Module III

Characteristics and dynamics

of the individual companies

Introduction

Module I

Module II

Module III

Module V

Roll-out
Qtr 1
4

Qtr 2

Qtr 3

Qtr

Action 1
Action 2
Action 3
Action 4
Action 5

Module VI

Conclusion

Module IV

Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

Introduction

Schedule for the A.T. ConsultingBusiness Unit Strategy Training Program

Time

Monday

Tuesday

Wednesday

Thursday

Friday

Module II

Module III

Module V

Final presentation

8-9
Introduction
9-10
10-11
11-12
12-1

Module I

1-2

Lunch

Conclusion
Lunch

Lunch

Lunch

2-3
3-4

Module VI
Guest Speaker
Module IV

Guest Speaker

4-5
Case preparation

Case preparation

Case preparation

Strategy literature
review

7-8

Case presentation

Case presentation

Case presentation

Case Dinner
preparation

8-9

Dinner

Dinner

Dinner

Dinner

5-6

Lunch

6-7

9-10
10-?

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

Introduction

Positioning of Module III in the overall training context

Module II
Structure and
dynamics of the
industry

Module I
Identification of the key
issues of the
engagement

Module III
Characteristics and
dynamics of the
individual companies

Module V
Definition and
evaluation of strategic
alternatives

Module VI
Implementable
recommendations

Roll-out
Qtr 1

Qtr 2

Qtr 3 Qtr 4

Action 1
Action 2
Action 3
Action 4
Action 5

Module IV
Execution
capacity of the
client

Note: The order of presentation of the curriculum elements should not be interpreted as a sequential guideline for a strategy engagement. Different
elements of the program may be referenced at different times in the engagement
Module III
A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING
Source: A.T. Kearney

Introduction

Module III teaches the analysis of individual company characteristics and

dynamics, which can be applied to both the client and its competitors

Establish an overview of the most

prominent players in the clients industry
Determine the individual competitors
levels of success in their respective
segments (where they compete)

Study the processes that companies use to

deliver value to their customers (how they
compete)
Evaluate the financial situations of the
companies

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

Introduction

Deliverables and techniques in Module III

Deliverables

Techniques

Overall company profile

Purpose of the organization

Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus

Evaluation of product/market segments

Overview of the value chain

Value chain analysis

Cost and margin driver analysis

Financial resources and performance

Development over time

Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

Overall company profile

Introduction

An evaluation of the overall profile is the first step in understanding the business
units history, how it is structured today and its future direction

Fundamental aspects of the company

Technique for analysis

Overall raison dtre of the company

Purpose of the organization

Degrees of freedom

Stakeholder analysis

Development until today

Strategic era analysis

Strategic overview of the business unit today

Strategic planning framework

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

Overall company profile

Purpose of the organization

Description

A review of the business units and corporations mission/vision statements,

objectives and strategies helps one to understand the future direction and
orientation of the business unit
Definition
Mission/
vision

Objectives

Strategy

Source: A.T. Kearney

Purpose and aim of the

organization

Quantitative or specific
goals to be attained
within a given
timeframe that usually
ranges between a few
months and several
years

Means to achieve the

objectives

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

10

Overall company profile

Purpose of the organization

Focus of this training

Clarification of terminology in this technique

Term

Description

Comment

Mission/Vision*

These two are often given different meanings by different companies,

sometimes interchangeably and other times hierarchically. A mission implies
duty or a role of a company whereas a vision implies managements ideal
positioning of the company

Objectives*

Objectives are often used interchangeably with goals. We will use the term
objectives in the module

Strategy**

If no explicit articulation of strategy exists, simply evaluate those actions that the
company has taken. Strategy can usually be inferred this way

Value proposition

Articulation of what value a company offers the market, its stakeholders, and
its value chain partners (sometimes defined in value/price terms) - it is
sometimes used interchangeably with strategy

Action/business plan

Specific actions initiated to implement the defined strategy - often thought of

as included in the definition of strategy

* For definition, see previous page

** For definition, see Introduction Module and previous page
A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING
Source: A.T. Kearney

Module III

11

Overall company profile

Purpose of the organization

Description

An assessment of the corporate mission/vision statement helps one to understand

the business units context within the entire company and therefore how the
business unit supports the corporate mission/vision

The corporate mission/vision

statement sets the context for the
business units existence

Corporate level

The business units mission/vision

statement illustrates how the
business unit identifies its purpose
within the corporation

Business unit
level

If the business unit does not have a

mission/vision statement, the
corporate statement should be
analyzed/understood carefully

Source: A.T. Kearney

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12

Overall company profile

Purpose of the organization

Description

The mission/vision statement is a companys means of expressing its desired

direction

Expresses a management style that encourages people to

go beyond business as usual
Mobilizes the organization and should inspire its
employees to reach beyond their current resources and
capabilities
Gives meaning to everyones efforts
Raises the collective level of ambition

Source: A.T. Kearney

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Module III

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Overall company profile

Purpose of the organization

Description

Mission/vision statements reveal information about a companys core ideology and

envisioned future

Core values

Essential and enduring tenets of an

organization that illustrate the companys
beliefs
Require no external justification. They have
intrinsic value only

Core purpose

The organizations reason for being

Reflects peoples idealistic motivations for
doing the company's work
Captures the soul of the company and is the
raison dtre, not an objective or strategy

10-30 year long-term

goal

It should be clear and compelling, creating a

challenge
It should serve as a unifying focal point of
effort and act as a catalyst for team spirit

Core ideology

Mission/vision*

Defines the enduring character of an

organization
Provides the glue that holds an
organization together through time

Envisioned future
Conveys concreteness - something
visible, vivid and real
Involves a time yet unrealized - with
dreams, hopes and aspirations

Vivid description

A vibrant, engaging and specific description of

what it would be like to obtain the long-term
goals

* Several authors have discussed differences and similarities between missions and visions. Some argue that missions and visions can be one and
the same, while others strongly disagree. When arguing that visions and missions are not identical, the most commonly used distinction is that the
mission is a brief explanation of the organization's purpose whereas the vision is a more elaborate statement
Source: Collins, J.C. and Porras, J.I. (1996); Building Your Companys Vision
Module III
A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

14

Overall company profile

Purpose of the organization

Usage

An analysis and interpretation of the business units mission/vision statement

reveals insights about a companys intended direction*

Sense of direction and focus areas

Shared values and standards of behavior
Corporate context and cultural issues
Stakeholder requirements and degree of commitment to
them
Objectives of the company and its understanding of
how to reach them

Perception of the market/competition (e.g., overly

optimistic?)
View of the companys own strengths and weaknesses
Shortfalls in execution capacity

* An accounting objective is not appropriate as a mission/vision. The statement must be deeper and serve to inspire people

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

15

Overall company profile

Purpose of the organization

Usage

How to develop a mission/vision statement

What a mission/vision
statement should include

How to develop mission/vision

statements

Description of the business in which

the organization competes
Strategic intent of the organization
Key strengths of the organization
Broad strategies to be pursued to
achieve the mission/vision
Organizations values

Developed by the CEO

Appeals to a common purpose
Communicates sincere belief in
mission/vision
Developed by CEO and senior team
Discuss in small team
Validate with employees
Present mission/vision to
organization
Developed bottom-up
Employ scenario development
Hold informal and formal
discussions
Use a lower level manager to help
in development and then facilitate
in communicating

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

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Overall company profile

Purpose of the organization

Usage

The companys objectives and strategies reveal information about its purpose*

Insights from objectives

Insights from strategy

Plans for growth (organic or through

acquisitions)

What resources does the company

commit to achieve its objectives?

Plans for product development

In which segments does it compete?

Plans for cost cutting

How does the company create

value/differentiate itself?

Plans for diversification

Is the company aggressive or

passive?

Sense of urgency
Turnaround or business as usual

Priorities of management
Degree of organizational focus

* Shareholder value is an outcome of the objective and should not be the objective by itself. An objective to increase shareholder value
does not serve to inspire employees and provide them with an understanding of the drivers required for competitive success
Source: A.T. Kearney

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Module III

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Overall company profile

Purpose of the organization

Example

The mission/vision statement indicates a companys intended direction

A comparison of
the
missions/visions
of key competitors
provides an
understanding of
their different
focus and overall
values

The mission/vision statements of two copier business units

Copypro

Copycat

Kyosei*

The document company

To be one of the worlds top

ten manufacturing
companies within the next
30 years

To be the leader in the

global document market,
providing solutions that
enhance business
productivity

* Spirit of the Corporation in which individuals and organizations live and work together for the common good
Source: Annual reports; Web sites

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

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Overall company profile

Purpose of the organization

Example

The organizations objectives indicate the companys overall focus

Both companies
have clear
objectives

Copypros main
objectives are
diversification and
globalization

The objectives of two copier business units

Copypro
Focus on high value added
businesses - create superior
products and technologies with
the potential to set de facto
industry standards
From being a world leader in
image and information
technology to a leading
corporation in the field of
multimedia

Copycat
To achieve profitable revenue
growth and world class
productivity by building on
strengths in black-and-white
copying, office and data center
printing, production publishing,
and together with affiliate
Company X, lead the industry in
color copying and printing

Source: Annual reports; Web sites

3

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

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Overall company profile

Purpose of the organization

Example

An evaluation of specific strategies can indicate a business units prioritized areas

of focus

The strategies
reveal an
intensified focus on
global expansion

An analysis of
Copypros
strategies reveals
six primary areas
of importance
Management
Environment
Products
Markets
Finances
Processes

Source: A.T. Kearney

The strategies of two copier business units

Copypro
Develop cross-functional
alliances
Accelerate development of new
multimedia businesses
Grow the solar energy business
Achieve financial flexibility
Strengthen financial structure
Reduce vulnerability to
exchange-rate fluctuations
Create an international staffing
system
Re-emphasize the tradition of
no defects-no complaints

Copycat
Introduce new products that
leverage the power of digital
technology
Respond aggressively to
increased demand for enterprisewide document services
Pursue growth in emerging
markets
Focus on lowering time to
market requirements
Put the customers first

Source: Annual reports; Web sites

3

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

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Overall company profile

Purpose of the organization

Example

Proper mission/vision statements focus on a limited number of business areas and

are inspirational to a companys employees

Toyotas
mission/vision
attempts to cover too
many aspects of
business. The
company cannot
successfully be all
things to all people.

An example of a proper and an improper mission/vision statement from the

automotive industry
FOCUSED
Honda Motor Company
Maintaining an international
viewpoint, we are dedicated to
supplying products of the highest
efficiency at a reasonable price for
worldwide customer satisfaction

Hondas
mission/vision
focuses on fewer
aspects of business,
such as innovation
and operational
excellence.

UNFOCUSED
Toyota Motor Corporation
Guiding principles
1. Be a company of the world.
2. Serve the greater good of people
everywhere by devoting careful
attention to safety and to the
environment.
3. Assert leadership in technology
and in customer satisfaction.
4. Become a contributing member
of the community in every nation.
5. Foster a corporate culture that
honors individuality while
promoting teamwork
6. Pursue continuing growth
through efficient, global
management.
7. Build lasting relationships with
business partners around the world.

Source: Foster, T. (1993) 101 Great Mission Statements

3

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

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Overall company profile

Purpose of the organization

Methodology

Methodology for analyzing and/or defining the purpose of the organization

Input
Top management
statements
Client
data/interviews
Expert interviews
Analyst reports
SEC filing*
Company
mission/vision
documents

Output

Fact gathering

Research literature
about the company
Interview top
managers
Study company
advertisements

Synthesis and
evaluation

Decipher company
mission/vision
statements
Determine whether the
statements are
consistent with the
companys objectives,
strategy and value
proposition
Compare the clients
mission/vision,
objective, strategy and
value proposition to
those of its competitors

(Re-)formulate as
required

Strategic direction
of the company
Level of ambition
Players analysis
Strategic group
analysis
Industry strategic
era analysis

Work with management

to develop priorities
(Re-)formulate the
mission/vision, objective,
strategy and value
proposition as required

* Reports filed by publicly held companies with the Securities and Exchange Commission: e.g., 10K, 10Q
Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

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Overall company profile

Purpose of the organization

Conclusion

Conclusion

Key points

Strengths

Weaknesses

References

Much can be learned about a companys (and its executives) nature and culture from its mission/vision
statements, value proposition, etc.
Not many companies differentiate themselves in terms of these statements
Statements need to be updated as the company evolves
Mission/vision statements should be linked to the strategies and objectives
A corporation as a whole as well as its individual business units should have developed such statements
Provides insight into a company's culture, purpose, goals and means of achieving them
Provides insight into the attitudes of higher management

Quite easy to confuse mission/vision and objectives

Can sometimes be misleading
Different companies apply different meanings to the terms mission/vision, value proposition,
strategic intent, etc.

Abraham, J. (1995); The Mission Statement Book: 5301 Corporate Mission Statements from

Americas Top Companies

Campbell, A. & Young, S. (1991); Creating a Sense of Mission
Christopher, W.F. (1994); Vision, Mission, Total Quality
Collins, J.C. & Poras, J.I. (1996); Building Your Companys Vision Statement
Foster, T.R.V. (1998); 101 Great Mission Statements
Graham, J.W. & Harlick, W.C. (1994); Mission Statements
Jick, T.D. (1993); Managing Change
Stone, R.A. (1996); Mission Statements Revised

Source: A.T. Kearney

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Module III

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Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

24

Overall company profile

Stakeholder analysis

Description

A stakeholder analysis reveals the pressures that a company faces from its
constituents and the degrees of freedom that are available to the company in
determining its strategic direction

Shareholders

Media

Corporation

Strategic partners

Deliverables
Creditors

Client

Local community

Top management

Government and
regulatory bodies

Employees

Suppliers

Unions

To determine who
the stakeholders are
and their impact on
the client
To determine the
most critical
stakeholders and
their relative levels
of power

Customers

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

25

Overall company profile

Stakeholder analysis

Usage

An understanding of stakeholders and their objectives allows one to calculate a

business units freedom in establishing its strategic direction

Stakeholder

Objective

Measurement/value criteria

Shareholders

Competitive risk adjusted rate of financial

return

Corporation

Secure optimal performance of business unit

Creditors

Secure principal and interest repayment

Collateral value
Interest payments and coverage
Principal payments

Top
management

Remuneration
Recognition
Pride

Salary/options/pension
Peer group respect
Ownership (family owned)
Degree of delegation
Level of control

Employees

Secure, well paid, satisfying work

Job security
Pay, options, pension package

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

EVA/SVA
Market value
Resource allocation
Dividends
EVA
Market value
Dividend

Module III

26

Overall company profile

Stakeholder analysis

Usage

An understanding of stakeholders and their objectives allows one to calculate a

business units freedom in establishing its strategic direction (contd)

Stakeholder

Objective

Measurement/value criteria

Unions

Secure, well paid, satisfying work

Job security
Pay, options, pension package
Number of different unions
Number of members /
total employees

Customers

Value for money

Service, price, quality,

customer structure
Length of relationship
Level of integration
Business volume
Contractual obligations

Suppliers

Long term, profitable, reliable contracts

Length of relationship
Level of integration
Business volume
Contractual obligations
Credit ratings

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

27

Overall company profile

Stakeholder analysis

Usage

An understanding of stakeholders and their objectives allows one to calculate a

business units freedom in establishing its strategic direction (contd)

Stakeholder

Objective

Measurement/value criteria

Government
and
regulatory
bodies

Non-monopolistic / competitive market

Tax revenue
Environmental protection

Treasury, taxes collected

National interest and security
Redundant sources of supply

Local
community

Environmental protection
Employment opportunities
Ethics

Local employment
Environment friendly
operations
Percentage of workforce
employed

Strategic
partners

Profitable relationship
Synergies

Length of relationship and

integration
Profit

Media

Perceived well

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Quality and quantity of

coverage permitted

Module III

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Overall company profile

Stakeholder analysis

Usage

When performing a power/dynamism analysis one assesses where political efforts

should be channeled to gain support for strategic initiatives

High

C
Greatest
danger
or
opportunity

Powerful
but
predictable

The most difficult entities to deal

with are those located in segment
D, because they are in a
powerful position to block or
support new strategies; however,
their stance is difficult to
predict

Power
B

Unpredictable
but
manageable

Difficult stakeholders to manage

are ones lower in the
organization who yield
significant influence over people
in powerful positions.

Few
problems

Low

High

Low
Predictability
Source: Johnson, G. and Scholes, K. (1984); Exploring Corporate Strategy

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Overall company profile

Stakeholder analysis

Usage

A power/interest matrix indicates which stakeholders should be influenced to

support the adoption of a strategic initiative

High

D
Keep

Key

satisfied

players
Although the entities
categorized in segment C
might be relatively
passive, they can become
fierce adversaries, if they
strongly oppose a new
strategy

Power
A

Minimal

Keep

effort

informed

Low

High

Low
Level of interest
Source: Johnson, G. and Scholes, K. (1984); Exploring Corporate Strategy

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Overall company profile

Stakeholder analysis

Example

A power/dynamism matrix can reveal a strategy for playing and controlling the
political game

Stakeholder analysis for Copypro - the power/dynamism matrix

It is essential to gain
the co-operation of
unpredictable
stakeholders who
wield a great deal of
power

Although the
shareholders and the
corporation do have a
high degree of power,
their reactions to a
strategic initiative can
often be predicted,
which allows
appropriate measures
to be taken early in
the strategy making
process to gain their
support

High
Strategic partners

Shareholders

Customers

Corporation

Suppliers

Employees

Creditors
Power
Local community
Government

Low
High

Low
Predictability
Source: A.T. Kearney

Source: Johnson, G. and Scholes, K. (1984); Exploring Corporate Strategy

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Overall company profile

Stakeholder analysis

Example

Initially, every stakeholder might be perceived as having a high level of interest in a

new strategy; however, it is important to thoroughly evaluate their underlying
objectives and categorize them appropriately in the power/interest matrix

Copypro should
be especially
sensitive to the
objectives of its
key stakeholders

Stakeholder analysis for Copypro - the power/interest matrix

High
Strategic partners

Shareholders

Customers

Corporation
Employees
Suppliers
Creditors

Power
Local community

Media

Government

Low
High

Low
Level of interest
Source: A.T. Kearney

Source: Johnson, G. and Scholes, K. (1984); Exploring Corporate Strategy

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Overall company profile

Stakeholder analysis

Example

Another way of mapping stakeholders is by their anticipated reactions to specific

changes in the organization or to its expected strategy

Indicate potential
scenarios where
entities will be at
stake

Determine
whether individual
stakeholders will
support or reject
the potential
change

Potential scenarios for Copypro

Stakeholders

Internal stakeholders
Whole company

Possible
changes

Marketing Production
dept.
dept.

External stakeholders

Supply
dept.

Customers

Suppliers

Sell to competitors

Introduce
computerized
systems

Close plant

Develop market X

Subcontract
production

Source: A.T. Kearney

Source: Johnson, G. and Scholes, K. (1984); Exploring Corporate Strategy

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Overall company profile

Stakeholder analysis

Methodology

Methodology for performing a stakeholder analysis

Input
Client
data/interviews
Expert interviews
Analyst reports
Annual reports
SEC filings*
Trade journals
Press clippings
Customer
surveys
Supply chain
analysis

Output

Identify the
stakeholders

Based on an
evaluation of the
input data and a
review of the
potential
stakeholder groups
discussed in this
module, compile a
complete list of
stakeholders

Determine the
stakeholders
objectives

Determine the
underlying
interests that each
stakeholder group
has in the company
Identify the
important issues
for each
stakeholder group

Assess the importance of each

stakeholder

Determination
of the strategic
degrees of
freedom
available to the
company
relative to its
competitors

Assess the potential

importance of the
stakeholder groups in
terms of their influence,
interest and power
Plot the stakeholders in the
power/interest, the
power/dynamism, or other
matrices as relevant
Assess the anticipated
reactions of the
stakeholders to strategic
initiatives
Compare the clients
stakeholders to those of its
competitors

* Reports filed by publicly held companies with the Securities and Exchange Commission: e.g., 10K, 10Q
Source: A.T. Kearney
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Overall company profile

Stakeholder analysis

Conclusion

Conclusion

Key points

While performing the stakeholder analysis, be aware that:

Stakeholders cannot be viewed in isolation (stakeholder interests might be linked)
Stakeholders reactions might vary depending on the specific context and timeframe of the
strategic initiative
The position of stakeholders might change over time

Strengths

Reveals the pressures faced by a company

Reflects degrees of freedom available to a company in pursuing certain strategies

Weaknesses

Mapping stakeholders incorrectly can result in significant negative consequences

References

Johnson, G. and Scholes, K. (1984); Exploring Corporate Strategy

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

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Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

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Overall company profile

Strategic era analysis

Description

A strategic era analysis illustrates how the company has evolved to reach its
present structure and position

A strategic era analysis is

A segmented time line

A breakdown of the
companys history according
to major shifts in its strategic
paradigm
An answer to How did the
company get to where it is
today?

Source: A.T. Kearney

A strategic era analysis provides

A strategic era analysis presents

A basic introduction to the

corporation and/or the
business unit

Strategic development

A description of the
companys history and likely
perspective on its business

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Business focus
Company evolution
Major events

Module III

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Overall company profile

Strategic era analysis

Usage

A strategic era analysis has many project applications

Modes of usage

Examples

To create an appreciation of the clients

business perspective through an
understanding of its history
To establish an understanding of
possible inertia in moving from one
stage of development to the next

Preparation for client meetings

Many company profiles
Internal briefings
Company reports

To brief project team members about a

client or a particular company
To illustrate how the business unit has
evolved within the context of the
corporation
To create a starting-point to initiate
change

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Overall company profile

Strategic era analysis

Example

A strategic era analysis should concisely convey the clients strategic evolution

Era analysis of the

corporation

The Copycorp Corporation has evolved from a camera company to into a

diversified corporation

Dates of eras
The eras should
have titles

Brief description of
the governing
strategic paradigm
A list of key events
that categorize an
era (with their dates)

Specifics of the
business focus

1937
Era

1955
Start

1964

1987
Diversification and
globalization

Internationalization

Focus on multi-media
and continued
diversification

Strategic
theme

Build a world-class 35 mm
camera company

Entry into selected markets

Focus on camera

Diversification into areas where

Copycorps core competencies
(precision mechanics, fine optics
and micro electronics) can be
leveraged

Become a leading company

in the field of multimedia
Further diversification into
semiconductors and other key
industries

Key events

Company is founded (1937)

Introduction of 35 mm
camera (1937)
In-house production of solar
lens (1939)

New York branch opens (1955)

Copycorp Europe, the European
distributor is established in
Amsterdam (1957)
Copycorp Latin America is
established in Panama (1962)

Introduce worlds first key

electronic calculator (1964)
Enter the copying machine field
(1965)
Enter the facsimile market (1976)
Introduction of the bubble jet
printer (1981)
Copycorp Inc. USA established
(1966)
Export ratio surpasses 50%
(1967)
Start regional offices in Eastern
Europe

Joint venture with Olivetti

(1987)
Joint venture with NTT
Internet Co. (1989)
Develop first notebook sized
personal computer with builtin printer with IBM Japan
(1993)
Introduction solar power
generating systems (1996)
Introduction of word
processor with Internet
functions (1997)

Global marketing and production

of office machines and cameras

Global marketing and

production of networked
products which forms the
basis for multimedia solutions
Diversified into
semiconductors

Business focus Concentration of head office Cameras in selected markets

and manufacturing plants in
Tokyo
Cameras in Japanese markets

Source: A.T. Kearney

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

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Overall company profile

Strategic era analysis

Example

A strategic era analysis of the business unit will provide even more detailed
information on the client
Era analysis of
the business unit
Dates of eras

Copypro has played an instrumental role in Copycorps strategy

Era

The eras should

have titles

Brief description
of the governing
strategic paradigm

1969
Entry

1974
Internationalization

Product
development

1978

1990

Technological
differentiation
Catch Copycat
through
technological
differentiation and
entry into the high
volume market

Entry into
multimedia

Strategic
theme

Build
organizational
capacity

Enter market
segments in Japan
and Europe where
Copycat was weak

Expansion of
product line

Key
events

Establish R&D
organization
dedicated to
Electro
photography
Develop low
volume copiers

Introduce NP 1100 in
1970
Launch second
generation NP
system in Japan
(1972) and overseas
(1974)

Introduce NP
Entered high
Development of
color copier
volume market with
digital copying
Microprocessor
IT image retention
machines (full image
controlled
system
processing capability)
systems
and multifunctional
machines (printers,
scanners and
facsimile machines)

Business
focus

Close international In Japan, copiers are

cooperation
sold through a
agreements with
separate sales force
the international
and dealer network.
image industry in
In US, copiers are
Japan and through
sold through
an OEM deal in
subsidiaries and
the USA
independent dealers

A list of key
events that
categorize an era
(with their dates)

Specifics of the
business focus

1959

Global
In Japan, the size of
distribution
the dealer network
through a
is increased
mixture of own In Europe,
dealer network,
distribution
partners and
function is taken
joint ventures
over for a number
of distributors

Copypro supports the

Copycorps
multimedia strategy
by developing
networked products

Starts production of
copiers in Europe and
in the US
Alliances with
companies such as
Eastman Kodak to
develop standards and
new technologies
3

Source: A.T. Kearney

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Overall company profile

Strategic era analysis

Methodology

Methodology for performing a strategic era analysis

Input

Output

Company founding
date
Client
data/interviews
Annual report
SEC filings*
Press clippings
Company
chronology
Anniversary reports
Industry report

Understanding of the
companys history
and development to
the present day
The drivers of
strategic paradigm
shifts

Fact finding

Collect and group

historical company
information
Company founding
Product evolution
Sales growth
Key events
characterizing change
Key success factors

Determine
strategic
paradigms

Segment the history of the

company into eras
according to a common
strategic theme

Structure
analysis

List the key events and the

companys primary business
focus during each era

Each era must reflect a

strategically distinct
period for the company

* Reports filed by publicly held companies with the Securities and Exchange Commission: e.g., 10K, 10Q
Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Overall company profile

Strategic era analysis

Conclusion

Conclusion

Key points

The key determinant of an era is the strategic paradigm that was dominant
All era analyses should include the strategy and the key events that characterized the era

Strengths

Weaknesses

Easy to incorrectly group eras by key events in a companys past and not by changes in strategic
paradigms

Concise instructions to a companys past

Presentation of background facts and summarizes an company's relevant history
Briefs colleagues about the client
Introduction to a company presentation

References

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

43

Overall company profile

Strategic planning framework

Description

A strategic planning framework maps out the companys business: it is not an

organizational chart - a company might be organized one way and strategically
operated in a different way

Corporation

Business line

Business line

Product unit a
Product unit b

A business area may be, for instance, product categories,

geographical regions, or distribution channels
Each business area should reflect homogenous capabilities
by which the business unit interacts with its market

A grouping of product units might constitute a business

area

Product unit c

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

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Overall company profile

Strategic planning framework

Usage

A strategic planning framework is a high-level profile of the companys business

structure

A strategic planning framework is:

A strategic planning framework provides:

A chart of a companys business

areas/activities
A strategically structured description of what
the company does
A versatile tool that can be used to
summarize the products, competitors,
customers, markets, and other characteristics
of a companys business areas/activities
Not equal to the organizations structure

An introduction and overview of a

companys and/or a competitor's business
areas (not necessarily as the company sees
its business)
An establishment of a common
understanding between clients and
consultants
A common platform for further analysis
An understanding of the clients business
from a strategic standpoint

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Overall company profile

Strategic planning framework

Example

A deliverable of the analysis is a map of the clients current business activities and
strategies for each activity
Include key
statistics

The corporation
should be positioned
at the top of the
framework*

Copypro is an important business unit for the Copycorp because the

business unit generates 32% of its revenue
Copycorp

Definitions of the
business areas

Business
areas

Information on
business size

Turnover
in %

Business
systems

Copypro

7,570
34

7,060
32

Cameras

Manufacturing and
sale of computer
peripherals
Bubble jet printers
Toner cartridges
Laser beam
printers

Manufacturing, sale,
and servicing of a
wide range of copiers
Color models
Office models
Personal models

Growth

25.0%

9.4%

Strategy

Speed up
development of
multifunctional
systems

Focus on product
n.a.
developments
environmental effects

Manufacturing and
sale of:
Fax machines
Electronic
typewriters
Calculators
Micro computers

19.4%

=
=
=

22,054
812
75,628

Optical
products

1,843
9

3,798
17

Activities

Primary functions
of the division or
business areas

Critical categories
such as these can be
included contingent
on the availability of
data

Computer
peripherals

Turnover
Net income
Number of employees

1,783
8

Manufacturing and
sale of:
A range of 35 mm
single-lens reflex
cameras
Video systems
Shutter cameras

Manufacturing and
sale of steppers and
aligns used in:
Broadcasting
Semiconductor
industry
Medical equipment

20.4%

23.2%

n.a.

Focus on product
development

Source: A.T. Kearney

* This is a strategic planning framework for a corporation. The technique can also be performed for the business unit. See next page for example
Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Overall company profile

Strategic planning framework

Example

A strategic planning framework can also be performed on the level of the business
unit (as opposed to corporate)
Include key statistics

The highest level

should be the
business unit, which
could be a subset of
a greater corporation

Copypro is an important business unit for the Copycorp because the

business unit generates 32% of its revenue

Business
areas

Group the types of

business (or business
lines)

Describe the relevant

characteristics of the
business unit

Turnover

7060

Net income
Number of employees

=
=

917.8
32,247

Copypro

Turnover
Turnover as %

Business
products

Personal
products

Professional
products

Service

2895
41%

1412
20%

494
7%

2259
32%

Activities

High capacity
Broad sales network
Direct sales
distribution
Rental or sales

Cater to individuals
and small businesses
Use retailers to
distribute

High quality
High R6D investment
Direct distribution

Cater to business
products
Global service
network

Strategy

low-cost/high quality
to penetrate

Mass market
strategy

High quality, high

price, low volume

Reap large margins

Other

Strong brand names

Experiencing large
growth in sales,
1993-1997 CAGR=
22%

Low returns
Pushes brand name
Strong R&D

High employee
turnover

Source: A.T. Kearney

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Overall company profile

Strategic planning framework

Example

Do not confuse the organizational chart with the strategic planning framework

Organizational chart for Copycorps Corporation

Board

The organizational
chart does not focus
on the strategic
business units of the
corporation, but
rather on the internal
organizational
structure of the
company

Chairman
President

Chief executive officers

Secretarial office
Corporate communication
Internal auditing
Advanced technology center

Source:A.T. Kearney

Source: A.T. Kearney

Executive committee

Development system committee

Production system committee
International marketing committee

General affairs development

Personnel and organization development
Training center
Finance and accounting development
Business information processing development
Purchasing development
Construction development
Physical distribution development
Audio and visual aids division
CIMS promotion center
Quality assurance center
Research center
Camera options
Business machines operation
Optimal products group
Production engineering research laboratory
Component development center
Corporate technical planning and operations center
Corporate patents and legal center

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Overall company profile

Strategic planning framework

Methodology

Methodology for constructing a strategic planning framework

Input

Output

Purpose of the
organization
Client data/interviews
SEC filings*
Annual reports
Trade journals
Press clippings
Customer surveys

Companys strategic
business structure
An understanding of
where a companys
business structure
deviates from its
organizational
structure

Fact finding

Develop business
structure

Collect and group

company operations
information

Develop a framework that

illustrates the companys
distinct strategic business
areas (and the interaction
among them)

Expand upon
business
framework

Expand the framework to

include key facts about each
of the business areas and the
total revenue, profit and
number of employees for
each

Review information about

significant company
characteristics such as
key products, markets,
positioning, customers
and subsidiaries to realize
the separate business
thrusts

* Reports filed by publicly held companies with the Securities and Exchange Commission: e.g., 10K, 10Q
Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Overall company profile

Strategic planning framework

Conclusion

Conclusion

Key points

Strategic planning framework will not necessarily correspond with the clients perception of the
company
Gives a common platform for further analysis

Strengths

Brief overview of the companys strategic operating structure

Overview of the business units strategic importance for the corporation

Weaknesses

Mistaking an organization chart for being a strategic planning framework

Automatically equating business area or business activity with an SBU

References

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

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Product/market focus

Evaluation of product/market segments

Description

After having performed the overall product/market segmentation*, it is critical to

analyze the companys and its key competitors product/market focus and
development
Key questions

How has the clients product/market portfolio developed

vis--vis the market?

Geographical perspective
Distribution perspective
Product perspective
Customer perspective

How are the individual segments expected to develop in

terms of size/growth/value/importance/etc. in the future,
and how does this development fit with the clients
product/market position?

* See Module II. By matching the overall product/market segmentation in Module II with the company specific segmentation, a complete understanding of
the clients and its key competitors' product/market positions are obtained
Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

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Product/market focus

Evaluation of product/market segments

Description

There are four main types of segments which should be analyzed

Geographic
Current
geographical
coverage of
competitive
products
Evolution of
geographical
coverage of
competitors
Geographical
differences in
competitive offering
characteristics

Source: A.T. Kearney

Distribution
Market share of
distribution
channels

Position within
channel structure
(margins,
exclusivity etc.)

Product
Complete overview
of the evolution of
product market
shares
Product strategies for
market players and
their evolution
Manufacturing,
distribution,
advertising and
pricing characteristics of
competitive products

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Customer
Current and future
competitive coverage
of evolving customer
needs/requirements
in terms of:
- Baseline
expectation
- Purchasing
criteria
- Satisfaction
level
Perceived customer
value from
competitor offerings

Module III

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Product/market focus

Evaluation of product/market segments

Usage

By analyzing the clients product/market position and development vis--vis the

market development, a deeper understanding of the clients positioning is obtained
Development of client's sales in segments
X, Y, and Z as a % of total sales
AA

Market development of segments

X, Y, and Z as a % of total sales

BB

AA

10
Segment Z

25

Segment Y

25

BB
10

15

Segment Z

25

Segment Y

25
75

75
Segment X

Segment X

50

50
15

1994

1998E

1994

1998E

The client focuses heavily on segment X which is expected to experience a

significant decline in its share of the market
The client must realize that it has focused on a segment decreasing in size and
financial importance
Note: The segments X, Y and Z can potentially refer to all different segment types: geography, distribution channels, customers or products
Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Product/market focus

Evaluation of product/market segments

Usage

Changes in the size and relative significance of the segments must be assessed in
conjunction with changes in the overall market

Development
of the
companys
share of the
segment
Development of the
relative importance of
the targeted segment

Development of the overall size of

the market

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

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Product/market focus

Evaluation of product/market segments

Example

Before a company determines which of the segments to pursue, it must evaluate its
product offering within the business dynamics of the individual segments and the
market as a whole

Choose axes that

have the greatest
relevance in defining
the market segments

Product offerings within the global plain paper copier market

High copy volume

and high quality

Canon
Kodak
IBM
Xerox

Evaluate the
companys product
offering with respect
to the other players
offerings in the
market to determine
which market
segments the
company can serve

Low margins and

yearly sales volume
(200,000)

Payol
Olivetti
Mita
Minolta 3M
Savin Toshiba

High margins and

yearly sales volume
(2,000)

Ricoh Canon
Xerox
Sharp
Low copy volume
and low quality

Source: A.T. Kearney

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Product/market focus

Evaluation of product/market segments

Example

A mapping of product offerings against the individual segments reveals the

companys market strengths and weaknesses

Matching product
offerings against key
segments illustrates
which groups the
company can serve
(effectively marked
by an X)

Copypros current brand-portfolio

Key office segments

Segment
Small
(1-15 users)

Product
NP
6212

NP
6016

Medium
(16-35 users)

Large
(36-99 users)

Very large
(>100 users)

Table models

If a company offers
several brands, the
product lines can be
listed separately

GP
215

GP
30F

NP
6050

Floor model
NP
6085
Source: A.T. Kearney

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Product/market focus

Evaluation of product/market segments

Example

The importance of a segment should be evaluated in terms of its relative size and
change in size

It is important to note
the growth in the size
of the market

Developing an overview of the shares and trends of the product/market

segments is fundamental to strategic analysis
1996
Segment A

1997
Segment B

Segment A

100

Segment B

100

Companys share
of the
segment (%)

Analyze the growth in

individual segments in this case- segment B
presents a greater
opportunity for growth
in sales and share than
does segment A

12.5

12.5
25

25

5.0
10

0
0

50
100
Size of the overall market

Size of the market

Company sales
Company share

10.0
10

0
0

50
Size of the overall market

1996
100.0
17.5
17.5%

1997
150.0
22.5
15.0%

150

Growth in market 50.0%

Growth in sales
28.6%
Change in share
-2.5%

Source: A.T. Kearney

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Product/market focus

Evaluation of product/market segments

Example

The importance of a segment should be evaluated in terms of its relative size and
change in size (contd)

Note that even a

significant increase
in market share will
not make up for the
decline in the
overall size of
segment B

Decline in the size of the overall market changes the importance of certain
segments and forces the re-evaluation of a companys strategy

1996
Segment A

100

1997
Segment B

Segment A

Segment B

100

Companys share
of the
segment (%)

?
17.5
12.5

8.8
35.0

25

25

12.5

35.0

50
Size of the overall market

Size of the market

Company sales
Company share

100

1996
100.0
30.0
30.0%

0
50
75
Size of the overall market
1997
75.0
21.3
28.3%

Source: A.T. Kearney

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Product/market focus

Evaluation of product/market segments

Methodology

Methodology for evaluation of product/market segments

Input
Players analysis
Trends analysis
Size and growth of
the market
Product/market
segmentation
Strategic planning
framework
Client
data/interviews
Expert interviews
Annual reports
Analyst reports
SEC filings*
Trade journals
Customer surveys

Output

Assess the
companys
product offering

Study the
companys and its
competitors
product offerings
Identity major
areas of
differentiation

Evaluate product/
market alignment

Match product
offerings to the
market segments
identified in
Module II
Determine whether
the companys
offerings are
appropriate to
serve their targeted
segments

Assess segment
importance

Assess the size of the

individual segments within
the overall market
Evaluate the market shares
that each company posses
within each individual
segment and the overall
market
Determine how the sizes of
the individual segments and
the companies shares within
each one are expected to
change
Assess relative importance of
each segment to the company

Understanding of
the clients
product/market
positioning
Relative
importance of
the various
segments to the
client
Market
opportunities and
threats

* Reports filed by publicly held companies with the Securities and Exchange Commission: e.g., 10K, 10Q
Source: A.T. Kearney

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Product/market focus

Evaluation of product/market segments

Conclusion

Conclusion

Key points

Strengths

Studying trends affecting the market segmentation can be critical in identifying segment
attractiveness
Relative importance of a segment is necessary for strategic planning and resource allocation as
investment and growth in a stagnant or shrinking segment may limit the growth of the company

Reveals attractive segments

Provides data to assess matching products to customers
Helps prioritize product lines
Identifies gaps in product offerings

Weaknesses

Does not look at miscellaneous factors affecting segment importance such as branding,
reputation, etc.

References

Kotler, P. (1997); Marketing Management

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

62

Overview of the value chain

Introduction

An evaluation of the value chain and the underlying cost and margin drivers
should be an integral part of an overall company analysis

Source: A.T. Kearney

Value chain
analysis

The value chain disaggregates a company into

its strategically important activities to
understand the behavior of costs and the
existing and potential sources of differentiation

Cost and
margin
driver
analysis

The cost and margin driver analysis provides

an identification of sources of competitive
advantage and therefore opportunities for profit
generation

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

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63

Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Module III

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Overview of the value chain

Value chain analysis

Description

The generic value chain divides the company into strategically distinct activities

Company infrastructure
Human resource management

SUPPORT
ACTIVITIES

Technology development
Procurement

Inbound
logistics

Operations Outbound Marketing

logistics and sales

Service

A value chain analysis

breaks a companys
business process into its
component steps. It
represents the stages
required to transform the
raw material into the
final product

PRIMARY ACTIVITIES

Source: Porter, M.E. (1980); Competitive Advantage

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Overview of the value chain

Value chain analysis

Description

The value chain of a company is embedded in a larger stream of activities

- the value system
The value system
1

Improve companys operations through:

Reorganization
Inhouse/outsource activities
Cost reductions

The supply chain

2

Identify opportunities to add

value to the customer
Product/service differentiation
Cost reductions to customers

Identify the competitors value

chain activities for benchmarking
purposes
Sequence of activities
Inhouse/outsource activities
Cost structures

value chain

Identify suppliers cost

structures to increase the
value captured through
negotiations

Supplier

Company

Customer

Competitor
A
4

Identify the linkages between

activities across the supply
chain for cooperation/
integration purposes

Competitor
B
5

Source: A.T. Kearney; Porter, M.E. (1980); Competitive Advantage

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Overview of the value chain

Value chain analysis

Usage

A value chain analysis is a critical technique that examines how a company

competes

A value chain analysis is performed to:

Study the entire business process of a company
Assign costs to given processes
Determine the value generated by different processes
Examine which parts are performing optimally and
which are not

Cost
Speed
Efficiency
Compare the above to competitors

Source: Porter, M.E. (1980); Competitive Advantage

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Overview of the value chain

Value chain analysis

Usage

An evaluation of the value chain can indicate a companys present or potential

competitive advantages in its industry
Inbound logistics

Primary
activities

Identifying value
creating activities
requires the
isolation of
activities that are
technologically and
strategically distinct

Operations

Activities associated with transforming inputs into the final product form,
such as machining, packaging, assembly, equipment maintenance, testing,
patenting and facility operations

Outbound logistics

Activities associated with collecting, storing and physically distributing the

product to buyers, such as finished goods warehousing, material handling,
delivery vehicle operation, and order processing and scheduling

Marketing and sales

Activities associated with providing a means by which buyers can purchase the
product and introducing them to do so, such as advertising, promotion, sales
force efforts, quoting, channel selection, channel relationships and pricing

Service

Company infrastructure

Activities associated with providing service to enhance or maintain the value

of the product, such as installation, repair, training, parts supply and product
adjustment
Company infrastructure consists of activities including general management,
planning, finance, accounting, legal, government affairs, and quality
management

Human resource management

Human resource management consists of activities involved in the recruiting,

hiring, training, development and compensating of all types of personnel

Technology development

Technology development consists of a range of activities that can be broadly

categorized into efforts to improve the products and the business process

Support
activities

Procurement

Source: Porter, M.E. (1979); The Value Chain

Activities associated with receiving, sourcing and disseminating inputs to be

used in the manufacture of the product, such as material handling,
warehousing, inventory control, vehicle scheduling, and returns to suppliers

Procurement refers to the function of purchasing inputs used in the

company's value chain, not the cost of purchased inputs themselves

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Overview of the value chain

Value chain analysis

Usage

Although value creating activities are the building blocks of competitive advantage,
the value chain is not a collection of independent activities but a system of
interdependent ones
Optimization

Linkages often reflect trade-offs

among activities to achieve the
same overall result

Linkages in the value chain are

formed, because the performance or
cost of a single activity can effect
many other activities in the process.
Relationships among activities can
lead to competitive advantage in
two ways:

A company must optimize such

linkages to achieve competitive
advantage

Co-ordination
The ability to coordinate linkages
often reduces costs or enhances
differentiation (on-time delivery,
for example, may require
coordination of activities in
operations, outbound logistics,
and service)

Source: Porter, M.E. (1979); The Value Chain

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Overview of the value chain

Value chain analysis

Example

The value chain is defined by dividing each generic category into discrete activities

The definition of
the correct
activities and their
proper level of
detail is key to the
successful
construction of a
value chain
Support activities

The value chain of a copier manufacturer

Company infrastructure
Recruiting training

Recruiting

Recruiting

Design of Compo- Machine

Information
automated
nent
design
system
system
design Testing
development
Design of procedures
assembly Energy and
line
management
Transpor- Materials Other parts Computer
tation
Energy Suppliers
services
services
Electrical/
Transportation
electronic parts
services

Market
research

Service
manual and
procedures

Inbound
material
handling
Inbound
inspection

Advertising
Promotion
Sales force

Human resource management

Technology development

Procurement

Components fabrication Order

Assembly
processing
Fine tuning and testing Shipping
Maintenance
Facilities operation

Sales aids and

technical
literature

Media agency Spare parts

Suppliers
Travel and
Travel
subsistence
subsistence
Service reps.
Spare parts
systems

Primary activities
Inbound
logistics

Operations

Outbound
logistics

Marketing
& Sales

Service

Source: Porter, M.E. (1979); The Value Chain

Source: A.T. Kearney

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Overview of the value chain

Value chain analysis

Example

The value chain can be used to describe areas of strength and weakness

Copypro focuses on the low cost/high volume segment of the industry

Human resource
management

Description of
strengths and
weaknesses in
support activities

Innovation is ensured through a flexible organization, where new initiatives are supported by
top management and its allocation of resources
5% of PPC* revenue spent on R&D. Cross functional coordination to catch market signals
and target research in customer oriented areas. This is supported by corporate R&D in core
competency areas

Technology

Procurement

Empowerment and involvement through quality circles. Help to ensure quality and continuous
improvement

Inbound

Description of
strengths and
weaknesses in
primary activities

Two groups
of parts:
Electric
parts and
mechanical
parts
Dual
sourcing
Long-term
supplier
relations

Production
Factories in
Germany,
Japan and
USA
Highly
automated to
reduce cost
and increase
flexibility
JIT, Kaizen
and worker
involvement

Distribution
Wholly
owned
subsidiaries

Selling
In Japan,
combination
of direct sales
and dealers.
In overseas
markets,
primarily
dealers
Heavy
advertising in
overseas
markets

Service
Service
through own
subsidiary
and through
dealers
Services
often
bundled in a
monthly per
copy based
price

* Plain Paper Copies

Source: A.T. Kearney

Source: A.T. Kearney

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Overview of the value chain

Value chain analysis

Example

The differentiation advantage of the company in its value activities in comparison

to competitors can be mapped across the value chain

Mapping of selected copier players apparent skills base

Map the value

chain
Map the different
players
performance and
differentiating
factors
A value chain can
be useful to
approximate
performance
figures and
determine which
should be explored
in greater depth
Source: A.T. Kearney

Inbound

Production

Distribution

Selling

Skills level
5 High
3 Medium
1 Low

Service

Client

Player A

Player B

Player C

Player D

Source: A.T. Kearney

3

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Overview of the value chain

Value chain analysis

Example

A value chain analysis provides an understanding of the companys cost structure

Mapping of Copypros cost structure

Inbound

Map the value

chain

33%

Production Distribution

35%

10%

Selling

Service

Total
full
cost

12%

10%

100%

1,000

10,000

1,200

Describe the costs

for each activity
relative to the total
cost incurred

1,000

3,500

Detail the costs for

each activity

3,300
Other cash
Depreciation
Labor
Raw material

16%
18%
25%
41%

Source: A.T. Kearney

3

Source: A.T. Kearney

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Overview of the value chain

Value chain analysis

Example

A companys relative cost position of its various value chain activities can be
assessed and compared to its competitors cost positions

Copypro must improve its production capabilities

Benchmarking the
value activities of a
company against its
competitors
activities reveals
cost distinctions
and might lead to
insights into the
reasons for those
distinctions

100% = 10,000

8,000

9,000

Service

10%

10%

10%

Selling
Distribution

12%

12%

12%

20%

20%

Production

Inbound logistics

10%

35%
25%

25%

33%

33%

33%

Client

Competitor A

Competitor B

Source: A.T. Kearney

3

Source: A.T. Kearney

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Overview of the value chain

Value chain analysis

Methodology

Methodology for using a value chain analysis

Input

Output

Players analysis
Supply chain
analysis
Exit and entry
barriers analysis
Client data/
interviews
Annual reports
Expert interviews
Analyst reports
SEC filings*
Trade journals
Benchmarking
studies
Customer surveys

Benchmarking
Cost analysis
Resources
analysis
SWOT analysis
Evaluation of
product/market
segments

Identify all of
the activities
performed

Determine which
activities are
actually performed
by the company
and which are
completed by
suppliers,
customers or other
third party
companies

Categorize the
activities

Divide the
activities into
primary and
supporting
categories

Structure and
order the
activities

Position the activities

within the value chain
framework
Analyze and structure
the activities at the
appropriate level of
detail - break down
major activities into
their various subactivities
Determine the
companys cost
structure

Define linkages
within and
across the value
chain

Define the linkages

among the various
primary and supporting
activities
Assess the value
derived from each step
Assess the importance
of these linkages and
whether they are
resulting in the desired
benefits
Compare the clients
value chain to those of
its competitors

* Reports filed by publicly held companies with the Securities and Exchange Commission: e.g., 10K, 10Q
Source: A.T. Kearney

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Overview of the value chain

Value chain analysis

Conclusion

Conclusion

Key points

The how to compete for a company

Value chain (company level) should not be confused with the supply chain* (industry level).
Often one can simulate the cost structure if real data is not available
Extremely powerful technique for clients

Strengths

Defines the process of a company

Reveals the value/cost of each step in the business
Can be used to evaluate efficiency and effectiveness of each step in the business
Through benchmarking, cost advantages/disadvantages can be defined
Can be useful during a post-merger integration project to help identify the better processes

Weaknesses

Value chains are often specific to each product

Drawing a value chain for the business unit might hide key differences among product value
chains

References

Fifer, R.M. (1998); Cost Benchmarking Functions in the Value Chain; Planning Review May/June
Normann, R. and Ramirez, R. (1993); From Value Chain to Value Constellation: Designing Interactive Strategy;
Harvard Business Review, July/August
Porter, M.E. (1985); Competitive Advantage: Creating and Sustaining Superior Performance ,The Free Press
Quinn, J.B. and Hilmer, F.G. (1994); Strategic Outsourcing; Sloan Management Review, Summer
Rayport J.F., Sviokla J.J. (1995); Exploiting the Virtual Value Chain; Harvard Business Review,
November/December
Reimann, B.C. (1998); Sustaining the Competitive Advantage; Planning Review, March/April

* See module II for information about the supply chain

Source: A.T. Kearney

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Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
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Overview of the value chain

Cost and margin drivers

Description

An analysis of cost and margin drivers is essential to determining sources of

competitive advantage

Cost drivers

The relative resource attractiveness

is determined by the analysis of the
cost drivers

Profit

Margin drivers

Source: A.T. Kearney

Superior growth and profitability

potential is determined by the
margin drivers

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Overview of the value chain

Cost and margin drivers

Usage

Cost and margin drivers reveal interesting information about how a company can
optimize its functions
Examples
Critical mass
(economics of scale)

provided in the
following pages

Technology
Complexity
(e.g. products/technologies/lot sizes)
Cost drivers

Utilization
(shared resources)
Experience
Factor costs
Management effectiveness

Profit

Customer mix
Customer retention
Perceived customer value
(application/quality/price)
Margin drivers

Product mix
(hardware/projects/service)
Product innovation cycle
Sales force/service quality

Source: A.T. Kearney

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Overview of the value chain

Cost and margin drivers

Example

Economies of scale might lead to points with a cost advantage

Identifying economics of scale is essential in determining cost drivers

Identify cost drivers
for each activity,
beginning with the
activities that result
in the highest costs
Structural drivers*
Executional
drivers**

100

75
High end copiers
(high volume - high quality)
Unit cost

Develop relationship
between driver and
costs (linear,
logarithmic, etc.)

50

25

Medium copiers
(high volume - low quality)

Low end copiers

volume - low growth)

0
Number of units
Source: A.T. Kearney

* Structural drivers derive from a companys choice about its underlying economic structure
** Executional drivers are those determinants of a company's cost position that hinge on its ability to execute successfully
Source: A.T. Kearney
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Overview of the value chain

Cost and margin drivers

Example

Technology might be an important cost driver

Different technologies result in unit cost advantages at different volumes

Technology A
results in cost
advantages at
lower volumes
while technology
B results in cost
advantages at
higher ones

Unit cost

Type A
Q

Technology
Type

2x

Type B

3x

Economies
of scale

Source: A.T. Kearney

Source: A.T. Kearney

No substantial
cost advantage
through
additional
volume

2x

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Volume

High volume
allows cost
advantage
when
technology B is
used

3x

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Overview of the value chain

Cost and margin drivers

Example

An important margin driver can be the customer mix - by focusing on specific

customers, the margins might be improved

It is essential for Copypro to determine and focus on its most profitable

customers

The example shows

a company that
generates 80% of
its sales and 72%
of its gross profit
with only 14% of
its customers

Customer base

Sales

Orders

Gross profit

7,638

USD 97.7 mill.

22,335

USD 32.1 mill.

20%

28%
56%

86%
80%

72%
44%

14%

Source: A.T. Kearney

Source: A.T. Kearney

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Overview of the value chain

Cost and margin drivers

Example

Customer retention is essential to improving customer profitability

Customer profitability is a function of the length of a relationship

Company profile

Customer profitability
Profit from price
premium

Analysis has shown

that customer
retention leads to
higher profitability

Profit from referrals

Profit from reduced
operating costs
Profit from
increased
purchases and
higher balances
Base profit

0
1
Customer
acquisition cost

Year

Source: Harvard Business Review

Source: A.T. Kearney

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Overview of the value chain

Cost and margin drivers

Methodology

Methodology for using a cost and margin driver analysis

Input
Players analysis
Strategic group
analysis
Supply chain analysis
Evaluation of
product/market
segments
Cost accounting data
Client data/interviews
Analyst reports
SEC filings*
Trade journals
Customer surveys
Benchmarking studies

Output

Perform a cost
driver analysis

Perform a
margin driver
analysis

Identify drivers for each

Identify drivers for each
activity, beginning with the
activity
activity that generates the
Customer mix
highest costs
Customer retention
Evaluate the structural
Customer value
drivers (scale, product line
Product mix
complexity, scope of
Product innovation
operations, experience
cycle
effects and level of
Service quality
technology)
Evaluate the exceptional
drivers (TQM, capacity
utilization, and workforce
participation)

Identify relative
advantages/
weaknesses

Relative strengths
and weakness as
compared to the
competition from a
cost and margin
perspective
SWOT analysis

Benchmark drivers
against competitors
for each activity to
identify where the
client has a competitive
advantage, such as
greater cost control,
improved value to
customers, stronger
ability to reconfigure
the supply chain or
where it demonstrates a
weakness

Develop relationships
between drivers and costs
(linear, logarithmic, etc.)
* Reports filed by publicly held companies with the Securities and Exchange Commission: e.g., 10K, 10Q
Source: A.T. Kearney

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Overview of the value chain

Cost and margin drivers

Conclusion

Conclusion
Key points

Strengths

Produces a truer measure of margins and costs

Considers revenue generating operations as well as costs
Considers all cost and margin drivers, not just volume

Weaknesses

External analysts will find it difficult to obtain the data about various activities and drivers unless
the individuals have significant industry experience and data
Data collection might be quite difficult, especially with antiquated systems

References

Shank, J.K. and Govindaraj, V. (1993); Strategic Cost Management

Source: A.T. Kearney

Each activity may have more than one cost driver

Selecting the appropriate cost driver is dependent on the situation and the decision being made
Developing the relationship between cost and the driver requires significant amount of data
In identifying relationships between costs and drivers, one can take two approaches
Develop a hypothesis and then test it by collecting appropriate data. This approach is suitable
in situations where data is scarce and data collection is expensive (in time and cost)
Obtain all data available and assess different relationships to see which is the most
significant, using PC based tools. This approach is suitable in situations where significant
amounts of data are already available. Knowledge of data mining techniques (EDS can help)
might be helpful here. Regression analysis is another option.

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Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
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Financial resources and performance

Introduction

A companys performance can be broken down into many components we will

focus primarily on operating performance, financial performance and
shareholder value performance

Performance indicators

Operating performance

Absolute

Relative to

Relative to

previous years

competitors

What are the companys operating margins?

How well does the company utilize its assets?

Financial performance
Shareholder value performance

Source: A.T. Kearney

A financial
analysis provides
the answers to
these questions

Is the companys financial structure optimized?

How well has the companys stock price performed?

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Financial resources and performance

Introduction

Financial data located in the income statement, the balance sheet and the cash
flow statement provide the foundation to develop financial and strategic insights
about a companys performance

Income
statement

Balance
sheet

Cash flow
statement

Source: A.T. Kearney

Measures income flows

Revenues expenses = income

Measures stocks at a snap shot in time

Financial

Assets liabilities = shareholder equity

and strategic insights

Measures cash flows

Reflects changes in available cash

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Financial resources and performance

Introduction

The income statement contains both operational and financial elements

Revenues

Costs of Goods
Sold

Source: A.T. Kearney

Gross
Profit

Operating
Expenses

EBIT or
Operating
Income

Interest
Expense

Corporation
tax

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Net
Income

Dividends

Module III

Retained
Earnings

89

Financial resources and performance

Introduction

A overview of a companys balance sheet

Current
Assets

Current Liabilities

Long-Term
Liabilities

Fixed
Assets

Shareholders
Equity

Underlying business
structure designed to create
future cash flows

Source: A.T. Kearney

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Financing structure
designed to pay for assets

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Financial resources and performance

Introduction

Major components of the balance sheet

Current Assets

Current Liabilities

Cash and Marketable Securities

Accounts Receivable

Accounts Payable
Short -term Debt

Inventory
Other Current Assets

Current Maturities of Long-Term debt

Other Current Liabilities

Total Current Assets

Total Current Liabilities

Fixed Assets
Property, Plant and Equipment (PP&E)
(Accumulated Depreciation)
Net PP&E
Intangibles
Goodwill
Advertising
Patents
Research and Development

Long-Term Liabilities
Long-Term Debt
Other Long-Term Liabilities
Total Long-Term Liabilities

Shareholders Equity
Preferred Stock

Common Stock
Additional Paid-in-Capital
(Treasury Stock)
Retained Earnings

Total Fixed Assets

Total Shareholders Equity

Total Assets

Total Liabilities and Shareholders Equity

Source: A.T. Kearney

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Financial resources and performance

Introduction

Cash flow from operations reflects changes in the income statement and balance
sheet accounts over a given time period

Income
Statement

Balance
Sheet
Operations

Cash Flow
statement

Investments

Debt
Financing

Equity
Financing

Decreases in
Working
Capital

Sales of Fixed
Assets

Increase in
Debt

Increase in
Equity

Increases in
Working
Capital*

Investments in
Fixed Assets

Pay Back Debt

Buy Back
Equity

Uses of cash

Sources of cash

Depreciation

Net Income

Losses

Cash Flow

* Working capital: the amount of additional funding required by a company to operate its fixed assets, e.g., money to pay staff and bills while waiting for customers to
pay. Working capital is equal to capital employed less fixed assets
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Source: A.T. Kearney

Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
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Financial resources and performance

Development over time

Description

An assessment of a companys financial development over time provides an

understanding of its rate of sales growth and present and historical operating
margins, financial strength and ability to satisfy its shareholders return
requirements

Analyze

Income statement
Balance sheet
Cash flow
Shareholder value

Source: A.T. Kearney

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Financial resources and performance

Development over time

Usage

A development over time analysis can reveal the financial strategies that
management has pursued over the companys history and can provide an
indication of future financial performance

Income
Statement

Balance Sheet

Cash Flow

Shareholder Value

Source: A.T. Kearney

Measures income flow for a period of time (e.g. one year)

Revenues
Operating profit
Net income
Revenue mix by product, geography and fiscal quarter
Statement of a companys assets and the claims on those assets at a given
point in time
Assets
Liabilities
Equity
The change in a companys cash balance during a particular accounting
period
Retained earnings
Net investment in fixed assets (capital expenditures)
Change in working capital
Cash flow

Maximization of shareholder value is often an external yardstick for

measuring financial performance (e.g. share price)

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Financial resources and performance

Development over time

Example

The income statement indicates the companys size and its rates of revenue and
profit growth

Indicate currency

Although Copycorps top line growth has been modest, its bottom line
growth has been substantial
Yen Billions

Revenues
Net income

Calculate CAGR
(see definition in
Module II)

2,165

1,933

1,836

2,558

Choose relevant
period for analysis

2,761
CAGR=
10.7%

118
94
CAGR=
53.9%

55

21

1993

31

1994

1995

1996

1997

Source: A.T. Kearney

Source: A.T. Kearney

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Financial resources and performance

Development over time

Example

An assessment of a companys development over time can include a historical

review of its business and product mix

The development
in business mix
identifies areas of
high growth as
well as problem
areas

Optical and other products have become Copycorps fastest growing

business segment, while business machines represent the companys
largest segment
Percent, Yen Bill.
100% = 1,836
Optical and other
6.0%
products
9.9%

+5.3%

1,933

+12.0

2,165

+18.2% 2,558

+7.9%

2,761 CAGR = 10.7%

+17.6%
-9.6%

6.7%
8.5%

+30,4
+8.0%

7.8%
8.2%

+21.2% 8.0%
+21.0% 8.4%

+3.9%
+15.6%

7.7%
9.0%

+6.2% 84.8% +10.9% 84.0% +17.6% 83.6%

+7.5%

CAGR = 17.9%
CAGR = 8.1%

Cameras

Business machines

84.1%

1993

1994

1995

1996

83.3% CAGR = 10.5%

1997

Source: A.T. Kearney

Source: A.T. Kearney

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Financial resources and performance

Development over time

Example

A development over time assessment can include an evaluation of the companys

geographical business mix over time

Copycorps growth in Japan and the Americas has dropped to single

digit rates

A rapid increase in
revenue can be
explained by
superior
performance in a
geographic
segment or
segments

Percent, Yen Bill.

100% = 1,836

+5.3%

1,933

8.4%

-3.5%

7.7% +14.9%

Other areas

+12.0

2,558

+7.9%

2,761 CAGR = 10.7%

+21.1% 8.1%

+13.3%

8.5% CAGR = 11.1%

2,165 +18.2%
7.9%

Europe

28.6% -1.3%

26.8% +17.4% 28.1% +15.6% 27.5%

+10.3% 28.1% CAGR = 10.3%

Japan

31.0% +11.7%

32.9% +13.0% 33.2% +15.3% 32.4%

+3.6%

31.1% CAGR = 10.8%

Americas

32.0% +7.3%

32.6% +5.8%

30.8% +22.8% 32.0%

+8.9%

32.3% CAGR = 11.0%

1993

1994

1995

1996

1997

Source: A.T. Kearney

Source: A.T. Kearney

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Financial resources and performance

Development over time

Example

An analysis of the balance sheets key components

Asset and
shareholder equity
levels indicate the
companys
investment in its
future

Copycorp has demonstrated moderate growth in assets and shareholder

equity over the past four years
Yen Bill.

Total assets

Shareholder equity
3,001

2,746
2,519

2,282 2,300

CAGR=
7.1%

1,099
982
721 781

1993 1994 1995 1996 1997

850

CAGR=
11.1%

1993 1994 1995 1996 1997

Source: A.T. Kearney

Source: A.T. Kearney

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Financial resources and performance

Development over time

Example

An analysis of the companys cash flow development

Copycorps cash flow has declined significantly in 1998

Cash income, net

investments in
fixed assets,
change in working
capital and cash
flow are normally
obtained from the
cash flow
statement

Cash income

170
150

100

Change in working capital

160
CAGR=
12.5%

110

20
94

95

96

97

98

94

Net investment in fixed assets

30

30

95

96

10
97

30

CAGR=
10.7%

98

Cash flow
100

60
30
94

40

45

95

96

75

60
CAGR=
18.9%

97

98

50

40

94

95

70
CAGR=
8.8%

96

97

98

Source: A.T. Kearney

Source: A.T. Kearney

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Financial resources and performance

Development over time

Example

An evaluation of a stock can generate insights into how well a company has
performed relative to its peers as well as provide information on investors
perception of future growth and profitability

Copycat has outperformed Copycorp over the past five years

Benchmark a
companys share
price performance
against the
performance of its
closest
competitor(s) stock

120

Copycat

100
80
60

40

Copycorp
20

26-03-98

26-12-97

26-09-97

26-06-97

26-03-97

26-12-96

26-09-96

26-06-96

26-03-96

26-12-95

26-09-95

26-06-95

26-03-95

26-12-94

26-09-94

26-06-94

26-03-94

26-12-93

26-09-93

26-06-93

26-03-93

Source: A.T. Kearney

Source: A.T. Kearney

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Financial resources and performance

Development over time

Methodology

Methodology for using development over time

Input
Players analysis
Evaluation of
product/market
segments
Cost and margin
driver analysis
Client
data/interviews
Analyst reports
SEC filings*

Output

Identify most
relevant
financial data

Obtain data for

years considered to
be relevant
Identify revenue
generated within
the overall market
and on a segment
by segment basis
Projected data is
useful to forecast
expected
performance

Calculate
growth rates

Calculate the CAGR or

annual growth rate
Determine the drivers of
growth and reasons for
changes in performance

Compare to
competitors

Benchmarking
studies
Performance
analysis
Financial trends

Evaluate the
development of the
client against the
market trends
Compare the
companys
performance to
that of its
competitors and
account for
discrepancies

* Reports filed by publicly held companies with the Securities and Exchange Commission: e.g., 10K, 10Q
Source: A.T. Kearney

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Financial resources and performance

Development over time

Conclusion

Conclusion

Key points

Eliminate extraordinary, non-recurring items to arrive at true financial estimates

Choose appropriate time periods when calculating CAGR
Match financial highlights against a chronology of company initiatives to realize the reason for a
particular trend in financial strength or weakness

Strengths

Illustrates the companys present financial strength relative to its financial health during other
phases of its history
Highlights whether the company is improving or declining in its operating performance
Can illustrate changes occurring in the industry that have not been fully uncovered

Weaknesses

Finances cannot tell an entire story about a company. Data on trends and changes in the industry
must also be assessed to develop a complete picture of the company

References

Source: A.T. Kearney

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Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
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Financial resources and performance

Financial ratios

Description

The essence of ratio analysis is taking relevant financial data and using it to gain
insights into the companys financial performance

Financial ratios are the fundamental tools of financial analysis

Determine which ratios are relevant based upon specific objectives
and circumstances
Break down and manipulate financial data to provide information
about performance or to locate areas that require further
investigation
Ratio analysis gives some indication of the levers to pull to improve
the companys performance
Ratio analysis is based on a knowledge of financial accounting, and
performed on the companys financial statements

Source: A.T. Kearney

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Financial resources and performance

Financial ratios

Description

A calculation of profitability, asset utilization and financial leverage ratios can

result in key insights about a companys operations

Profitability

Asset turnover

Financial leverage

Source: A.T. Kearney

Measure of the companys ability to turn sales into (accounting) profits

Measure of the companys operational asset utilization

Measure of the companys use of debt in its capital structure

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Financial resources and performance

Financial ratios

Description

Seven widely used profitability ratios

Ratio

Focus on next slides

ABBR

Equation

Definition

Return on
Investment

ROI

EBIT

% Return on
capital investment

Profitability of the business relative to

the amount of capital invested

Return on Assets

ROA

% Return on
invested assets

Profitability of the business relative to

the amount of assets invested

% Return on
invested equity

Profitability of the business relative to

the amount of equity invested

Average Total Book Capital

Net Income
Average Assets

Return on Equity

ROE

Net Income
Average Book equity

Gross Margin

Operating Margin

EBT Margin

Return on Sales
(ROS)/Net Income
Margin

Source: A.T. Kearney

Gross
Margin

Sales COGS

EBIT
Margin

EBIT

EBT
Margin

EBT

Net
Income
Margin

Sales

Sales

Sales
Net Income
Sales

What Is It?

Gross profit
as % of sales

Percent of income after the cost of goods

sold are paid for

Operating income
as % of sales

Percent of income after the cost of goods

sold and operating expenses are paid for

Earnings before tax

as % of sales

Percent of income after the cost of goods

sold, operating expenses and interest
expense are paid for

Net income
as % of sales

Percent of income after all expenses are

paid for, including taxes

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Financial resources and performance

Financial ratios

Usage

Return on assets provides information about how efficiently a company utilizes its
assets to generate profit

Improvement opportunities

Return on assets
(ROA)

Net income
Average assets

Source: A.T. Kearney

Return on sales

Net income
Sales

Asset turnover

Sales
Average assets

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Cost control
Wages
Purchases
Overhead
Capacity utilization
Higher utilization rates
Capacity reductions
Revenue increases
Pricing
Product mix
Volumes
Working capital measurement
Accounts receivable
Inventories
(Accounts payable)

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Financial resources and performance

Financial ratios

Usage

Return on equity measures performance from the shareholders perspective

Return on equity
(ROE)
Net income
Average book equity

Source: A.T. Kearney

Return on sales

Net income
Sales

Asset turnover

Sales
Average assets

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Financial leverage

Average assets
Average book equity

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Financial resources and performance

Financial ratios

Usage

Eight widely used measures of asset utilization

Ratio

ABBR

Days Inventory

Accounts
Receivable Turns

A/R
Turns

Days Accounts
Receivable

Days
A/R

Accounts Payable
Turns

A/P
Turns

Days accounts
payable

Days
A/P

Fixed Asset
Turnover

Source: A.T. Kearney

Definition

What it is?

Measures the rate of turnover, or the

number of times inventory stocks are
Average Inventory
replaced over the period
The number of days of inventory stocks
Average Inventory
# Days of inventory
x 360
that the company holds on its balance
on Balance Sheet
COGS
sheet
Measures the rate of turnover, or the
# Times accounts
Sales
receivable sold in period number of times accounts receivable
Average Accounts Receivable
are replaced over the period
The number of days of accounts
# Days accounts
Average Accounts Receivable
x 360 receivable on Balance
receivable that the company holds on
Sales
its Balance Sheet
Sheet
Measures the rate of turnover, or the
COGS
# Times accounts
number of times accounts payable are
payable used in period replaced over the period
Average Accounts Payable
# Days accounts payable The number of days of accounts
Average Accounts Payable
x 360
payable that the company holds on its
on Balance Sheet
COGS
balance sheet
Measures the rate of turnover, or the
Sales
# Times asset value
number of times assets produce their
sold in period
Average Assets
value in revenues
Measures the rate of turnover, or the
Sales
# Times fixed asset
number of times fixed assets produce
value is sold in period
Average Net Fixed Assets
their value in revenues
COGS

Inventory Turns

Asset Turnover

Equation

Focus on next slide

# Times inventory
sold in period

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Financial resources and performance

Financial ratios

Usage

Asset turnover is the revenue produced by the assets of the business a measure
of the companys operational asset utilization

Sales
=
Average Assets

Notes:

Current Asset(1)
Turnover

Accounts
Receivable
Turnover

Net Fixed(2)
Asset
Turnover

Inventory
Turnover

Asset
Turnover

(1) Current Asset Turnover =

(2) Net Fixed Asset Turnover =

Source: A.T. Kearney

Cash
Turnover

Sales
Average cash
balance

Sales
Average accounts
receivable

Cost of goods sold

Average inventory

Sales
Average
Current Assets
Sales
Average
Net PP&E
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Financial resources and performance

Financial ratios

Usage

Liquidity and debt coverage ratios

Liquidity

Ratio
Current Ratio

Equation

Definition

What is it?

End Current Assets

% Current assets
to current liabilities

Measures the size of the working

capital commitment relative to current
liabilities

% Liquid assets
to current liabilities

Measures the ability of the firm to meet

its obligations in the current period a
liquidity reference

End Current Liabilities

Quick Ratio

End Liquid Assets

End Current Liabilities

Debt Coverage

Leverage

Cash Flow
Coverage

Source: A.T. Kearney

Focus on next slide

End Debt
Book Debt and Equity

% Debt to
total capital

EBIT + Depreciation

# x EBITDA
covers interest

Interest Expense

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Relative measure of the firms use of

debt in the capital structure the
definition of leverage is different in
both the equity and capital approaches
to the DuPont equation
Measures the ability of the firm to meet
the interest obligations of outstanding
debt. Banks often establish covenents
based on this and other similar ratios

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Financial resources and performance

Financial ratios

Usage

Financial leverage measures the assets controlled by the book capital invested in
the business
Other NIBLs
Turnover(3)
Short Term
Debt ($)

NIBLs ($)(2)
Accounts
Payable
Turnover(4)
Average Assets(1)
=
Average Capital

Notes:

(1)

Total Assets
Total Capital

Financial
Leverage

NIBLs + Debt + Equity

Debt + Equity

Debt ($)

Long Term
Debt ($)

Book
Equity ($)

Preferred
Stock ($)

Debt + Equity
Debt + Equity

NIBLs
Debt + Equity

=1+

NIBLs
Debt + Equity

(2) NIBLs = Non-Interest Bearing Liabilities = Accounts Payable + Other NIBLs as disclosed in the notes to financial statements
(3) Other NIBLs Turnover =
(4) Accounts Payable Turnover =
Source: A.T. Kearney

Revenue
Other NIBLs
COGS
Average Accounts
Payable
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Financial resources and performance

Financial ratios

Usage

The fully integrated DuPont equation provides an analytical framework to assess

the companys operating and financing decisions

EBIT
Margin

Gross
Margin

Sales

Price

Operational
Expense

COGS %

Unit
Volume

Extra
Items

Current Asset
Turnover

Cash
Turnover

Net Fixed
Asset Turnover

Accounts
Receivable
Turnover

ROI %
Asset
Turnover

Other Asset
Turnover

Financial
Leverage
=

Total Assets
Total Capital

Other NIBLs
Turnover

Inventory
Turnover

=1+

NIBLs
Debt + Equity

NIBLs(1)
Accounts
Payable
Turnover

Short-Term
Debt

Debt

Long-Term
Debt

Book
Equity

Preferred
Stock

Note: (1) NIBLS = Accounts Payable + Other NIBLs as disclosed in the notes to financial statements
Source: A.T. Kearney

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Financial resources and performance

Financial ratios

Example

ROI and ROE are key ratios in a financial analysis

Copycats ROE and ROI has increased significantly compared to Copycorps

Benchmark key
ratios for the client
against competitors
ratios

Return on investment (ROI)

Percent
16

Return on equity (ROE)

Copycorp
Copycat

Percent
30

14

25

12

20

10

15

10

Copycorp
Copycat

-5

1992

1993

1994

1995

1996

-10

1992

1993

1994

1995

1996

Source: A.T. Kearney

Source: A.T. Kearney

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Financial resources and performance

Financial ratios

Example

Return on investment can be further analyzed by evaluating the net margin and
asset turnover figures

Copycats ROI increase was mainly driven by its improvement in asset

turnover

Net margin
multiplied by asset
turnover equals
ROI

Copycorp
Copycat

Net margin
Percent
18

Copycorp
Copycat

Asset turnover
Percent
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0

16
14
12
10
8
6
4
2
0

1992

1993

1994

1995

1996

1992

1993

1994

1995

1996

Source: A.T. Kearney

Source: A.T. Kearney

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Financial resources and performance

Financial ratios

Example

Gross margin and return on assets are key ratios which can indicate a margin
improvement ability and the companys ability to create wealth

Gross margin
indicates the percent
of sales after the
cost of goods sold
has been deducted

Copycats improvement in performance can be explained by an increased

return on assets
Copycorp
Copycat

Gross margin
Percent
80

Copycorp
Copycat

Return on assets
Percent
5.0

70

4.0

60

3.0

50
40

2.0

30
1.0

20
10

Return on assets
indicates the
profitability of the
business relative to
the amount of
assets invested

Source: A.T. Kearney

0.0

-1.0

1994

1995

1996

1992

1993

1994

1995

1996

Source: A.T. Kearney

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Financial resources and performance

Financial ratios

Methodology

Methodology for using ratio analysis

Input
Cost and margin
drivers
Development over
time
Client
data/interviews
Analyst reports
Annual reports
SEC filings*

Output

Obtain
information

Calculate key
ratios

Use the income statement,

balance sheet and cash
flow statement from
annual reports to obtain
the data required to
calculate the ratios for the
company as a whole
Access databases such as
Excel, Bloomberg,
Datastream and World
Equities to obtain
supporting data and
information
Obtain information on
divisions from
management

Calculate the most

relevant ratios and
margins, such as
profitability, asset
turnover and financial
leverage ratios
The ratios of
importance will vary
by industry
Assess the capital
structure, operating
efficiency, free cash
flow and returns to
shareholders

Compare against
competitors
ratios

Performance
analysis
Reasons for
improvements or
deteriorations in
performance
Ability to launch
strategic initiatives
and defend against
competitor actions

Compare the ratios to

those of key
competitors and
determine the reasons
for discrepancies

* Reports filed by publicly held companies with the Securities and Exchange Commission: e.g., 10K, 10Q
Source: A.T. Kearney

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Financial resources and performance

Financial ratios

Conclusion

Conclusion

Key points

Hard to find pure plays, i.e. it is hard to compare companies unless they have a very similar business
portfolio (apples must be compared to applies)
Operating expense (%): exclude extraordinary charges (e.g., restructuring charge); exclude depreciation
Interest expense (%): use gross interest expense, not net of interest income
Income tax (%): use provision for income taxes; Exclude deferred taxes
Balance sheet: long-term debt includes all interest bearing liabilities (e.g., post retirement benefits and
other long-term liabilities); capital = total assets less BIBLs; book equity = total shareholder equity less
preferred stock

Strengths

Key ratios will define areas of concern and make it possible to direct analyses

Weaknesses

Be careful that your definitions of ratios match the clients definitions

References

Source: A.T. Kearney

Atkinson, A.A.; Banker R.D.; Kaplan, R.S.; and Young S.M. (1997); Management Accounting
Drury, C. (1991); Management Accounting for Business Decisions
Grant, R.M. (1998); Contemporary Strategy Analysis, 3 ed.
Shank, J.K. and Govindarajan, V. (1993); Strategic Cost Management
Wilson, R.M.S (1997); Strategic Cost Management
Young, S.M. (1993); Readings in Management Accounting

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Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
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Company analysis frameworks

Introduction

The company assessment builds on three areas

SWOT
Context

Client

Competitor

7S

Benchmarking

Source: A.T. Kearney

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Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
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Company analysis frameworks

7S

Description

The 7S framework provides a basis for understanding and designing organizations

Definition

The 7S framework asserts that the effectiveness of

an organization is the consequence of the
relationships between:
Strategy
Shared values
Skills
Structure
Systems
Staff
Style

Source: A.T. Kearney; Waterman, R.; Peters,T.; and Phillips, J. (1980); Structure Is Not Organization
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Company analysis frameworks

7S

Description

There are seven factors of organizational effectiveness

Structure
The division of
responsibility and control
How decisions are made
How communication flows

Strategy
A coherent set of actions aimed
at gaining a sustainable
advantage over competition

Strategy

Systems

Shared values

The processes and

procedures through
which things get done
from day to day

Shared
values

Those ideas of what is right and

desirable which are typical of the
organization and common to
most of its members

Skills

Systems

Structure

Skills

Style

Capabilities possessed by the

organization as a whole as
distinct from those of individuals

Staff

Style
How the management leads
Controlling
Analyzing
Promoting
Supporting

Staff
The people in the
organization, considered
in terms of corporate
demographics, not
individual personalities
Source: Waterman, R.; Peters T.; and Phillips, J. (1980); Structure Is Not Organization
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Company analysis frameworks

7S

Usage

The 7S framework can be presented as an intertwined matrix or as a hierarchical

model

Structure
Strategy

Strategy
Systems

Shared values

Shared
values

Skills

Skills

Style
Structure

Systems

Staff

Style

Staff
Emphasizes the interaction of all
of the seven characteristics

Emphasizes a hierarchical
structure of the seven
characteristics

Source: Waterman, R.; Peters T.; and Phillips, J. (1980); Structure Is Not Organization
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Company analysis frameworks

7S

Example

A 7S analysis provides a concise familiarization with a companys culture as well as

its organizational strengths and weaknesses

Through the 7S
framework, a
thorough overview
of an organizations
potential strengths
and weaknesses is
established

Organizational analysis based on findings from interviews

Lack of total overall planning for
the group

Strategy

Shared values
Well established and well
distributed skills base
Solid operating base (with a
potential for trimming rather
than a need for restructuring)

Structure

Skills

Systems

Functional with
Look at effective
little tradition for
MIS with adequate
effective crossand timely planning
border cooperation
and follow-up
BU specific
information
activities handled
through duplication

Staff
Technical and
product oriented
Little formal
business
management
background

Company XX is a great
place to work
We are entrepreneurs we
are good at getting things
started
We are willing to take
risks

Style
Lack of time spent
on follow-up and
lessons learned
Highly operational
and hands-on

Source: A.T. Kearney

Source: A.T. Kearney

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Company analysis frameworks

7S

Methodology

Methodology for using a 7S organizational analysis

Input

Output

Company
data/interviews
Overview of the
value chain
Purpose of the
organization

Benchmarking

A thorough
understanding of
the organization
1

Research the
company

Describe the
7Ss

Evaluate
strengths and
weaknesses

An understanding
of how to
facilitate change

Stakeholder
analysis
Research the
companys policies,
philosophies, history
and development
Perform interviews
across the organization
Investigate the 7Ss as
they actually exist in
practice within the
company

Source: A.T. Kearney

Create a 7S analysis,
assessing the details of
the organizational
characteristics
Define causal linkages
between the 7Ss

Synthesize findings
into conclusions about
organizations
strengths and
weaknesses
Identify areas of
particular importance
for future focus

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Company analysis frameworks

7S

Conclusion

Conclusion

Key points

Systems are seen as perhaps the most powerful characteristic, and the one that can be modified
without disrupting the organization by changing the structure
The main assertion is that effective organizational change is really brought about via the relationships
between these 7Ss

Strengths

Demonstrates the dependent relationships between the 7Ss

Useful in characterizing a company

Weaknesses

References

Source: A.T. Kearney

Waterman, R; Peters, T.; and Phillips, J. (1980); Structure Is Not Organization; Business
Horizon, June

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Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
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Company analysis frameworks

Benchmarking

Description

Benchmarking is the process of comparing areas of a company against one or

several other companies which are recognized as representing the best practice in
those same designated areas

A.T. Kearneys definition

Benchmarking is a process of measuring performance relative

to competitors or other companies and identifying the key
business practices which lead to the most productive and
effective operations

Source: A.T. Kearney

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Company analysis frameworks

Benchmarking

Description

There are two types of benchmarking which can be used in combination

Dual
benchmarking
Best
practice
benchmarking

Traditional
benchmarking
Definition:

Measuring
against the best
direct competitor

Learning from the best

across industries

Purpose:

Determine
relative purpose

Trigger innovative
thinking and activating
imagination

Analyses:

Examples of areas of
benchmarking analysis
Functional
Process

Issue specific

Source: A.T. Kearney

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Company analysis frameworks

Benchmarking

Usage

Benchmarking helps to identify the core competencies of the company and the
resources needed by the company to achieve its objectives

Capabilities critical for

strategic advantage are
not known

Identify competencies of the company

Determine in which dimensions companies that are successful in
the industry excel
Conduct comprehensive benchmarking for new strategy
formulation

Capabilities critical for

strategic advantage are
known

Benchmark across the strategic dimensions and capabilities (1)

against companies in the same industry to compare against the
competition or (2) against companies that represent the bestpractice in other industries
Conduct strategic gap analysis

Source: A.T. Kearney

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Company analysis frameworks

Benchmarking

Usage

Why companies use benchmarking?

Objective

Benchmarking's role

Gain strategic advantage

Helps companies to focus on capabilities critical to building

strategic advantage by understanding the key success
factors in the industry and relative competitive position of
the company

Understand relative (cost) position

Reveals a companys relative (cost) position and indicates

opportunities for improvement

Improve performance

Illustrates alternative methods to improve operational

efficiency and product design. Helps to define the way to
become a leading company by highlighting the profiles of
the winners and losers

Increase rate of organizational

learning

Brings new ideas into the company, facilitates experience

sharing, and stimulates thinking "out of the box"

Source: A.T. Kearney

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Company analysis frameworks

Benchmarking

Example

Functional benchmarking considers competence/performance in a particular area

within an organization

Cost
benchmarking is
a common form
of functional
benchmarking

Company X must aggressively lower its cost structures to become more

competitive
Cost benchmarking
Today

180
14

20

16

31

22

Cost level
required

153

10

18

126
6
15
10
13
12

49

49

20
14
21

Best practice
comparisons might
be a measurement
across industries or
within the same
industry

Source: A.T. Kearney

Target
level

50

27

21

21

Company

Competitor A

Best practice

Source: A.T. Kearney

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Company analysis frameworks

Benchmarking

Example

Process benchmarking compares linkages within the organization - how things

work together

Different
business
processes can be
benchmarked for
efficiency,
organization,
effectiveness,
etc.

Process benchmarking enables the identification of processrelated potential for improvement, based on standardized
process definitions
Start of process

Customer
Order

Sub Processes

Customer
Order
Processing

Supplier
Order
Processing

Warehousing
and
Distribution

Skill level
5 High
3 Medium
1 Low

End of process

Customer
Service

Product
Receipt by
Customer

Client

Player A

Player B

Player C

Player D

Source: A.T. Kearney

Source: A.T. Kearney

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Company analysis frameworks

Benchmarking

Example

General issue-driven benchmarking considers various items deemed important for

comparison

Particular issues of
importance can be
benchmarked

The client lags behind its competitors in the areas of technology, order
processing, service, price, and employee skills
Customer's evaluation of Client
Customer's evaluation of competitors
Critical
success factor

Competitor

Weight
5 4 3

A
1

5 4

3 2

B
1 5 4

3 2 1

C
5 4

D
2 1 5 4

2 1

Technology
Quality

Order processing
Service

Such a gap analysis

illustrates
differences in
performance

Price
Employee skills

Achievement
Internationality
Image

Advertising
Source: A.T. Kearney

Source: A.T. Kearney

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Company analysis frameworks

Benchmarking

Example

General issue-driven benchmarking considers various items deemed important for

comparison (contd)

By benchmarking
particular issues,
players can be
ranked in terms of
performance

The best performer

is identified and a
more thorough
analysis against this
competitor can be
conducted

Competitor ratings
Areas for powerful performance

Key
players

Technical
Know-how

Product
Know-how

Business
Know-how

A
B
C
D
E
F
G
H
I
Client

Low cost
producer

Product
focus

Channel
control

Cost

Premium

Revenue

Total
score

Overall
ranking

9.4
9.1
12.5
10.6
9.5
11.5
8.5
10.5
9.3
10.0

Performance

9
1
3
6
2
10
4
8
5

Power

Source: A.T. Kearney

Source: A.T. Kearney

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Company analysis frameworks

Benchmarking

Methodology

Methodology for using benchmarking

Input
Key success
factors
Players analysis
Value chain
7S
More depending
on the study

Output
1

Determine
benchmarking
approach and
criteria

Gather internal
data for
comparison

Identify the
type of
benchmarking
to be
performed

Gather external
information

Analyze data
and
summarize
findings

Derive
company
specific goals

Choose between

Dual
Traditional
Best practice

Choose between
comprehensive or
single-dimensional
benchmarking
For single-dimensional
benchmarking choose
between
Functional
Process
Issue driven

Source: A.T. Kearney

Identify areas
under
consideration
Assemble data
from within
the
organization

For traditional
benchmarking,
identify industry
leaders
For best practice
benchmarking,
identify the issue
of interest and
choose the leader,
independent of
industry

Sources can include Choose mode of

Supplier interviews presentation
Experts
Public databases
A.T. Consulting

Improved
understanding
of industry
players
Understanding
of competitive
situation
Determination
of areas that
require
improvement

Define goals with

respect to
opportunities and
threats and the
purpose of the
organization

databases
Financial statements
Competitor
interviews
Customer surveys

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Company analysis frameworks

Benchmarking

Conclusion

Conclusion

Key points

A.T. Consultinghas a wealth of benchmarking databases (contact IRC)

Many aspects of a company can be benchmarked

Strengths

Weaknesses

Company can become defensive

Study can be used as a delaying mechanism
Not driven by results

References

Spendolini, M.J. (1992); The Benchmarking Book

Source: A.T. Kearney

A.T. Consultinghas a wealth of benchmarking databases (contact IRC)

Provides insight and a new perspective towards competitors
Provides new targets
Illuminates areas requiring focus as well as new opportunity areas
Breaks down arrogance of companies

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Contents of Module III

Introduction

Overall company profile

Purpose of the organization
Stakeholder analysis
Strategic era analysis
Strategic planning framework

Product/market focus
Evaluation of product/market segments

Overview of the value chain

Value chain analysis
Cost and margin driver analysis

Financial resources and performance

Development over time
Financial ratios

Company analysis frameworks

7S
Benchmarking
SWOT
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Company analysis frameworks

SWOT

Description

The SWOT analysis refers to the internal strengths and weaknesses of the
organization and the opportunities and threats it faces from the external
environment

Internal environment
Weaknesses

Strengths

Only by knowing and

capitalizing on its internal
strengths and weaknesses,
can the company effectively
exploit opportunities and
seek to neutralize threats in
its external environment
Opportunities

Threats

External environment

Source: A.T. Kearney

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Company analysis frameworks

SWOT

Description

The SWOT analysis identifies the competencies and development needs of the
client with respect to the threats and opportunities in the market place

Strengths
What are the company's
core competencies?
Where does the company
have a competitive
edge?

Weaknesses

...

...

Opportunities

What opportunities exist

where the company can
perform profitably?

Source: A.T. Kearney

In what areas does the

company lag behind?
What are the companys
development needs?

Threats

...

...

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

What trends or
developments would
lead to sales or profit
deterioration in the
absence of defensive
action?

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Company analysis frameworks

SWOT

Example

It is essential to synthesize the information of the SWOT analysis

The SWOT
analysis is an
excellent chart to
hand-off to clients
for them to review
and complete. An
evaluation of a
client-completed
SWOT can lead to
insights into the
clients beliefs
about its company
and industry
The so what of a
SWOT analysis is
that it illuminates
the strategic
challenges the
company faces both internally and
externally

Assessment of strategic challenges faced by a company in the cordless

telephone industry
Strengths
Largest supplier with broad
offering
Technology and quality leader
Substantial R&D capabilities

Opportunities
High-growth in Asia/
Pacific and Latin America
OEMs divesting specific
capabilities
Growth potential related to
certain products
Convergence

Strategic challenges
1. Enhance global business
processes
2. Global marketing/sales
focus
3. Leverage existing product
competencies

Weaknesses
Poor delivery performance
against commitments
Not able to deal with
production volume variations
Long development lead-times
and time-to-volume
Inadequate relationships with
subcontractors and distributors

Threats

OEMs increasingly outsourcing

production to subcontractors
Distributors gaining power
Capacity flexibility required
Smaller, more flexible and lower
cost competitors
Source: A.T. Kearney

Note: OEM refers to original equipment manufacturer

Source: A.T. Kearney
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Company analysis frameworks

SWOT

Methodology

Methodology for using the SWOT analysis

Input
Client data/
interviews
Annual reports
Industry reports
Analysts reports
Value chain
Benchmarking
Product/market
segmentation
Execution capacity
of the organization
7S

Source: A.T. Kearney

Output
1

Define SWOT

Determine strengths and

weaknesses within the
companys internal processes
Marketing
Manufacturing
Organization
Strategy
Finance
Determine opportunities and
threats in the macro
environment
Demographic
Economic
Technological
Political
Social
Cultural
Determine opportunities and
threats in the micro
environment
Customers
Competitors
Distribution channels
Suppliers

Rank according
to priority

Evaluate each of the SWOT

elements
Strengths: Determine
importance and ability
to exceed
Weaknesses: Determine
development needs
Opportunities:
Determine attractiveness
and probability of
success
Threats: Determine
seriousness and
probability of
occurrence

Determine
strategic
implications

Synthesize the
components of the SWOT
analysis into a set of
coherent strategic
challenges facing the
company

A.T. ConsultingBUSINESS UNIT STRATEGY TRAINING

Organizational
development
Identification of
strategic
implications for
the business unit
and the
organizations
development

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Company analysis frameworks

SWOT

Conclusion

Conclusion

Key points

The SWOT analysis should lead to some conclusions about the challenges the company faces
A SWOT analysis for a speculative business will contain many opportunities and threats,
whereas a SWOT analysis for a mature business should indicate fewer threats and opportunities

Strengths

Provides an overview of the strengths and weaknesses as well as the opportunities and threats
facing the client, in a concise manner

Weaknesses

May not always convey the entire message or explanation

The SWOT analysis can easily be turned into a one-time-exercise, providing a snap-shot, rather
than being conducted periodically

References

Gross et. al (1996); Business Marketing

Kotler, P. (1997); Marketing Management

Source: A.T. Kearney

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