Cookbook of Analysis
The development of a services strategy is not a one-dimensional approach; it is a combination of art science, and strategic thinking While we call out the important steps here, it is not a purely methodological approach It is highly iterative Use the 80-20 rule Prioritize often
Table of Contents
Analysis
Market sizing, segments, and growth analysis
Customer needs assessment Competitive assessment
Page
4 10 17
Objectives/Overview
Quantify and assess the attractiveness of the market opportunity Understand customer issues, drivers, and needs Understand strengths, weaknesses, and strategies of the competition
Capabilities assessment
Benchmarking/best practices Alliance approach Spare parts/ inventory assessment Pricing and bundling Services technology strategy Business Case/ROI analysis Strategic plan development
23
29 38 46 54 66 75 83
A series of analyses can be utilized to support the Services Growth and Effectiveness Approach
I. Define Strategy Analysis
Market sizing, segments, and growth analysis Customer needs assessment Competitive assessment Capabilities assessment Benchmarking/best practices Alliance approach Spare parts/inventory assessment Pricing and bundling Services technology strategy ROI analysis Strategic plan development
Overview
This analysis will enable you to quantify and assess the attractiveness of a market opportunity
Instructions Activities
1.
Data Sources
Segment the market - Analyze the entire market opportunity and identify appropriate target segments. Segments can be a certain industry/sector, an element of the value chain, or specific customer targets. Perform top-down market sizing - Macro-level approach starting at the highest-level and drilling down to a specific addressable market
Interviews Industry reports (e.g. S&P) Census NAICS (i.e. SIC) reports Industry affinity groups Interviews Market research reports Investment analyst reports Industry affinity groups Customer/target financial reports (10K, annual reports, analyst reports)
2.
3.
Perform bottom-up market sizing - More rigorous analysis beginning at the lowest level of product/service/customer and making estimates up to an addressable market
Subsector/Industry
Nursing and Residential Care Health and Personal Care Clothing Stores Sporting Goods General Merchandise Nondurable Goods Broadcasting and Telecom Wired Tells Publishing Industries Accommodation Traveler Food Services Full Service Restaurants
Steps: Electric (Less than $1B in Annual Revenues), Water, Gas Define entire market Food opportunity Beverage and Tobacco Determine attributes for Textile Mill Textile Product target segments Mills Apparel Leather and Allied Product Define and select target segmentsPaper and Rubber Plastics
Miscellaneous Printing and Related Schools, Colleges Trade Schools, Fine Arts (Excludes Elementary, Secondary, Colleges) Collection Agencies, Travel Agencies, Biz Support
Out of Scope Areas outside of four target regions, and industries with: Heavy e-Marketplace/ e-Procurement penetration Concentration of large organizations High direct material spend
In Scope Industries within four target regions that exhibit some or all of the following attributes: Regional orientation Relatively high horizontal Spend Highly fragmented market (Buyers/Sellers)
Lawyers, Architects, Graphics Repair and Maintenance, Personal and Laundry, Religious Org
originated from 1997 Economic Census, except for universities which are 1998 figures. For the purposes of analysis, Universities and Educational Services have been grouped together under Education and Administrative Support, Professional, and Other Services have been classified as Services
$573B
$303B $455B
Potential Regional Horizontal Market
Total Revenues
Profit
Nonprocurement Spend
Nonhorizontal Spend
Steps: Identify broad market Determine slices of the market that will not be addressed Estimate the share of the total market for these slices (may require judgment) Remaining market size is the top-down market estimate To get an estimate of the addressable market, further slicing and estimating will be necessary
Sources: 1997 U.S. Economic Census, Center for Advanced Purchasing, OneSource, Deloitte estimates
C B
Market Size in Market Size in Regions Regions $455 billion $455 billion Founding Founding Member Member Service Area in Service Area in Sample Sample Regions Regions 63% 63% Number of Number of Founding Founding Members in Members in Sample Sample Regions Regions 15 15 Average Average Regional Regional Market Size Market Size $18.983 billion $18.983 billion
Penetration of SatCom
? Satcom Price
Penetration of SatCom
? Satcom Price
Penetration of SatCom
? Satcom Price
LC Satcom Market
Steps: For each segment, gather the following data: Segment size & growth Historical penetration of analogous products within each segment Customer segment spend on products you might potentially replace Pricing model for similar products Market size today for each segment is: price * # of customers * annual difference in penetration, or price * # units sold To get future estimates, you will need to forecast price and penetration
Broadband Satellite Communications Market by Residential, Small & Medium Business (SMB) and Large Corporate segments
Market sizing is not about getting to exact figures, but rather to get a feel for approximate size, and growth rates and trends
10
Instructions Activities
1.
Data Sources
Conduct internal data gathering and develop hypothesis Understand current customer touch points. Clarify and document internal perceptions and data on customer needs and key business drivers. Develop initial segmentation Gather initial external data on industry segments, trends, and key players. Define industry landscape/segments. Identify customers within segments to target for needs analysis.
Internal interviews (sales, marketing, service, logistics) Internal workshops Industry reports Industry affinity groups Market research reports Analyst reports Trade news and periodicals External interviews NA
2.
3.
Conduct external interviews Gather qualitative and quantitative information from customers. Analyze data and develop conclusions Summarize customer needs and identify high impact opportunity areas
4.
12
Exp lore Ser Exp vice lore s Soft ware Explo re Ha rdware Determine Needs/Wan ts Explore Applications Visualize Solutions
Verify Customer Satisfaction
Ex plo re
Nego ti T&Cs ate Price & Sign Contr act Pro ces sO rde Pa r yf or So lut ion
SE AR CH IN G
ect Select Sup Suppliers in ine FIT D Determ n o olutio r S n ure ttion nfigu Con r rma n nfo e er I ath Ga
lie rs
G OSIN CHO
ORD ERIN G
Ve Re nd ce or ive Re /De lat plo ion yR sh es olu ips Rep tio ort/ ns Mo nito r Is sue s Iden tify I ssue s Estab lish Su pport Proce ss
ns ld Solutio Retire O te to s igra n all M lutio Inst ew So N ucts rod wP s uct t Ne rod Tes wP e to N er ute m n Imp sto ctio u fa ide y C is rov rif Sat P Ve
Ma int ain
SUPP ORTIN G
G USIN
O ROI M Measure R
LE AR NI NG
tion nta me ple ion n Im olut Pla eS ceiv Re lution ll So Insta tion t Solu men Imple
Verify Customer Satisfaction
I ING N NT M ME L LE M IMP
Enable Prov Learning Org anizati Teamide Tec on Train hnical/ Pro Proje ing vide ct End Pro Use vid eE r Tr xec aini ng utiv eE Ve duc Sa rify atio tis C n fa us
cti to on m er
G G IN DI RA GR U UP
e e nc rie pe Ex g ge sa Us lity o ona me Tim unctii F Fn rst Fir rove Imp ag age e s se U cr a Incre c ce r n rman P Perfo T Tune
Key Consideration: Internal data collection provides insight into key focus areas for interviews
13
Example Customers
Key Characteristics
Large Airlines with Maintenance as a Business Medium to Large Airlines with Maintenance as a Differentiator Medium to Large Maintenance Shoppers (Cost Conscious) Small and/or Start-up Airlines Leasing Companies
30-35%
Multi-national fleets Significant commitment to internal maintenance operations Sell and market 3rd party MRO services Virtually no maintenance outsourcing Considerable commitment to internal maintenance operations Consider internal MRO a competitive advantage Outsource select, limited maintenance activities only Limited commitments to internal maintenance Consider core competency to be moving passengers Outsource a medium to significant amount of maintenance operations Often single fleet planes Lack maintenance experience Lack sufficient capital to build maintenance capabilities Outsource a significant portion of maintenance operations Completely mixed fleet Conduct an insignificant amount of MRO (airlines often responsible to maintain their leased planes) Outsource all maintenance activities
20-25%
30-35%
5-10%
Negligible
GECAS ILFC
Steps: Identify and collect data to support segmentation (e.g. revenue, profitability, market size/potential, common characteristics, etc) Develop initial segmentation hypothesis based on compelling factors Assess and test segmentation 14
Client Survey
XYZ Company and Deloitte Consulting are working together to better understand XYZ's customers. This will help XYZ to create sales and marketing organizations which offer tailored sales and marketing solutions by proactively identifying and responding to customer needs.
Please describe steps in buying process, including which departments within your organization interact with XYZ Company departments, over what time frames and what information is transferred? Do you expect this process to change in the near future? How?
Airline
Function: Name Company Address City State/Province ZIP/Post Code Country Phone Fax Email
Purchasing Product Management Marketing Research Other
Please describe how the customer buying process and its interaction with XYZ Company could be improved?
(9)
Sr. VP of Maintenance (2) Director of Maintenance Planning VP Engineering and Planning Sr. VP of M&E Head of Business Development for Technical Operations Director of Maintenance Staff Director of Engineering MD of Maintenance Planning
Criteria Rank (1-7) Buying Criteria Relationship with XYZ Company sales person * 1 = most important, Relationship with XYZ Company Technical (TM, R&D) 7 = least important Quality of the product Reputation of firm and products Price Customer Service, Logistics Other (please type in)
Comments
Which department within XYZ Company do you contact with technical questions/issues (I.e. sales, Technical Marketing, Research Lab)? How responsive is XYZ Company's TM organization in responding to your needs? XYZ Company's Research Labs? XYZ Company's Sales
Director of Maintenance Planning Maintenance Manager Mgr. Of Supplier Base Maintenance Staff VP of Maintenance Executive VP of Technical Operations Associate VP of Technical Services
(4)
From who do you currently purchase oil lubricant additives? XYZ Company Other (please type in) Other (please type in) Other (please type in) Other (please type in) Other (please type in) Other (please type in) % Please rate each on overall cust. Satis.
(2)
Tailor interview guide to each segment but have some questions which cross segments
Parts
For each customer, make sure to properly sample the appropriate decision-makers
Steps: Develop interview guide For each segment, identify criteria for selecting customers to interview Identify customers within each segment to interview Develop plan for contacting customers and scheduling/conducting interviews (e.g. focus groups, phone survey, in-person interview, etc) Define analysis to be performed (qualitative and quantitative) Schedule and conduct interviews
15
Customer Category
Specific Needs
Broad maintenance capabilities, horizontal and vertical Increase internal maintenance capabilities Increase 3rd party maintenance revenue Service at multiple locations Control over aircraft availability Sophisticated reporting/interface with regulatory agencies
Broad maintenance capabilities, horizontal and vertical Maintain internal maintenance operations near capacity Control over aircraft availability Meet contractual obligations to internal workforce Sophisticated reporting/interface with regulatory agencies
Heavy maintenance for very old or new fleet types (727s or 777s) Heavy maintenance filler capabilities/capacity (when airline is over capacity) Special projects
Customer Category
Specific Needs
Customer Category
Specific Needs
Reduce cost on a lifecycle basis of the aircraft Satisfy business decision financial criteria e.g. ROI Meet contractual obligations to internal workforce External providers that deliver on time, quality work Geographic proximity
Total Support product/service in Europe e.g. British Airways 777s in all regions a range of maintenance services 727s in all regions a range of maintenance services 737s in North America initially a heavy maintenance offering (possibility of expanding services later) e.g. Southwest
More complete maintenance solution Operational and maintenance experience on homogenous fleet Access to infrastructure, both resources and facilities Simple interface with outside provider Geographic proximity External provider willing to provide maintenance on small fleet size (e.g. 5-10 747s)
Heavy maintenance for specific fleet type across small fleet size (possibility of later expanding services and/or fleet types) e.g. Virgin Atlantic Combined product and services for new planes e.g. National Airlines
Steps: Synthesize internal and external data Answer critical questions regarding customer preferences What are the critical attributes of each customer segment? Are customer needs evolving? How?
16
Be data driven and quantitative in the approach when possible, with the understanding that youll never be able to get all of the data or interview all customers Consider how best to involve the client during interviews and data gathering
17
Competitive Assessment
Competitive Assessment
Overview
The ultimate goal of a competitive assessment is to understand the strengths, weaknesses, and strategies of the competition in order to predict their next moves
Instructions Activities
1.
Data Sources
Develop internal cost and capabilities baseline Understand baseline upon which to compare competitors strengths and weaknesses Conduct competitor data collection and synthesis Gather external data on industry segments, trends, and key players. Define competitive landscape/segments.
Internal interviews Site visits Industry reports Industry affinity groups Market research reports Analyst reports Primary research (end users, other client employees, channel partners, competitor personnel) NA
2.
3.
19
= $690 M
Financial
Customer
Responsive to customer inquiries and needs but internal Infrastructure bureaucracy exists but results in slow Reactive communication response approach to is often developing inconsistent and products/servic late es based on explicit customer demands w/ limited marketing ability Able to get complex products produced & delivered but inconsistent approach to ability and redundant delivery methods
$120 $ 10 $ 15 $ $ 5 5
ME&P
Field Service Rep Intro Teams Standard Problem Resolution 8110 Requests Fleet Team (SRP) $ 70 $ 10 $125 5 $ 40 $ 35 $ 285 M
Procedures & Task Cards Recovery & Handling Service Bulletins Facilities & Equipment Planning Maintenance Planning Provisioning Data Software & Applications
4
Performance
Tech Services
$ 20 $ 10 $ 40 $ 40 $ 5
Flight Tech
Inconsistent ability to prepare insightful & valuable business cases and evaluations Inability to obtain important cost data to make decisions
$ 270 M
1
Warranty
Standard Warranty Other Protection Programs $ 3 $ .5 Part 25 Documents Flight Crew Training Training Docs Simulator Data Performance & Engineering Data CBT and Other Software $ 20 $ 80 $ $ $ 5 5 5 $ 15
Low 0
$ 3.5 M
& t r n re y ss al n l th tu ss uc nt ilit ne me io tion ality na tio nic ge ad uc od me g to at ine ion sive sib re ch led ter nica t Str Pr lop etin Cus unic duc y Qu us luat Vi B In u Te ow B a on s ta ill ro er ve ark P liv sp mm Co Sk Da Ev Kn De M mm Re Co & Co De
$ 130 M
Capability Areas
Steps: Develop comprehensive internal interview guide Identify key executives and staff Conduct interviews and site visits Synthesize collected information to build baseline
20
Key Competitors:
Full Service Providers (Airline Shops) Full Service Providers (Independents) Partial/Niche Providers
25-30%
About 1/3 of these Full Service Provider competitors are Airline Affiliated
(Examples)
Competitive Landscape:
Highly monopolistic within particular airline (airline controlled) Some barriers to entry (airlines currently held responsible per FAA)
Fragmented competition Highly monopolistic across airline shops and within particular OEM independents Significant barriers to Strong competition for entry due to proprietary existing fleet design rights Low barriers to entry
Client X is already a significant competitor in Parts
About 60% of total heavy maintenance operations is provided by Airlines About 60% of total heavy maintenance operations is provided by Airlines (airline shops and affiliate providers) (airline shops and affiliate providers) Independent Full Service Providers control about 15% of the market Independent Full Service Providers control about 15% of the market
Approximate maintenance/MRO% as of January 2000 by headcount * Full service definition: a complete labor/operations offering (across heavy maintenance, component R&O, etc., leading to total support Note: some of the independents are just starting to develop full service capabilities
Future Trends
Develop
as as
business
Maintenance
45-50%
differentiator
Line maintenance Heavy maintenance Engine services Component R&O Some mods Maintenance planning
Maintenance
Maintenance
Increase
20-25%
Small/start-up
Line maintenance (some) Heavy maintenance Component management Specific component R&O Maintenance planning (some)
Increase
Maintenance
as shoppers
differentiator 25-30%
Maintenance
Need
Small/start-up
Steps: Perform quick hit secondary research to get an initial feel for the industry and key players Figure out key questions to pursue and where to get answers Conduct targeted primary research with 3-4 known / suspected friendlies (e.g. customers, industry experts) to get a lot smarter on the industry quickly Formulate initial hypothesis and identify research holes Perform additional primary and secondary research, continually refining perspective on what questions you are answering and where you might get answers Validate hypothesis and compile implications/output
21
Regional Presence
Predominately Europe Growing in North America and Asia
Source of Differentiation
Large customer base in Europe Operating experience Providing total support to several airlines
Deep experience Deep experience Integrated capabilities Integrated capabilities Little/no focus on cost Little/no focus on cost Focus on customer Focus on customer
FLS
AerLingus easyJet Virgin Atlantic British Airways JAL Southwest ANA Qantas Southwest Northwest FedEx United
Europe
Providing total support to several airlines Efficiency, leading to faster turnaround times
relationship relationship
Credibility w regulators Credibility w regulators Balanced focus on cost, Balanced focus on cost,
ST Aero
Niche expertise Niche expertise Varied reputations Varied reputations Very cost conscious Very cost conscious
North America
Goodrich
Strongest player in North America Known for high quality Leverage partner companies Proximity to Boeing
Relative Performance:
High Medium Low
GE Engine Services
Global
Large customer base for engine services (looking to expand to airframe) Own large % of airframe components (with Honeywell acquisition)
Steps: Determine key relevant traits against which to compare the competitors against each other and against the client Rate competitors on a relative basis against each criteria Determine the competitor segment or specific competitor with the greatest potential threat Perform more detailed analysis on selected competitor group or competitor Determine competitive differentiation between client and selected competitor group or competitor
22
Avoid over-use of market research and surveys and reliance on general benchmarking Ensure that you have targeted the scope to address the most critical business issues Leverage data from multiple sources Combination of primary and secondary research Mix of quantitative and qualitative data Address the appropriate elements of the competitive situation, potentially including: Competitor strategies, plans and intentions Approaches to customers and markets Capabilities, assets and cost structure Technology and product developments
23
Capabilities Assessment
Capabilities Assessment
Overview
A capabilities assessment allows identification of core competencies and requirements to have market success
Instructions Activities
1.
Data Sources
Develop cost and capabilities baseline Understand current performance and strengths upon which to compare required capabilities and identify necessary improvements Assess/review required capabilities for specific segment or opportunity Determine requirements to succeed in a given opportunity area or segment
Internal interviews Site visits Industry reports Industry affinity groups Market research reports Analyst reports Primary research (end users, other client employees, channel partners, competitor personnel) NA
2.
3.
Perform gap analysis of internal capabilities against requirements Identify gaps and develop plan to fill gaps
25
= $690 M
Financial
Customer
Responsive to customer inquiries and needs but internal Infrastructure bureaucracy exists but results in slow Reactive communication response approach to is often developing inconsistent and products/servic late es based on explicit customer demands w/ limited marketing ability Able to get complex products produced & delivered but inconsistent approach to ability and redundant delivery methods
$120 $ 10 $ 15 $ $ 5 5
ME&P
Field Service Rep Intro Teams Standard Problem Resolution 8110 Requests Fleet Team (SRP) $ 70 $ 10 $125 5 $ 40 $ 35 $ 285 M
Procedures & Task Cards Recovery & Handling Service Bulletins Facilities & Equipment Planning Maintenance Planning Provisioning Data Software & Applications
4
Performance
Tech Services
$ 20 $ 10 $ 40 $ 40 $ 5
Flight Tech
Inconsistent ability to prepare insightful & valuable business cases and evaluations Inability to obtain important cost data to make decisions
$ 270 M
1
Warranty
Standard Warranty Other Protection Programs $ 3 $ .5 Part 25 Documents Flight Crew Training Training Docs Simulator Data Performance & Engineering Data CBT and Other Software $ 20 $ 80 $ $ $ 5 5 5 $ 15
Low 0
$ 3.5 M
& t l r n re y ss h n l tu ss uc nt ilit ne ica e me io tion ality dt na atio truc od me g to at ine ion sive hn dg ea sib er Pr lop etin Cus unic duc y Qu us luat Vi Br ec wle n nt unic st S I T o B a o o ta ill ve rk Pr liver sp mm Co Sk Da Ev Kn De Ma mm Re Co & Co De
$ 130 M
Capability Areas
Steps: Develop comprehensive internal interview guide Identify key executives and staff Conduct interviews and site visits Synthesize collected information to build baseline
26
Opportunity Area
Medium
Low
Steps: Identify critical success factors (CSF) for a given opportunity/segment Rate the relative importance of each CSF
27
Deep industry knowledge and relationships Reputation for shortening product development cycles Strong knowledge of trends in both the target industry and applicable technologies Dynamic simulation and modeling capabilities
28
Benchmarking
Instructions Activities
1. Develop a Benchmarking Strategy - Determine the type of benchmarking to be conducted by identify business Objectives and Strategic Initiatives to be supported as part of benchmarking study 2. Determine benchmarking approach. Evaluate the types of insight that is required vs. the amount of resources available. 3. Plan, Prepare, and Execute the Benchmarking Process. Develop a timing based on type of analysis, develop interview guides and templates, and begin the benchmarking activities. 4. Collect and document performance data and determine Performance Gap. 5. Synthesize, analyze, and interpret results. Analyze the applicability of innovative practices. Identify the best practice opportunity areas. 6. Communicate Results.
Data Sources
Project/initiative objectives documentation Available resources Project requirements Best practice database, interviews, published information
30
BENCHMARKING
OPERATIONAL
STRATEGIC
ORGANIZATIONAL
Excellence in Execution
Optimal Structure
31
Activity 2: Determine benchmarking approach and identify the activities and sources of data to support the approach
Steps Determine the types of resources/time/dollars you have to dedicate to the study this will drive the type of benchmarking activities that will be realistic.
Quantitative Data
Qualitative Data
DC Knowledgebase
Client Available Studies DC Network of Experts Public Research Interviews of selected peer groups
32
Steps Based on the resources available, plan the benchmarking effort Identify benchmark partners selection criteria Develop interview guides and templates for data collection Execute the benchmarking process
33
Steps Collect and document performance data Collect and document innovative practices
34
Steps Analyze performance gap. Analyze applicability of innovative practices. Develop practice opportunities.
35
Customer Segmentation - The majority of the companies segment their customers and tailor programs to each segment Product Sourcing - Companies are aggressively pursuing sourcing improvement through make/buy decisions and strategic sourcing agreements with suppliers Order/Quote Processing - Companies are making the order/quote process more efficient by reducing the complexity of the process and using technology effectively Pricing - Most companies are attempting to implement market based pricing and offering tiered discounts to select customers Inventory Management - Companies aggressively manage inventory turn rates while maintaining satisfactory fill rates Product Offering - Some companies are expanding their product offerings to provide one-stop-shopping for parts and other products/services, often using strategic alliances with suppliers to augment existing capabilities. Others are rationalizing product lines and referring unprofitable lines to other sources
36
37
Alliance Approach
Alliance Approach
Overview
This approach will enable you to develop and manage the most advantageous and meaningful strategic alliance for the client
Instructions Activities
1.
Data Sources
Define objectives Understands reasons for and expectations from a strategic alliance Determine alliance strategy Describes the appropriate use of external partnerships to achieve the overall strategy Set boundary conditions Ensures that the best deals are structured with the most appropriate partners Define internal infrastructure Defines the organization within the client and its links to the alliance Manage performance Entails ongoing monitoring and review of specific alliance activity Execute the transaction
39
NA
2.
3.
4.
5.
6.
Overview
Companies which excel at strategic alliances typically rely on a set of periodic and transaction-specific alliance development process steps
Define Objectives Performance Management
Lessons Learned Performance Metrics Customer Services Strategy
Alliance Strategy
Internal Capability Assessment
Management Evaluation 1. Evaluate Alliance and Partner Options 2. Structure and Negotiate the Deal 3. Manage Alliance on an Ongoing Basis Role of Alliances
The periodic steps of the process link alliances with company objectives, and lay the foundation for establishing effective and complementary alliances across the organization. These steps are common to all types of strategic alliances and form the framework for a repeatable process.
Products & Services Geographic Legal Issues Relevant to All Deals Alliance Types
Internal Infrastructure
Boundary Conditions
The transaction-specific steps of the process are the activities required to evaluate/structure/manage a specific alliance. The specific content of these steps would be different for individual alliance opportunities.
40
Description
OBJECTIVES
Role of Alliances
Determine the specific functions that can be more efficiently acquired through strategic alliances
41
Description Products and services defines the scope of deals to be done The areas in which the alliances will and will not operate Determine type of alliances to be used Thresholds of business viability
42
Description
Those resources the alliance can draw on in development and operations phases
Management connections that are necessary for any deal in a given alliance strategy
Legal aspects of operating within Client which remain unchanged for all deals (such as use of Client trademarks)
43
Description
Method for incorporating experience from previous alliances
Lessons Learned
Performance Metrics
The method by which individual alliances are evaluated against each other
Management Evaluation
Outline the guidelines by which alliance management will be selected and evaluated
44
Steps
Detailed Opportunity Profile Partner Selection Vehicle Selection Prepare Business Case
Results Participants
Program Mgmt. Strategic, Technical Finance, Legal Contracts, Government, & Tax
Signed deal
45
Spares
Instructions Activities
1. Conduct Spares Situation Analysis. Understand costs and inventory performance. 2. Identify Opportunities to Improve Spares Performance and Calculate the Benefits
Data Sources
Interviews Best practices Customer/target financial reports
3. Identify opportunities to improve inventory costs within order management processes. Evaluate returns, write-offs, & linkage of order management and inventory systems.
4. Develop Sales Profiles. Segment products by customers, products, purchasing patterns to understand usage. 5. Develop spares catalog pricing and management guidelines. 6. Develop metrics to monitor product performance. Identify specific actions to position each segment within the market
47
n/a
Performance
Roseville
Boeblingen
Singapore
Americas
Europe
APA
Inventory Turns
Months Supply
EPSG
$31
$7
$5 $8.4 $14.7 $7
Bench: $3.3 On-site: $11.4
$2.7
CSG
$0.06
10.0%
ATG
$19
$4
~$3
~$30
$7.9
$3.0
38.0%
0.3
40.0
LSCA
$4.0
$2.7
~$33
$24.6
$1.3
5.3%
0.7
17.1
Total
$50
$11
~$8
$12.4
$7
$17.4
~$106
$69.1
$7.1
10.3%
0.65
18.5
Steps: Segment the inventory across business units, product groups, location Identify other costs such as write downs, returns Calculate performance measures, such as inventory turns, and months supply
48
Steps: Identify opportunity areas by comparing to industry benchmarks Inventory turns Months supply Stocking locations Inventory management systems Calculate the potential benefits
49
Activity 3: Identify opportunities to improve inventory costs within order management processes, including returns and write-offs
50
51
Old Structures
3,720
New Structures
120 1,249
Power Plant
401
1,604 723 647 73 361 865
3,284
5,186 2,830 2,432 46 2,830 4,217
Old Avionics Narrow Land Gear (components) Wide Body Land Gear (components)
Steps:
Frequently changing prices catalog should be used on for parts A Variable customer needs and one-off have pricing fluctuations New Avionics that do not purchasing (due to supply/unknown costs) Changing market availability/competition Develop company guidelines for the Limited visibility into actual costs or cost Narrow Interior catalog based on the analysis just structure Higher sales prices conducted Non Electrical (greater than $1,000 per part) Systems
Remove most items from catalog with intent to greatly increase prices and move inventory out
52
Raise prices after taking parts out of catalog Phase in price increases to minimize sticker shock Work with customers to improve forecasts and reduce inventory on medium to high volume parts Ensure consistent, timely availability of high margin parts
A Structures (old & new) Power Plant (comp.) Interiors (wide body) D Non-electrical Interiors (narrow body)
Marketing/Communications
Raise prices after taking parts out of catalog License manufacture rights to other parties Eliminate excess inventory by providing discounts as necessary e.g. fire sale Reduce current inventory levels and decrease fill rates on select parts Balance inventory reductions to meet needs until alternate source(s) are developed
Inventory
Marketing/Communications
High
Inventory
Price
Low
Avionics (old) B
Communicate price reductions in catalog and non-catalog parts to encourage sales volumes Identify potential cross-selling opportunities Ensure stock replenishment levels enable timely delivery to meet anticipated increase in demand Work w/ vendors to proactively provide complete solution
Low
High
Inventory
Competition
Other
53
Instructions Activities
1. Understand your customers, competitors and costs. Focus on understanding what your customer values. 2. Synthesize data & perform preliminary pricing analysis. Identify customer purchasing patterns. 3. Segment products to better understand market position and pricing opportunities 4. Conduct deep drill analysis on each customer segment of customer value points, price sensitivity and competition. Explore multiple pricing options for different product segments 5. Consider bundling options and identify common patterns between products to identify bundling opportunities. 6. Develop a process for evaluation of bundling options. Enable delivery of single products or bundled solutions from the same operations base.
Data Sources
See sources under activity 1 detail Same as above. Products, customers, pricing n/a
n/a n/a
Note: For detailed strategy & approach to Pricing, refer to the Pricing Master document.
55
Key Outputs
Product Performance Model Price Elasticity Models Strategic Focus Strategic Focus Bundling Strategy
Key Questions
What product attributes do our customers value?
How are our competitors positioned and priced? How much can the product cost for our required contribution margin?
Product
Customer
Customer Segments
Costing
Note: Much of this information can be developed once and used to support multiple pricing decisions. It can also be updated on a different timeline than individual pricing decisions
56
Pric e
Demand Analysis
Elastic Demand
Quantity Demanded
57
Activity 3: Segment products to better understand market position and pricing opportunities
Conceptual Approach to Product Pricing
Internal product position Segment A
Segment B Segment C
Segment D
Segment parts based on: Customer purchasing patterns Internal categorization External competitive levels
Segment E Segment F
. . .
Extreme competition
Segment X
58
25 key customers
- Customer purchasing trends
15 competitors
- Competitor prices and attributes
Product C
Competitors were up to 35% below Quotations on the newer products indicated an opportunity to increase prices
Product D
Competitors were 40% higher new products Some product types were difficult to find in the marketplace
Product B
Product information were generally difficult to find, and mixed in price competitiveness
Product A
Product E
Additionally, analysis of price points revealed that price was only one of three key factors influencing purchasing
59
Examples
Computers and Peripherals Buying cars online
Value to customer
One-stop shopping, time-saving for the customer, possibly lower price than individual components Lower price and convenience for the customer
Product-Service
Peace of mind for the customer since the supplier knows the product best. Reduced search-cost to customer
One-stop shopping, related services, and time-saving for the customer Less expensive and more convenient for the customer
Service-Service Service-Channel
Product-Service-Channel
Sellers may outsource components/activities of the bundled offering, and can offer different bundles to different customer segments
60
Activity 5: and establish common patterns between products to identify bundling opportunities
Potential Reasons for Bundling Include: Creating customer loyalty with a unique offering Leveraging economies of scale Lower overall cost to save Disguise time cost structure Join complex, less imitative utilization
Model X
The goal of any customer target approach is to increase market share profitably while minimizing the giveaway to existing customers
61
Training
No
No
No
Pricing
Go/No Go decision
63
Define marketing strategy, highlighting business objectives for each market segment (i.e. is the intent to milk a cash cow or penetrate the market segment)
Utilize the market competitive information for those services where similar products exist
Segment products to better understand market position and pricing opportunities Set base pricing to reflect any dominant market positions e.g. a monopoly position Ensure that prices cover the full cost of delivering the solution (unless a market investment/penetration strategy has consciously been set)
Implement preferential pricing or discount arrangements in order to entice customers that bring the greatest value
Develop flexibility in pricing to allow for fluctuations in customer demand and delivery capacity Define key supporting processes to implement pricing strategy e.g. marketing, inventory mgmt. Develop a fast, flexible, efficient quote process to interface with the customer
Establish mechanisms to track costs by product/service and update pricing as needed to cover costs
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Take-away
Look outside of Industrial Manufacturers current situation for potential bundles Information about market needs and internal capabilities/options is essential to develop the bundle and price it Without knowing the cost impact of bundling, good decisions cannot be made It is critical to ascertain whether the customer values the bundle more highly than the separate offerings Ensure focus and quantitative estimate of variable cost that provide accurate assessment of contribution margin Bundling is an activity that is likely to cross organizational lines Provide organizational structures and incentives that will enable cooperation between divisions in the organization and other partners Processes are essential to assess why you are bundling, what you are bundling, and how to price it It may require a great deal of support to create, sell and deliver bundles. Make sure that distributors, supply chain, and sales education re considered
Customer Value Focus Contribution Margin Considerations Organizational Alignment Structured Processes
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Overview
This analysis provides considerations and process approach in defining a technology strategy for services capabilities
Instructions
Activities
1. Develop a view of clients services business process model and the issues with current model 2. Identify the objectives of the business and build the to-be model 3. Identify the technology investment opportunities/needs to support the gaps; consider benefits to other processes 4. Conduct a cost/benefits impact analysis; conduct ROI 5. Prioritize the technology capabilities required to support these gaps; identify unique and common requirements across businesses and functions 6. Map to a high level implementation plan
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Data Sources
Client documentation Interviews & workshops
n/a n/a
Activity 1: Develop a view of clients business process model and identify the issues with current processes
Steps: Develop an understanding of the current processes Identify the key issues, analyzing both external opportunities as well as internal opportunities
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Activity 2: Identify the objectives of the desired change, and build the to-be state model in support of achieving those objectives
Steps: Identify the objectives of the business to ensure that the to-be state will be in support of those objectives Build the to-be state process model
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In this example, the project team identified the CRM solution and the modules that would support the process changes identified in Activity 1.
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$19.7
$15 $10
CFS Impact: 31% Reduction $19.7M 232 FTEs Enabled by: A2a, B1, & B2
250 200
FTE Impact
199 167
229
232
Steps Develop total cost impacts Develop revenue impact Develop ROI (see separate cookbook section for details)
150
111
100 50 0 FY03 FY04 FY05 FY06 FY07
Legend:
A2a: eSupport
B1: CC Efficiency
$7,000
$6,000
$5,000
$ in Millions
$4,000
$3,000
As-Is ~$6,000
F1: Renewals and Warranty Conversions - $46.0M E2: Installed Base Marketing $14.6M
B1: CC Efficiency - $24.0M C2a: Channel Partner (design registration) - $3.0M D1: ATG Strategic Selling - $16.7M D2: Closed Loop Marketing - $30.6M
$2,000
$1,000
Revenue
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Implementation Requirements
7 7
19 19
5 5 21 21 12 12 18 18 11 & 11 & 13 13 20 20
Steps Develop criteria for prioritization, e.g. impact to customer satisfaction, potential value, unique and common requirements across businesses and functions Develop prioritization matrix
16 16 14 14 15 15
High
9 9
1 1
Low
High
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Drive lasting change through a combination of new processes and tools and recognize that the majority of benefits from technology solution arise from process changes Different infrastructures will suffice for different customers Use state-of-the-art infrastructure to engage with global, high value customers Use a more cost-effective infrastructure to interact with smaller accounts Businesses own the business strategy, but a common technical capability backbone across the company should be deployed except where good reason exists to deviate
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Instructions Activities
1.
Data Sources
Establish as is cost and performance baseline metrics to identify improvement opportunities. Understand existing profitability measures. Identify components and drivers of cost and resources. Identify all benefits, including intangible, quantifiable, and qualitative (when unable to make estimates).
Internal financial, organizational, activity, process and performance data Benchmarking, best practices Business Plan cost buildup and forecasts, Business Plan revenue and pricing buildup Implementation requirements n/a
2.
3. Define the implementation costs and time frames of the business case so that implementation can be monitored. 4. Capture of the Opportunities and Prioritize them Based Upon Implementation Requirements and Potential Benefits 5. Complete Financial Analysis
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Steps: Collect and review relevant strategic and business planning materials or perform interviews of senior management and outside experts. Where data is not available, use allocations or estimates from client personnel Identify relevant business performance metrics and business performance improvement targets Validated data with client
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Opportunities to be Addressed
$19.7
$15 $10
CFS Impact: 31% Reduction $19.7M 232 FTEs Enabled by: A2a, B1, & B2
250 200
FTE Impact
199 167
229
232
150
111
100 50 0 FY03 FY04 FY05 FY06 FY07
Improve quality of contact Move contacts to the web Improve agent utilization / efficiency Optimize existing technology Improve IVR and CTI capabilities Improve call handling capabilities via enhanced customer information and agent capabilities Optimize existing technology
Improve Call Routing Offload Low Value/Low Risk Processes to Lower Cost Resources and Channels
Legend:
A2a: eSupport
B1: CC Efficiency
A2a: eService - $45.0M
$7,000
$6,000
$5,000
$ in Millions
4.
$4,000
$3,000
As-Is ~$6,000
F1: Renewals and Warranty Conversions - $46.0M E2: Installed Base Marketing $14.6M
B1: CC Efficiency - $24.0M C2a: Channel Partner (design registration) - $3.0M D1: ATG Strategic Selling - $16.7M D2: Closed Loop Marketing - $30.6M
Reduce dependence on high-cost labor Define roles and responsibilities Consolidate contact centers Improve integration between CC and BC Enhance and implement relevant and meaningful metrics
$2,000
$1,000
Revenue
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Activity 3: Define the implementation costs and time frames of the business case so that implementation can be monitored.
Example:
Steps: Consider up front costs and time to implement costs Categorize the costs to external vs. internal costs, fixed and variable costs Overhead costs, Production costs, Ongoing R&D costs, Marketing & sales costs Consider the timing of when the costs will hit.
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Activity 4: Capture the opportunities and prioritize them based upon implementation requirements vs. potential benefits
Example:
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Step 2
There are 3 tools that exist to evaluate the financial projections:
Break-Even Analysis or Payback Period Time taken for a project to recover its initial investment NPV (Net Present Value) Present Value of Future Cash Flows Initial Investment IRR (Internal Rate of Return) The rate of return where NPV=$0
Step 3
Conduct a sensitivity analysis on the the financial analyses to test the various assumptions and provide a range of possible scenarios
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Consider all costs, including all overhead expenses Standard practice is to value a new business venture within a corporation as though it was a stand alone organization. Rationale: The opportunity cost of capital or the lost value that investment dollars could have earned with a higher return venture either within the organization or externally Most corporations require that new ventures are projected to pass a certain rate of return called the hurdle rate before funding is considered Sunk costs, however, are costs which have already been spent on the project These need not be included in the financial projections as they have no bearing on the decision to move forward or not A negative financial projection does not necessarily mean that the venture should not be undertaken At times an unprofitable project is necessary where presence in a market creates some competitive advantage When the value of the strategic advantage = $x, and $x + NPV > 0
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Strategic Plan
Strategic Plan
Overview
This analysis provides guidelines for developing the services strategic plan.
Instructions
Activities 1. Define Objectives of the business strategy - what will and will not be achieved 2. Conduct Situation Analysis and Develop Options 3. Develop Strategy - product, marketing pricing, distribution 4. Develop Business Case - (Financials, funding, risks, etc.) 5. Build recommendations and action plan - (Market development, potential alliances, etc.) 6. Develop Executive Summary Data Sources Client Multiple Multiple Refer to business case section of cookbook n/a n/a
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Objectives must be included in the business plan To increase chances of success, specific goals must be defined from the outset
It is equally important to say what will not be achieved by the venture Goals which are too broad may derail the project
3Q Market Share
VS
Tradeoff B: To introduce Product X and be market leader by 3rd Q
Both of these objectives are credible for a new venture, but only one can be focused on successfully The objective must fit within the strategic direction of the organization, be specific, be attainable and take into consideration the tradeoffs The right objective will push the venture towards the next project milestone, reinforce morale and support credibility
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It uncovers crucial issues, insights and opportunities that may not have been identified otherwise It acts as a catalyst for generating and evaluating strategic alternatives later in the process It encourages rational and constructive discussions around agreed upon facts, rather than debates about opinions It proves or disproves hypotheses or assumptions
Key activities: gather internal and external data in order to understand the environment of the industry within which the organization will compete
Market Analysis
Competitive Analysis
Customer Analysis
Internal Analysis
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The strategy is the blueprint to achieve the identified business objective. The strategy is developed with the information collected in the market, competitive, customer and internal analysis and is evaluated against organizational fit
Step A: Situation Analysis Findings Develop a list of strengths, weaknesses, opportunities and threats (SWOT) from the findings. These will form the basis of the strategy for developing and launching the new business venture Create a list of key issues that may positively or negatively impact the organizations ability to achieve its objective Step B: Option Development From the key issues and SWOT analysis several strategic options will emerge regarding implementation of the objective It is not only important to brainstorm possible solutions, but to evaluate them against the capabilities of the Strategic Options organization
1 2 3 Consistent with Strategic Direction Meets Strategic Objective Leverages Core Capabilities Builds Competitive Position Anticipates Market/Competitive Moves Endures Environmental Uncertainty Implementation Challenges Financial Benefit Scale: High, Medium, Low
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Once an option has been selected, it needs to be developed into a strategy that encompasses why and how the organization is going to proceed
Key Steps:
Step 1: Identify products and services Step 2: Asses how the product will be produced Step 3: Evaluate whether afterproduction requirements exist Step 4: Budget the costs of production and other requirements
Operations Marketing Definition of products and services and how they are produced How the company plans to market the product or service
Key Steps
Step 1: Create a clear positioning statement for each customer segment that will be addressed Step 2: Develop plan to target each relevant customer segment Step 3: Budget expenses by customer segment
Key Steps:
Step 1: Identify what distribution channels you need Step 2: Evaluate whether a supplemental sales force is necessary Step 3: Research whether strategic alliances will allow more efficient and cost effective reach to the target market Step 4: Budget the distribution costs, by customer segment if necessary
Key Steps
Distribution Pricing
The distribution channels the company will use to get the product or service to the customer
Step 1: Determine pricing objectives Step 2: Establish minimum and maximum price ranges and test them through customer research Step 3: Incorporate price ranges to test sensitivity of profitability in financial analyses
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89
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The executive summary provides brief summary of the proposal, designed for executive management The primary objective of the executive summary is to entice and convince the management team, potential partners or outside parties to delve further into your business plan It is not a preface or an abstract of the business plan, rather it is a much-shortened version and must contain all the elements of the plan in the most concise form possible
Contents Statement of Objective Opportunity (Based on Situation Analysis) Business Structure Business Model (What and How) Leadership (Management Team Experience) Advantages (Strengths of Model) Financial Summary Assumptions Cash Flow Forecasts; NPV,IRR or Break-Even Funding Sources & Use
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