【正文】 ion 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。 = 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 Business Separate Businesses ?Touring quality microphones and speakers ?Madonna and rappers use both ?Similar distribution channels ?Different manufacturers (Audio Technica vs. Bose) ?Little manufacturing process knowledge is transferable ?Limited direct cost sharing ?Cross pens and BIC pens ?Beer and distilled spirits ?Both used for same function, writing ?Similar raw materials ?Some manufacturing steps shared ?Brand name sharing opportunities ?Same distribution channels ?Sold by same salesforce ?High perceptual barriers to customers ?Limited customer base overlap ?Limited benefits of shared RD ?Key manufacturing processes are different ?Different raw materials 11 Business Definition Business Definition Matrix Bain uses the business definition matrix to delineate economic boundaries. Cost sharing and customer sharing are the primary determinants of defining a business. High Cost Sharing Low Low High Customer Sharing One business (charge cards and credit cards) One business with potential for differentiation or niche position (Cross pens and BIC pens) Separate businesses with potential for cost leadership (oil and refinery byproducts) Separate businesses (beer and distilled spirits) Separate businesses with potential for bundling (touring quality microphones and speakers) One business with potential for substitution (milk cartons and glass milk bottles) 12 Business Definition Dynamics of Business Definition Business definition is dynamic. Temporary barriers, such as price premiums and technology advantages, will erode unless they are consistently reinforced. Business Definition Technology Government regulation Input prices Product innovation Channel economics Customer needs 13 Business Definition Local vs. Regional vs. National vs. Global Businesses Global scale National scale Regional scale Local scale ?Professional online financial data ?Overnight package delivery ?Banking lending ?Hospital textile laundering ?Banking deposit gathering ?Residential laundromats ?Barber shops Clients often cite the need for national or global participation. However, in many businesses, local or regional scale drives profitability. Driver of Profitability Example 14 Business Definition Examples of Changes in Business Definition There are several examples of panies that have gained significant petitive advantage by changing the definition of a business. ?Federal Express revolutionized the package delivery business by introducing an overnight delivery service ?Charles Schwab dramatically altered the mutual funds business by introducing a nofee service whereby customers could purchase many panies’ mutual funds through Schwab ?Calyx Corolla transformed the flower distribution business by using information technology to cut out traditional distributors and ship flowers directly from growers to customers ?Starbucks redefined the coffee shop business from providing coffee to providing a social experience ?The Body Shop revolutionized the cosmetics business by merging the ideas of beauty, health, and environmental consciousness ?Staples, by adapting the business model of a different industry (grocery stores) and taking advantage of economies of scale in purchasing, changed the of