【正文】 Gisele Garraway Susan Caraviello, Paul DiPaola, and Todd Senturia bc Business Definition March 1998 Author: Contributors: Todd Senturia Reviewer: Copyright169。 1998 Bain Company, Inc. 1 Business Definition Agenda ?The business definition concept ?Applications ?Business definition steps ?Client examples –Bunker Hill Door Systems –JJR Industrial Coatings ?Key takeaways 2 Business Definition Agenda ?The business definition concept ?Applications ?Business definition steps ?Client examples –Bunker Hill Door Systems –JJR Industrial Coatings ?Key takeaways 3 Business Definition What is Business Definition? ?Indicates whether two business segments should be operated as one business or as separate businesses ?Helps identify what drives superior profitability in an industry ?Serves as the foundation for strategic analysis and sound decision making Business definition delineates the economic boundaries within which panies should pete. 4 Business Definition One Business vs. Separate Businesses ?Same customers ?Same cost structure ?Same petitors ?Different customers ?Different cost structure ?Different petitors If two business segments have the same customers, the same cost structure, and the same petitors, they are one business. If they are different on all of these dimensions, they are separate businesses. One business Separate businesses Compete in both segments to take advantage of synergies Do not pete in both segments 5 Business Definition Why Bain Uses Business Definition Strategic insights Tactical insights with strategic importance ?Should we buy or sell the restaurant business? ?Should we expand into China? ?Are we vulnerable to Japanese petitors? ?Should we vertically integrate into growing vegetables? ?Should we drop this product line? ?Should we crosstrain our salesforce? ?How should we group purchases for VMRs (value managed relationships? ?How should we configure our manufacturing plants? The correct business definition can lead to casecracking insights. 6 Business Definition Consequences of Incorrect Business Definition Companies that define their businesses incorrectly make poor strategic decisions. Costs Competitors ?Incur unnecessary costs ?Fo opportunities to capture synergies ?Do not transfer experience ?Underinvest in important RD initiatives ?Overlook relevant petitive threats ?Miscalculate “market share” ?Set inappropriate performance targets ?Overlook relevant capacity changes ?Misjudge true cost position Customers ?Neglect profitable customer segments ?Overinvest in unprofitable customers ?Fo opportunities to capture synergies ?Misjudge relevant market trends ?Overlook relevant geographies 7 Examples of Incorrect Business Definition Business Definition Some respected panies have missed profit opportunities or suffered unnecessary losses because they did not define their businesses correctly. ? American Express ? Allegis ? Saatchi Saatchi Charge cards and credit cards are separate Charge cards and credit cards are one business plastic money Charge card division lost money due to poor cost position and misguided marketing efforts Airlines, hotels and rental cars are one business caring for travelers worldwide Airlines, rental cars and hotels are three separate businesses The bination provided little value to customers: Allegis was split up Advertising and consulting are one business service to global business executives Advertising and consulting are separate businesses Company suffered severe losses due to inability to transfer experience, lack of focus, and tainted image Company A better business definition Consequences of incorrect business definition How management defined the business 8 0%2%4%6% 1 2 5 10C i d e rFiz zDr i nks Re d Al eROSBeer and Dis ti l l ed Spi rits0%1%2%3%4% 1 2 5 10Cide rFiz zRe d Al eDr i nksROSBeer only Business Definition Analytic Consequences of Incorrect Business Definition () Business definition must be the starting point of any Bain case because defining a business incorrectly can adversely affect strategic analysis and decision making. If we define a business incorrectly... Incorrect Business Definition Correct Business Definition 0%10 %20 %RealEs tateMarket GrowthRMS0%10 %20 %Commerci alR esid entia lMarket GrowthRMS?The underlying normative band will not emerge ?A business may look deceptively attractive or unattractive ROS/RMS Growth/Share 9 Business Definition Analytic Consequences of Incorrect Business Definition () Defining a business incorrectly can lead to problems in conducting ECurve and RCP analysis. If we define a business incorrectly... Incorrect Business Definition Correct Business Definition Alpha O mega Beta$1 .89 $1 .76$1 .51$ $ $ $ $ Cost per Account?We may ignore relevant experience ?We may benchmark the wrong petitors Alpha O mega$1 .89$1 .76$ $ $ $ $ Cost per Account$1 $2 $5 1 2 5 10 20 50 100 Cost per Transaction Now Accounts Slope = % R178。 = $1 $2 $5 10 20 50 100 200 500 1,000 Cost per Transaction Now + Savings Accounts Slope =% R178。 = Experience Curve RCP 10 Business Definition Complexity of Business Definition A simple catalog of logical arguments is not robust enough to delineate the petitive battlefields for our clients. Is it one business or not? One Busin