现代企业文化的定义概述课件

GiseleGarrawaySusanCaraviello,PaulDiPaola,andToddSenturia

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

ThebusinessdefinitionconceptApplicationsBusinessdefinitionstepsClientexamplesBunkerHillDoorSystemsJJRIndustrialCoatingsKeytakeaways2BusinessDefinitionAgendaTheBusinessDefinitionAgenda

ThebusinessdefinitionconceptApplicationsBusinessdefinitionstepsClientexamplesBunkerHillDoorSystemsJJRIndustrialCoatingsKeytakeaways3BusinessDefinitionAgendaTheBusinessDefinitionWhatisBusinessDefinition?

IndicateswhethertwobusinesssegmentsshouldbeoperatedasonebusinessorasseparatebusinessesHelpsidentifywhatdrivessuperiorprofitabilityinanindustryServesasthefoundationforstrategicanalysisandsounddecisionmakingBusinessdefinitiondelineatestheeconomicboundarieswithinwhichcompaniesshouldcompete.4BusinessDefinitionWhatisBusBusinessDefinitionOneBusinessvs.SeparateBusinesses

SamecustomersSamecoststructureSamecompetitorsDifferentcustomersDifferentcoststructureDifferentcompetitorsIftwobusinesssegmentshavethesamecustomers,thesamecoststructure,andthesamecompetitors,theyareonebusiness.Iftheyaredifferentonallofthesedimensions,theyareseparatebusinesses.OnebusinessSeparatebusinessesCompeteinbothsegmentstotakeadvantageofsynergiesDonotcompeteinbothsegments5BusinessDefinitionOneBusinesBusinessDefinitionWhyBainUsesBusinessDefinitionStrategicinsightsTacticalinsightswithstrategicimportanceShouldwebuyorselltherestaurantbusiness?ShouldweexpandintoChina?ArewevulnerabletoJapanesecompetitors?Shouldweverticallyintegrateintogrowingvegetables?Shouldwedropthisproductline?Shouldwecross-trainoursalesforce?Howshouldwegrouppurchasesfor

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

Companiesthatdefinetheirbusinessesincorrectlymakepoorstrategicdecisions.CostsCompetitorsIncurunnecessarycostsForgoopportunitiestocapturesynergiesDonottransferexperienceUnderinvestinimportantR&DinitiativesOverlookrelevantcompetitivethreatsMiscalculate“marketshare”SetinappropriateperformancetargetsOverlookrelevantcapacitychangesMisjudgetruecostpositionCustomersNeglectprofitablecustomersegmentsOver-investinunprofitablecustomersForgoopportunitiestocapturesynergiesMisjudgerelevantmarkettrendsOverlookrelevantgeographies7BusinessDefinitionConsequenceExamplesofIncorrectBusinessDefinition

BusinessDefinitionSomerespectedcompanieshavemissedprofitopportunitiesorsufferedunnecessarylossesbecausetheydidnotdefinetheirbusinessescorrectly.AmericanExpressAllegisSaatchi&SaatchiChargecardsandcreditcardsareseparateChargecardsandcreditcardsareonebusiness-plasticmoneyChargecarddivisionlostmoneyduetopoorcostpositionandmisguidedmarketingeffortsAirlines,hotelsandrentalcarsareonebusiness-caringfortravelersworldwideAirlines,rentalcarsandhotelsarethreeseparatebusinessesThecombinationprovidedlittlevaluetocustomers:AllegiswassplitupAdvertisingandconsultingareonebusiness--servicetoglobalbusinessexecutivesAdvertisingandconsultingareseparatebusinessesCompanysufferedseverelossesduetoinabilitytotransferexperience,lackoffocus,andtaintedimageCompanyAbetterbusinessdefinitionConsequencesofincorrectbusinessdefinitionHowmanagementdefinedthebusiness8ExamplesofIncorrectBusinessBusinessDefinitionAnalyticConsequencesofIncorrectBusinessDefinition(p.1)

BusinessdefinitionmustbethestartingpointofanyBaincasebecausedefiningabusinessincorrectlycanadverselyaffectstrategicanalysisanddecisionmaking.Ifwedefine

abusinessincorrectly...IncorrectBusinessDefinitionCorrectBusinessDefinitionTheunderlyingnormativebandwillnotemergeAbusinessmaylookdeceptivelyattractiveorunattractiveROS/RMSGrowth/Share9BusinessDefinitionAnalyticCoBusinessDefinitionAnalyticConsequencesofIncorrectBusinessDefinition(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=1.00ExperienceCurveRCP10BusinessDefinitionAnalyticCoBusinessDefinitionComplexityofBusinessDefinition

Asimplecatalogoflogicalargumentsisnotrobustenoughtodelineatethecompetitivebattlefieldsforourclients.Isitonebusinessornot?OneBusinessSeparateBusinessesTouringqualitymicrophonesandspeakersMadonnaandrappersusebothSimilardistributionchannelsDifferentmanufacturers(AudioTechnicavs.Bose)LittlemanufacturingprocessknowledgeistransferableLimiteddirectcostsharingCrosspensandBICpensBeeranddistilledspiritsBothusedforsamefunction,writingSimilarrawmaterialsSomemanufacturingstepssharedBrandnamesharingopportunitiesSamedistributionchannelsSoldbysamesalesforceHighperceptualbarrierstocustomersLimitedcustomerbaseoverlapLimitedbenefitsofsharedR&DKeymanufacturingprocessesaredifferentDifferentrawmaterials11BusinessDefinitionComplexityBusinessDefinition

BusinessDefinitionMatrixBainusesthebusinessdefinitionmatrixtodelineateeconomicboundaries.Costsharingandcustomersharingaretheprimarydeterminantsofdefiningabusiness.HighCostSharingLowLowHighCustomerSharingOnebusiness(chargecardsandcreditcards)Onebusinesswithpotentialfordifferentiationornicheposition

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

Businessdefinitionisdynamic.Temporarybarriers,suchaspricepremiumsandtechnologyadvantages,willerodeunlesstheyareconsistentlyreinforced.BusinessDefinitionTechnologyGovernmentregulationInputpricesProductinnovationChanneleconomicsCustomerneeds13BusinessDefinitionDynamicsofBusinessDefinitionLocalvs.Regionalvs.Nationalvs.GlobalBusinesses

GlobalscaleNationalscaleRegionalscaleLocalscaleProfessionalonlinefinancialdataOvernightpackagedeliveryBanking-lendingHospitaltextilelaunderingBanking-depositgatheringResidentiallaundromatsBarbershopsClientsoftencitetheneedfornationalorglobalparticipation.However,inmanybusinesses,localorregionalscaledrivesprofitability.DriverofProfitabilityExample14BusinessDefinitionLocalvs.RBusinessDefinitionExamplesofChangesinBusinessDefinition

Thereareseveralexamplesofcompaniesthathavegainedsignificantcompetitiveadvantagebychangingthedefinitionofabusiness.FederalExpressrevolutionizedthepackagedeliverybusinessbyintroducinganovernightdeliveryserviceCharlesSchwabdramaticallyalteredthemutualfundsbusinessbyintroducingano-feeservicewherebycustomerscouldpurchasemanycompanies’mutualfundsthroughSchwabCalyx&CorollatransformedtheflowerdistributionbusinessbyusinginformationtechnologytocutouttraditionaldistributorsandshipflowersdirectlyfromgrowerstocustomersStarbucksredefinedthecoffeeshopbusinessfromprovidingcoffeetoprovidingasocialexperienceTheBodyShoprevolutionizedthecosmeticsbusinessbymergingtheideasofbeauty,health,andenvironmentalconsciousnessStaples,byadaptingthebusinessmodelofadifferentindustry(grocerystores)andtakingadvantageofeconomiesofscaleinpurchasing,changedtheofficesuppliesbusinessfromalocalonetoanationalone15BusinessDefinitionExamplesofBusinessDefinitionAgenda

ThebusinessdefinitionconceptApplicationsBusinessdefinitionstepsClientexamplesBunkerHillDoorSystemsJJRIndustrialCoatingsKeytakeaways16BusinessDefinitionAgendaTheBusinessDefinitionApplications

FinancialServicesElectricalandElectronicsAlargeresidentialrealtycompanywasconsideringenteringthecommercialrealestatemarketandwantedtoevaluatetheattractivenessofthemarketAnelectronicscompanyhadtheopportunitytooutsourceitselectronicstestingservicebutwasunsureiftestoutsourcingwoulddefineaviablenewbusinessBainhasusedbusinessdefinitioninhundredsofcasesanddozensofindustries.Someexamplesofourworkare:Baindevelopedabusinessdefinitionforcommercialrealestateserviceswhichidentifieditasaseparatebusinessfromresidentialrealestate,requiringvastlydifferentcompetenciesandeconomics.ClientacceptedrecommendationtostayoutofcommercialbusinessBaindeterminedthatthetestoutsourcingbusinesswasnotasinglebusinesswithhighcostandcustomersharing,butrathersixseparatebusinesswhichcouldbebundled,anddefinedthefewspecificentrystrategieswhichmightbesuccessful.ClientultimatelyagreedthatcriticalentrybarriersweretoohighSituation:Result:TextilesAlargeU.K.textilelaundererwith23%ROSenterstheU.S.marketandearnsonly5%Bainfoundthatthebusinessdefinitionisnotnationaltextilelaundering-therearethreeseparatebusinesses:healthcare,industrialandlinen.Allthreeareregional,notnational.ClientsoldtwobusinessesinNewYorkandmadetwoacquisitionsintheSoutheast17BusinessDefinitionApplicationBusinessDefinitionAgenda

ThebusinessdefinitionconceptApplicationsBusinessdefinitionstepsClientexamplesBunkerHillDoorSystemsJJRIndustrialCoatingsKeytakeaways18BusinessDefinitionAgendaTheBusinessDefinitionBusinessDefinitionSteps

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

tests19BusinessDefinitionBusinessDeBusinessDefinitionBusinessDefinitionSteps

DegreeofemphasisIstheresubstantialcostsharing?Istheresubstantialdirectcostsharing?Aretheresubstantialopportunitiesforexperiencetransfer?LessimportantMoreimportantCostsharingCustomersharingCompetitoracid

tests20BusinessDefinitionBusinessDeBusinessDefinition

*Onacostbasisonly,wemustalsolookatcustomersandcompetitorstodeterminewhetherthebusinessesareoneorseparate.CostSharing

Anassessmentofcostsharinginvolvesexaminingdirectcostsharingandexperiencetransfer.ProbablyseparatebusinessesOnebusiness*Separatebusinesses*ProbablyonebusinessHighExperiencetransferLowLowHighDirectcostsharing21BusinessDefinition*OnacosBusinessDefinitionHowBusinessesShareCosts

Businessescansharecostsinavarietyofways.ValueChainStepsHowDirectCosts

CanBeSharedExamplesR&DProcurementManufacturingDistributionSalesandMarketingAdministrativeSupportMultipleapplicationsofsomeR&DeffortsSharedrawmaterialsSharedinboundlogisticsSimilarmanufacturingfacilitiesprocessesSamedistributionchannelsBrandnamesharingSamesalesforceSharedinfosystemsTapeandPost-itNotes(3M)GasolineandpetrochemicalsVitreouschinatoiletsandsinks(Kohler)Cigarettesandcandy(PhilipMorris)HealthyChoicedinnersandcerealSodaandorangejuice(Coca-Cola)BankBostonNOWaccountsandsavingsaccounts22BusinessDefinitionHowBusinesBusinessDefinitionExperienceTransfer

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

DegreeofemphasisLessimportantMoreimportantCostsharingCustomersharingCompetitoracid

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

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

CustomerbaseoverlapFunctionalsubstitutionPerceptualbarriersLowLowLowHighHighHighHighLowProbablyseparatebusinessesProbablyonebusinessCustomersharingGenerally,highcustomerbaseoverlap,highfunctionalsubstitutionandlowperceptualbarrierssuggestonebusiness.26BusinessDefinitionCustomerShBusinessDefinitionCustomerBaseOverlap

Customerbaseoverlapcanbedeterminedbycomparingpurchasersordecisionmakersforthetwoproducts.CommonCustomerBaseOverlapCriteriaUsedbysameorganizationorcustomersPurchasedbysameindividualorgroupPurchasedecisionmadebysame

individualorgroupLimitedcustomerbaseoverlap27BusinessDefinitionCustomerBaBusinessDefinition

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

Ifproductsofferverysimilarnon-priceattributesorfunctionalbenefits,theyarepotentialsubstitutes.29BusinessDefinitionFunctionalBusinessDefinitionFunctionalSubstitution-CrossElasticity

Ifapriceincreaseinoneproductincreasesthedemandforanother,thetwoproductsareprobablysubstitutes.DemandforButterHighelasticityPriceofMargarine30BusinessDefinitionFunctionalBusinessDefinitionPerceptualBarriers

Customer’sperceptionscanbeindicatorsofbusinessdefinition;however,whatcustomersperceivecanoftenconflictwiththeeconomicboundaries.PerceptualbarriersLowHighCustomers’view:Examples:ProductsaresimilarProductsservedifferentfunctionsWoodencanoesandaluminumcanoesWomen’sfragrancesandmen’saftershave31BusinessDefinitionPerceptualBusinessDefinitionBusinessDefinitionSteps

DegreeofemphasisDoesbusinessdefinitionpassthecompetitoracidtests?Docompetitorsoffersimilarproductsandservesimilarcustomersandchannels?Doesprofitabilitycorrelatewithdefinitionofmarketshare?Dodecisionsacompetitormakesinonebusinessaffectthedecisionsthatacompetitormakesinanotherbusiness?LessimportantMoreimportantCostsharingCustomersharingCompetitoracid

tests32BusinessDefinitionBusinessDeBusinessDefinitionCompetitorAcidTests

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

testsBusinessDefinitionBusinessDefinitionSteps-Summary

34IstheresubstantialcustomerBusinessDefinitionAgenda

ThebusinessdefinitionconceptApplicationsBusinessdefinitionstepsClientexamplesBunkerHillDoorSystemsJJRIndustrialCoatingsKeytakeaways35BusinessDefinitionAgendaTheBusinessDefinitionBunkerHillDoorSystems*-Background

BainusedbusinessdefinitiontosetastrategicfoundationforBunkerHillDoorSystems.Theteamstartedwithahypothesisthattherewerethreeseparatebusinesses.Situation:Complication:Question:BunkerHillisa$400MMdivisionofHillsWorldwide.Thisdivisionmanufacturesentrydoors,garagedoors(GDS),andgaragedooropeners(GDOs).HillsWorldwidehassetaggressivegrowthtargetsforalldivisionsBunkerHillhassufferedacontinuedfinancialdeclineinrecentyearsandperformancevarieswidelyacrosstheproductlines.Moreover,BunkerHillfacesastrongsetofwell-established,low-costcompetitorsHowcanBunkerHillgrowprofitably?Assertion1Assertion2Assertion3GD,GDOandentrydoorsareseparatebusinessesandthereforerequiredifferentstrategiesforprofitablegrowth*Disguisedclientcase36BusinessDefinitionBunkerHillBusinessDefinitionBunkerHill-DirectCostSharing(p.1)Source:BunkerHillFinancialsTheBainteamfoundthatmaterialsaccountedforasubstantialproportionofBunkerHill’scostsinallthreebusinesssegments.CostsCustomersCompet-itors37BusinessDefinitionBunkerHillBusinessDefinitionBunkerHill-DirectCostSharing(p.2)*IncludesgatesandelectronicsSource:PurchasePriceVarianceReportHowever,inpeelingtheonion,theteamdiscoveredverylittlematerialcostsharing,suggestingthatonacostbasistherewere3separatebusinesses.CostsCustomersCompet-itors38BusinessDefinitionBunkerHillBusinessDefinitionBunkerHill-ExperienceTransfer

Usingentrydoorsasabaseline,theBainteamfoundlimitedopportunitiesforexperiencetransfer.GarageDoorGarageDoorOpenersManufacturingR&DDistributionProcurementCostsCustomersCompet-itorsLowMediumHighExperiencetransferpotentialwithentrydoorsSource:ManagementManufacturingInterviews39BusinessDefinitionBunkerHillBusinessDefinitionBunkerHill-CustomerBaseOverlapSource:BunkerHillCustomerDatabaseTheBainteamfoundlimitedcustomerbaseoverlapbetweengaragedoorsandentrydoors,andbetweengaragedoorsandgaragedooropeners.CostsCustomersCompet-itors40BusinessDefinitionBunkerHillBusinessDefinitionSource:DoorSystemsCustomerInterviewsMostBunkerHillcustomersboughtopenerswhentheyboughtBunkerHilldoors.CostsCustomersCompet-itorsBunkerHill-GDandGDOCustomerSharing41BusinessDefinitionSource:DoBusinessDefinitionBunkerHill-PerceptualBarriers

GaragedoorsandentrydoorsEntrydoorsandgaragedooropenersLowHighPerceptualBarriers“Garagedoorsneedtobemadeofsteelandbestrong.Entrydoorsshouldbewellcraftedandbeattractive.” -Garagedoorcustomer“Garagedooropenersshouldbeboughtfromareputableelectronicstypecompany.” -Garagedooropener customer“Iliketobuymygaragedoorandtheopenerfromthesamemanufacturer.It’sthesameaswithTVs.Iwouldn’tbuytheremotecontrolfromonecompanyandtheTVfromanother.”-GaragedoorcustomerCustomerfeedbackrevealedlowbarriersbetweengaragedoorsandopeners.However,customersviewedentrydoorsasseparatefromgaragedoorsandopeners.GaragedoorsandgaragedooropenersSource:CustomerInterviewsCostsCustomersCompet-itors42BusinessDefinitionBunkerHillBusinessDefinitionBunkerHill-CompetitorAcidTest

BunkerHillChamberlainOverheaddoorWayne-DaltonClopayCastlegate/PremdorPeachtreePeaseTherma-TruAcompetitoracidtestvalidatedtheteam’sfindings.BunkerHillistheonlyplayerwhoparticipatesinallthreesegments.Allotherplayersmakeandsellonlyentrydoorsoronlygaragedoorsandgaragedooropeners.CompanyGarageDoorOpenersGarageDoorsEntryDoorsCostsCustomersCompet-itorsSource:CompetitorAnnualReportsandWebSites43BusinessDefinitionBunkerHillBusinessDefinitionBunkerHill-CustomerandCostSummary

HighLowCostSharingLowHighCustomerSharingOnebusinesswithpotentialfordifferentiationornichepositionSeparatebusinesseswithpotentialforcostleadershipEntrydoorsandgaragedoorsOnebusinessEntrydoorsandgaragedooropenersSeparatebusinessesGaragedoorsandgaragedooropenersSeparatebusinesseswithpotentialforbundlingOnebusinesswithpotentialforsubstitutionBasedonitsanalysis,theBainteamclassifiedBunkerHill’sbusinessesasfollows:44BusinessDefinitionBunkerHillBusinessDefinitionAgenda

ThebusinessdefinitionconceptApplicationsBusinessdefinitionstepsClientexamplesBunkerHillDoorSystemsJJRIndustrialCoatingsKeytakeaways45BusinessDefinitionAgendaTheBusinessDefinitionJJR*-U.S.IndustrialCoatingsMarket*DisguisedclientcaseSource:Skeist,U.S.Census,Frost&Sullivan,Freedonia,LiteratureSearches,IndustryInterviews$14,433MM$5,380MM$4,297MMJJRdefineditsbusinessasthe13end-usesegmentsofthenon-autoindustrialcoatingsmarket.Manyclientswilldefinetheirbusinessinthisway.46BusinessDefinitionJJR*-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.47BusinessDefinitionJJR-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.48BusinessDefinitionSource:SBusinessDefinitionJJR-DirectCostSharingUsingSBasabaseline,theteamusedlimitedcostdataalongwithqualitativeassessmentsfrommanufacturingandindustryexpertstodeterminethattheonlysignificantdirectcostsharingwasbetweensolvent-basedandwater-based.CostsCustomersCompeti-torsWater-basedPowderUltra-violetElectra-coatOverlapwithSBHighMediumLow(rawmaterials)COGS(other)49BusinessDefinitionJJR-DirecBusinessDefinitionJJR-ExperienceTransfer

Inanalyzingthevaluechainsteps,theBainteamfoundthattheopportunitiesforexperiencetransferbetweenE-coatandnon-E-coatwerelow.CostsCustomersCompeti-torsSolventPigmentResinAdditiveResinR&DCoatingR&DRawmat’lQCRawmat’lhandlingResinprodPre-batchQCGrindingBlending/mixingPost-batchQCPackingFinishedmat’lhandlingSellingFieldApplicationE-coatvs.none-coatleveragabilityHighMediumLow50BusinessDefinitionJJR-ExperBusinessDefinitionJJR-FunctionalSubstitution

Thecaseteamfoundthattheonlysubstitutabilitywasamongsolvent-based,water-basedandpowder.CostsCustomersCompeti-torsDegreeofcurrent/potentialsubstitutabilityLowMediumHighSolvent-basedWater-basedPowderE-coatEB/UVSolvent-basedWater-basedPowderE-coatUV51BusinessDefinitionJJR-FunctBusinessDefinitionJJR-CustomerSharing

TheteamfoundlittlecustomersharingbetweenE-coatandothertechnologies.Customeroverlap52BusinessDefinitionJJR-CustoBusinessDefinitionJJR-CompetitorAcidTest

JJR’swastheonlycompetitortocompeteinE-coattoasignificantdegree.Thishelpedtoexplainitsaboveaverageprofitability.CostsCustomersCompeti-torsPercentageofrevenuefromE-coat:55%35%10%0%5%5%0%0%53BusinessDefinitionJJR-CompeBusinessDefinitionJJR-BusinessDefinitionSummary

Rationale:HighcostsharingbetweenSBandWBHighcustomersharingandhighdegreeofproductsubstitutionbetweenSBandWBModeratecostsharingbetweenSB/WBandpowderHighcustomersharingandhighdegreeofproductsubstitutionbetweenSB/WBandpo