therefore their own strategic positions Industry Dynamics Framework • Historical development • Industry logic: • Business logic • Social logic • Competitor map: • Position and role • Forces at play (Porter) • Key Success Factors (KSFs) • Industry evolution and future logic • Business opportunities • Strategic options and new KSFs Future IndustryScenarios Industry scenario planning through international comparisons and analogies from other industries • “Triggers of change”: • Technology • Regulation • New industry • Segments • Change in input costs and availability • Buyer learning, experience and uncertainty • Industry growth, profitability and cyclicality • New actors • Innovations • New business strategies: • New business concepts • Investments and divestments • M&A and alliances • Status quo forces or barriers to change: • Lack of resources or knowledge • Committed resources and investments • Power structure • Inertia and complacency Understanding the future development of driving forces and competitive actions is a major consideration when evaluating alternative strategic options. Source: SIAR School.

21. UNDERSTANDING A CLIENT’S STRATEGIC POSITION To understand a business’s current and emerging strategic position, we need to understand the “rules of the game” Strategic Position What are the (economic) boundaries of the businesses the company is in? How are they changing? • What should the company do? How can it best shape and influence the future industry? • Evaluate options • Decide on action How do companies create value in each of the businesses? How is this changing? How is the client company positioned relative to the competition to create value? How is it changing? The ways in which companies operate and interface inherently assume answers to these questions.

22. Emerging Industries Biotechnology Raw Material Pulp and paperMining Fragmented IndustriesFurniture textiles Services Core Technology Industries Automotive machine tools Ball bearings Distribution-oriented Retailing Service Management Industries Consumer services Professional services Intermediary Industries ConstructionMgt consulting Shipbuilding Brand-based Food computers Financial services Network Industries Banking Telecommunication Credit cards Medra UNDERSTANDING A CLIENT’S STRATEGIC POSITION Companies can be analysed and understood based on a set of industry perspectives Key Industry Groupings Industry Perspective—Benefits • This is a set of ideal types of industries—provides perspectives to highlight competitive issues and focus analysis on the most important areas: • “Get to the point fast”. • Brings understanding from earlier experience • Provides a starting point for diagnosing industry logic and dynamics: • Generate strategic options • Focus development of business strategy Industry perspectives help focus the analysis and brings past experience to bear—we must continue to enhance this understanding. Source: SIAR School.

23. UNDERSTANDING A CLIENT’S STRATEGIC POSITION There are some key issues specific to each industry which help focus analysis Industry Perspectives Industry Technology-based Project-based Brand-based Raw Material-based Service Business Network Industry Market Dynamics • Product lifecycle • Technology • Investment waves; customer pull, technology push • Product lifecycle • Quality demands • Positioning • Cyclical • Substitutes • Technology • Local business • Information technology • Scale economies • Deregulation • Information technology • Infrastructure Competitive Logic • Market segmentation • Technology • Economies of scale • Customer base • Technology • Customer loyalty • Advertising • Integration • Capacity • Low cost sources/ production • Market segmentation • Quality standards • Market segmentation • Network coverage • Technology Success Measure • Market share • New products/ models • Customer base status • Brand strength • Cost efficiency • Customer retention • Customer retention • Utilisation Critical Assets • Technology • Product/ manufacturing • Customer base • Flexible organ. • Financial strength • Brands • Raw material • Production efficiency • Human resources • Management • Networks Risk and Growth Mechanisms • R&D investments • New technologies • New applications • Exploit new demand waves • Piggy back on customers • Project risks • Extension • Revitalisation • Integration • Exploration • Utilisation of excess raw material • Overcome fragmentation • Duplication mentation • Network-based • Changes in infrastructure • Regulation • Capital expenditure Issues Key Factors in Coping with Risks Achieving Synergies • Marketing power • Distribution • Alliances • Balancing own development and production vs. sub-contracting component supplies • Customer base management • Organisational flexibility • Project management • Financial management • Brand management • Advertising/ promotion • Syndication • Cash flow synergies • Vertical integration • Balancing upstream and downstream • Economies of scale • Organisational innovations • Local dominance • Strategic alliances • Systems development Internationalisation • Organic • Acquisitions • Partnerships • Licensing • Acquisition • Exploiting cost gaps

24. UNDERSTANDING A CLIENT’S STRATEGIC POSITION The necessary analysis to understand the strategic position usually falls into four natural streams of activity Typical Categories of Analytical Work to Determine Business-Unit-Level Strategic Position Industry and Competitors Customer Needs Profitability Drivers Capabilities Understanding the strategic position is a creative process relying on insights across all streams of analysis.

25. UNDERSTANDING A CLIENT’S STRATEGIC POSITION To develop strategic position insights, we must consider evidence and facts from all four streams Evidence and Facts Competition/Industry Customer Needs Profitability Capabilities Strategic Position • What are the boundaries/scope of the competition? Are there successful niche players/broad-focus players, and where do they make money? • How big is the market? How fast is it growing? Are some parts growing faster than others? • What are the average returns in the industry? How have they changed over time? How do they vary between players? • Have there been any new entrants, and why? Are they making money? • Has anyone left the industry? Why? • Is the business constrained by regulation? What are the boundaries of regulation? • Why do customers purchase? What is generating value? • How do customers purchase? What is the trigger? • What different needs-based segments exist? • What is the underlying customer need? • What substitute products are there? • What trends are emerging? • What are the pricing determinants? • What are the natural boundaries of unit cost drivers (by product/geography)? • What are the boundaries of the capabilities required to compete successfully? What are the (economic) boundaries of the businesses the company is in? How are they changing? • How does the industry deliver value to its customers? Is this changing? • What are the key purchase criteria by segment? • Are purchase behaviours changing? How? Why? • How do companies make money? • How is pricing determined in each business? • What are the major areas of unit cost position? What are their drivers? • How is the cost structure changing? Why? • What capabilities are required to deliver value? How is this changing? How do companies create value in each of the businesses? How is this changing? • What and why is the overall performance of our client relative to competitors (e.g. market share, profitability)? • How does our client meet the key purchase criteria compared with the competitors? • How well is our client positioned to set prices compared with its competitors? • What is the cost position of our client relative to its competitors? Is it changing? • How strong are our client’s key capabilities, relative to its competitors? How is the client company positioned relative to the competition to create value? How is it changing?

26. Gemini’s Approach to Strategy • Strategy and Results • Understanding a Client’s Strategic Position • Analytics to Understand a client’s Strategic Position

27. ANALYTICS TO UNDERSTAND A CLIENT’S STRATEGIC POSITION Analytics help us understand particular elements of the client’s strategic position Key Questions to UnderstandStrategic Position Key Analytics to Understand Strategic Position What are the (economic) boundaries of the businesses the company is in? How are they changing? • Essential to understand the strategic position of our clients: • Without analytics, any assessment of strategic position will be flawed • Essential to evaluate client’s strategic options • Break-even analysis • Cluster analysis • Company/competitor analysis • Cost structure • Customer experience • Financial/ratios analysis • Key purchase criteria • Market-sizing and share • Relative cost-positioning • Segmentation • Strengths and weaknesses • Value chain • Venkat matrix CORE ANALYTICS How do companies create value in each of the businesses? How is this changing? • Relevant in specific businesses or situations • Adoption cycle • Business/unit profitability • Economies of scale • Experience curve • Growth share matrix • Key success factors • PEST • Porter’s five forces • Price elasticity • Product life cycle • Product substitution • SWOT SUPPLEMENTARY ANALYTICS How is the client company positioned relative to the competition to create value? How is it changing? Analytics are divided into core and supplementary and are broken down by stream.

28. What are the (economic) boundaries of the businesses the company is in? How are they changing? How do companies create value in each of the businesses? How is this changing? How is the client company positioned relative to the competition to create value? How is it changing? ANALYTICS TO UNDERSTAND A CLIENT’S STRATEGIC POSITION Competitors/Industry Stream: Questions and Analytics Competitors/Industry Stream Strategic Questions Strategic Position Main Analytics • What are the boundaries/scope of the competition? Are there successful niche players/broad-focus players, and where do they make money? • How big is the market? How fast is it growing? Are some parts growing faster than others? • What are the average returns in the industry? How have they changed over time? How do they vary between players? • Have there been any new entrants, and why? Are they making money? • Has anyone left the industry? Why? • Is the business constrained by regulation? What are the boundaries of regulation? Value chain Financial/ratios analysis Company/Competitors analysis Market-sizing and share • How does the industry deliver value to its customers? Is this changing? SWOT PEST Porter’s five forces • What and why is the overall performance of our client relative to competitors (e.g. market share, profitability)? Growth/Share matrix Key success factors Core Analytic Supplementary Analytic

29. What are the (economic) boundaries of the businesses the company is in? How are they changing? Segmentation and targeting Cluster analysis Customer experience Key purchase criteria How do companies create value in each of the businesses? How is this changing? Product life cycle Product substitution How is the client company positioned relative to the competition to create value? How is it changing? Adoption cycle ANALYTICS TO UNDERSTAND A CLIENT’S STRATEGIC POSITION Customer Needs Stream: Questions and Analytics Customer Needs StreamStrategic Questions Strategic Position Main Analytics • How and why do customers purchase? What is the trigger? • What different needs-based segments exist? • What substitute products are there? • What is the underlying customer need? • What trends are emerging? • What are the key purchase criteria by segment? • Are purchase behaviours changing? How? Why? • How does our client meet the key purchase criteria compared with its competitors? Core Analytic Supplementary Analytic

30. ANALYTICS TO UNDERSTAND A CLIENT’S STRATEGIC POSITION Profitability Stream: Questions and Analytics Profitability StreamStrategic Questions Strategic Position Main Analytics • How is pricing determined? • What are the natural boundaries of unit cost drivers (by product/geography)? What are the (economic) boundaries of the businesses the company is in? How are they changing? Break-even analysis Value chain Cost structure Relative cost-positioning Economies of scale • How do companies make money? • How is pricing determined in each business? • What are the major areas of unit cost position? What are their drivers? • How is the cost structure changing? Why? How do companies create value in each of the businesses? How is this changing? Experience curve Price elasticity • How well is our client positioned to set prices versus the competitors? • What is the cost position of our client relative to its competitors? Is it changing? How is the client company positioned relative to the competition to create value? How is it changing? Business/Unit profitability Core Analytic Supplementary Analytic

31. ANALYTICS TO UNDERSTAND A CLIENT’S STRATEGIC POSITION Capabilities Stream: Questions and Analytics Capabilities Stream Strategic Questions Strategic Position Main Analytics • What are the boundaries of the capabilities required to compete successfully? What are the (economic) boundaries of the businesses the company is in? How are they changing? Strengths and Weaknesses Venkatramen Matrix • What capabilities are required to deliver value? How is this changing? How do companies create value in each of the businesses? How is this changing? • How strong are our client’s key capabilities relative to its competitors? How is the client company positioned relative to the competition to create value? How is it changing? Core Analytic

32. ANALYTICS TO UNDERSTAND A CLIENT’S STRATEGIC POSITION On projects, most of the analytics may be useful across more than one stream Competitors/Industry Profitability Capabilities CustomersNeeds Summary of Stream Analytics List of Analytics Break-even analysis Ÿ Cluster analysis Ÿ Company/competitor analysis Ÿ Ÿ Ÿ Ÿ Cost structure Ÿ Ÿ Customer experience Ÿ Ÿ Financial/ratios analysis Ÿ Ÿ Core Key purchase criteria Ÿ Market-sizing and share Ÿ Relative cost-positioning Ÿ Ÿ Segmentation Ÿ Ÿ Strengths and weaknesses Ÿ Ÿ Value chain Ÿ Ÿ Venkatramen matrix Ÿ Ÿ Ÿ Adoption cycle Ÿ Ÿ Business/unit profitability Ÿ Ÿ Economies of scale Ÿ Ÿ Experience curve Ÿ Ÿ Ÿ Growth share matrix Ÿ Ÿ Supplementary Key success factors Ÿ Ÿ Ÿ Ÿ PEST Ÿ Porter’s five forces Ÿ Ÿ Price elasticity Ÿ Ÿ Ÿ Product life cycle Ÿ Ÿ Ÿ Product substitution Ÿ Ÿ SWOT Ÿ Ÿ Ÿ

33. ANALYTICS TO UNDERSTAND A CLIENT’S STRATEGIC POSITION When starting on projects, consultants should follow some basic mental checks Process Flow: Understand Logics and Targets of Stream Set Issues to Address Choose/Use Analytics Flesh out Answers Mental Checks • What’s the scope of my stream compared with other streams? • Make sure no unnecessary overlaps occur • Make surethe whole scope of the project is covered by at least one stream • What kind of answers am I looking for? • What questions must I address? • Refer to stream-specific questions • Validate understanding of questions, with: • Team manager • JTMs • Client • What analytic can help me answer my questions? • Refer to stream-specific analytics • Analytics may be shared: • Avoid duplication • Make sure you answer all relevant questions • Make sure all answers are documented • Ensure communication across all projects streams: • Strategy streams (highly interdependent) • NWTs The value is from combined output and insights, not from the individual stream alone.

34. Some useful tips when conducting analysis . . . Analysis Top Tips • Identify key Gemini contacts and experts • Draw on faculty • Talk to others who have performed similar analysis • Ask for help • Facts! Facts! Facts! • Derive facts • Validate and cross reference • Gain insight • Master the information overload • Set priorities • Structure analysis • Define hypotheses early • Be open to break-through solutions but approach the client carefully • Consider creative ways to do business • Validate and prove hypotheses prior to communicating them • Handle the client and the politics behind the scene • Identify client’s interest and hidden agendas • Ensure early discussion of possible strategic options with client, preferably in face-to-face meetings

35. About the Toolkit Structure and Contents

36. Competitors/ Industry Analytics Customer Needs Analytics Profitability Analytics Capabilities Analytics Developing and Evaluating Options STRUCTURE AND CONTENTS The analytics are broken down into five main sections Toolkit Roadmap

37. STRUCTURE AND CONTENTS The Toolkit contains both core and supplementary analytics Core Supplementary Analytics Analytic • Competitors/industry: • Value chain • Market-sizing and share • Financial/ratio analysis • Company/competitor analysis • Customer needs: • Segmentation/Needs-based • Cluster analysis • Key purchase criteria • Customer experience • Profitability: • Cost structure analysis • Break-even analysis • Relative cost-positioning • Capabilities: • Strengths and weaknesses analysis • Venkat matrix • Developing and evaluating options: • Segment attractiveness • Financial valuation • Analytic • Competitors/industry: • SWOT • PEST • Porter’s five forces • Growth share matrix • Key success factors • Customers’ needs: • Product life cycle • Product substitution S-curve • Adoption cycle • Profitability: • Economies of scale • Experience curve • Price elasticity • Business/unit profitability

38. STRUCTURE AND CONTENTS The Toolkit follows a standard pattern for each stream’s section Typical Structure of a Section For Each Analytic • Introduction • Compilation of stream-specific analytics: • Definition of analytic • Rationale for using the analytic • Outlines of strengths and limitations of analytic • High level steps for how to use the analytic (no detailed guidance) • Graphical output of analytic/electronic link • Outline of how the analytic helps generate insights • Practical tips on using the analytic • Typical sources for data required • References of good Gemini examples of the analytic’s use • References of other analytics that supplement or complement this analytic • Analytics (core, then supplementary): • What it is • Why we use it • Strengths and limitations • How to apply • Illustrative output • Potential insights • Hints and pitfalls • Data sources • Case examplesRelated analytics • Conclusion: • Link to strategy questions and answers, general caveats

39. Competitors/Industry Stream Analytics • Introduction • Value Chain • Market/Sizing and Share • Financial/Ratio Analysis • Company/Competitor Analysis • SWOT Analysis • PEST Analysis • Porter’s Five Forces • Growth Share Matrix • Key Success Factors • Conclusions

40. What are the (economic) boundaries of the businesses the company is in? How are they changing? How do companies create value in each of the businesses? How is this changing? How is the client company positioned relative to the competition to create value? How is it changing? ANALYTICS TO UNDERSTAND A CLIENT’S STRATEGIC POSITION Competitors/Industry Stream: Questions and Analytics Competitors/Industry Stream Strategic Questions Strategic Position Main Analytics • What are the boundaries/scope of the competition? Are there successful niche players/broad-focus players, and where do they make money? • How big is the market? How fast is it growing? Are some parts growing faster than others? • What are the average returns in the industry? How have they changed over time? How do they vary between players? • Have there been any new entrants, and why? Are they making money? • Has anyone left the industry? Why? • Is the business constrained by regulation? What are the boundaries of regulation? Value chain Financial/ratios analysis Company/Competitors analysis Market-sizing and share • How does the industry deliver value to its customers? Is this changing? SWOT PEST Porter’s five forces • What and why is the overall performance of our client relative to competitors (e.g. market share, profitability)? Growth/Share matrix Key success factors Core Analytic Supplementary Analytic

41. Competitors/Industry Stream Analytics • Introduction • Value Chain • Market/Sizing and Share • Financial/Ratio Analysis • Company/Competitor Analysis • SWOT Analysis • PEST Analysis • Porter’s Five Forces • Growth Share Matrix • Key Success Factors • Conclusions

42. COMPETITORS/INDUSTRY STREAM—INTRODUCTION We have provided tools for understanding our client’s business scope and overall attractiveness Why? How? • Establish the scope of our analysis, and focus our effort: • Define the boundaries of the business and relevant segments in which our client competes: • A fundamental step, usually the first in most strategy engagements • Often clients perceive themselves to be competing in the business, not the segments, thus: • They miss opportunities, or • They are vulnerable to competitors • Help reshape clients’ perceptions of where they are competing: • Particularly useful in an industry in which the competitive boundaries have shifted • Potentially, uncover opportunities in under-served segments, or areas in which our client is vulnerable to competitors • In some instances, defining the business and segments can be done very quickly • In other cases, it is a highly iterative process requiring input from other analytics, and applying our judgement to this • At a high-level, we can usually define a client’s business quickly by: • Questioning our client. • Examining broker reports, annual reports, industry reports, and textlines. • However, to gain a deeper understanding, and generate meaningful insights, we typically need to: • Construct a value chain for the industry, and for our clients. • Determine the size of the business, and segments, and how these have changed, and are expected to change. • Determine the market share of competitors in the business and sub-segments, and how and why these are changing. • Review the relative and absolute performance of our client and key competitors (including their financial performance). • We describe each of these four processes later

43. Competitors/Industry Stream Analytics • Introduction • Value Chain • Market/Sizing and Share • Financial/Ratio Analysis • Company/Competitor Analysis • SWOT Analysis • PEST Analysis • Porter’s Five Forces • Growth Share Matrix • Key Success Factors • Conclusions

44. COMPETITORS/INDUSTRY STREAM—CORE ANALYTICS Value chain—introduction What It Is Why We Use It • A description of the key activities performed either across an industry or across a company: • Usually shown as a linear flow of activities. • A company value chain, also shows the support activities performed, e.g. systems support. • Michael Porter codified the value chain concept in 1985.a • A value chain should show where value is being created within an industry or company: • Should be quantitative, not qualitative. • Should show the value of costs and revenues at each stage in the value chain. • Primary objective is to determine where and how value is created in an industry or company • Value chains are also used to: • Understand the key activities within an industry or company. • Determine whether there is any backward or forward integration in an industry.b • Map key players at each stage of an industry’s value chain. Strengths & Limitations • Strengths: • Clarifies key stages in an industry or company, showing where value is created, and can demonstrate key shifts along the value chain. • Limitations: • Users do not apply the analytic fully, i.e. they stop at describing key activities, and do not determine where value is created. a. In his book “Competitive Advantage”, Free Press. b. Forward = purchasing supplier, backward = purchasing customer.

45. COMPETITORS/INDUSTRY STREAM—CORE ANALYTICS Value chain—how to apply it • There are three steps in developing a value chain: • Identify individual value activities: • The appropriate degree of disaggregation depends on the economics of the activities and the purposes for which the value chain is being analysed. • Distinguish between primary and support activities. • Assign the value activities to the categories (or functions) that best represent their contribution to a firm’s competitive advantage. • Order the activities, broadly following the process flow: • Determine the links between activities. • Once the activities are detailed in the value chain, map costs, returns and players across the value chain where applicable.

46. Logistics Marketing and Sales After-sales Support COMPETITORS/INDUSTRY STREAM—CORE ANALYTICS Value chain—illustrative output Distribution of Operations Costs in Flow Control Values Generic Manufacturing Company Value Chain Primary Activity Links with suppliers Primary Activities Operations/ Manufacturing Support Activities Infrastructure Margin 1% Human Resources Margins Support Activities R&D Procurement Procurement HR Management Infrastructure R&D Inbound Logistics Operationsa Outbound Logistics Marketing and Sales Service Source: Adapted from M. E. Porter, Competitive Advantage, Free Press 1985. a. 27% = HR costs; 40% = Purchased operating inputs. Source: M. E. Porter, Competitive Advantage, Free Press, 1985. Competitors can also be mapped along the value chain.

47. COMPETITORS/INDUSTRY STREAM—CORE ANALYTICS Value chain—top tips Potential Insights • Analytic helps determine: • Key shifts within an industry (backwards or forwards along the value chain) • Why competitors may be targeting specific sections of the value chain • Whether the industry value chain is changing Hints and Pitfalls • Do: • Quantify the cost at each stage in an industry or company value chain • Understand the dynamics of a value chain—what’s changed? why? • Read Porter’s book on the roles of the value chain analytic in assessing competitive position: • This is not necessarily a Gemini point of view, but provides useful background context

48. Gemini project work (providing value chain output from previous projects) Questioning clients and/or industry experts Piecing together the activities via secondary data sources: Annual reports Broker reports Industry reports Database searches Internal cost data (client management accounts) The following documents contain good examples of value chain analysis and output: “Crossing the Rubicon: The Business Implications of the Euro”, EuroCoE, Gemini Compass Various documents from BUPA project, on London Server archives COMPETITORS/INDUSTRY STREAM—CORE ANALYTICS Value Chain—data sources, case examples and related analytics Data Sources Case Examples • Developing an industry and company value chain is typically a critical step in defining a client’s business (see introduction of this section): • One of several of analytical steps in defining a business • Used to map out a customer’s experience of our client company: • See Customer Experience • HBR May/June 1998—“Profit Pools—a fresh look at strategy” Related Analytics

49. Competitors/Industry Stream Analytics • Introduction • Value Chain • Market/Sizing and Share • Financial/Ratio Analysis • Company/Competitor Analysis • SWOT Analysis • PEST Analysis • Porter’s Five Forces • Growth Share Matrix • Key Success Factors • Conclusions

50. COMPETITORS/INDUSTRY STREAM—CORE ANALYTICS Market-sizing and share—introduction What It Is Why We Use It • Help determine absolute and relative share of competitors in a business or segment: • Essential to understand which competitors are successful or unsuccessful. • Helps determine the attractiveness of a business or segment: • Its size. • Whether it is growing, flat, or shrinking. • Relative attractiveness compared with other businesses or segments. • Determine the power of competitors compared with each other, customers, and suppliers. • To determine the relative performance and position of competitors, and how this is changing over time: • Who’s successful/unsuccessful? Why? • Are new entrants gaining share? • Are substitutes being used? • In conjunction with other analytics, establishes whether share builds other advantages, e.g. lower unit costs, RMS vs. ROCE. • Quantifying the size and growth of a market or segments either by: • Value (of revenue or profitability over a specified period). • Volume (of units produced over a specified period). • As with many strategy analyses, it is important to show the dynamic, i.e. quantify the size of a business or segment over time: • Historically (over a number of years). • Forecasting (projecting out over future years). • In some cases, market size may be available from secondary data sources—otherwise we must estimate it. • Measure of how much of a business market or segment individual competitors account for. • Market share can be measured by: • Value (i.e. proportion of total revenue or profit). • Volume (i.e. proportion of total units produced). • Typically, we look at both absolute market share, and relative market share (i.e. share compared with other competitors’). • There are several market share measures: • Absolute and relative share of total business market. • Absolute and relative share of total business segment. • Absolute and relative share of total addressable market (i.e. segments in which our client competes). Strengths & Limitations • Strengths: • Provides a quantitative measure of business of segment attractiveness. • Provides the key benchmark against which we measure market share, and determine relative performance of competitors. • Essential to understanding competitors’ relative size, importance, and performance. • Limitations: • Sizing a market from scratch can take weeks or months. • Not the only determinant of attractiveness c.f. potential to make money.