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Services Growth and Effectiveness Strategy

Cookbook of Analysis

A note before using this cookbook of analyses

The development of a services strategy is not a one-dimensional approach; it is a combination of art science, and strategic thinking While we call out the important steps here, it is not a purely methodological approach It is highly iterative Use the 80-20 rule Prioritize often

Table of Contents
Analysis
Market sizing, segments, and growth analysis
Customer needs assessment Competitive assessment

Page
4 10 17

Objectives/Overview
Quantify and assess the attractiveness of the market opportunity Understand customer issues, drivers, and needs Understand strengths, weaknesses, and strategies of the competition

Capabilities assessment
Benchmarking/best practices Alliance approach Spare parts/ inventory assessment Pricing and bundling Services technology strategy Business Case/ROI analysis Strategic plan development

23
29 38 46 54 66 75 83

Identify core competencies and requirements to achieve market success


Best practice considerations and approaches to benchmarking Develop and manage the most advantageous and meaningful strategic alliance Understand spares market performance and develop a strategy focused on part segmentation and market-based pricing Establish a better pricing approach & identify bundling opportunities as vehicles for revenue growth & improving cost structure This analysis provides considerations and process approach for defining a technology strategy for services capabilities A non-theoretical approach to developing a business case and measuring the ROI of an investment opportunity. Develop the business plan for the services initiative

A series of analyses can be utilized to support the Services Growth and Effectiveness Approach
I. Define Strategy Analysis
Market sizing, segments, and growth analysis 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

II. Build Capabilities

III. Optimize Operations

IV. Sell and Market

Applicability of individual analyses to steps in the approach

Market Sizing, Segments and Growth Analysis

Market Sizing, Segments and Growth Analysis

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

Instructions Activities
1.

Data Sources

Segment the market - Analyze the entire market opportunity and identify appropriate target segments. Segments can be a certain industry/sector, an element of the value chain, or specific customer targets. Perform top-down market sizing - Macro-level approach starting at the highest-level and drilling down to a specific addressable market

Interviews Industry reports (e.g. S&P) Census NAICS (i.e. SIC) reports Industry affinity groups Interviews Market research reports Investment analyst reports Industry affinity groups Customer/target financial reports (10K, annual reports, analyst reports)

2.

3.

Perform bottom-up market sizing - More rigorous analysis beginning at the lowest level of product/service/customer and making estimates up to an addressable market

Activity 1: Segment the market


Example: Market Sizing and Segmentation Total U.S. Revenues: $17.8 Trillion
NAICS Category
Health Care and Social Assistance Retail Trade

Subsector/Industry
Nursing and Residential Care Health and Personal Care Clothing Stores Sporting Goods General Merchandise Nondurable Goods Broadcasting and Telecom Wired Tells Publishing Industries Accommodation Traveler Food Services Full Service Restaurants

80% = $14.3 Trillion


Example Industries Not in Scope: Automotive Oil & Gas Hospitals Mining

Wholesale Trade Information

20% = $3.483 Trillion

Accommodations and Food Services Utilities Manufacturers

Steps: Electric (Less than $1B in Annual Revenues), Water, Gas Define entire market Food opportunity Beverage and Tobacco Determine attributes for Textile Mill Textile Product target segments Mills Apparel Leather and Allied Product Define and select target segmentsPaper and Rubber Plastics
Miscellaneous Printing and Related Schools, Colleges Trade Schools, Fine Arts (Excludes Elementary, Secondary, Colleges) Collection Agencies, Travel Agencies, Biz Support

Out of Scope Areas outside of four target regions, and industries with: Heavy e-Marketplace/ e-Procurement penetration Concentration of large organizations High direct material spend

In Scope Industries within four target regions that exhibit some or all of the following attributes: Regional orientation Relatively high horizontal Spend Highly fragmented market (Buyers/Sellers)

Universities (Non-NAICS) Educational Services Administrative Support, Waste Management, Remediation

Professional, Scientific, and Tech Services Other Services


(1)Data

Lawyers, Architects, Graphics Repair and Maintenance, Personal and Laundry, Religious Org

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

Activity 2: Perform top-down market sizing


Example: Regional Market Size for Indirect Materials A
$3,483B $304B $1,848B

$573B

$303B $455B
Potential Regional Horizontal Market

Total Revenues

Profit

Nonprocurement Spend

Nonhorizontal Spend

Non e-Procurable Spend

Total eProcurable Spend

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 estimating will be necessary

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

C B
Market Size in Market Size in Regions Regions $455 billion $455 billion Founding Founding Member Member Service Area in Service Area in Sample Sample Regions Regions 63% 63% Number of Number of Founding Founding Members in Members in Sample Sample Regions Regions 15 15 Average Average Regional Regional Market Size Market Size $18.983 billion $18.983 billion

Activity 3: Perform bottom-up market sizing


Example: Broadband Satellite Communications
Large Corporate (LC) Number of sites ?
Estimate site growth rate by segment
Drivers for market forecasts

Residential Number of sites ?

Small & Med. Bus. (SMB) Number of sites ?

Penetration of SatCom
? Satcom Price

Penetration of SatCom
? Satcom Price

Penetration of SatCom
? Satcom Price

Forecast penetration by segment

Forecast price by segment

Residential Satcom Market

SMB Satcom Market

LC Satcom Market

Steps: For each segment, gather the following data: Segment size & growth Historical penetration of analogous products within each segment Customer segment spend on products you might potentially replace Pricing model for similar products Market size today for each segment is: price * # of customers * annual difference in penetration, or price * # units sold To get future estimates, you will need to forecast price and penetration

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

Key Considerations for Market Sizing, Segments and Growth Analysis

Market sizing is not about getting to exact figures, but rather to get a feel for approximate 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) will help to validate your estimates as a general rule, they should be within 1020% of each other Be skeptical if your market size estimates look too good to be true, you will most likely need more work to refine your assumptions

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Customer Needs Assessment

Customer Needs Assessment


Overview
A customer needs assessment will enable: definition of customer segments based on needs, values and behaviors; identification of matches between preferences and services offerings; and determination of key attributes and capabilities necessary to serve the customer segments

Instructions Activities
1.

Data Sources

Conduct internal data gathering and develop hypothesis Understand current customer touch points. Clarify and document internal perceptions and data on customer needs and key business drivers. Develop initial segmentation Gather initial external data on industry segments, trends, and key players. Define industry landscape/segments. Identify customers within segments to target for needs analysis.

Internal interviews (sales, marketing, service, logistics) Internal workshops Industry reports Industry affinity groups Market research reports Analyst reports Trade news and periodicals External interviews NA

2.

3.

Conduct external interviews Gather qualitative and quantitative information from customers. Analyze data and develop conclusions Summarize customer needs and identify high impact opportunity areas

4.

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Activity 1: Conduct internal data gathering and develop hypothesis


Example: Customer Experience Lifecycle
Steps: Review internal data collected by the client Identify major lifecycle stages and major touch points with the customer Perform high-level review of customer touchpoints Determine which areas/customer segments have been well analyzed by clients and which require further analysis Interview management to understand perceptions of customer needs

Verify Customer Satisfaction

Exp lore Ser Exp vice lore s Soft ware Explo re Ha rdware Determine Needs/Wan ts Explore Applications Visualize Solutions
Verify Customer Satisfaction

Ve Po rify ten Sa Cus tia tis tom lS fac e up tio r n p

Ex plo re

Nego ti T&Cs ate Price & Sign Contr act Pro ces sO rde Pa r yf or So lut ion

SE AR CH IN G

ect Select Sup Suppliers in ine FIT D Determ n o olutio r S n ure ttion nfigu Con r rma n nfo e er I ath Ga

lie rs

G OSIN CHO

ORD ERIN G

Ve Re nd ce or ive Re /De lat plo ion yR sh es olu ips Rep tio ort/ ns Mo nito r Is sue s Iden tify I ssue s Estab lish Su pport Proce ss

ns ld Solutio Retire O te to s igra n all M lutio Inst ew So N ucts rod wP s uct t Ne rod Tes wP e to N er ute m n Imp sto ctio u fa ide y C is rov rif Sat P Ve
Ma int ain

SUPP ORTIN G

G USIN
O ROI M Measure R

LE AR NI NG

Customer Experience Lifecycle

tion nta me ple ion n Im olut Pla eS ceiv Re lution ll So Insta tion t Solu men Imple
Verify Customer Satisfaction

r me sto Cu n fy actio ri Ve atisf S

I ING N NT M ME L LE M IMP

Enable Prov Learning Org anizati Teamide Tec on Train hnical/ Pro Proje ing vide ct End Pro Use vid eE r Tr xec aini ng utiv eE Ve duc Sa rify atio tis C n fa us
cti to on m er

G G IN DI RA GR U UP

e e nc rie pe Ex g ge sa Us lity o ona me Tim unctii F Fn rst Fir rove Imp ag age e s se U cr a Incre c ce r n rman P Perfo T Tune

Verify Customer Satisfaction

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

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Activity 2: Develop initial segmentation


Customers can be segmented a multitude of ways (e.g. market share, size, geography, client customer base, ownership, etc). The key is to determine the most compelling factor/characteristic as a starting point. Other characteristics will become key later in the process to identify appropriate entry points and specific target customers

Example: Customer Segmentation


Customer Category % of Total Market

Example Customers

Key Characteristics

Large Airlines with Maintenance as a Business Medium to Large Airlines with Maintenance as a Differentiator Medium to Large Maintenance Shoppers (Cost Conscious) Small and/or Start-up Airlines Leasing Companies

30-35%

Lufthansa Delta United

Multi-national fleets Significant commitment to internal maintenance operations Sell and market 3rd party MRO services Virtually no maintenance outsourcing Considerable commitment to internal maintenance operations Consider internal MRO a competitive advantage Outsource select, limited maintenance activities only Limited commitments to internal maintenance Consider core competency to be moving passengers Outsource a medium to significant amount of maintenance operations Often single fleet planes Lack maintenance experience Lack sufficient capital to build maintenance capabilities Outsource a significant portion of maintenance operations Completely mixed fleet Conduct an insignificant amount of MRO (airlines often responsible to maintain their leased planes) Outsource all maintenance activities

20-25%

American Northwest Alaska

30-35%

Southwest Continental British Airways

5-10%

Virgin Atlantic Easy Jet Jet Blue

Negligible

GECAS ILFC

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 14

Activity 3: Conduct external interviews


Example: Interview Guide
PLEASE SUBMIT FORM TO: Deloitte Consulting

Example: Interviewee Plan


General Manager of Fleet Planning Director of Contracts (2)

Client Survey
XYZ Company and Deloitte Consulting are working together to better understand XYZ's customers. This will help XYZ to create sales and marketing organizations which offer tailored sales and marketing solutions by proactively identifying and responding to customer needs.

Please describe steps in buying process, including which departments within your organization interact with XYZ Company departments, over what time frames and what information is transferred? Do you expect this process to change in the near future? How?

Airline

Function: Name Company Address City State/Province ZIP/Post Code Country Phone Fax Email
Purchasing Product Management Marketing Research Other

Please describe how the customer buying process and its interaction with XYZ Company could be improved?

Formulator Additive Packaging Company

Airline Operations Heavy Maintenance (Planning)

(9)

Sr. VP of Maintenance (2) Director of Maintenance Planning VP Engineering and Planning Sr. VP of M&E Head of Business Development for Technical Operations Director of Maintenance Staff Director of Engineering MD of Maintenance Planning

Criteria Rank (1-7) Buying Criteria Relationship with XYZ Company sales person * 1 = most important, Relationship with XYZ Company Technical (TM, R&D) 7 = least important Quality of the product Reputation of firm and products Price Customer Service, Logistics Other (please type in)

Comments

Which department within XYZ Company do you contact with technical questions/issues (I.e. sales, Technical Marketing, Research Lab)? How responsive is XYZ Company's TM organization in responding to your needs? XYZ Company's Research Labs? XYZ Company's Sales

Heavy Maintenance (6) (Planning)

Director of Maintenance Planning Maintenance Manager Mgr. Of Supplier Base Maintenance Staff VP of Maintenance Executive VP of Technical Operations Associate VP of Technical Services

Supervisor of Component Repairs

(4)
From who do you currently purchase oil lubricant additives? XYZ Company Other (please type in) Other (please type in) Other (please type in) Other (please type in) Other (please type in) Other (please type in) % Please rate each on overall cust. Satis.

Heavy Maintenance (Operations)


Manager Maintenance Support

Component (1) Services (less parts)

* 1= Very Satisfied, 2 = Very Dissatisfied

(2)

Director of Strategy & Director of Business Development

Tailor interview guide to each segment but have some questions which cross segments

Parts

For each customer, make sure to properly sample the appropriate decision-makers

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

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Activity 4: Analyze data and develop conclusions


Example: Customer Needs Summary by Segment
Customer Category Specific Needs

Potential Near Term Opportunities

Customer Category

Specific Needs

Potential Near Term Opportunities

Large Airlines with Maintenance as a Business

Broad maintenance capabilities, horizontal and vertical Increase internal maintenance capabilities Increase 3rd party maintenance revenue Service at multiple locations Control over aircraft availability Sophisticated reporting/interface with regulatory agencies

Select, high value data enhancements Special projects

Medium to Large Airlines with Maintenance as a Differentiator

Broad maintenance capabilities, horizontal and vertical Maintain internal maintenance operations near capacity Control over aircraft availability Meet contractual obligations to internal workforce Sophisticated reporting/interface with regulatory agencies

Heavy maintenance for very old or new fleet types (727s or 777s) Heavy maintenance filler capabilities/capacity (when airline is over capacity) Special projects

Customer Category

Specific Needs

Potential Near Term Opportunities

Customer Category

Specific Needs

Potential Near Term Opportunities

Medium to Large Maintenance Shoppers (Cost Conscious)

Reduce cost on a lifecycle basis of the aircraft Satisfy business decision financial criteria e.g. ROI Meet contractual obligations to internal workforce External providers that deliver on time, quality work Geographic proximity

Total Support product/service in Europe e.g. British Airways 777s in all regions a range of maintenance services 727s in all regions a range of maintenance services 737s in North America initially a heavy maintenance offering (possibility of expanding services later) e.g. Southwest

Small and/or Start-up Airlines

More complete maintenance solution Operational and maintenance experience on homogenous fleet Access to infrastructure, both resources and facilities Simple interface with outside provider Geographic proximity External provider willing to provide maintenance on small fleet size (e.g. 5-10 747s)

Heavy maintenance for specific fleet type across small fleet size (possibility of later expanding services and/or fleet types) e.g. Virgin Atlantic Combined product and services for new planes e.g. National Airlines

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?

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Key Considerations for Customer Needs Assessment

Be data driven and quantitative in the approach when possible, with the understanding that youll never be able to get all of the data or interview all customers Consider how best to involve the client during interviews and data gathering

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Competitive Assessment

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

Instructions Activities
1.

Data Sources

Develop internal cost and capabilities baseline Understand baseline upon which to compare competitors strengths and weaknesses Conduct competitor data collection and synthesis Gather external data on industry segments, trends, and key players. Define competitive landscape/segments.

Internal interviews Site visits Industry reports Industry affinity groups Market research reports Analyst reports Primary research (end users, other client employees, channel partners, competitor personnel) NA

2.

3.

Evaluate competitive differences Determine competitive advantages/disadvantages

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Activity 1: Develop internal cost and capabilities baseline

Example: Cost Baseline


Total Budget
(1)

Example: Capabilities Baseline


People High 5
Very strong technical abilities across organization Some ability to communicate to internal audiences but fragmented & inconsistent Strong technical skills but weak in marketing & sales skills

= $690 M

Financial

Customer
Responsive to customer inquiries and needs but internal Infrastructure bureaucracy exists but results in slow Reactive communication response approach to is often developing inconsistent and products/servic late es based on explicit customer demands w/ limited marketing ability Able to get complex products produced & delivered but inconsistent approach to ability and redundant delivery methods

Big 6 Maintenance & Support Tooling & Ground Operations

$120 $ 10 $ 15 $ $ 5 5

ME&P
Field Service Rep Intro Teams Standard Problem Resolution 8110 Requests Fleet Team (SRP) $ 70 $ 10 $125 5 $ 40 $ 35 $ 285 M

Procedures & Task Cards Recovery & Handling Service Bulletins Facilities & Equipment Planning Maintenance Planning Provisioning Data Software & Applications

4
Performance

Tech Services

$ 20 $ 10 $ 40 $ 40 $ 5

Significant opportunity to reduce costs

After-Hour Problem Resolution (RRC) $

Flight Tech

Other Maintenance & Engineering

Inconsistent ability to prepare insightful & valuable business cases and evaluations Inability to obtain important cost data to make decisions

$ 270 M

1
Warranty
Standard Warranty Other Protection Programs $ 3 $ .5 Part 25 Documents Flight Crew Training Training Docs Simulator Data Performance & Engineering Data CBT and Other Software $ 20 $ 80 $ $ $ 5 5 5 $ 15

Low 0

$ 3.5 M

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$ 130 M

Capability Areas

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

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Activity 2: Conduct competitor data collection and synthesis


Example: Competitive Landscape
Maintenance Planning Maintenance Operations (Labor) Parts
20-25%
(Examples)

Example: Competitor Concentration


(Examples)

Key Competitors:

Airlines (Operations and Maintenance Mgmt)

Full Service Providers (Airline Shops) Full Service Providers (Independents) Partial/Niche Providers

Original Equipment Manufacturer (OEM) Part Manufacturer Authorities (PMAs)


-small amount of the spend

AAR Aeronavali Parker Aerospace TAECO Triumph Volvo Aero

BF Goodrich FLS HAECO ST Aero Lufthansa Technik

25-30%

Partial/Niche Service Providers

Full Service Providers* (Independent and Affiliate)

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

Full Service Providers (Insourced by Airlines)


About 5-10% of airline 5capacity is currently sold on the market
45-50%

(Examples)

Competitive Landscape:

Highly monopolistic within particular airline (airline controlled) Some barriers to entry (airlines currently held responsible per FAA)

Fragmented competition Highly monopolistic across airline shops and within particular OEM independents Significant barriers to Strong competition for entry due to proprietary existing fleet design rights Low barriers to entry
Client X is already a significant competitor in Parts

United Delta American KLM Northwest


Select detailed competitor overviews are in the appendix

About 60% of total heavy maintenance operations is provided by Airlines About 60% of total heavy maintenance operations is provided by Airlines (airline shops and affiliate providers) (airline shops and affiliate providers) Independent Full Service Providers control about 15% of the market Independent Full Service Providers control about 15% of the market
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

Example: Competitors Customers & Offerings


Market Share Key Customer Segments
Maintenance

Products/ Services Offered Total MRO offering, including:


Future Trends
Develop

as as

Full Service Providers


(Insourced by Airlines)

business
Maintenance

45-50%

differentiator

Line maintenance Heavy maintenance Engine services Component R&O Some mods Maintenance planning

and/or expand 3rd party business to new customers and/or services

Maintenance

as business (esp. LHT) Shoppers

Full Service Providers


(Independent and Affiliate)

Maintenance

Multiple product offerings, leading up to providing a total support service


Increase

profitability by proving value of total support, including planning customer base

20-25%

Small/start-up

Line maintenance (some) Heavy maintenance Component management Specific component R&O Maintenance planning (some)

Increase

Maintenance

as shoppers

Partial/Niche Service Providers

differentiator 25-30%
Maintenance

Provide a niche maintenance service offering, either by plane type or service

Need

to improve profitability via expanded services or alliances with bigger players

Small/start-up

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 are answering and where you might get answers Validate hypothesis and compile implications/output

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Activity 3: Evaluate competitive differences


Example: Competitive Differentiation
Key Traits
F S e as t rv /Fl ic ex e ib le Q ua lit y/ Sa fe ty Co st St ru ct Cu ur st e om er Fo cu O s pe ra tin g Ex V pe Ca erti rti pa ca se la bi nd lit ie H s Sa or iz le on s an ta l d M Re ar ke Cr pu tin ed ta ib tio g ili n R ty / Re ela tio gu la nsh to i rs p w ith

Full-Service Providers Detail


Competitor Lufthansa Technik Example Customers
Lufthansa ILFC

Regional Presence
Predominately Europe Growing in North America and Asia

Source of Differentiation
Large customer base in Europe Operating experience Providing total support to several airlines

Competitor Group Full Service Full Service Providers Providers


(Insourced by (Insourced by Airlines) Airlines)

Key Areas of Focus

Deep experience Deep experience Integrated capabilities Integrated capabilities Little/no focus on cost Little/no focus on cost Focus on customer Focus on customer

FLS

AerLingus easyJet Virgin Atlantic British Airways JAL Southwest ANA Qantas Southwest Northwest FedEx United

Europe

Providing total support to several airlines Efficiency, leading to faster turnaround times

Full Service Full Service Providers Providers


(Independent and (Independent and Affiliates) Affiliates)

relationship relationship

Credibility w regulators Credibility w regulators Balanced focus on cost, Balanced focus on cost,

ST Aero

Predominantly Asia Expanding into North America

Largest player in Asia Low cost structure

quality and flexibility quality and flexibility

Partial Service Partial Service Providers Providers

Niche expertise Niche expertise Varied reputations Varied reputations Very cost conscious Very cost conscious

North America

Goodrich

Strongest player in North America Known for high quality Leverage partner companies Proximity to Boeing

Relative Performance:
High Medium Low

GE Engine Services

British Airways GECAS

Global

Large customer base for engine services (looking to expand to airframe) Own large % of airframe components (with Honeywell acquisition)

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

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Key Considerations for Competitive Assessment

Avoid over-use of market research and surveys and reliance on general benchmarking Ensure that you have targeted the scope to address the most critical business issues 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, potentially including: Competitor strategies, plans and intentions Approaches to customers and markets Capabilities, assets and cost structure Technology and product developments

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Capabilities Assessment

Capabilities Assessment
Overview
A capabilities assessment allows identification of core competencies and requirements to have market success

Instructions Activities
1.

Data Sources

Develop cost and capabilities baseline Understand current performance and strengths upon which to compare required capabilities and identify necessary improvements Assess/review required capabilities for specific segment or opportunity Determine requirements to succeed in a given opportunity area or segment

Internal interviews Site visits Industry reports Industry affinity groups Market research reports Analyst reports Primary research (end users, other client employees, channel partners, competitor personnel) NA

2.

3.

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

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Activity 1: Develop cost and capabilities baseline


Example: Cost Baseline
Total Budget
(1)

Example: Capabilities Baseline


People High 5
Very strong technical abilities across organization Some ability to communicate to internal audiences but fragmented & inconsistent Strong technical skills but weak in marketing & sales skills

= $690 M

Financial

Customer
Responsive to customer inquiries and needs but internal Infrastructure bureaucracy exists but results in slow Reactive communication response approach to is often developing inconsistent and products/servic late es based on explicit customer demands w/ limited marketing ability Able to get complex products produced & delivered but inconsistent approach to ability and redundant delivery methods

Big 6 Maintenance & Support Tooling & Ground Operations

$120 $ 10 $ 15 $ $ 5 5

ME&P
Field Service Rep Intro Teams Standard Problem Resolution 8110 Requests Fleet Team (SRP) $ 70 $ 10 $125 5 $ 40 $ 35 $ 285 M

Procedures & Task Cards Recovery & Handling Service Bulletins Facilities & Equipment Planning Maintenance Planning Provisioning Data Software & Applications

4
Performance

Tech Services

$ 20 $ 10 $ 40 $ 40 $ 5

Significant opportunity to reduce costs

After-Hour Problem Resolution (RRC) $

Flight Tech

Other Maintenance & Engineering

Inconsistent ability to prepare insightful & valuable business cases and evaluations Inability to obtain important cost data to make decisions

$ 270 M

1
Warranty
Standard Warranty Other Protection Programs $ 3 $ .5 Part 25 Documents Flight Crew Training Training Docs Simulator Data Performance & Engineering Data CBT and Other Software $ 20 $ 80 $ $ $ 5 5 5 $ 15

Low 0

$ 3.5 M

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$ 130 M

Capability Areas

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

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Activity 2: Assess/review required capabilities for specific segment or opportunity

Critical Success Factors

Relative Importance to Business


Legend High

Opportunity Area

Medium

Low

Steps: Identify critical success factors (CSF) for a given opportunity/segment Rate the relative importance of each CSF

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Activity 3: Perform gap analysis of internal capabilities against requirements


Required Characteristics

Steps to Achieve Characteristics


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
Gap Partner with and/or acquire a player who has demonstrated relationships and experience in the industry Meets/Exceeds Strong track record of designing and producing high-performance aircraft and space vehicles provides credibility outside the aerospace industry Meets/Gap Develop relationships with pertinent academic and commercial organizations and maintain competitive outlook 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 Gap Hire top marketing and customer service personnel Maintain close contact with industry to monitor new developments

Advanced conditions testing facilities

Deep industry knowledge and relationships Reputation for shortening product development cycles Strong knowledge of trends in both the target industry and applicable technologies Dynamic simulation and modeling capabilities

Effective channel management

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Benchmarking

Benchmarking Best Practices


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

Instructions Activities
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 2. Determine benchmarking approach. Evaluate the types of insight that is required vs. the amount of resources available. 3. Plan, Prepare, and Execute the Benchmarking Process. Develop a timing based on type of analysis, develop interview guides and templates, and begin the benchmarking activities. 4. Collect and document performance data and determine Performance Gap. 5. Synthesize, analyze, and interpret results. Analyze the applicability of innovative practices. Identify the best practice opportunity areas. 6. Communicate Results.

Data Sources

Project/initiative objectives documentation Available resources Project requirements Best practice database, interviews, published information

n/a n/a n/a

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Activity 1: Develop a Benchmarking Strategy


Determine type of benchmarking to be considered by identifying business Objectives and Strategic Initiatives to be supported
BENCHMARKING FOR HIGH PERFORMANCE
Steps: Understand clients critical business issues. Conduct internal data collection and analysis. Define what to benchmark.

BENCHMARKING

OPERATIONAL

STRATEGIC

ORGANIZATIONAL

Excellence in Execution

Sharp Business /Market Focus

Optimal Structure

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Activity 2: Determine benchmarking approach and identify the activities and sources of data to support the approach
Steps Determine the types of resources/time/dollars you have to dedicate to the study this will drive the type of benchmarking activities that will be realistic.

Quantitative Data

DC and client Knowledgebase Syndicated Research

Qualitative Data

DC Knowledgebase
Client Available Studies DC Network of Experts Public Research Interviews of selected peer groups

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


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

Steps Based on the resources available, plan the benchmarking effort Identify benchmark partners selection criteria Develop interview guides and templates for data collection Execute the benchmarking process

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Activity 4: Collect and document performance data


Using quantitative results

Steps Collect and document performance data Collect and document innovative practices

and qualitative results

34

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.

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Activity 6: Synthesize, analyze, and interpret results


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

Customer Segmentation - The majority of the companies segment their customers and tailor programs to each 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 the complexity of the process and using technology effectively Pricing - Most companies are attempting to implement market based pricing and offering tiered discounts to select customers Inventory Management - Companies aggressively manage inventory turn rates while maintaining satisfactory fill rates Product Offering - Some companies are expanding their product offerings to provide one-stop-shopping for parts and other products/services, often using strategic alliances with suppliers to augment existing capabilities. Others are rationalizing product lines and referring unprofitable lines to other sources

36

Key Considerations for Benchmarking


The use of benchmarking information is an effective and economical way for us to help clients to jump-start internal operational improvements, however, cost and business process benchmarking data are among the most difficult to obtain. Select participating organizations for their relevance to the client to ensure that findings and best practices would be applicable. Non-competing organizations would likely 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 are available. May have to make reasonable estimates where good data is not available. Isolated analyses can be misleading. Comparing multiple firms across multiple measures is more likely to yield useful results. Must consider validity of analysis when using data not consistently reported by competitors. Benchmarking profiles can be useful in communicating the attractiveness of new business models to client senior management

37

Alliance Approach

Alliance Approach
Overview
This approach will enable you to develop and manage the most advantageous and meaningful strategic alliance for the client

Instructions Activities
1.

Data Sources

Define objectives Understands reasons for and expectations from a strategic alliance Determine alliance strategy Describes the appropriate use of external partnerships to achieve the overall strategy Set boundary conditions Ensures that the best deals are structured with the most appropriate partners Define internal infrastructure Defines the organization within the client and its links to the alliance Manage performance Entails ongoing monitoring and review of specific alliance activity Execute the transaction
39

NA

2.

3.

4.

5.

6.

Overview
Companies which excel at strategic alliances typically rely on a set of periodic and transaction-specific alliance development process steps
Define Objectives Performance Management
Lessons Learned Performance Metrics Customer Services Strategy

Alliance Strategy
Internal Capability Assessment

Management Evaluation 1. Evaluate Alliance and Partner Options 2. Structure and Negotiate the Deal 3. Manage Alliance on an Ongoing Basis Role of Alliances

The periodic steps of the process link alliances with company objectives, and lay the foundation for establishing effective and complementary alliances across the organization. These steps are common to all types of strategic alliances and form the framework for a repeatable process.

Projected Alliance Resources

Products & Services Geographic Legal Issues Relevant to All Deals Alliance Types

Management Linkage Requirements

Internal Infrastructure

Partner Business Parameters Case Parameters

Boundary Conditions

The transaction-specific steps of the process are the activities required to evaluate/structure/manage a specific alliance. The specific content of these steps would be different for individual alliance opportunities.

40

Activity 1 and 2: Define objectives and determine alliance strategy

Description
OBJECTIVES

Customer Services Strategy

The overall strategic plan for the business based on objectives


Internal Capability Assessment Assess the implementation requirements of the strategy and the companys ability to perform (or internally develop) these functions

Role of Alliances

Determine the specific functions that can be more efficiently acquired through strategic alliances

41

Activity 3: Set boundary conditions

Description Products and services defines the scope of deals to be done The areas in which the alliances will and will not operate Determine type of alliances to be used Thresholds of business viability

Products & Services Geographic

Alliance Types Partner Parameters Business Case Parameters

Minimum acceptable returns an alliance business case must achieve to go forward

42

Activity 4: Define internal infrastructure

Description

Projected Alliance Resources

Those resources the alliance can draw on in development and operations phases

Management Linkage Requirements

Management connections that are necessary for any deal in a given alliance strategy

Legal Issues Relevant to All Deals

Legal aspects of operating within Client which remain unchanged for all deals (such as use of Client trademarks)

43

Activity 5: Manage performance

Description
Method for incorporating experience from previous alliances

Lessons Learned

Performance Metrics

The method by which individual alliances are evaluated against each other

Management Evaluation

Outline the guidelines by which alliance management will be selected and evaluated

44

Activity 6: Execute the transaction

1. Evaluate Alliance and Partner Options

2. Structure and Negotiate the Deal


Sign letter of intent Conduct Due Diligence Design Organization Negotiate Deal

3. Manage Alliance on an Ongoing Basis


Create Operations Plan Select Key Staff Monitor Performance

Steps

Detailed Opportunity Profile Partner Selection Vehicle Selection Prepare Business Case

Results Participants

Program Mgmt. Strategic, Technical, & Finance

Program Mgmt. Strategic, Technical Finance, Legal Contracts, Government, & Tax

Program Manager Finance

Potential deal to Partner

Signed deal

Ongoing successful deal

45

Spares

Spares Management/Inventory Assessment


Overview
This analysis will enable you to a identify opportunities for improvement spares and inventory management.

Instructions Activities
1. Conduct Spares Situation Analysis. Understand costs and inventory performance. 2. Identify Opportunities to Improve Spares Performance and Calculate the Benefits

Data Sources
Interviews Best practices Customer/target financial reports

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.
4. Develop Sales Profiles. Segment products by customers, products, purchasing patterns to understand usage. 5. Develop spares catalog pricing and management guidelines. 6. Develop metrics to monitor product performance. Identify specific actions to position each segment within the market
47

Interviews Company sales data

Interviews Company sales data


Current catalog, guidelines

n/a

Activity 1: Conduct spares Situation Analysis


Financials by Product Group ($millions) Estimated FY02
Total Inventory COS (Parts) Estimated WriteDown WriteDown as % of COS

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


Distribution Center Field Location

Performance

Roseville

Boeblingen

Singapore

Americas

Europe

APA

Inventory Turns

Months Supply

EPSG

$31

$7

$5 $8.4 $14.7 $7
Bench: $3.3 On-site: $11.4

$36.0 $43 $0.6


Bench: $2.5 On-site: $5.9

$2.7

7.5% 0.9 13.3

CSG

$0.06

10.0%

ATG

$19

$4

~$3

~$30

$7.9

$3.0

38.0%

0.3

40.0

LSCA

$4.0

$2.7

~$33

$24.6

$1.3

5.3%

0.7

17.1

Total

$50

$11

~$8

$12.4

$7

$17.4

~$106

$69.1

$7.1

10.3%

0.65

18.5

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 months supply
48

Activity 2: Identify Opportunities to Improve Spares Inventory Management Performance

Steps: Identify opportunity areas by comparing to industry benchmarks Inventory turns Months supply Stocking locations Inventory management systems Calculate the potential benefits

49

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

50

Activity 4: Develop Sales Profiles


Steps: Segment products by product type Segment products by customer purchasing patterns Segment products by customers Segment products by how they are used

51

Activity 5: Develop spares catalog pricing and management guidelines.


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.

Catalog should INCLUDE:


Parts with:
Historically stable prices Consistent and predictable demand patterns Known competition and ability to predict entry/exit of supply Reliable data/visibility into cost structure Lower sales prices (less than $1,000 per part)

Old Structures

3,720
New Structures

16,429 420 7,234

120 1,249

Remove ALL high dollar items

Power Plant

Wide Body Interior

401
1,604 723 647 73 361 865

3,284
5,186 2,830 2,432 46 2,830 4,217

Old Avionics Narrow Land Gear (components) Wide Body Land Gear (components)

Remove high dollar and slow moving items

Catalog should NOT include:


Parts with:

Steps:

Frequently changing prices catalog should be used on for parts A Variable customer needs and one-off have pricing fluctuations New Avionics that do not purchasing (due to supply/unknown costs) Changing market availability/competition Develop company guidelines for the Limited visibility into actual costs or cost Narrow Interior catalog based on the analysis just structure Higher sales prices conducted Non Electrical (greater than $1,000 per part) Systems

Remove high dollar and highly variable (priced) items

Remove most items from catalog with intent to greatly increase prices and move inventory out

52

Activity 6 - Develop metrics to monitor spares product performance


A Leverage strong position but improve availability
Pricing

D Develop exit strategy for unprofitable parts


Pricing

Raise prices after taking parts out of catalog Phase in price increases to minimize sticker shock Work with customers to improve forecasts and reduce inventory on medium to high volume parts Ensure consistent, timely availability of high margin parts
A Structures (old & new) Power Plant (comp.) Interiors (wide body) D Non-electrical Interiors (narrow body)

Marketing/Communications

Raise prices after taking parts out of catalog License manufacture rights to other parties Eliminate excess inventory by providing discounts as necessary e.g. fire sale Reduce current inventory levels and decrease fill rates on select parts Balance inventory reductions to meet needs until alternate source(s) are developed

Inventory

Marketing/Communications

High

Inventory

Price

Landing Gear (narrow & wide) Avionics (new)

Low

B Entice customers to repair, not upgrade


Marketing/Communications

Avionics (old) B

C Maintain current pricing for low to medium valued parts


Marketing/Communications
Communicate and monitor competitive Steps: pricing to encourage sales volumes Develop metrics to determine how Inventory pricing should be determined Continue to rationalize inventory levels, Make sure policies to are customer matching customer forecasts with stock and market oriented levels Identify specific actions to position Other each segment within vendors to proactively provide Work w/ the market

Communicate price reductions in catalog and non-catalog parts to encourage sales volumes Identify potential cross-selling opportunities Ensure stock replenishment levels enable timely delivery to meet anticipated increase in demand Work w/ vendors to proactively provide complete solution

Low

High

Inventory

Competition

Other

complete solution where possible

53

Pricing and Bundling

Pricing and Bundling


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

Instructions Activities
1. Understand your customers, competitors and costs. Focus on understanding what your customer values. 2. Synthesize data & perform preliminary pricing analysis. Identify customer purchasing patterns. 3. Segment products to better understand market position and pricing opportunities 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 5. Consider bundling options and identify common patterns between products to identify bundling opportunities. 6. Develop a process for evaluation of bundling options. Enable delivery of single products or bundled solutions from the same operations base.

Data Sources
See sources under activity 1 detail Same as above. Products, customers, pricing n/a

n/a n/a

Note: For detailed strategy & approach to Pricing, refer to the Pricing Master document.
55

Activity 1: Understand your customers, competitors and costs


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

Key Questions to be Addressed


How will price affect market position, volume, or sales? What market share changes can be expected in response to a price change? What are your key strategic products? What percentage of sales comes from each product? Which products create demand for other products? What are your main customer segments?

Potential Information Sources


Customer Surveys Market Analysis Management Interviews Finance Manager Interviews Sales Reports/Sales Manager Interviews Marketing Manager Interviews Focus Groups Industry Reports Market Analysis Production Manager Interviews/Sales Management Interviews Sales Manager/Marketing Manager Interviews

Key Outputs
Product Performance Model Price Elasticity Models Strategic Focus Strategic Focus Bundling Strategy

Key Questions
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?

Product

Customer

Customer Segments

How do you differentiate your customers?


Competitor How much competition exists in this business? How will the level of competition increase or decrease as the result of a pricing decision? What are the true direct and indirect costs for the product? What are the after sales costs?

Customer Value Data


Competitive Reports Competitive Threats and Opportunities Breakdown of all costs

Costing

Cost to Serve Data

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

56

Activity 2: Synthesize Data & Perform Preliminary Pricing Analysis


Sensitivity Analysis
Pric e

Pric e

Sample Analytical Deliverables

Demand Analysis
Elastic Demand

Quantity Demanded

Inelastic Demand Quantity Demanded

57

Activity 3: Segment products to better understand market position and pricing opportunities
Conceptual Approach to Product Pricing
Internal product position Segment A

Client has strong market position

Segment B Segment C

Some fragmented competition

Total Universe of Products

Segment D

Strong levels of competition

Segment parts based on: Customer purchasing patterns Internal categorization External competitive levels

Segment E Segment F
. . .

Extreme competition

Segment X

58

Activity 4: Conduct deep drill analysis on each customer segment


An example of preliminary price point analysis for classifying pricing options
Six product segments
- Internal pricing and sales

25 key customers
- Customer purchasing trends

15 competitors
- Competitor prices and attributes

Product C

Competitors were up to 35% below Quotations on the newer products indicated an opportunity to increase prices
Product D

Competitors were 40% higher new products Some product types were difficult to find in the marketplace
Product B

40% 20% 0% 20% 40%

Product information were generally difficult to find, and mixed in price competitiveness

Competitors were 50-58% higher for some specific models

Product A

Product E

Quotations varied greatly


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

Product G Internal Prices External quotes 1 External quotes 2 External quotes 3

Competitor prices were consistently lower in this segment

Product Pricing Recommendations

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

59

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
Product-Product Product Channel

Examples
Computers and Peripherals Buying cars online

Value to customer
One-stop shopping, time-saving for the customer, possibly lower price than individual components Lower price and convenience for the customer

Product-Service

Jet engines and maintenance

Peace of mind for the customer since the supplier knows the product best. Reduced search-cost to customer
One-stop shopping, related services, and time-saving for the customer Less expensive and more convenient for the customer

Service-Service Service-Channel

Phone service and voice mail Paying Bills online

Product-Service-Channel

Computer with internet service sold online

One-stop shopping for the customer at a lower price

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

60

Activity 5: and establish common patterns between products to identify bundling opportunities

Potential Reasons for Bundling Include: Creating customer loyalty with a unique offering Leveraging economies of scale Lower overall cost to save Disguise time cost structure Join complex, less imitative utilization

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

Model 1 Prod A H L L H M H Prod B H H L L L H Prod C L L L L M H Prod A H H L H M H

Model 2 Prod B H H M H L L Prod C H M L M L L

Model X

Customer #1 Customer #2 Customer #3 Customer #4 Customer #5 Customer #25

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

The goal of any customer target approach is to increase market share profitably while minimizing the giveaway to existing customers
61

Activity 5, contd: Bundling opportunities


Example: How to consider Bundling Solutions
Example Services Segments Fleet Management Solutions/Products Leasing Global Mobile Kits P-F Mods Modifications e.g. P to F Parts Solutions Maintenance New Product A
Product development driven by key customer demand and profit opportunity 62

Customers Customer 1 Customer 2 Customer 3 Customer 4 Customer 5


Customers segmented on profitability, strategic value, and total sales

Financing MRO (Maintenance Services)

Training

Spares and Logistics

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 have some but not all products or capabilities ?

Do we have solution on the shelf?

No

Do we have products or capabilities , but need to bundle?

No

No

Yes A Next Step Offer the solution

Yes B Bundle the solution C

Yes D Determine to bid or no-bid

Fill Operations or Product gaps In-source or Outsource

Major Considerations / Issues

Pricing

Process to bundle Internal transfer pricing

Go/No Go decision

63

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

64

Key Considerations for Bundle Pricing


There are several important points to remember with respect to the five characteristics of successful pricing Characteristics
Rich Information

Take-away
Look outside of Industrial Manufacturers current situation for potential bundles Information about market needs and internal capabilities/options is essential to develop the bundle and price it Without knowing the cost impact of bundling, good decisions cannot be made It is critical to ascertain whether the customer values the bundle more highly than the separate offerings Ensure focus and quantitative estimate of variable cost that provide accurate assessment of contribution margin Bundling is an activity that is likely to cross organizational lines Provide organizational structures and incentives that will enable cooperation between divisions in the organization and other partners 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

Customer Value Focus Contribution Margin Considerations Organizational Alignment Structured Processes

65

Services Technology Strategy

Services Technology Strategy

Overview
This analysis provides considerations and process approach in defining a technology strategy for services capabilities

Instructions
Activities
1. Develop a view of clients services business process model and the issues with current model 2. Identify the objectives of the business and build the to-be model 3. Identify the technology investment opportunities/needs to support the gaps; consider benefits to other processes 4. Conduct a cost/benefits impact analysis; conduct ROI 5. Prioritize the technology capabilities required to support these gaps; identify unique and common requirements across businesses and functions 6. Map to a high level implementation plan
67

Data Sources
Client documentation Interviews & workshops

Client documentation Interviews & workshops

Technical resources, past projects Benchmarking

n/a n/a

Integration with other projects

Activity 1: Develop a view of clients business process model and identify the issues with current processes
Steps: Develop an understanding of the current processes Identify the key issues, analyzing both external opportunities as well as internal opportunities

68

Activity 2: Identify the objectives of the desired change, and build the to-be state model in support of achieving those objectives
Steps: Identify the objectives of the business to ensure that the to-be state will be in support of those objectives Build the to-be state process model

69

Activity 3: Identify the technology investment to support the process changes

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

70

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


Total Contact Center Impact
As-Is (FY02): $64M and 754 FTEs To-Be (FY07): $44M and 522FTEs

Annual Contact Center Impact (Cumulative)


$25 $20

Cost Reduction Impact ($M)


$19.5 $16.9 $14.2 $9.4

$19.7

$15 $10

CFS Impact: 31% Reduction $19.7M 232 FTEs Enabled by: A2a, B1, & B2

$5 $0 FY03 FY04 FY05 FY06 FY07

250 200

FTE Impact
199 167

229

232

Steps Develop total cost impacts Develop revenue impact Develop ROI (see separate cookbook section for details)

To-Be $44M 522 FTEs

150

111
100 50 0 FY03 FY04 FY05 FY06 FY07

Total Revenue Impact1


As-Is (FY02): ~$6,000M To-Be (FY08): ~$6,282M

Revenue Impact Breakdown1


Total Impact: $282M

Legend:

A2a: eSupport

B1: CC Efficiency

B2: CC/BC Consolidation

$7,000

Total To-Be ~$6,282M

$6,000

CFS Impact: $282M = 5% increase

A1a: eSelling - $21.0M Customer Satisfaction $80.0M

$5,000

A2a: eService - $45.0M

$ in Millions

$4,000

$3,000

As-Is ~$6,000
F1: Renewals and Warranty Conversions - $46.0M E2: Installed Base Marketing $14.6M

B1: CC Efficiency - $24.0M C2a: Channel Partner (design registration) - $3.0M D1: ATG Strategic Selling - $16.7M D2: Closed Loop Marketing - $30.6M

$2,000

$1,000

E1: eMarketing - $0.7M


$0

Revenue

71

Activity 5: Prioritize the technology capabilities required to support these gaps


Low
Consider for Phase IB
3 3 2 2 4 4 22 22 10 10

Implementation Requirements

7 7

High Priority for Other Phases


8 8 6 6 17 17

19 19

Further Analysis Required

5 5 21 21 12 12 18 18 11 & 11 & 13 13 20 20

Steps Develop criteria for prioritization, e.g. impact to customer satisfaction, potential value, unique and common requirements across businesses and functions Develop prioritization matrix

16 16 14 14 15 15

High

9 9

1 1

Low

Potential Value (Financial Impact)

High

Impact on customer satisfaction: Low Medium High

72

Activity 6: Map to a high level implementation plan

73

Services Technology Key Considerations

Drive lasting change through a combination of new processes and tools and recognize that the majority of benefits from technology solution arise from process changes Different infrastructures will suffice for different customers Use state-of-the-art infrastructure to engage with global, high value customers Use a more cost-effective infrastructure to interact with smaller accounts Businesses own the business strategy, but a common technical capability backbone across the company should be deployed except where good reason exists to deviate

74

Business Case and ROI

Develop Business Case and Establish ROI


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

Instructions Activities
1.

Data Sources

Establish as is cost and performance baseline metrics to identify improvement opportunities. Understand existing profitability measures. Identify components and drivers of cost and resources. Identify all benefits, including intangible, quantifiable, and qualitative (when unable to make estimates).

Internal financial, organizational, activity, process and performance data Benchmarking, best practices Business Plan cost buildup and forecasts, Business Plan revenue and pricing buildup Implementation requirements n/a

2.

3. Define the implementation costs and time frames of the business case so that implementation can be monitored. 4. Capture of the Opportunities and Prioritize them Based Upon Implementation Requirements and Potential Benefits 5. Complete Financial Analysis

76

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

77

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


Sample Cost Impact Analysis
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 drivers
Total Contact Center Impact
As-Is (FY02): $64M and 754 FTEs To-Be (FY07): $44M and 522FTEs

Annual Contact Center Impact (Cumulative)


$25 $20

Opportunities to be Addressed

Cost Reduction Impact ($M)


$19.5 $16.9 $14.2 $9.4

$19.7

$15 $10

CFS Impact: 31% Reduction $19.7M 232 FTEs Enabled by: A2a, B1, & B2

$5 $0 FY03 FY04 FY05 FY06 FY07

250 200

FTE Impact
199 167

229

232

To-Be $44M 522 FTEs

150

111
100 50 0 FY03 FY04 FY05 FY06 FY07

Improve quality of contact Move contacts to the web Improve agent utilization / efficiency Optimize existing technology Improve IVR and CTI capabilities Improve call handling capabilities via enhanced customer information and agent capabilities Optimize existing technology
Improve Call Routing Offload Low Value/Low Risk Processes to Lower Cost Resources and Channels

Legend:

A2a: eSupport

B1: CC Efficiency

B2: CC/BC Consolidation

Total Revenue Impact1


As-Is (FY02): ~$6,000M To-Be (FY08): ~$6,282M

Revenue Impact Breakdown1


Total Impact: $282M


A2a: eService - $45.0M

$7,000

Total To-Be ~$6,282M

$6,000

CFS Impact: $282M = 5% increase

A1a: eSelling - $21.0M Customer Satisfaction $80.0M

$5,000

$ in Millions

4.

$4,000

$3,000

As-Is ~$6,000
F1: Renewals and Warranty Conversions - $46.0M E2: Installed Base Marketing $14.6M

B1: CC Efficiency - $24.0M C2a: Channel Partner (design registration) - $3.0M D1: ATG Strategic Selling - $16.7M D2: Closed Loop Marketing - $30.6M

Reduce dependence on high-cost labor Define roles and responsibilities Consolidate contact centers Improve integration between CC and BC Enhance and implement relevant and meaningful metrics

$2,000

$1,000

E1: eMarketing - $0.7M


$0

Revenue

78

Activity 3: Define the implementation costs and time frames of the business case so that implementation can be monitored.
Example:
Steps: Consider up front costs and 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.

79

Activity 4: Capture the opportunities and prioritize them based upon implementation requirements vs. potential benefits
Example:

80

Activity 5: Develop Financial Projections


The objective of this activity will be to document the financial analysis of the investment alternatives being considered, projected over the project life to determine whether the business is viable and to understand 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 project duration

Step 2
There are 3 tools that exist to evaluate the financial projections:

Break-Even Analysis or Payback Period Time taken for a project to recover its initial 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

Step 3

Conduct a sensitivity analysis on the the financial analyses to test the various assumptions and provide a range of possible scenarios
81

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 could have earned with a higher return venture either within the organization or externally Most corporations require that new ventures are projected to pass a certain rate of 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 on the decision to move forward or not A negative financial projection does not necessarily mean that the venture should not be undertaken At times an unprofitable project is necessary where presence in a market creates some competitive advantage When the value of the strategic advantage = $x, and $x + NPV > 0
82

Strategic Plan

Strategic Plan

Overview
This analysis provides guidelines for developing the services strategic plan.

Instructions
Activities 1. Define Objectives of the business strategy - what will and will not be achieved 2. Conduct Situation Analysis and Develop Options 3. Develop Strategy - product, marketing pricing, distribution 4. Develop Business Case - (Financials, funding, risks, etc.) 5. Build recommendations and action plan - (Market development, potential alliances, etc.) 6. Develop Executive Summary Data Sources Client Multiple Multiple Refer to business case section of cookbook n/a n/a

84

Step 1 - Develop Statement of Objective


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


Quarterly Profitability
4 2 0 -2 -4

3Q Market Share

VS
Tradeoff B: To introduce Product X and be market leader by 3rd Q

Tradeoff A: To introduce Product X and be profitable by 3rd Q

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, be attainable and take into consideration the tradeoffs The right objective will push the venture towards the next project milestone, reinforce morale and support credibility

85

Step 2 - Conduct Situation Analysis


The situation analysis provides the foundation for strategic decision making by aiding in the discovery 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

Note: Refer to other cookbook sections for detailed analysis activities.

Situation Analysis consists of four sections

Market Analysis

Competitive Analysis

Customer Analysis

Internal Analysis

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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 organizations 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 Strategic Options organization
1 2 3 Consistent with Strategic Direction Meets Strategic Objective Leverages Core Capabilities Builds Competitive Position Anticipates Market/Competitive Moves Endures Environmental Uncertainty Implementation Challenges Financial Benefit Scale: High, Medium, Low
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Once an option has been selected, it needs to be developed into a strategy that encompasses why and how the organization is going to proceed

Step 3 - Develop Strategy, part 2

There are 4 components of the strategy that must be developed

Key Steps:

Step 1: Identify products and services Step 2: Asses how the product will be produced Step 3: Evaluate whether afterproduction requirements exist Step 4: Budget the costs of production and other requirements

Operations Marketing Definition of products and services and how they are produced How the company plans to market the product or service

Key Steps

Step 1: Create a clear positioning statement for each customer segment that will be addressed Step 2: Develop plan to target each relevant customer segment Step 3: Budget expenses by customer segment

Key Steps:

Step 1: Identify what distribution channels you need Step 2: Evaluate whether a supplemental sales force is necessary Step 3: Research whether strategic alliances will allow more efficient and cost effective reach to the target market Step 4: Budget the distribution costs, by customer segment if necessary

Key Steps

Distribution Pricing
The distribution channels the company will use to get the product or service to the customer

The pricing options for the product or service

Step 1: Determine pricing objectives Step 2: Establish minimum and maximum price ranges and test them through customer research Step 3: Incorporate price ranges to test sensitivity of profitability in financial analyses

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Step 4 Develop Business Case

See Business Case section of Cookbook

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Step 5 - Build recommendations and action plan


The action plan is a detailed set of next steps that illustrates how you will realize the proposal goal A GANT chart is a useful tool for plotting out tasks, deadlines and responsibilities Milestones, business achievements by which the organization can judge progress and evaluate 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

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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
Contents Statement 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 Funding Sources & Use

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