战略分析工具-分析方法-businessdefinition讲解课件

GiseleGarrawaySusanCaraviello,PaulDiPaola,andToddSenturia

bcBusinessDefinitionMarch1998Author:Contributors:ToddSenturiaReviewer:Copyright©1998Bain&Company,Inc.1CU7121997ECAGiseleGarrawaySusanCaraviellBusinessDefinitionAgenda

ThebusinessdefinitionconceptApplicationsBusinessdefinitionstepsClientexamplesBunkerHillDoorSystemsJJRIndustrialCoatingsKeytakeaways2CU7121997ECABusinessDefinitionAgendaTheBusinessDefinitionAgenda

ThebusinessdefinitionconceptApplicationsBusinessdefinitionstepsClientexamplesBunkerHillDoorSystemsJJRIndustrialCoatingsKeytakeaways3CU7121997ECABusinessDefinitionAgendaTheBusinessDefinitionWhatisBusinessDefinition?

IndicateswhethertwobusinesssegmentsshouldbeoperatedasonebusinessorasseparatebusinessesHelpsidentifywhatdrivessuperiorprofitabilityinanindustryServesasthefoundationforstrategicanalysisandsounddecisionmakingBusinessdefinitiondelineatestheeconomicboundarieswithinwhichcompaniesshouldcompete.4CU7121997ECABusinessDefinitionWhatisBusBusinessDefinitionOneBusinessvs.SeparateBusinesses

SamecustomersSamecoststructureSamecompetitorsDifferentcustomersDifferentcoststructureDifferentcompetitorsIftwobusinesssegmentshavethesamecustomers,thesamecoststructure,andthesamecompetitors,theyareonebusiness.Iftheyaredifferentonallofthesedimensions,theyareseparatebusinesses.OnebusinessSeparatebusinessesCompeteinbothsegmentstotakeadvantageofsynergiesDonotcompeteinbothsegments5CU7121997ECABusinessDefinitionOneBusinesBusinessDefinitionWhyBainUsesBusinessDefinitionStrategicinsightsTacticalinsightswithstrategicimportanceShouldwebuyorselltherestaurantbusiness?ShouldweexpandintoChina?ArewevulnerabletoJapanesecompetitors?Shouldweverticallyintegrateintogrowingvegetables?Shouldwedropthisproductline?Shouldwecross-trainoursalesforce?Howshouldwegrouppurchasesfor

VMRs(valuemanagedrelationships?Howshouldweconfigureourmanufacturingplants?Thecorrectbusinessdefinitioncanleadtocase-crackinginsights.6CU7121997ECABusinessDefinitionWhyBainUsBusinessDefinitionConsequencesofIncorrectBusinessDefinition

Companiesthatdefinetheirbusinessesincorrectlymakepoorstrategicdecisions.CostsCompetitorsIncurunnecessarycostsForgoopportunitiestocapturesynergiesDonottransferexperienceUnderinvestinimportantR&DinitiativesOverlookrelevantcompetitivethreatsMiscalculate“marketshare”SetinappropriateperformancetargetsOverlookrelevantcapacitychangesMisjudgetruecostpositionCustomersNeglectprofitablecustomersegmentsOver-investinunprofitablecustomersForgoopportunitiestocapturesynergiesMisjudgerelevantmarkettrendsOverlookrelevantgeographies7CU7121997ECABusinessDefinitionConsequenceExamplesofIncorrectBusinessDefinition

BusinessDefinitionSomerespectedcompanieshavemissedprofitopportunitiesorsufferedunnecessarylossesbecausetheydidnotdefinetheirbusinessescorrectly.AmericanExpressAllegisSaatchi&SaatchiChargecardsandcreditcardsareseparateChargecardsandcreditcardsareonebusiness-plasticmoneyChargecarddivisionlostmoneyduetopoorcostpositionandmisguidedmarketingeffortsAirlines,hotelsandrentalcarsareonebusiness-caringfortravelersworldwideAirlines,rentalcarsandhotelsarethreeseparatebusinessesThecombinationprovidedlittlevaluetocustomers:AllegiswassplitupAdvertisingandconsultingareonebusiness--servicetoglobalbusinessexecutivesAdvertisingandconsultingareseparatebusinessesCompanysufferedseverelossesduetoinabilitytotransferexperience,lackoffocus,andtaintedimageCompanyAbetterbusinessdefinitionConsequencesofincorrectbusinessdefinitionHowmanagementdefinedthebusiness8CU7121997ECAExamplesofIncorrectBusinessBusinessDefinitionAnalyticConsequencesofIncorrectBusinessDefinition(p.1)

BusinessdefinitionmustbethestartingpointofanyBaincasebecausedefiningabusinessincorrectlycanadverselyaffectstrategicanalysisanddecisionmaking.Ifwedefine

abusinessincorrectly...IncorrectBusinessDefinitionCorrectBusinessDefinitionTheunderlyingnormativebandwillnotemergeAbusinessmaylookdeceptivelyattractiveorunattractiveROS/RMSGrowth/Share9CU7121997ECABusinessDefinitionAnalyticCoBusinessDefinitionAnalyticConsequencesofIncorrectBusinessDefinition(p.2)DefiningabusinessincorrectlycanleadtoproblemsinconductingE-CurveandRCPanalysis.Ifwedefine

abusinessincorrectly...IncorrectBusinessDefinitionCorrectBusinessDefinitionWemayignorerelevantexperienceWemaybenchmarkthewrongcompetitors$1$2$5125102050100

CostperTransactionNowAccountsSlope=70.1%R²=0.98$1$2$51020501002005001,000

CostperTransactionNow+SavingsAccountsSlope=57.2%R²=1.00ExperienceCurveRCP10CU7121997ECABusinessDefinitionAnalyticCoBusinessDefinitionComplexityofBusinessDefinition

Asimplecatalogoflogicalargumentsisnotrobustenoughtodelineatethecompetitivebattlefieldsforourclients.Isitonebusinessornot?OneBusinessSeparateBusinessesTouringqualitymicrophonesandspeakersMadonnaandrappersusebothSimilardistributionchannelsDifferentmanufacturers(AudioTechnicavs.Bose)LittlemanufacturingprocessknowledgeistransferableLimiteddirectcostsharingCrosspensandBICpensBeeranddistilledspiritsBothusedforsamefunction,writingSimilarrawmaterialsSomemanufacturingstepssharedBrandnamesharingopportunitiesSamedistributionchannelsSoldbysamesalesforceHighperceptualbarrierstocustomersLimitedcustomerbaseoverlapLimitedbenefitsofsharedR&DKeymanufacturingprocessesaredifferentDifferentrawmaterials11CU7121997ECABusinessDefinitionComplexityBusinessDefinition

BusinessDefinitionMatrixBainusesthebusinessdefinitionmatrixtodelineateeconomicboundaries.Costsharingandcustomersharingaretheprimarydeterminantsofdefiningabusiness.HighCostSharingLowLowHighCustomerSharingOnebusiness(chargecardsandcreditcards)Onebusinesswithpotentialfordifferentiationornicheposition

(CrosspensandBICpens)Separatebusinesseswithpotentialforcostleadership(oilandrefineryby-products)Separatebusinesses(beeranddistilledspirits)Separatebusinesseswithpotentialforbundling(touringqualitymicrophonesandspeakers)Onebusinesswithpotentialforsubstitution(milkcartonsandglassmilkbottles)12CU7121997ECABusinessDefinitionBusinessDBusinessDefinitionDynamicsofBusinessDefinition

Businessdefinitionisdynamic.Temporarybarriers,suchaspricepremiumsandtechnologyadvantages,willerodeunlesstheyareconsistentlyreinforced.BusinessDefinitionTechnologyGovernmentregulationInputpricesProductinnovationChanneleconomicsCustomerneeds13CU7121997ECABusinessDefinitionDynamicsofBusinessDefinitionLocalvs.Regionalvs.Nationalvs.GlobalBusinesses

GlobalscaleNationalscaleRegionalscaleLocalscaleProfessionalonlinefinancialdataOvernightpackagedeliveryBanking-lendingHospitaltextilelaunderingBanking-depositgatheringResidentiallaundromatsBarbershopsClientsoftencitetheneedfornationalorglobalparticipation.However,inmanybusinesses,localorregionalscaledrivesprofitability.DriverofProfitabilityExample14CU7121997ECABusinessDefinitionLocalvs.RBusinessDefinitionExamplesofChangesinBusinessDefinition

Thereareseveralexamplesofcompaniesthathavegainedsignificantcompetitiveadvantagebychangingthedefinitionofabusiness.FederalExpressrevolutionizedthepackagedeliverybusinessbyintroducinganovernightdeliveryserviceCharlesSchwabdramaticallyalteredthemutualfundsbusinessbyintroducingano-feeservicewherebycustomerscouldpurchasemanycompanies’mutualfundsthroughSchwabCalyx&CorollatransformedtheflowerdistributionbusinessbyusinginformationtechnologytocutouttraditionaldistributorsandshipflowersdirectlyfromgrowerstocustomersStarbucksredefinedthecoffeeshopbusinessfromprovidingcoffeetoprovidingasocialexperienceTheBodyShoprevolutionizedthecosmeticsbusinessbymergingtheideasofbeauty,health,andenvironmentalconsciousnessStaples,byadaptingthebusinessmodelofadifferentindustry(grocerystores)andtakingadvantageofeconomiesofscaleinpurchasing,changedtheofficesuppliesbusinessfromalocalonetoanationalone15CU7121997ECABusinessDefinitionExamplesofBusinessDefinitionAgenda

ThebusinessdefinitionconceptApplicationsBusinessdefinitionstepsClientexamplesBunkerHillDoorSystemsJJRIndustrialCoatingsKeytakeaways16CU7121997ECABusinessDefinitionAgendaTheBusinessDefinitionApplications

FinancialServicesElectricalandElectronicsAlargeresidentialrealtycompanywasconsideringenteringthecommercialrealestatemarketandwantedtoevaluatetheattractivenessofthemarketAnelectronicscompanyhadtheopportunitytooutsourceitselectronicstestingservicebutwasunsureiftestoutsourcingwoulddefineaviablenewbusinessBainhasusedbusinessdefinitioninhundredsofcasesanddozensofindustries.Someexamplesofourworkare:Baindevelopedabusinessdefinitionforcommercialrealestateserviceswhichidentifieditasaseparatebusinessfromresidentialrealestate,requiringvastlydifferentcompetenciesandeconomics.ClientacceptedrecommendationtostayoutofcommercialbusinessBaindeterminedthatthetestoutsourcingbusinesswasnotasinglebusinesswithhighcostandcustomersharing,butrathersixseparatebusinesswhichcouldbebundled,anddefinedthefewspecificentrystrategieswhichmightbesuccessful.ClientultimatelyagreedthatcriticalentrybarriersweretoohighSituation:Result:TextilesAlargeU.K.textilelaundererwith23%ROSenterstheU.S.marketandearnsonly5%Bainfoundthatthebusinessdefinitionisnotnationaltextilelaundering-therearethreeseparatebusinesses:healthcare,industrialandlinen.Allthreeareregional,notnational.ClientsoldtwobusinessesinNewYorkandmadetwoacquisitionsintheSoutheast17CU7121997ECABusinessDefinitionApplicationBusinessDefinitionAgenda

ThebusinessdefinitionconceptApplicationsBusinessdefinitionstepsClientexamplesBunkerHillDoorSystemsJJRIndustrialCoatingsKeytakeaways18CU7121997ECABusinessDefinitionAgendaTheBusinessDefinitionBusinessDefinitionSteps

Toappropriatelydefineabusiness,Bainusesaniterativeapproachthatisbothqualitativeandquantitativeandreliesheavilyupondataexternaltotheclient.Theprocessstartswithanhypothesisthatistestedalongthreedimensions.DegreeofemphasisLessimportantMoreimportantIstheresubstantialcostsharing?Istheresubstantialcustomersharing?Doesbusinessdefinitionpassthecompetitoracidtests?CostsharingCustomersharingCompetitoracid

tests19CU7121997ECABusinessDefinitionBusinessDeBusinessDefinitionBusinessDefinitionSteps

DegreeofemphasisIstheresubstantialcostsharing?Istheresubstantialdirectcostsharing?Aretheresubstantialopportunitiesforexperiencetransfer?LessimportantMoreimportantCostsharingCustomersharingCompetitoracid

tests20CU7121997ECABusinessDefinitionBusinessDeBusinessDefinition

*Onacostbasisonly,wemustalsolookatcustomersandcompetitorstodeterminewhetherthebusinessesareoneorseparate.CostSharing

Anassessmentofcostsharinginvolvesexaminingdirectcostsharingandexperiencetransfer.ProbablyseparatebusinessesOnebusiness*Separatebusinesses*ProbablyonebusinessHighExperiencetransferLowLowHighDirectcostsharing21CU7121997ECABusinessDefinition*OnacosBusinessDefinitionHowBusinessesShareCosts

Businessescansharecostsinavarietyofways.ValueChainStepsHowDirectCosts

CanBeSharedExamplesR&DProcurementManufacturingDistributionSalesandMarketingAdministrativeSupportMultipleapplicationsofsomeR&DeffortsSharedrawmaterialsSharedinboundlogisticsSimilarmanufacturingfacilitiesprocessesSamedistributionchannelsBrandnamesharingSamesalesforceSharedinfosystemsTapeandPost-itNotes(3M)GasolineandpetrochemicalsVitreouschinatoiletsandsinks(Kohler)Cigarettesandcandy(PhilipMorris)HealthyChoicedinnersandcerealSodaandorangejuice(Coca-Cola)BankBostonNOWaccountsandsavingsaccounts22CU7121997ECABusinessDefinitionHowBusinesBusinessDefinitionExperienceTransfer

ProductAProductBLessonslearnedfromproductAcanimprovemanufactureofproductBProcessorCForgeGrindPaintDistributorYCustomersSupplierAProcessorDForgeGrindPaintDistributorZCustomersSupplierB(Rawmaterials)(Semi-finishedproduct)(Finishedproduct)Firmscanbenefitfromexperiencetransferwhentwoproductssharesimilarhighvolume,value-addedprocesses.23CU7121997ECABusinessDefinitionExperienceBusinessDefinitionBusinessDefinitionSteps

DegreeofemphasisLessimportantMoreimportantCostsharingCustomersharingCompetitoracid

testsIstheresubstantialcustomersharing?Howgreatisthedegreeoffunctionalsubstitution?Howgreatisthedegreeofcustomerbaseoverlap?Howhigharecustomers’perceptualbarriers?24CU7121997ECABusinessDefinitionBusinessDeBusinessDefinition

CustomerSharing(p.1)Customersharinganalysisincludesmeasuringthecustomerbaseoverlapanddegreeoffunctionalsubstitution,and,toalesserextent,lookingatperceptualbarriers.Dodifferentproductscurrentlyorpotentiallyfulfillthesamecustomerusageneeds?productutilityanalysiscross-elasticityanalysisDothesuppliersofthedifferentproductssharemanyofthesamecustomers?whomakesthepurchasedecision?whousestheproduct?whatelseispurchasedwiththeproduct?FunctionalsubstitutionCustomerbaseoverlapPerceptualbarriersDocustomersperceivesignificantdifferencesamongtheproducts?25CU7121997ECABusinessDefinitionCustomerBusinessDefinitionCustomerSharing(p.2)

CustomerbaseoverlapFunctionalsubstitutionPerceptualbarriersLowLowLowHighHighHighHighLowProbablyseparatebusinessesProbablyonebusinessCustomersharingGenerally,highcustomerbaseoverlap,highfunctionalsubstitutionandlowperceptualbarrierssuggestonebusiness.26CU7121997ECABusinessDefinitionCustomerShBusinessDefinitionCustomerBaseOverlap

Customerbaseoverlapcanbedeterminedbycomparingpurchasersordecisionmakersforthetwoproducts.CommonCustomerBaseOverlapCriteriaUsedbysameorganizationorcustomersPurchasedbysameindividualorgroupPurchasedecisionmadebysame

individualorgroupLimitedcustomerbaseoverlap27CU7121997ECABusinessDefinitionCustomerBaBusinessDefinition

FunctionalSubstitutionTherearetwowaystoevaluatewhetherproductsaresubstitutes.ProductutilityanalysisCross-elasticityanalysisDoproductsoffersimilarvaluealongnon-priceattributes(e.g.,scissorsandknivescutclothwell)?Isproductbundledwithotherproducts(e.g.,razorsandblades)?Howmuchdoessharechangebetweenthetwoproductsasrelativepriceschange?Ifscissorpricesgoupwillcustomersbuyknivesasasubstitute?28CU7121997ECABusinessDefinitionFunctionaBusinessDefinitionFunctionalSubstitution-ProductUtility

Ifproductsofferverysimilarnon-priceattributesorfunctionalbenefits,theyarepotentialsubstitutes.29CU7121997ECABusinessDefinitionFunctionalBusinessDefinitionFunctionalSubstitution-CrossElasticity

Ifapriceincreaseinoneproductincreasesthedemandforanother,thetwoproductsareprobablysubstitutes.DemandforButterHighelasticityPriceofMargarine30CU7121997ECABusinessDefinitionFunctionalBusinessDefinitionPerceptualBarriers

Customer’sperceptionscanbeindicatorsofbusinessdefinition;however,whatcustomersperceivecanoftenconflictwiththeeconomicboundaries.PerceptualbarriersLowHighCustomers’view:Examples:ProductsaresimilarProductsservedifferentfunctionsWoodencanoesandaluminumcanoesWomen’sfragrancesandmen’saftershave31CU7121997ECABusinessDefinitionPerceptualBusinessDefinitionBusinessDefinitionSteps

DegreeofemphasisDoesbusinessdefinitionpassthecompetitoracidtests?Docompetitorsoffersimilarproductsandservesimilarcustomersandchannels?Doesprofitabilitycorrelatewithdefinitionofmarketshare?Dodecisionsacompetitormakesinonebusinessaffectthedecisionsthatacompetitormakesinanotherbusiness?LessimportantMoreimportantCostsharingCustomersharingCompetitoracid

tests32CU7121997ECABusinessDefinitionBusinessDeBusinessDefinitionCompetitorAcidTests

Doesbusinessprofitabilitycorrelatewithmarketshareasimpliedbythebusinessdefinitionhypothesis?Whatimpactdodecisionsmadeinonebusinesshaveonanother?pricinginvestmentWhatproductsdoindividualcompetitorsoffer?Whichcustomers/channelsdocompetitorsservice?ConsistencyProfitexplanationIndependentactionsTovalidateourbusinessdefinitionhypothesis,weusethreecompetitoracidtests.33CU7121997ECABusinessDefinitionCompetitorIstheresubstantialcustomersharing?Howgreatisthedegreeoffunctionalsubstitution?Howgreatisthedegreeofcustomerbaseoverlap?Howhigharecustomers’perceptualbarriers?Istheresubstantialcostsharing?Istheresubstantialdirectcostsharing?Aretheresubstantialopportunitiesforexperiencetransfer?Doesbusinessdefinitionpassthecompetitoracidtests?Docompetitorsoffersimilarproductsandservesimilarcustomer/channels?Doesprofitabilitycorrelatewiththedefinitionofmarketshare?Dodecisionsacompetitormakesinonebusinessaffectthedecisionsthatacompetitormakesinanotherbusiness?DegreeofemphasisLessimportantMoreimportantCostsharingCustomersharingCompetitoracid

testsBusinessDefinitionBusinessDefinitionSteps-Summary

34CU7121997ECAIstheresubstantialcustomerBusinessDefinitionAgenda

ThebusinessdefinitionconceptApplicationsBusinessdefinitionstepsClientexamplesBunkerHillDoorSystemsJJRIndustrialCoatingsKeytakeaways35CU7121997ECABusinessDefinitionAgendaTheBusinessDefinitionBunkerHillDoorSystems*-Background

BainusedbusinessdefinitiontosetastrategicfoundationforBunkerHillDoorSystems.Theteamstartedwithahypothesisthattherewerethreeseparatebusinesses.Situation:Complication:Question:BunkerHillisa$400MMdivisionofHillsWorldwide.Thisdivisionmanufacturesentrydoors,garagedoors(GDS),andgaragedooropeners(GDOs).HillsWorldwidehassetaggressivegrowthtargetsforalldivisionsBunkerHillhassufferedacontinuedfinancialdeclineinrecentyearsandperformancevarieswidelyacrosstheproductlines.Moreover,BunkerHillfacesastrongsetofwell-established,low-costcompetitorsHowcanBunkerHillgrowprofitably?Assertion1Assertion2Assertion3GD,GDOandentrydoorsareseparatebusinessesandthereforerequiredifferentstrategiesforprofitablegrowth*Disguisedclientcase36CU7121997ECABusinessDefinitionBunkerHillBusinessDefinitionBunkerHill-DirectCostSharing(p.1)Source:BunkerHillFinancialsTheBainteamfoundthatmaterialsaccountedforasubstantialproportionofBunkerHill’scostsinallthreebusinesssegments.CostsCustomersCompet-itors37CU7121997ECABusinessDefinitionBunkerHillBusinessDefinitionBunkerHill-DirectCostSharing(p.2)*IncludesgatesandelectronicsSource:PurchasePriceVarianceReportHowever,inpeelingtheonion,theteamdiscoveredverylittlematerialcostsharing,suggestingthatonacostbasistherewere3separatebusinesses.CostsCustomersCompet-itors38CU7121997ECABusinessDefinitionBunkerHillBusinessDefinitionBunkerHill-ExperienceTransfer

Usingentrydoorsasabaseline,theBainteamfoundlimitedopportunitiesforexperiencetransfer.GarageDoorGarageDoorOpenersManufacturingR&DDistributionProcurementCostsCustomersCompet-itorsLowMediumHighExperiencetransferpotentialwithentrydoorsSource:ManagementManufacturingInterviews39CU7121997ECABusinessDefinitionBunkerHillBusinessDefinitionBunkerHill-CustomerBaseOverlapSource:BunkerHillCustomerDatabaseTheBainteamfoundlimitedcustomerbaseoverlapbetweengaragedoorsandentrydoors,andbetweengaragedoorsandgaragedooropeners.CostsCustomersCompet-itors40CU7121997ECABusinessDefinitionBunkerHillBusinessDefinitionSource:DoorSystemsCustomerInterviewsMostBunkerHillcustomersboughtopenerswhentheyboughtBunkerHilldoors.CostsCustomersCompet-itorsBunkerHill-GDandGDOCustomerSharing41CU7121997ECABusinessDefinitionSource:DoBusinessDefinitionBunkerHill-PerceptualBarriers

GaragedoorsandentrydoorsEntrydoorsandgaragedooropenersLowHighPerceptualBarriers“Garagedoorsneedtobemadeofsteelandbestrong.Entrydoorsshouldbewellcraftedandbeattractive.” -Garagedoorcustomer“Garagedooropenersshouldbeboughtfromareputableelectronicstypecompany.” -Garagedooropener customer“Iliketobuymygaragedoorandtheopenerfromthesamemanufacturer.It’sthesameaswithTVs.Iwouldn’tbuytheremotecontrolfromonecompanyandtheTVfromanother.”-GaragedoorcustomerCustomerfeedbackrevealedlowbarriersbetweengaragedoorsandopeners.However,customersviewedentrydoorsasseparatefromgaragedoorsandopeners.GaragedoorsandgaragedooropenersSource:CustomerInterviewsCostsCustomersCompet-itors42CU7121997ECABusinessDefinitionBunkerHillBusinessDefinitionBunkerHill-CompetitorAcidTest

BunkerHillChamberlainOverheaddoorWayne-DaltonClopayCastlegate/PremdorPeachtreePeaseTherma-TruAcompetitoracidtestvalidatedtheteam’sfindings.BunkerHillistheonlyplayerwhoparticipatesinallthreesegments.Allotherplayersmakeandsellonlyentrydoorsoronlygaragedoorsandgaragedooropeners.CompanyGarageDoorOpenersGarageDoorsEntryDoorsCostsCustomersCompet-itorsSource:CompetitorAnnualReportsandWebSites43CU7121997ECABusinessDefinitionBunkerHillBusinessDefinitionBunkerHill-CustomerandCostSummary

HighLowCostSharingLowHighCustomerSharingOnebusinesswithpotentialfordifferentiationornichepositionSeparatebusinesseswithpotentialforcostleadershipEntrydoorsandgaragedoorsOnebusinessEntrydoorsandgaragedooropenersSeparatebusinessesGaragedoorsandgaragedooropenersSeparatebusinesseswithpotentialforbundlingOnebusinesswithpotentialforsubstitutionBasedonitsanalysis,theBainteamclassifiedBunkerHill’sbusinessesasfollows:44CU7121997ECABusinessDefinitionBunkerHillBusinessDefinitionAgenda

ThebusinessdefinitionconceptApplicationsBusinessdefinitionstepsClientexamplesBunkerHillDoorSystemsJJRIndustrialCoatingsKeytakeaways45CU7121997ECABusinessDefinitionAgendaTheBusinessDefinitionJJR*-U.S.IndustrialCoatingsMarket*DisguisedclientcaseSource:Skeist,U.S.Census,Frost&Sullivan,Freedonia,LiteratureSearches,IndustryInterviews$14,433MM$5,380MM$4,297MMJJRdefineditsbusinessasthe13end-usesegmentsofthenon-autoindustrialcoatingsmarket.Manyclientswilldefinetheirbusinessinthisway.46CU7121997ECABusinessDefinitionJJR*-U.S.BusinessDefinitionJJR-CoatingsProducts

DescriptionUsesSolvent-based(SB):Water-based(WB):Ultravioletcure(UV):Electra-coat(E-coat):Powder:Mostcommonspray-onindustrialpaintUsedbyOEMsHighlytoxicCommonOEMspray-onpaintEnvironmentallyfriendlySpecializedapplicationforcuringor

dryingfinalclearcoatDriesunderUVlightforbetterappearanceAnti-corrosiveprimercoatItemsaredippedintotanksElectriccurrentpassesthroughpainttanktoapplycolorLimitedcolorsNewer,moreenvironmentallyfriendlyAppliedinsprayboothEasytocollectexcessandrecyclePaintontractors,cars,metalofficefurniture,toys,etc.Clearcoatonhardwoodfloors,foodcartonsandcontainers

(e.g.,orangejuicecartons)Anti-rustundercoatingoncarsSimilartosolventbasedTherearefivetypesofindustrialcoatings:solvent-based,water-based,ultravioletcure,E-coat,andpowder.47CU7121997ECABusinessDefinitionJJR-CoatiBusinessDefinition

Source:Skeist;Frost&Sullivan;Freedonia;U.S.Census;ChemicalMarketingReporter;BainAnalysis$403$206$209$149$170$52$164$42$284$91$257$36$57$201$47$193$67Totalsales=$2,578MMJJR-CoatingsUsageTheusageofthefivecoatingtypesvariessignificantlyacrosstheend-usesegments.48CU7121997ECABusinessDefinitionSource:SBusinessDefinitionJJR-DirectCostSharingUsingSBasabaseline,theteamusedlimitedcostdataalongwithqualitativeassessmentsfrommanufacturingandindustryexpertstodeterminethattheonlysignificantdirectcostsharingwasbetweensolvent-basedandwater-based.CostsCustomersCompeti-torsWater-basedPowderUltra-violetElectra-coatOverlapwithSBHighMediumLow(rawmaterials)COGS(other)49CU7121997ECABusinessDefinitionJJR-DirecBusinessDefinitionJJR-ExperienceTransfer

Inanalyzingthevaluechainsteps,theBainteamfoundthattheopportunitiesforexperiencetransferbetweenE-coatandnon-E-coatwerelow.CostsCustomersCompeti-torsSolventPigmentResinAdditiveResinR&DCoatingR&DRawmat’lQCRawmat’lhandlingResinprodPre-batchQCGrindingBlending/mixingPost-batchQCPackingFinishedmat’lhandlingSellingFieldApplicationE-coatvs.none-coatleveragabilityHighMediumLow50CU7121997ECABusinessDefinitionJJR-ExperBusinessDefinitionJJR-FunctionalSubstitution

Thecaseteamfoundthattheonlysubstitutabilitywasamongsolvent-based,water-basedandpowder.CostsCustomersCompeti-torsDegreeofcurrent/potentialsubstitutabilityLowMediumHighSolvent-basedWater-basedPowderE-coatEB/UVSolvent-basedWater-basedPowderE-coatUV51CU7121997ECABusinessDefinitionJJR-FunctBusinessDefinitionJJR-CustomerSharing

TheteamfoundlittlecustomersharingbetweenE-coatandothertechnologies.Customer