services growth & effectiveness training/reference deck

7/29/2019 Services Growth & Effectiveness Training/Reference Deck

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Services Growth and EffectivenessStrategy

Cookbook of Analysis



2

A note before using this cookbook of analyses

The development of a services strategy is not a one-dimensionalapproach; it is a combination of

– “art”

– “science, ” and

– strategic thinking

While we call out the important steps here, it is not a purelymethodological approach

– It is highly iterative

– Use the 80-20 rule

– Prioritize often



3

Table of Contents

Analysis Page Objectives/Overview

Market sizing, segments,and growth analysis

4 Quantify and assess the attractiveness of the market opportunity

Customer needs assessment 10 Understand customer issues, drivers, and needs

Competitive assessment 17 Understand strengths, weaknesses, and strategies of the competition

Capabilities assessment 23 Identify core competencies and requirements to achieve market success

Benchmarking/bestpractices

29 Best practice considerations and approaches to benchmarking

Alliance approach 38 Develop and manage the most advantageous and meaningful strategic alliance

Spare parts/ inventoryassessment

46Understand spares market performance and develop a strategy focused onpart segmentation and market-based pricing

Pricing and bundling 54

Establish a better pricing approach & identify bundling opportunities as

vehicles for revenue growth & improving cost structure

Services technology strategy 66This analysis provides considerations and process approach for defining atechnology strategy for services capabilities

Business Case/ROI analysis 75A non-theoretical approach to developing a business case and measuring theROI of an investment opportunity.

Strategic plan development 83 Develop the business plan for the services initiative



4

A series of analyses can be utilized to support the Services Growthand Effectiveness Approach

Analysis

Market sizing, segments, and growthanalysis

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

Applicability of individual analyses to steps in the approach

I. Define

Strategy

II. Build

Capabilities

III. Optimize

Operations

IV. Sell and

Market



Market Sizing, Segments andGrowth Analysis



6

Overview

Market Sizing, Segments and Growth Analysis

This analysis will enable you to quantify and assess the attractiveness of a market opportunity

Instructions

Activities Data Sources

1. Segment the market - Analyze the entire market opportunity andidentify appropriate target segments. Segments can be a certainindustry/sector, an element of the value chain, or specificcustomer targets.

Interviews Industry reports (e.g. S&P)

Census NAICS (i.e. SIC) reports

Industry affinity groups

2. Perform top-down market sizing - Macro-level approach startingat the highest-level and drilling down to a specific addressablemarket

Interviews

Market research reports

Investment analyst reports


3. Perform bottom-up market sizing - More rigorous analysisbeginning at the lowest level of product/service/customer andmaking estimates up to an addressable market

Customer/target financial reports(10K, annual reports, analystreports)



Nursing and Residential Care

Trade Schools, Fine Arts (Excludes Elementary, Secondary,Colleges)

Educational Services

Lawyers, Architects, GraphicsProfessional, Scientific, and Tech Services

Accommodation – Traveler Food Services – Full Service Restaurants

Accommodations and Food Services

FoodBeverage and TobaccoTextile MillTextile Product Mills ApparelLeather and Allied ProductPaper Plastics and Rubber MiscellaneousPrinting and Related

Manufacturers

Broadcasting and Telecom – Wired TellsPublishing Industries

Information

Schools, CollegesUniversities (Non-NAICS)

Repair and Maintenance, Personal and Laundry, Religious OrgOther Services

Nondurable GoodsWholesale Trade

Collection Agencies, Travel Agencies, Biz Support Administrative Support, Waste Management, Remediation

Health and Personal CareClothing StoresSporting GoodsGeneral Merchandise

Retail Trade

Total U.S. Revenues: $17.8 Trillion

(1)Data 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”

Health Care and Social Assistance

NAICS Category Subsector/Industry

Electric (Less than $1B in Annual Revenues), Water, GasUtilities

Out of Scope Areas outside of four targetregions, and industries with:

• Heavy e-Marketplace/e-Procurementpenetration

• Concentration of largeorganizations

• High direct materialspend

In ScopeIndustries within four targetregions that exhibit some or all of the following attributes:

• Regional orientation

• Relatively high horizontalSpend

• Highly fragmented market(Buyers/Sellers)

20% =

$3.483Trillion

80% =$14.3 Trillion

Example IndustriesNot in Scope:

• Automotive

• Oil & Gas

• Hospitals

• Mining

Steps: Define entire market

opportunity Determine attributes for

target segments Define and select target

segments

Activity 1: Segment the market

Example: Market Sizing and Segmentation



TotalRevenues

Profit Non-procurement

Spend

Non-horizontal

Spend

None-Procurable

Spend

Total e-Procurable

Spend

$3,483B $304B

$1,848B

$573B

$303B

$455B

TotalRevenues

Profit Non-procurement

Spend

Non-horizontal

Spend

None-Procurable

Spend

Total e-Procurable

Spend

$3,483B $304B

$1,848B

$573B

$303B

$455BPotentialRegional

HorizontalMarket

Sources: 1997 U.S. Economic Census, Center for Advanced Purchasing, OneSource, Deloitte estimates

Market Size inRegions

$455 billion

Market Size inRegions

$455 billion

xx ==

FoundingMember

Service Area in

“Sample”Regions

63%

FoundingMember

Service Area in“Sample”

Regions63%

Number ofFounding

Members in

“Sample”Regions

15

Number of

FoundingMembers in“Sample”Regions

15

AverageRegional

Market Size

$18.983 billion

AverageRegional

Market Size

$18.983 billion

÷÷

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 estimatingwill be necessary

A

B

C

Example: Regional Market Size for Indirect Materials

Activity 2: Perform top-down market sizing



Steps: For each segment, gather the

following data: – Segment size & growth – Historical penetration of

analogous products withineach segment

– Customer segment spendon products you mightpotentially replace

– Pricing model for similar products

Market size today for eachsegment is: price * # of customers * annual differencein penetration, or price * #

units sold To get future estimates, you

will need to forecast price andpenetration

Example: Broadband Satellite Communications

Residential

Broadband Satellite Communications Market by Residential, Small&Medium Business (SMB) and Large Corporate segments

Estimate site growth rate by segment

Drivers formarketforecasts

Small & Med.Bus. (SMB)

LargeCorporate

(LC)

Number of sites

Number of sites

Number of sites

Penetrationof SatCom



Satcom Price Satcom Price Satcom Price

? ? ?

? ? ?

ResidentialSatcomMarket

SMB SatcomMarket

LC SatcomMarket

Forecast penetration by segment

Forecast price by segment

Activity 3: Perform bottom-up market sizing



Key Considerations for Market Sizing, Segments and GrowthAnalysis

Market sizing is not about getting to exact figures, but rather to get a feel forapproximate size, and growth rates and trends

It is critical to size the market both today and in the future

Performing both market sizing approaches (top-down and bottom-up) willhelp to validate your estimates – as a general rule, they should be within 10-20% of each other

Be skeptical if your market size estimates look too good to be true, you willmost likely need more work to refine your assumptions



Customer Needs Assessment



Customer Needs Assessment

A customer needs assessment will enable: definition of customer segments based on needs, values andbehaviors; identification of matches between preferences and services offerings; and determination of key

attributes and capabilities necessary to serve the customer segments

Overview

Instructions


1. Conduct internal data gathering and develop hypothesis – Understand current customer touch points. Clarify anddocument internal perceptions and data on customer needs andkey business drivers.

Internal interviews (sales,marketing, service, logistics)

Internal workshops

2. Develop initial segmentation – Gather initial external data onindustry segments, trends, and key players. Define industrylandscape/segments. Identify customers within segments to targetfor needs analysis.

Industry reports



Analyst reports Trade news and periodicals

3. Conduct external interviews – Gather qualitative and quantitativeinformation from customers.

External interviews

4. Analyze data and develop conclusions – Summarize customerneeds and identify high impact opportunity areas

NA



Activity 1: Conduct internal data gathering and develop hypothesis

Key Consideration: Internal data collectionprovides insight into key focus areas for interviews

S i g

n C

o n t r a

c t

N e g o t i a t e P

r i c e &

T & C ’ s

E x p l o r e P o t e n t i a l S u p p l i e r s

V e r i f y C u s t o m e r

S a t i s f a c t i o n

G a t h

e r I n f o r m

a t i o n

D e t e r m

i n e F I T

S e l e c t

S u

p p

l i e r s

V e r i f y C u s t o m

e r

S a t i s f a

c t i o n

CustomerExperienceLifecycle

Verify Customer Satisfaction

Verify Customer

Satisfaction


E x p l o r e S e r v i c e s E x p l o r e S o f t w a r

e

E x p l o r e H a r d w a r e D e t e r m i n e N e e d s / W a n t s

E x p l o r e A p p l ic a t i o n s

S E A R C H I N G

C H O O S I N

G O R D E R I N G

U P G R A D I N G

S U P P O R T I N G U S I N G

T u n e P

e r f o r m

a n c e

M e a s u r e

R O I

V i s u al iz e S ol u t i ons

Re tire Old So

lu tion s

I n s t a l l M i

g r a t e t o

N e w S o l

u t i o n s

T e s t N

e w P r o

d u c t s

P r o v i d e

I m p u t e

t o N e w

P r o d u c

t s

R e c e i v e

/ D e p l o

y R e s o l u t

i o n s

R e p o

r t / M o n i t o r I

s s u e

s

I d e n t i f y I s s

u e s

E s t a b l i s h

S u p p

o r t

P r o c e

s s

C o n f i g

u r e

S o l u t i o

n

M a i n t

a i n V e n d o r R

e l a t i o

n s h i p

sF i r s t T i m

e U s a g

e E x p e r i e n c e

P a y f

o r S o l u

t i o n

P r o c e s s O r d e r

V e r i f y

C u s t o

m e r

S a t i s f

a c t i o

n




I M P L E M E N T I N G

L E A R

N I N G

P l a n I m

p l e m e n t

a t i o n

R e c e i v e

S o l u t i o

n

I n s t a l l S o

l u t i o n

I m p l e m e n

t S o l u t i o n

P r o v i d e T e c h n i c a l / P r o j e c t

T e a m T r a i n i n g P r o v i d e E n d U s e r T r a i n i n g

P r o v i d e E x e c u t i v e E d u c a t i o n

I m p

r o v e F u n c t i o n

a l i t y

I n c r e a s

e U s a g

e

E n a b l e Le a r n i n g O r g a n i z a t i o n

S i g

n C

o n t r a

c t

N e g o t i a t e P

r i c e &

T & C ’ s

E x p l o r e P o t e n t i a l S u p p l i e r s



G a t h

e r I n f o r m

a t i o n

D e t e r m

i n e F I T

S e l e c t

S u

p p

l i e r s

V e r i f y C u s t o m

e r

S a t i s f a

c t i o n

CustomerExperienceLifecycle


Verify Customer

Satisfaction


E x p l o r e S e r v i c e s E x p l o r e S o f t w a r

e

E x p l o r e H a r d w a r e D e t e r m i n e N e e d s / W a n t s

E x p l o r e A p p l ic a t i o n s

S E A R C H I N G

C H O O S I N

G O R D E R I N G

U P G R A D I N G

S U P P O R T I N G U S I N G

T u n e P

e r f o r m

a n c e

M e a s u r e

R O I

V i s u al iz e S ol u t i ons

Re tire Old So

lu tion s

I n s t a l l M i

g r a t e t o

N e w S o l

u t i o n s

T e s t N

e w P r o

d u c t s

P r o v i d e

I m p u t e

t o N e w

P r o d u c

t s

R e c e i v e

/ D e p l o

y R e s o l u t

i o n s

R e p o

r t / M o n i t o r I

s s u e

s

I d e n t i f y I s s

u e s

E s t a b l i s h

S u p p

o r t

P r o c e

s s

C o n f i g

u r e

S o l u t i o

n

M a i n t

a i n V e n d o r R

e l a t i o

n s h i p

sF i r s t T i m

e U s a g

e E x p e r i e n c e

P a y f

o r S o l u

t i o n

P r o c e s s O r d e r

V e r i f y

C u s t o

m e r

S a t i s f

a c t i o

n




I M P L E M E N T I N G

L E A R

N I N G

P l a n I m

p l e m e n t

a t i o n

R e c e i v e

S o l u t i o

n

I n s t a l l S o

l u t i o n

I m p l e m e n

t S o l u t i o n

P r o v i d e T e c h n i c a l / P r o j e c t

T e a m T r a i n i n g P r o v i d e E n d U s e r T r a i n i n g

P r o v i d e E x e c u t i v e E d u c a t i o n

I m p

r o v e F u n c t i o n

a l i t y

I n c r e a s

e U s a g

e

E n a b l e Le a r n i n g O r g a n i z a t i o n

Example: Customer Experience Lifecycle Steps: Review internal data collected by

the client Identify major lifecycle stages and

major touch points with thecustomer

Perform high-level review of customer touchpoints

Determine which areas/customer segments have been wellanalyzed by clients and whichrequire further analysis

Interview management tounderstand perceptions of customer needs



Activity 2: Develop initial segmentation

GECAS ILFC

Virgin Atlantic Easy Jet Jet Blue

Southwest Continental British Airways

American

Northwest Alaska

Lufthansa Delta United

ExampleCustomers

Completely mixed fleet

Conduct an insignificant amount of MRO (airlines oftenresponsible to maintain their leased planes)

Outsource all maintenance activities

Negligible

LeasingCompanies

Often single fleet planes

Lack maintenance experience

Lack sufficient capital to build maintenance capabilities

Outsource a significant portion of maintenance operations

5-10%

Small and/orStart-upAirlines

Limited commitments to internal maintenance

Consider core competency to be moving passengers

Outsource a medium to significant amount of maintenanceoperations

30-35%

Medium to LargeMaintenance Shoppers(Cost Conscious)

Considerable commitment to internal maintenanceoperations

Consider internal MRO a competitive advantage Outsource select, limited maintenance activities only

20-25%

Medium to Large Airlines

with Maintenance as aDifferentiator

Multi-national fleets

Significant commitment to internal maintenance operations

Sell and market 3rd party MRO services

Virtually no maintenance outsourcing

30-35%

Large Airlines withMaintenance as aBusiness

Key Characteristics

% ofTotal

MarketCustomer Category

GECAS ILFC

Virgin Atlantic Easy Jet Jet Blue

Southwest Continental British Airways

American

Northwest Alaska

Lufthansa Delta United

ExampleCustomers

Completely mixed fleet

Conduct an insignificant amount of MRO (airlines oftenresponsible to maintain their leased planes)

Outsource all maintenance activities

Negligible

LeasingCompanies

Often single fleet planes

Lack maintenance experience

Lack sufficient capital to build maintenance capabilities

Outsource a significant portion of maintenance operations

5-10%

Small and/orStart-upAirlines

Limited commitments to internal maintenance

Consider core competency to be moving passengers

Outsource a medium to significant amount of maintenanceoperations

30-35%

Medium to LargeMaintenance Shoppers(Cost Conscious)

Considerable commitment to internal maintenanceoperations

Consider internal MRO a competitive advantage Outsource select, limited maintenance activities only

20-25%

Medium to Large Airlines

with Maintenance as aDifferentiator

Multi-national fleets

Significant commitment to internal maintenance operations

Sell and market 3rd party MRO services

Virtually no maintenance outsourcing

30-35%

Large Airlines withMaintenance as aBusiness

Key Characteristics

% ofTotal

MarketCustomer Category

Example: Customer Segmentation

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

Customers can besegmented a multitudeof ways (e.g. marketshare, size,geography, clientcustomer base,ownership, etc). Thekey is to determine themost compelling

factor/characteristic asa starting point. Other characteristics willbecome key later inthe process to identifyappropriate entrypoints and specifictarget customers



Activity 3: Conduct external interviews

PLEASESUBMITFORMTO:

DeloitteConsulting

NameCompany

AddressCityState/ProvinceZIP/PostCodeCountry

PhoneFaxEmail

Criteria Rank (1-7) Comments

BuyingCriteria*1 =mostimportant,7= leastimportant

1

Price

CustomerService,LogisticsOther(pleasetype in)

RelationshipwithXYZCompanysales personRelationshipwithXYZCompanyTechnical(TM, R&D)Qualityof theproduct

Reputationoffirm andproducts

Purchasing

ProductManagement

Marketing

Formulator

Research

Other

AdditivePackagingCompany

Client Survey XYZCompanyandDeloitteConsulting areworkingtogether tobetter understandXYZ'scustomers. Thiswill helpXYZto createsalesandmarketingorganizationswhichoffer tailoredsalesand marketingsolutionsby proactivelyidentifyingandrespondingto customerneeds.

Function:

Fromwhodoyoucurrentlypurchaseoil lubricantadd it ives? % Pleaserateeachonoveral lcust.Satis.

*1=VerySatisfied,2=VeryDissatisfied

2

Other(pleasetypein)

Other(pleasetypein)

Pleasedescribest epsin buyingprocess, includingwhich departmentswithin yourorganization interact withXYZ Companydepartments,over

whattime framesandwhatinformationis transferred?Doyouexpectthisprocessto changeinthenearfuture? How?

Pleasedescribehow thecustomer buyingprocessand its interaction withXYZ Companycouldbei mproved?

WhichdepartmentwithinXYZCompanydoyoucontactwithtechnicalquestions/issues(I.e. sales,TechnicalMarketing,ResearchLab)? Howresponsiveis XYZCompany'sTMorganization inr espondingtoyour needs?XYZ Company'sResearchLabs? XYZCompany'sSales

XYZCompany

Other(pleasetypein)

Other(pleasetypein)

Other(pleasetypein)

Other(pleasetypein)

Parts

Director of Strategy & Director of Business Development(2)

Airline

ComponentServices

(less parts)

Airline Operations –

Heavy Maintenance(Planning)

Heavy Maintenance

(Planning)

Heavy Maintenance(Operations)

Sr. VP of Maintenance (2)Director of Maintenance PlanningVP Engineering and PlanningSr. VP of M&EHead of Business Development for TechnicalOperationsDirector of MaintenanceStaff Director of EngineeringMD of Maintenance Planning

Director of Maintenance PlanningMaintenance Manager Mgr. Of Supplier Base MaintenanceStaff VP of MaintenanceExecutive VP of Technical Operations

Associate VP of Technical Services

Supervisor of Component Repairs

General Manager of Fleet PlanningDirector of Contracts

Manager Maintenance Support

(2)

(9)

(6)

(4) (1)

Example: Interview Guide Example: Interviewee Plan

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

Tailor interview guide to eachsegment but have somequestions which crosssegments

For each customer, makesure to properly sample theappropriate decision-makers



Activity 4: Analyze data and develop conclusions

Broad maintenance capabilities,horizontal and vertical

Increase internal maintenancecapabilities

Increase 3rd party maintenancerevenue

Service at multiple locations

Control over aircraft availability

Sophisticated reporting/interface with

regulatory agencies

Specific Needs

Select, high value data“enhancements”

Special projects

Potential Near TermOpportunities

Large AirlineswithMaintenance asa Business

CustomerCategory


Increase internal maintenancecapabilities

Increase 3rd party maintenancerevenue

Service at multiple locations


Sophisticated reporting/interface with

regulatory agencies

Specific Needs

Select, high value data“enhancements”

Special projects


Large AirlineswithMaintenance asa Business

CustomerCategory

Heavy maintenance for very

old or new fleet types (727sor 777s)

Heavy maintenance “filler”capabilities/capacity(when airline is over capacity)

Special projects


Maintain internal maintenanceoperations near capacity


Meet contractual obligations tointernal workforce

Sophisticated reporting/interface withregulatory agencies

Medium toLarge AirlineswithMaintenance asa Differentiator

Specific NeedsPotential Near Term

OpportunitiesCustomerCategory

Heavy maintenance for veryold or new fleet types (727sor 777s)

Heavy maintenance “filler”capabilities/capacity(when airline is over capacity)

Special projects


Maintain internal maintenanceoperations near capacity



Sophisticated reporting/interface withregulatory agencies

Medium toLarge AirlineswithMaintenance asa Differentiator

Specific NeedsPotential Near Term

OpportunitiesCustomerCategory

Reduce cost on a lifecycle basis of the aircraft

Satisfy business decision financialcriteria e.g. ROI


External providers that deliver ontime, quality work

Geographic proximity

Specific Needs

“Total Support”

product/service in Europee.g. British Airways

777s in all regions –a rangeof maintenance services


737s in North America –

initially a heavy maintenanceoffering (possibility of expanding services later)e.g. Southwest


Medium toLargeMaintenanceShoppers(CostConscious)

CustomerCategory

Reduce cost on a lifecycle basis of the aircraft

Satisfy business decision financialcriteria e.g. ROI


External providers that deliver ontime, quality work


Specific Needs

“Total Support”

product/service in Europee.g. British Airways



737s in North America –

initially a heavy maintenanceoffering (possibility of expanding services later)e.g. Southwest


Medium toLargeMaintenanceShoppers(CostConscious)

CustomerCategory

More complete maintenance solution

Operational and maintenanceexperience on homogenous fleet

Access to infrastructure, bothresources and facilities

Simple interface with outside provider


External provider willing to providemaintenance on small fleet size(e.g. 5-10 747s)

Specific Needs

Heavy maintenance for specific fleet type acrosssmall fleet size(possibility of later expandingservices and/or fleet types)e.g. Virgin Atlantic

Combined product andservices for new planes

e.g. National Airlines


Small and/orStart-up Airlines

CustomerCategory

More complete maintenance solution

Operational and maintenanceexperience on homogenous fleet

Access to infrastructure, bothresources and facilities

Simple interface with outside provider


External provider willing to providemaintenance on small fleet size(e.g. 5-10 747s)

Specific Needs

Heavy maintenance for specific fleet type acrosssmall fleet size(possibility of later expandingservices and/or fleet types)e.g. Virgin Atlantic

Combined product andservices for new planes

e.g. National Airlines


Small and/orStart-up Airlines

CustomerCategory

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?

Example: Customer Needs Summary by Segment



Key Considerations for Customer Needs Assessment

Be data driven and quantitative in the approach when possible, with theunderstanding that you’ll never be able to get all of the data or interview allcustomers

Consider how best to involve the client during interviews and data gathering



Competitive Assessment



Competitive Assessment

The ultimate goal of a competitive assessment is to understand the strengths, weaknesses, and strategiesof the competition in order to predict their next moves

Overview

Instructions


1. Develop internal cost and capabilities baseline – Understandbaseline upon which to compare competitors strengths andweaknesses

Internal interviews

Site visits

2. Conduct competitor data collection and synthesis – Gather externaldata on industry segments, trends, and key players. Definecompetitive landscape/segments.

Industry reports



Analyst reports Primary research (end users, other

client employees, channel partners,competitor personnel)

3. Evaluate competitive differences – Determine competitiveadvantages/disadvantages

NA



20

Activity 1: Develop internal cost and capabilities baseline

Inconsistent ability to prepare

insightful &valuable

business cases and evaluations

Some ability to

communicate to internal

audiences but fragmented &inconsistent

S k i l l

B r e a

d t h

P r o d u

c t

D e v e

l o p m e n

t

& M a r k

e t i n g

C u s t o

m e r

C o m m

u n i c a

t i o n

D a t a V i

s i b i l i t

y

R e s p

o n s i v

e n e s

s0

1

2

3

4

5

T e c h

n i c a l

K n o w

l e d g e

C o s t

S t r u c

t u r e

P e r f o

r m a n c e

High

Low

Capability Areas

Inability to obtain important cost data to make

decisions

Very strong technical abilities

across organization

Significant opportunity to reduce costs

Infrastructure exists but

communication is often

inconsistent and la te Strong technical

skills but weak in marketing & sales

skills

Responsive to customer

inquiries and needs but internal

bureaucracy results in slow

response Reactive

approach to developing

products/servic es based on

explicit customer

demands w/ limited

marketing ability

Able to get complex products

produced &delivered but inconsistent approach to ability and redundant d elivery methods

I n t e r n

a l

C o m m

u n i c a

t i o n

B u s i n

e s s

E v a l u

a t i o n

P r o d u

c t i o n

&

D e l i v

e r y Q u

a l i t y

People Financial Customer

Steps: Develop comprehensive internal interview guide Identify key executives and staff Conduct interviews and site visits Synthesize collected information to build baseline

Example: Capabilities Baseline

• Field Service Rep $ 70

• Intro Teams $ 10

• Sta nd ard P ro bl em Re so lu ti on $ 12 5

• After-Hour Problem Resolution (RRC) $ 5

• 8110 Requests $ 40

• Fleet Team (SRP) $ 35

• Big 6 Mai nten an ce & Sup po rt $ 12 0

• Too li ng & Gro un d Ope ra ti on s $ 1 0

• Procedures & Task Cards $ 15

• Recovery & Handling $ 5

• Service Bulletins $ 20

• Facil it ies & Equipment Planning $ 5

• Maintenance Planning $ 10• Provisioning Data $ 40

• Software & Applications $ 40

• Other Maintenance & Engineering $ 5

• Part 25 Documents $ 20

• Flight Crew Training $ 80

• Training Docs $ 5

• Simulator Data $ 15

• Performance & Engineering Data $ 5

• CBT and Other Software $ 5

• Standard Warranty $ 3

• Other ProtectionPrograms $ .5

$ 285 M

$ 3.5 M

$ 130 M

$ 270 M

Total Budget = $690 M(1)

TechServices

ME&P

FlightTech

Warranty

TechServices

ME&P

FlightTech

Warranty

Example: Cost Baseline



21

Increase profitability byproving value of “totalsupport”, including planning

Increase customer base

Multiple product offerings,leading up to providing a “totalsupport” service

Line maintenance (some)

Heavy maintenance

Component management

Specific component R&O

Maintenance planning (some)

Maintenance asbusiness (esp. LHT)

Maintenance Shoppers

Small/start-up20-25%

Full ServiceProviders

(Independentand Affiliate)

Maintenance asdifferentiator

Maintenance shoppers

Small/start-up

Maintenance asbusiness


Key CustomerSegments

Need to improve profitabilityvia expanded services or alliances with bigger players

Provide a niche maintenanceservice offering, either by planetype or service

25-30%

Partial/NicheService

Providers

Develop and/or expand 3rd

party business to newcustomers and/or services

Total MRO offering, including: Line maintenance

Heavy maintenance

Engine services

Component R&O

Some mods

Maintenance planning

45-50%


(InsourcedbyAirlines)

Future TrendsProducts/ Services OfferedMarketShare

Increase profitability byproving value of “totalsupport”, including planning

Increase customer base

Multiple product offerings,leading up to providing a “totalsupport” service

Line maintenance (some)

Heavy maintenance

Component management

Specific component R&O

Maintenance planning (some)

Maintenance asbusiness (esp. LHT)

Maintenance Shoppers

Small/start-up20-25%


(Independentand Affiliate)


Maintenance shoppers

Small/start-up

Maintenance asbusiness


Key CustomerSegments

Need to improve profitabilityvia expanded services or alliances with bigger players

Provide a niche maintenanceservice offering, either by planetype or service

25-30%

Partial/NicheService

Providers

Develop and/or expand 3rd

party business to newcustomers and/or services

Total MRO offering, including: Line maintenance

Heavy maintenance

Engine services

Component R&O

Some mods

Maintenance planning

45-50%


(InsourcedbyAirlines)

Future TrendsProducts/ Services OfferedMarketShare

Activity 2: Conduct competitor data collection and synthesis

Highly monopolisticwithin particular OEM

Significant barriers toentry due to proprietarydesign rights

Fragmented competitionacross airline shops andindependents

Strong competition forexisting fleet

Low barriers to entry

Highly monopolisticwithin particular airline(airline controlled)

Some barriers to entry(airlines currently heldresponsible per FAA)

Competitive Landscape:

Original EquipmentManufacturer (OEM)

Part ManufacturerAuthorities (PMAs)-small amount of the spend

Full Service Providers(Airline Shops)

Full Service Providers(Independents)

Partial/Niche Providers

Airlines(Operations andMaintenance Mgmt)

Key Competitors:

Highly monopolisticwithin particular OEM

Significant barriers toentry due to proprietarydesign rights

Fragmented competitionacross airline shops andindependents

Strong competition forexisting fleet

Low barriers to entry

Highly monopolisticwithin particular airline(airline controlled)

Some barriers to entry(airlines currently heldresponsible per FAA)

Competitive Landscape:

Original EquipmentManufacturer (OEM)

Part ManufacturerAuthorities (PMAs)-small amount of the spend

Full Service Providers(Airline Shops)

Full Service Providers(Independents)

Partial/Niche Providers

Airlines(Operations andMaintenance Mgmt)

Key Competitors:

MaintenancePlanning

MaintenanceOperations

(Labor)Parts

Client X is already a significant competitor

in Parts

45-50%

20-25%

25-30%AARAARAeronavaliAeronavaliParker AerospaceParker AerospaceTAECOTAECOTriumphTriumphVolvo AeroVolvo Aero

BF GoodrichBF GoodrichFLSFLSHAECOHAECOST AeroST AeroLufthansaLufthansa TechnikTechnik

UnitedUnitedDeltaDeltaAmericanAmericanKLMKLMNorthwestNorthwest

Full Service ProvidersFull Service Providers((InsourcedInsourced by Airlines)by Airlines)

Full ServiceFull ServiceProviders*Providers*(Independent(Independentand Affiliate)and Affiliate)

Partial/NichePartial/NicheServiceService

ProvidersProviders

(Examples)

(Examples)

(Examples)

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

About 1/3 of these Full About 1/3 of these Full Service Provider competitors Service Provider competitors are Airline Affiliated are Airline Affiliated

About 5 About 5 - - 10% of airline 10% of airline capacity is currently capacity is currently sold on the market sold on the market

• About 60% of total heavy maintenance operations is provided by Airlines(airline shops and affiliate providers)

• Independent Full Service Providers control about 15% of the market

• About 60% of total heavy maintenance operations is provided by Airlines(airline shops and affiliate providers)

• Independent Full Service Providers control about 15% of the market

Select detailed competitor

overviews are in the appendix

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 areanswering and where you might get answers

Validate hypothesis and compile implications/output

Example: Competitive Landscape Example: Competitor Concentration

Example: Competitors’ Customers & Offerings



22

Full-Service Providers Detail

Activity 3: Evaluate competitive differences

Key Traits

H ig h Me di um Lo w

Relative Performance:

H ig h Me di um Lo w

Relative Performance:

C u s t o m

e r F o c u s

V e r t i

c a l a n d

H o r i z o

n t a l

C a p a b i l i t i e s

R e l a t i o

n s h i p w i t h

R e g u l a t o r s

O p e r a t i n

g E x

p e r t i

s e

Q u a l i t y / S

a f e t y

Full ServiceProviders(InsourcedbyAirlines)

Full ServiceProviders(InsourcedbyAirlines)

Partial ServiceProviders

Partial ServiceProviders

F a s t / F l e x i b l

e

S e r v i c e

F a s t / F l e x i b l

e

S e r v i c e

C o s t

S t r u

c t u r

e

Full ServiceProviders(Independent and

Affiliates)

Full ServiceProviders(Independent and

Affiliates)

R e p u t a t i o n /

C r e d i b i l i t y

S a l e s a n d M a r k e

t i n g

Deep experience

Integrated capabilities

Little/no focus on cost

Deep experience

Integrated capabilities

Little/no focus on cost

Niche expertise

Varied reputations

Very cost conscious

Niche expertise

Varied reputations

Very cost conscious

Focus on customer relationship

Credibility w regulators

Balanced focus on cost,quality and flexibility

Focus on customer relationship

Credibility w regulators

Balanced focus on cost,quality and flexibility

Competitor Group Key Areas of Focus

Global

North America

Predominantly Asia

Expanding into NorthAmerica

Europe

Predominately Europe

Growing in North Americaand Asia

Regional Presence

British Airways

GECAS

Southwest

Northwest

FedEx

United

JAL

Southwest

ANA

Qantas

AerLingus

easyJet

Virgin Atlantic

British Airways

Lufthansa

ILFC

Example Customers

Large customer base for engine services(looking to expand to airframe)

Own large % of airframe components (withHoneywell acquisition)

GE EngineServices

Strongest player in North America

Known for high quality

Leverage partner companies

Proximity to Boeing

Goodrich

Largest player in Asia

Low cost structureST Aero

Providing total support to several airlines

Efficiency, leading to faster turnaroundtimesFLS

Large customer base in Europe

Operating experience

Providing total support to several airlinesLufthansaTechnik

Source of DifferentiationCompetitor

Global

North America

Predominantly Asia

Expanding into NorthAmerica

Europe

Predominately Europe

Growing in North Americaand Asia

Regional Presence

British Airways

GECAS

Southwest

Northwest

FedEx

United

JAL

Southwest

ANA

Qantas

AerLingus

easyJet

Virgin Atlantic

British Airways

Lufthansa

ILFC

Example Customers

Large customer base for engine services(looking to expand to airframe)

Own large % of airframe components (withHoneywell acquisition)

GE EngineServices

Strongest player in North America

Known for high quality

Leverage partner companies

Proximity to Boeing

Goodrich

Largest player in Asia

Low cost structureST Aero

Providing total support to several airlines

Efficiency, leading to faster turnaroundtimesFLS

Large customer base in Europe

Operating experience

Providing total support to several airlinesLufthansaTechnik

Source of DifferentiationCompetitor

Example: Competitive Differentiation

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



23

Key Considerations for Competitive Assessment

Avoid over-use of market research and surveys and reliance on generalbenchmarking

Ensure that you have targeted the scope to address the most critical businessissues

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, potentiallyincluding:

– Competitor strategies, plans and intentions

– Approaches to customers and markets

– Capabilities, assets and cost structure

– Technology and product developments



Capabilities Assessment



25

Overview

Capabilities Assessment

A capabilities assessment allows identification of core competencies and requirements to have marketsuccess

Instructions


1. Develop cost and capabilities baseline – Understand currentperformance and strengths upon which to compare requiredcapabilities and identify necessary improvements

Internal interviews

Site visits

2. Assess/review required capabilities for specific segment or opportunity – Determine requirements to succeed in a givenopportunity area or segment

Industry reports



Analyst reports

Primary research (end users, otherclient employees, channel partners,competitor personnel)

3. Perform gap analysis of internal capabilities against requirements – Identify gaps and develop plan to fill gaps

NA



26

Activity 1: Develop cost and capabilities baseline

Inconsistent ability to prepare

insightful &valuable

business cases and evaluations

Some ability to

communicate to internal

audiences but fragmented &inconsistent

S k i l l

B r e a

d t h

P r o d u

c t

D e v e

l o p m e n

t

& M a r k

e t i n g

C u s t o

m e r

C o m m

u n i c a

t i o n

D a t a V i

s i b i l i t

y

R e s p

o n s i v

e n e s

s0

1

2

3

4

5

T e c h

n i c a l

K n o w

l e d g e

C o s t

S t r u c

t u r e

P e r f o r m a n c e

High

Low

Capability Areas

Inability to obtain important cost

data to make decisions

Very strong technical abilities

across organization

Significant opportunity to reduce costs

Infrastructure exists but

communication is often

inconsistent and la te Strong technical

skills but weak in marketing & sales

skills

Responsive to customer

inquiries and needs but internal

bureaucracy results in slow

response Reactive

approach to developing

products/servic es based on

explicit customer

demands w/ limited

marketing ability

Able to get complex products

produced &delivered but inconsistent approach to ability and redundant d elivery methods

I n t e r n

a l

C o m m

u n i c a

t i o n

B u s i n

e s s

E v a l u

a t i o n

P r o d u

c t i o n

&

D e l i v

e r y Q u

a l i t y

People Financial Customer

Steps: Develop comprehensive internal interview guide Identify key executives and staff Conduct interviews and site visits Synthesize collected information to build baseline

Example: Capabilities Baseline

• Field Service Rep $ 70

• Intro Teams $ 10

• Sta nd ard P ro bl em Re so lu ti on $ 12 5

• After-Hour Problem Resolution (RRC) $ 5

• 8110 Requests $ 40

• Fleet Team (SRP) $ 35

• Big 6 Mai nten an ce & Sup po rt $ 12 0

• Too li ng & Gro un d Ope ra ti on s $ 1 0

• Procedures & Task Cards $ 15

• Recovery & Handling $ 5

• Service Bulletins $ 20

• Facil it ies & Equipment Planning $ 5

• Maintenance Planning $ 10

• Provisioning Data $ 40

• Software & Applications $ 40

• Other Maintenance & Engineering $ 5

• Part 25 Documents $ 20

• Flight Crew Training $ 80

• Training Docs $ 5

• Simulator Data $ 15

• Performance & Engineering Data $ 5

• CBT and Other Software $ 5

• Standard Warranty $ 3

• Other ProtectionPrograms $ .5

$ 285 M

$ 3.5 M

$ 130 M

$ 270 M

Total Budget = $690 M(1)

TechServices

ME&P

FlightTech

Warranty

TechServices

ME&P

FlightTech

Warranty

Example: Cost Baseline



27

Opportunity Area

Critical Success Factors

RelativeImportance

toBusiness

High Medium Low

Legend

Activity 2: Assess/review required capabilities for specific segmentor opportunity

Steps: Identify critical success factors (CSF) for a given

opportunity/segment Rate the relative importance of each CSF



28

RequiredCharacteristics Steps to Achieve Characteristics

Advanced conditionstesting facilities

Meets/Gap – Existing facilities are best-in-class for aerospace and may be easily transitioned into other

industries – Where not easily transitioned, acquire or partner to obtain facilities

Deep industry knowledgeand relationships

Gap – Partner with and/or acquire a player who has demonstrated relationships and experience in

the industry

Reputation for shorteningproduct developmentcycles

Meets/Exceeds – Strong track record of designing and producing high-performance aircraft and space

vehicles provides credibility outside the aerospace industry

Strong knowledge of trends in both the targetindustry and applicabletechnologies

Meets/Gap – Develop relationships with pertinent academic and commercial organizations and maintain

competitive outlook

Dynamic simulation and

modeling capabilities

Meets/Gap – Strong simulation skills exist and can be strengthened with partnerships both internal and

external – Validate technical details, function, etc. of internal simulation &modeling capabilities – Assess and compare competitor capabilities and identify potential alliances

Effective channelmanagement

Gap – Hire top marketing and customer service personnel – Maintain close contact with industry to monitor new developments

Activity 3: Perform gap analysis of internal capabilities againstrequirements



Benchmarking



30

Overview

Benchmarking Best Practices

This approach will help you to with some best practice approaches to benchmarking.

Instructions


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

Project/initiative objectivesdocumentation

2. Determine benchmarking approach. Evaluate the types of insight thatis required vs. the amount of resources available.

Available resources

Project requirements

3. Plan, Prepare, and Execute the Benchmarking Process. Develop atiming based on type of analysis, develop interview guides andtemplates, and begin the benchmarking activities.

Best practice database,interviews, publishedinformation

4. Collect and document performance data and determine Performance“Gap”. n/a

5. Synthesize, analyze, and interpret results. Analyze the applicability of innovative practices. Identify the best practice opportunity areas.

n/a

6. Communicate Results. n/a



31

Activity 1: Develop a Benchmarking Strategy

Steps: Understand client’s

critical businessissues.

Conduct internaldata collection andanalysis.

Define “what” to

benchmark.

Determine type of benchmarking to be considered by identifying businessObjectives and Strategic Initiatives to be supported

BENCHMARKING FOR HIGH PERFORMANCE

OptimalStructure

BENCHMARKING

Excellencein Execution

Sharp Business/Market Focus

STRATEGIC ORGANIZATIONALOPERATIONAL



32

Activity 2: Determine benchmarking approach and identify theactivities and sources of data to support the approach

Qualitative Data

DC Knowledgebase

Client Available Studies

DC Network of Experts

Public Research

Interviews of selected peer groups

Quantitative DataDC and client Knowledgebase

Syndicated Research

Steps Determine the types of

resources/time/dollars you have todedicate to the study – this will drivethe type of benchmarking activitiesthat will be realistic.



33

Activity 3: Plan, Prepare, and Execute the Benchmarking Process

Steps Based on the

resources available,plan thebenchmarking effort

Identify benchmarkpartners selectioncriteria

Develop interviewguides and templatesfor data collection

Execute thebenchmarkingprocess

Example: Step 2 – once benchmarking criteria were defined, the list of companies to use in the analysis was easily identified.



34

Activity 4: Collect and document performance data

Using quantitative results…

…and qualitative results

Steps Collect and document

performance data Collect and document

innovative practices



35

Activity 5: Synthesize, analyze, and interpret results

Example: With the opportunity gaps measured, in this example, we were able to

identify best practices for the client to improve internal performance across their Strategic Plan initiatives.

Steps Analyze performance

“gap”. Analyze applicability of

innovative practices. Develop practice

opportunities.



36

Activity 6: Synthesize, analyze, and interpret results

Key Findings include:

Customer Segmentation - The majority of the companies segment their customers and tailor programs toeach 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 thecomplexity of the process and using technology effectively

Pricing - Most companies are attempting to implement market based pricing and offering tiered discountsto select customers

Inventory Management - Companies aggressively manage inventory turn rates while maintainingsatisfactory fill rates

Product Offering - Some companies are expanding their product offerings to provide one-stop-shoppingfor parts and other products/services, often using strategic alliances with suppliers to augment existingcapabilities. Others are rationalizing product lines and referring unprofitable lines to other sources

Example: The findings were grouped into discreet buckets so that they can be compared to existing practices.



37

Key Considerations for Benchmarking

The use of benchmarking information is an effective and economical way for us tohelp clients to jump-start internal operational improvements, however, cost andbusiness process benchmarking data are among the most difficult to obtain.

Select participating organizations for their relevance to the client to ensure thatfindings and best practices would be applicable. Non-competing organizations wouldlikely be glad to share additional information, including lessons learned

Benchmarking often requires piecing together data from various sources.

– Creativity is important in obtaining information from whatever sources areavailable.

– May have to make reasonable estimates where good data is not available.

– Isolated analyses can be misleading. Comparing multiple firms across multiplemeasures is more likely to yield useful results.

– Must consider validity of analysis when using data not consistently reported bycompetitors.

Benchmarking profiles can be useful in communicating the attractiveness of newbusiness models to client senior management



Alliance Approach



39

Overview

Alliance Approach

This approach will enable you to develop and manage the most advantageous and meaningful strategicalliance for the client

Instructions


1. Define objectives – Understands reasons for and expectationsfrom a strategic alliance

NA

2. Determine alliance strategy – Describes the appropriate use of external partnerships to achieve the overall strategy

3. Set boundary conditions – Ensures that the best deals arestructured with the most appropriate partners

4. Define internal infrastructure – Defines the organization withinthe client and its links to the alliance

5. Manage performance – Entails ongoing monitoring and review of specific alliance activity

6. Execute the transaction



40

DefineObjectives

AllianceStrategy

BoundaryConditions

InternalInfrastructure

PerformanceManagement

Customer Services Strategy

Internal

Capability Assessment

Role of Alliances

Products &Services

Geographic

Alliance Types

Partner Parameters

Business Case

Parameters

Projected Alliance

Resources

Management Linkage

Requirements Legal Issues

Relevant to All Deals

Lessons Learned

Performance Metrics

Management Evaluation

The periodic steps of theprocess link alliances withcompany objectives, and laythe foundation for establishingeffective and complementaryalliances across theorganization. These steps are

common to all types of strategic alliances and form theframework for a repeatableprocess.

The transaction-specific stepsof the process are the activitiesrequired toevaluate/structure/manage aspecific alliance. The specificcontent of these steps would bedifferent for individual allianceopportunities.

3. ManageAlliance onan Ongoing

Basis

2. Structureand

Negotiatethe Deal

1. EvaluateAlliance and

PartnerOptions

Overview

Companies which excel at strategic alliances typically rely on a set of periodic

and transaction-specific alliance development process steps



41

Customer Services Strategy

Internal Capability Assessment

Role of Alliances

The overall strategic planfor the business based onobjectives

Description

Determine the specificfunctions that can be more

efficiently acquired throughstrategic alliances

Assess the implementationrequirements of the strategyand the company’s ability to

perform (or internally develop)these functions

OBJECTIVES

Activity 1 and 2: Define objectives and determine alliance strategy



42

Products &Services

Geographic

Alliance Types

Partner Parameters

Business Case Parameters

Minimum acceptable returns analliance business case mustachieve to go forward

Thresholds of business viability

Determine type of alliances tobe used

The areas in which the alliances

will and will not operate

Products and servicesdefines the scope of deals tobe done

Activity 3: Set boundary conditions

Description



43

Description

Projected Alliance

Resources

Management Linkage

Requirements

Legal Issues Relevant to All

Deals

Legal aspects of operating withinClient which remain unchangedfor all deals (such as use of

Client trademarks)

Management connections that arenecessary for any deal in a givenalliance strategy

Those resources the alliancecan draw on in development andoperations phases

Activity 4: Define internal infrastructure



44

Description

Lessons Learned

Performance Metrics

Management Evaluation

Method for incorporatingexperience from previousalliances

The method by which individualalliances are evaluated againsteach other

Outline the guidelines by which

alliance management will beselected and evaluated

Activity 5: Manage performance



45

Ongoingsuccessful deal

Signed dealPotential dealto Partner

3. ManageAlliance on anOngoing Basis

2. Structureand Negotiate

the Deal

1. EvaluateAlliance and

PartnerOptions

Detailed OpportunityProfile

Partner Selection Vehicle Selection

Prepare Business Case

Sign letter of intent

Conduct Due Diligence

Design Organization

Negotiate Deal

Create Operations Plan

Select Key Staff

Monitor Performance

Program ManagerFinance

Program Mgmt.Strategic, Technical

Finance,

Legal Contracts,Government, & Tax

Program Mgmt.Strategic,

Technical, &

Finance

R e s u l t s

S t e p s

P a r t i c i p a n t s

Activity 6: Execute the transaction



Spares



47

Overview

Spares Management/Inventory Assessment

This analysis will enable you to a identify opportunities for improvement spares and inventorymanagement.

Instructions


1. Conduct Spares Situation Analysis. Understand costs and inventoryperformance.

Interviews

Best practices

Customer/target financial reports

2. Identify Opportunities to Improve Spares Performance and Calculate the Benefits

See ‘Pricing and Bundling’ section of cookbook

3. Identify opportunities to improve inventory costs within order management processes. Evaluate returns, write-offs, & linkage of order management and inventory systems.

Interviews

Company sales data

4. Develop Sales Profiles. Segment products by customers, products,purchasing patterns to understand usage.

Interviews

Company sales data

5. Develop spares catalog pricing and management guidelines. Current catalog, guidelines

6. Develop metrics to monitor product performance. Identify specificactions to position each segment within the market

n/a



48

Activity 1: Conduct spares Situation Analysis

EPSG

CSG

ATG

LSCA

Roseville

$19

Total

Distribution Center

$31

$50

Boeblingen

$4

$7

$11

Singapore

~$3

$5

~$8

TotalInventory

~$33

~$30

$43

~$106

Americas

$12.4

Europe

$7

APA

$17.4

Field Location

$8.4Bench:

$2.5On-site:

$5.9 $7

$14.7Bench:

$3.3

On-site:$11.4

$2.7$4.0

Estimated Inventory by Product Group ($millions)Estimates as of Second Quarter 2002

COS(Parts)

$24.6

$7.9

$0.6

$36.0

$69.1

EstimatedWrite-Down

$1.3

$3.0

$0.06

$2.7

$7.1

Financials byProduct Group

($millions)Estimated FY02

InventoryTurns

0.7

0.3

0.9

0.65

Performance

MonthsSupply

17.1

40.0

13.3

18.5

Write-Down as %

of COS

5.3%

38.0%

10.0%

7.5%

10.3%

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 month’s supply



49

Activity 2: Identify Opportunities to Improve Spares InventoryManagement Performance

Steps: Identify opportunity

areas by comparingto industrybenchmarks

- Inventory turns

- Months supply- Stocking locations- Inventory

management systems Calculate the

potential benefits



50

Activity 3: Identify opportunities to improve inventory costs withinorder management processes, including returns and write-offs



51

Activity 4: Develop Sales Profiles

Steps: Segment products by

product type Segment products by

customer purchasingpatterns

Segment products bycustomers

Segment products by

how they are used



52

Old Structures

New Structures

Power Plant

Old Avionics

Wide Body LandGear (components)

Narrow Interior

New Avionics

Non ElectricalSystems

Wide Body Interior

Narrow Land Gear(components)

3,720

120

1,249

401

1,604

723

647

73

361

865

Remove ALL high dollar items

Remove high dollar andslow moving items

Remove high dollar

and highly variable(priced) items

Remove most items fromcatalog with intent to greatlyincrease prices and moveinventory out

16,429

420

7,234

3,284

5,186

2,830

2,432

46

2,830

4,217

Example: Spare parts price catalog recommendations. The goal of the catalog changes should be to communicate stable and consistent prices to customers while maintaining flexibility to change some part prices.

Parts with:

• Historically stable prices

• Consistent and predictable demand patterns• Known competition and ability to predictentry/exit of supply

• Reliable data/visibility into cost structure• Lower sales prices

(less than $1,000 per part)

Catalog should INCLUDE:

Parts with:• Frequently changing prices• Variable customer needs and one-off

purchasing• Changing market availability/competition• Limited visibility into actual costs or cost

structure• Higher sales prices

(greater than $1,000 per part)

Catalog should NOT include:

Activity 5: Develop spares catalog pricing and managementguidelines.

Steps: A catalog should be used on for parts

that do not have pricing fluctuations(due to supply/unknown costs)

Develop company guidelines for thecatalog based on the analysis justconducted



53

Activity 6 - Develop metrics to monitor spares product performance

•Structures (old & new)•Power Plant (comp.)

•Interiors (wide body)

• Avionics (old)

•Non-electrical•Interiors (narrow body)

•Landing Gear (narrow & wide)

• Avionics (new)

Low High

L o w

H

i g h

Competition

P r i c e

A

B

D

C

D Develop “exit” strategy for unprofitable parts

Pricing

• Raise prices after taking parts out of catalog

• License manufacture rights to other parties

Marketing/Communications

• Eliminate excess inventory by providingdiscounts as necessary e.g. “fire sale”

Inventory

• Reduce current inventory levels anddecrease fill rates on select parts

• Balance inventory reductions to meetneeds until alternate source(s) aredeveloped

B Entice customers to repair,not upgrade


• Communicate price reductions in catalog

and non-catalog parts to encourage salesvolumes

• Identify potential cross-selling opportunities

Inventory

• Ensure stock replenishment levels enable timelydelivery to meet anticipated increase in demand

Other

• Work w/ vendors to proactively provide completesolution

A Leverage strong position but improveavailability

Pricing

• Raise prices after taking parts out of catalog


• Phase in price increases to minimize“sticker” shock

Inventory

• Work with customers to improve forecastsand reduce inventory on medium to highvolume parts

• Ensure consistent, timely availability of high margin parts

C Maintain current pricing for low tomedium valued parts


• Communicate and monitor competitivepricing to encourage sales volumes

Inventory

• Continue to rationalize inventory levels,matching customer forecasts with stocklevels

Other

• Work w/ vendors to proactively providecomplete solution where possible

Steps: Develop metrics to determine how

pricing should be determined Make sure policies to are customer

and market oriented Identify specific actions to position

each segment within the market



Pricing and Bundling



55

Pricing and Bundling

Overview

Instructions


1. Understand your customers, competitors and costs. Focus on

understanding what your customer values.

See sources under activity 1 detail

2. Synthesize data & perform preliminary pricing analysis. Identifycustomer purchasing patterns.

Same as above.

3. Segment products to better understand market position and pricingopportunities

Products, customers, pricing

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

n/a

5. Consider bundling options and identify common patterns betweenproducts to identify bundling opportunities.

n/a

6. Develop a process for evaluation of bundling options. Enable delivery of single products or bundled solutions from the same operations base.

n/a

Note: For detailed strategy & approach to Pricing, refer to the “Pricing Master” document.

This analysis will enable you to establish a better pricing approach and to identify bundlingopportunities as vehicles for revenue growth and improving cost structure



56

Activity 1: Understand your customers, competitors and costs

Selection of analytical tools is followed by gathering of information required to complete analyses

AnalysisCategory Key Questions to be Addressed PotentialInformationSources

Key Outputs

Market How will price affect market position, volume,or sales?

What market share changes can be expected inresponse to a price change?

Customer Surveys

Market Analysis

Product PerformanceModel

Price ElasticityModels

Product What are your key strategic products?

What percentage of sales comes from eachproduct?

Which products create demand for otherproducts?

ManagementInterviews

Finance ManagerInterviews

Sales Reports/SalesManager Interviews

Strategic Focus

Strategic Focus

Bundling Strategy

Customer What are your main customer segments?

How do you differentiate your customers?

Marketing ManagerInterviews

Focus Groups

Customer Segments

Customer Value Data

Competitor How much competition exists in this business?

How will the level of competition increase ordecrease as the result of a pricing decision?

Industry Reports

Market Analysis

Competitive Reports

Competitive Threatsand Opportunities

Costing What are the true direct and indirect costs forthe product?

What are the after sales costs?

Production ManagerInterviews/SalesManagementInterviews

SalesManager/MarketingManager Interviews

Breakdown of allcosts

Cost to Serve Data

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?

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

Key Questions



57

Activity 2: Synthesize Data & Perform Preliminary Pricing Analysis

Sample Analytical

Deliverables P r i c

e

QuantityDemanded

Elastic Demand

InelasticDemand

Demand Analysis Sensitivity Analysis

P r i c

e

QuantityDemanded

A i i 3 S d b d d k i i



58

Internal product position

Client has strong market position

Some fragmented competition

Strong levels of competition

Extreme competition

TotalUniverse of

Products Segment parts based on:

Customer purchasing

patterns Internal

categorization

External competitive levels

Segment A

Segment B

Segment C

Segment D

Segment E

Segment F

Segment X

.

. .

Conceptual Approach to Product Pricing

Activity 3: Segment products to better understand market positionand pricing opportunities



59

Six product segments

- Internal pricing and sales

25 key customers

- Customer purchasing trends

15 competitors

- Competitor prices and attributes

Product Pricing Recommendations

Product C

Product D

Product E

Product G

Product A

Product B

Internal Prices External quotes 2

External quotes 1 External quotes 3

Competitors were 40%higher new products

Some product typeswere difficult to find inthe marketplace

Competitors were50-58% higher for some specificmodels

Competitors were up to 35% below

Quotations on the newer products indicated

an opportunity to increase prices

Product information were generallydifficult to find, and mixed in pricecompetitiveness

Quotations varied greatly

Lack of availability often justifiedhigher prices --upwards to 55%above current offering

Competitor prices wereconsistently lower inthis segment

Additionally, analysis of price points revealed that price was only one of three key factors influencing purchasing

20%

40%

-20%

-40%

0%

An example of preliminary price point analysis for classifying pricing options

Activity 4: Conduct deep drill analysis on each customer segment



60

Activity 5: Consider bundling options…

A bundle is an offering that combines products, services and/or channels

designed to deliver more value to the customer relative to individual offerings Types Examples Value to customer

Product-Product Computers and Peripherals One-stop shopping, time-saving for the customer,possibly lower price than individual components

Product – Channel Buying cars online Lower price and convenience for the customer

Product-Service Jet engines and maintenance Peace of mind for the customer since the supplier knowsthe product best.

Reduced search-cost to customer

Service-Service Phone service and voice mail One-stop shopping, related services, and time-saving forthe customer

Service-Channel Paying Bills online Less expensive and more convenient for the customer

Product-Service-Channel Computer with internet servicesold online

One-stop shopping for the customer at a lower price

Sellers may outsource components/activities of the bundled offering, and can offer differentbundles to different customer segments

A ti it 5 d t bli h tt b t d t t



61

Activity 5: …and establish common patterns between products toidentify bundling opportunities

The goal of any customer target approach is to increase market share profitably while minimizing the “giveaway” to existing customers

LLHHHHCustomer #25

LLMMLMCustomer #5

MHHLLHCustomer #4

LMLLLLCustomer #3

MHHLHLCustomer #2

HHHLHHCustomer #1

Prod CProd BProd AProd CProd BProd

A

Model 2Model 1

1. Offer discounts to a particular customer based on total purchases

2. Offer discounts to a particular customer based on purchases for a given model

3. Offer discounts to all “premier”

customers for a particular model

4. Offer discounts to all “premier”

customers for a product across models

5. Offer

discounts to a particular customer based on purchases of a specific product

… Model X

Potential Reasons forBundling Include:

Creating customer loyalty with a uniqueoffering

Leveraging

economies of scale Lower overall cost to

save

Disguise time coststructure

Join complex, lessimitative utilization



62

Activity 5, cont’d: Bundling opportunities

Spares and Logistics

Training

MRO(Maintenance Services)

Fleet Management

Financing

Solutions/Products

Customer3

Customer1

Customer2

Customer5

Example ServicesSegments

Customer4

Leasing

GlobalMobile

NewProduct A

Kits

P-F Mods

PartsSolutions

Maintenance

Customers

Product development

driven by key customer

demand and profit

opportunity

Customers segmented

on profitability, strategicvalue, and total sales

Modifications e.g. P to F

Example: How to consider Bundling Solutions



63

Activity 6: Develop a process for evaluation of bundling options.

Offerability Evaluation Process Example:

Enable delivery of single products or bundled solutions from the same operations base.

Do we havesolution onthe shelf?

Do we haveproducts

orcapabilities, but need

to bundle?

Do we havesome but

not allproducts

or

capabilities?

No No No

Bundle thesolution

Fill Operationsor Product

gaps

Determine tobid or no-bid

Next Step Offer thesolution

Yes Yes Yes

A B C D

Process tobundle

Internal transferpricing

In-source orOutsource

Go/No GodecisionPricing

Major Considerations

/ Issues



64

Key Considerations for Pricing

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



65

Key Considerations for Bundle Pricing

Characteristics Take-away

Rich Information Look outside of Industrial Manufacturer’s current situation for potential bundles

Information about market needs and internal capabilities/options is essential to develop the bundleand price it

Without knowing the cost impact of bundling, good decisions cannot be made

Customer Value Focus It is critical to ascertain whether the customer values the bundle more highly than the separateofferings

Contribution MarginConsiderations

Ensure focus and quantitative estimate of variable cost that provide accurate assessment of contribution margin

OrganizationalAlignment

Bundling is an activity that is likely to cross organizational lines

Provide organizational structures and incentives that will enable cooperation between divisions inthe organization and other partners

Structured Processes 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

There are several important points to remember with respect to the

five characteristics of successful pricing



Services Technology Strategy



67

Overview

Services Technology Strategy

This analysis provides considerations and process approach in defining a technology strategy for servicescapabilities

Instructions


1. Develop a view of client’s services business process model and theissues with current model

Client documentationInterviews & workshops

2. Identify the objectives of the business and build the to-be model Client documentation

Interviews & workshops

3. Identify the technology investment opportunities/needs to support thegaps; consider benefits to other processes

Technical resources, past projects

Benchmarking

4. Conduct a cost/benefits impact analysis; conduct ROI n/a

5. Prioritize the technology capabilities required to support these gaps;identify unique and common requirements across businesses andfunctions

n/a

6. Map to a high level implementation plan Integration with other projects

Activity 1: Develop a view of client’s business process model and



68

Activity 1: Develop a view of client s business process model andidentify the issues with current processes

Steps: Develop an understanding of the

current processes Identify the key issues, analyzing

both external opportunities as wellas internal opportunities

Activity 2: Identify the objectives of the desired change and build



69

Activity 2: Identify the objectives of the desired change, and buildthe to-be state model in support of achieving those objectives

Steps: Identify the objectives of the

business to ensure that the to-bestate will be in support of thoseobjectives

Build the to-be state process model

Activity 3: Identify the technology investment to support the process



70

Activity 3: Identify the technology investment to support the processchanges

In this example, the project team identified the CRM solution and the modules that would support the process changes identified in Activity 1.



71

Activity 4: Conduct a cost/benefits impact analysis; conduct ROI

0

5 0

1 0 0

1 5 0

2 0 0

2 5 0

F Y 0 3 F Y 0 4 F Y 0 5 F Y 0 6 F Y 0 7

Total Contact Center Impact

As-Is (FY02): $64M and 754 FTEs

To-Be (FY07): $44M and 522FTEs

CFS Impact: 31% Reduction

$19.7M232 FTEs

Enabled by: A2a, B1, & B2 $ 0

$ 5

$ 1 0

$ 1 5

$ 2 0

$ 2 5

F Y 0 3 F Y 0 4 F Y 0 5 F Y 0 6 F Y 0 7

B1: CC Efficiency B2: CC/BC Consolidation

Annual Contact Center Impact (Cumulative)

Cost Reduction Impact($M)

FTE Impact

A2a: eSupportLegend:

111

167

199

229 232

$9.4

$14.2

$16.9

$19.5 $19.7

To-Be$44M522 FTEs

h

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

Revenue

A1a: eSelling - $21.0M

A2a: eService - $45.0M

B1: CC Efficiency -$24.0M

C2a: Channel Partner (design registration) - $3.0M

D1: ATG Strategic Selling -$16.7M

D2: Closed Loop Marketing - $30.6M

E1: eMarketing -$0.7M

E2: Installed Base Marketing -$14.6M

$ i n M i l l i o n s

Customer Satisfaction -

$80.0M

Total Revenue Impact1

As-Is (FY02): ~$6,000M

To-Be (FY08): ~$6,282M

As-Is

~$6,000

Total To-Be~$6,282M

CFS Impact:$282M =

5% increase

Revenue Impact Breakdown1

Total Impact: $282M

F1: Renewals and WarrantyConversions -$46.0M

Steps • Develop total cost impacts

• Develop revenue impact

• Develop ROI (see separate cookbook section for details)

Activity 5: Prioritize the technology capabilities required to



72

Activity 5: Prioritize the technology capabilities required tosupport these gaps

Potential Value (Financial Impact)

L o w

H i g h

Low High

I m p

l e m e n t a t i o n

R e

q u i r e m e n t s

Consider for Phase IB

High Priority for

Other Phases

33

Impact on customer satisfaction:

22

1010

2020

88

Low HighMedium

1818

2121

44

77

1717

1616

55

66

1919

1515

1212

11 &13

11 &13

11

2222

99 1414

Further

Analysis

Required

Steps • Develop criteria for

prioritization, e.g.impact to customer satisfaction, potential value, unique and common requirements

across businesses and functions

• Develop prioritization matrix

A i i i i i



73

Activity 6: Map to a high level implementation plan

S i T h l K C id i



74

Services Technology Key Considerations

Drive lasting change through a combination of new processes and tools andrecognize that the majority of benefits from technology solution arise fromprocess changes

Different infrastructures will suffice for different customers

– Use state-of-the-art infrastructure to engage with global, high valuecustomers

– Use a more cost-effective infrastructure to interact with smaller accounts

Businesses own the business strategy, but a common technical capabilitybackbone across the company should be deployed except where good reasonexists to deviate



Business Case and ROI

D l B i C d E t bli h ROI



76

Overview

Develop Business Case and Establish ROI

This analysis will enable you to develop a business case and how to measure the ROI. The focusis a non-theoretical approach to ROI, rather than the financial development process.

Instructions


1. Establish as is cost and performance baseline metrics to identifyimprovement opportunities. Understand existing profitabilitymeasures. Identify components and drivers of cost and resources.

Internal financial,organizational, activity, processand performance data

2. Identify all benefits, including intangible, quantifiable, and qualitative(when unable to make estimates).

Benchmarking, best practices

3. Define the implementation costs and time frames of the business case so that implementation can be monitored.

Business Plan cost buildup andforecasts, Business Plan revenue

and pricing buildup

4. Capture of the Opportunities and Prioritize them Based Upon Implementation Requirements and Potential Benefits

Implementation requirements

5. Complete Financial Analysis n/a

A ti it 1 E t bli h ‘ i ’ t d f b li t i



77

Activity 1: Establish ‘as-is’ cost and performance baseline metrics

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

Activity 2: Identify all benefits, including intangible, quantifiable,



78

Activity 2: Identify all benefits, including intangible, quantifiable,and qualitative

Steps:

• Identify new or enhanced capabilities

required to achieve

business objectives

• Identify key areas

which need

performance

improvement. Assess

current performance

of key business processes against

benchmarks. Assess

current business

processes against best

practices.

• Identify key

department(s) /

business unit (s) and

processes most

impacted by the

strategic business

drivers4.

Sample Cost Impact Analysis

h

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

Revenue

A1a: eSelling -$21.0M

A2a: eService -$45.0M

B1: CC Efficiency -$24.0M

C2a: Channel Partner (design registration) -$3.0M

D1: ATG Strategic Selling - $16.7M

D2: Closed Loop Marketing -$30.6M

E1: eMarketing -$0.7M

E2: Installed Base Marketing -$14.6M

$ i n M i l l i o n s

Customer Satisfaction -

$80.0M

Total Revenue Impact1

As-Is (FY02): ~$6,000M

To-Be (FY08): ~$6,282M

As-Is

~$6,000

Total To-Be

~$6,282M CFS Impact:$282M =

5% increase

Revenue Impact Breakdown1

Total Impact: $282M

F1: Renewals and WarrantyConversions - $46.0M

0

5 0

1 0 0

1 5 0

2 0 0

2 5 0

F Y 0 3 F Y 0 4 F Y 0 5 F Y 0 6 F Y 0 7

Total Contact Center Impact

As-Is (FY02): $64M and 754 FTEs

To-Be (FY07): $44M and 522FTEs

CFS Impact: 31% Reduction

$19.7M232 FTEs

Enabled by: A2a, B1, & B2 $ 0

$ 5

$ 1 0

$ 1 5

$ 2 0

$ 2 5

F Y 0 3 F Y 0 4 F Y 0 5 F Y 0 6 F Y 0 7

B1: CC Efficiency B2: CC/BC Consolidation

Annual Contact Center Impact (Cumulative)

Cost Reduction Impact($M)

FTE Impact

A2a: eSupportLegend:

111

167

199

229 232

$9.4

$14.2

$16.9

$19.5 $19.7

To-Be

$44M522 FTEs

Opportunities to be Addressed

Improve quality of contact

Move contacts to the web

Improve agent utilization / efficiency

Optimize existing technology

Improve IVR and CTI capabilities

Improve call handling capabilitiesvia enhanced customer information

and agent capabilities Optimize existing technology

• Improve Call Routing

• Offload Low Value/Low RiskProcesses to Lower CostResources and Channels

Reduce dependence on high-costlabor

Define roles and responsibilities

Consolidate contact centers Improve integration between CC

and BC

Enhance and implement relevantand meaningful metrics

Activity 3: Define the implementation costs and time frames of



79

y pthe business case so that implementation can be monitored.

Example:Steps:

• Consider up front costsand 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.

Activity 4: Capture the opportunities and prioritize them based upon



80

y p pp p pimplementation requirements vs. potential benefits

Example:

A ti it 5 D l Fi i l P j ti



81

Activity 5: Develop Financial Projections

The objective of this activity will be to document the financial analysis of the investment alternativesbeing considered, projected over the project life to determine whether the business is viable and tounderstand what resources will be needed over time

Step 1

Financial spreadsheets should include:

The initial investment

Ongoing investment

Fixed and variable costs – Overhead costs

– Production costs

– Ongoing R&D costs

– Marketing & sales costs

Projected revenue

Clearly stated assumptions

Time-frame of 5 years or realistic projectduration

Step 3

Conduct a sensitivity analysis on the the financial analyses to test the variousassumptions and provide a range of possible scenarios

Step 2

There are 3 tools that exist to evaluate thefinancial projections:

Break-Even Analysis or Payback Period

– Time taken for a project to recover itsinitial 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

Business Case and ROI Key Considerations



82

Business Case and ROI Key Considerations

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 couldhave earned with a higher return venture either within the organization orexternally

• Most corporations require that new ventures are projected to pass a certain rateof 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 onthe decision to move forward or not

A negative financial projection does not necessarily mean that the venture should notbe undertaken

– At times an unprofitable project is necessary where presence in a market createssome competitive advantage

– When the value of the strategic advantage = $x, and $x + NPV > 0



Strategic Plan

Strategic Plan



84

Overview

Strategic Plan

This analysis provides guidelines for developing the services strategic plan.

Instructions


1. Define Objectives of the business strategy - what will and will not be achieved

Client

2. Conduct Situation Analysis and Develop Options Multiple

3. Develop Strategy - product, marketing pricing, distribution Multiple

4. Develop Business Case - (Financials, funding, risks, etc.) Refer to business case section of

cookbook 5. Build recommendations and action plan - (Market development, potential alliances, etc.)

n/a

6. Develop Executive Summary n/a

Step 1 Develop Statement of Objective



85

Step 1 - Develop Statement of Objective

Quarterly Profitability

-4

-2

0

2

4

1 2 3 4

3Q Market Share

Tradeoff A: To introduce Product X

and be profitable by 3rd Q

Tradeoff B: To introduce Product X

and be market leader by 3rd Q

VS

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

Tradeoffs need to be defined and evaluated. No business venture can do everything

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, beattainable and take into consideration the tradeoffs

The right objective will push the venture towards the next project milestone, reinforce moraleand support credibility

Step 2 - Conduct Situation Analysis



86

Step 2 - Conduct Situation Analysis

The situation analysis provides the foundation for strategic decision making by aiding in thediscovery and clarification of strategic issues

– 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

Situation Analysis

consists of four sections

Market

Analysis

Competitive

Analysis

Customer

Analysis

Internal

Analysis

Note: Refer to other cookbook

sections for detailedanalysis activities.

Step 3 - Develop Strategy part 1



87

Step 3 - Develop Strategy, part 1

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 organization’s 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

organization

Once an option has beenselected, it needs to bedeveloped into a strategythat encompasses whyand how the organizationis going to proceed

1 2 3

Consistent with Strategic Direction

Meets Strategic Objective

Leverages Core Capabilities

Builds Competitive Pos ition

Anticipates Market/Competitive Moves

Endures Environmental Uncertainty

Implementation Challenges

Financial Benefit

Scale: High, Medium, Low

Strategic Options

Step 3 - Develop Strategy part 2



88

Step 3 - Develop Strategy, part 2

There are 4 components of the strategy that must be developed

Operations

Definition of products

and services and how

they are produced

Marketing

How the company plans

to market the product orservice

Distribution

The distribution channelsthe company will use to get

the product or service to the

customer

Pricing

The pricing options for

the product or service

Key Steps:

Step 1: Identify products andservices

Step 2: Asses how the productwill be produced

Step 3: Evaluate whether after-production requirements exist

Step 4: Budget the costs of

production and otherrequirements

Key Steps

Step 1: Create a clear positioningstatement for each customersegment that will be addressed

Step 2: Develop plan to target eachrelevant customer segment

Step 3: Budget expenses bycustomer segment

Key Steps:

Step 1: Identify whatdistribution channels you need

Step 2: Evaluate whether asupplemental sales force isnecessary

Step 3: Research whetherstrategic alliances will allowmore efficient and costeffective reach to the targetmarket

Step 4: Budget the distributioncosts, by customer segment if necessary

Key Steps

Step 1: Determine pricingobjectives

Step 2: Establish

minimum and maximumprice ranges and test themthrough customer research

Step 3: Incorporate priceranges to test sensitivity of profitability in financialanalyses

Step 4 – Develop Business Case



89

Step 4 Develop Business Case

See Business Case section of Cookbook

Step 5 - Build recommendations and action plan



90

Step 5 Build recommendations and action plan

The action plan is a detailed set of next steps that illustrates how you will realize the proposalgoal

A GANT chart is a useful tool for plotting out tasks, deadlines and responsibilities

– Milestones, business achievements by which the organization can judge progress andevaluate whether the venture remains viable, need to be identified and included in the chart

Finally, a document should be created that identifies specific requirements including materials,machinery and human resources and the dates that they must be obtained

Step 6 – Develop Executive Summary



Step 6 Develop Executive Summary

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

ContentsStatement 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

F di S & U