Industry Analysis and MappingThe Business System / Value ChainWilliam K. Holstein

Before we begin the end of the story of the T and the Q

A Simple Business System (Value Chain) Design and R & DManufacturingMarketingDistribution and ServiceWhere can we attack?Where can we achieve competitive advantage?Where are existing rivals vulnerable?

Two Ways to CompeteLow Delivered Cost Focus on PROCESSHigh Perceived Value Focus on PRODUCT

DELIVERED CostHow did the Japanese capture more than half of the watch industry from the Swiss, despite higher manufacturing costs ??? Design and R & DManufacturingMarketingDistribution and ServiceThey couldnt do much here

So they attacked hereThey couldnt do much here

Why PERCEIVED Value?Why is one BMW 7-Seriesworth more than ten Daewoo Ticos? Design and R & DManufacturingMarketingDistribution and ServiceIts all hereIts all hereAnd here

PC Industry ExampleCustomers R & D DesignCompo- nents &SoftwareAssemblyMarketingDistribu- tion ServiceOnly these activities are inside the typical Personal Computer companyDisk DrivesMonitorCircuit BoardsCPUOperating SystemApplications S/ WSUPPLIERSDISTRIBUTORSand RETAILCHANNELS Sub-ContractorsAdvertisingAgenciesServiceOrganizations

Technology and what we doIsn't Enough . . . Design and R & DManufac- turingMarketingDistribution and ServiceConsumers and CustomersYou have to manage theWHOLE BUSINESS SYSTEM

What Business are we in ?Packaging Equipment ExampleCardboardFormingEquipmentPrintingEquipmentDirectAgentsFast Serviceand PartsDeliveryConsumerGoodsManufacturers TwoDiversifications1981 1985 Photo WordTypesetting ProcessingEquipment Equipment

What Business are we in ?CardboardFormingEquipmentPrintingEquipmentDirectAgentsFast Serviceand PartsDelivery Consumer GoodsManufacturersPhotoTypesettingEquipmentWordProcessingEquipmentPrintingEquipmentDealersOfficeEquipmentDealersAssistance withFinancingTrainingMaterialsPrintersNewspapersOffices Different Different Different Different Competitors Distribution Service Customers

A Business System (Value Chain)Swiss Watch Industry - 1984WorksCaseAssem- bly/ and Market- ingWhole- sale andDistribu- tionRetailFinalConsumers

Economics of the System Swiss Watch Industry - 198425 50 8 83 134 300 SFr WorksCaseAssem- bly/ and Market- ingWhole- sale andDistribu- tionRetail

A Business System (Value Chain)Swiss Watch Industry - 198425 50 8 83 134 300 SFr How did Seiko gain competitive advantagein the 1980s?200 SFrWorksCaseAssem- bly/ and Market- ingWhole- sale andDistribu- tionRetail

Strategic Groups:US Chain Saw IndustryProfessional Group:Stihl JonseredsHusqvarnaSoloSkilBranded Mass Mkt:HomeliteMcCullochPrivate Label:Beaird-PoulanRoperQuality/ Brand ImageHighLow

dealersMass MerchandisersPrivate LabelRetail Distribution10-year old study by Michael Porter

Porters CurveU.S. Chain Saw IndustryROIMarket ShareFocusStuck in the MiddleCost LeadershipHusqvarnasoloSkilRoperBeaird-Poulan0

Auto Industry Strategic GroupsMercedesJaguarBMWHyundaiYugoGMFordChryslerNissanToyotaPrice/QualityHighLowFewManyMarket Segments Served20-year old study by Michael PorterVolvoSaab

More Recent Auto Industry MapMercedesJaguarBMWGMFordChryslerNissan/RenaultToyotaPrice/QualityHighLowFewManyMarket Segments ServedHyundai/KiaDaewooVolvoSaabPeugeot/CitroenMazdaMitsubishiFiatHonda

The Future Auto Industry Map?GM (+ Daewoo, Saab, Hummer, Isuzu, Suzuki) Ford (+ Mazda, Volvo, Jaguar, Land Rover) Toyota (+ Lexus, Scion) Daimler Chrysler (+ Smart, Mitsubishi?, Trucks) Volkswagen (+ Audi, Seat, Skoda, Phaeton, Bentley) Honda (+ Accura) Nissan/Renault Price/QualityHighLowFewManyMarket Segments ServedHyundai +KiaPSABMW + Rolls, MiniFiat +Ferrari,PorscheMitsu- bishi

World Top Ten 2003 SalesRenaultPSANissanHondaVWToyotaDaim- ChryslerFordGMHyundai8.6 m units$185.5 b Sales2.4 m units$42.2 b SalesArea of circle = Relative SizeOnly Toyota and Honda in purely Japanese hands

RenaultPSANissanHondaVWToyotaDaim- ChryslerFordWorld Top Ten with 2004 ProfitsGMHyundai$2.9 b8.6 m units$4.5 b$2.1 b$10.5 b$6.9 b$3.5 b$1.7 b 1.78 m units$3.5 b$1.8 b$4.8 bBMW$2.2 b1.3 m units Porsche$0.7 b.088 m units

The Big SqueezeYou have to be BIG and you have to offer VARIETY

You Have to be BIG

What if you arent BIG?

A Different Industry MapHigh Delivered Cost LowHigh

PerceivedValue

LowGood ValueGood Price

A Different Industry MapHigh Delivered Cost LowEuropean = Stylish, Sturdy Japanese = High Quality, High Resale Value, Good Service Function of Design, Prestige, DistributionScale Economies, Platform SavingsDesign and Speed AdvantagesDistribution, Partnering, Supply Chain, Capital + Investment Incentive AdvantagesWorth MoreCosts LessHigh

PerceivedValue

Low

A Different Industry MapHigh

PerceivedValue

LowLow Delivered Cost CompetitorsHigh Perceived ValueCompetitorsStuck in the MiddleOut-PerformingCompetitorsHigh Delivered Cost Low

An Auto Industry MapMercedes, BMWHigh

PerceivedValue

LowVolkswagenFiatJaguar, AudiSaab, VolvoPeugeot/ CitroenRenaultHyundai,KiaToyotaHondaHigh Delivered Cost LowNissan

Result of Toyota OutperformingSource: Global InsightFortune, The EconomistBlueovalnews.comMillions of UnitsWorldwide sales of cars and trucks

Value Creation/Destruction Map

Source of AdvantagesNot a good place to be!

Strategic MovesHigh

PerceivedValue

LowMercedes BenzVolkswagenFiatJaguarPeugeot/ CitroenRenaultToyotaHondaHigh Delivered Cost LowNissanHyundaiKia

Strategic Moves- Why not ?High

PerceivedValue

LowMercedes BenzVolkswagenFiatJaguarPeugeot/ CitroenRenaultToyotaHondaHigh Delivered Cost LowNissanHyundaiKia

Pure StrategiesHigh

PerceivedValue

LowMercedes BenzFiatJaguarToyotaHondaHigh Delivered Cost LowHyundaiKiaUnder ThreatOK?

L-shaped Strategic MovesHigh

PerceivedValue

LowVolkswagenPeugeotHigh Delivered Cost LowOutperformingCompetitors

L-shaped Strategic MovesHigh

PerceivedValue

LowHigh Delivered Cost LowHP Intel ServersDell Intel ServersWhile Dell once undercut competitors by upward of 50%, today the price differential is about 3%. Its pretty much an even playing field now. Baseline Magazine, September 2004

L-shaped Strategic Movesat Bucks County School SystemHigh

PerceivedValue

LowHigh Delivered Cost LowIBM Intel ServersCompaq Intel ServersWe felt good about the experience we had with IBM engineers they were really trying to get to know our environment. Baseline Magazine, September 2004IBM gets the nod of approval for Intel- based servers even if its systems tend to be pricier than rivals. IBM provided better integra-tion and seemed more technically astute.

Another Strategy DefinitionDeveloping and deploying Strategic Assets and Capabilities that fit the needs of a definable market and environment at a given point in time.