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Strategy Toolkit
Foreword
Table of contents
Strategy at Andersen ...................................................................................................... 5
An indicative guide to using the tools .............................................................................. 6
Data sources................................................................................................................... 7
100% bars....................................................................................................................... 8
Activity maps................................................................................................................... 10
Answer first hypothesis ................................................................................................... 12
Asset extension modelling............................................................................................... 14
Business definition .......................................................................................................... 16
Capability assessment .................................................................................................... 18
Competitor analysis template .......................................................................................... 20
Conversion waterfall........................................................................................................ 22
Customer experience analysis ........................................................................................ 24
Customer segmentation .................................................................................................. 26
Customer segmentation analysis .................................................................................... 28
Dupont analysis .............................................................................................................. 30
Economies of scale ......................................................................................................... 32
Executive dashboard....................................................................................................... 34
Forecasting techniques ................................................................................................... 36
Free cash flow diagram ................................................................................................... 38
Gantt charts .................................................................................................................... 40
Growth share matrix........................................................................................................ 42
Growth spread matrix...................................................................................................... 44
KPC comb charts ............................................................................................................ 46
Marimekko charts............................................................................................................ 48
Market definition ............................................................................................................. 50
Market entry and exit....................................................................................................... 52
Market sizing................................................................................................................... 54
Model front panel ............................................................................................................ 56
Parfait charts................................................................................................................... 58
Partnering maps.............................................................................................................. 60
PEST analysis................................................................................................................. 62
Porters five forces .......................................................................................................... 64
Portfolio matrix ................................................................................................................ 66
Prioritisation funnel.......................................................................................................... 68
RACI analysis ................................................................................................................. 70
Reverse costing .............................................................................................................. 72
Risk matrix ...................................................................................................................... 74
RONA charts................................................................................................................... 76
Root cause analysis ........................................................................................................ 78
ROS/RMS ....................................................................................................................... 80
Scatter graphs................................................................................................................. 82
Scenario development .................................................................................................... 84
Sector charts................................................................................................................... 86
Sensitivity charts ............................................................................................................. 88
Shareholder value analysis ............................................................................................. 90
Share momentum charts ................................................................................................. 92
Sources of value waterfall ............................................................................................... 94
Strategy articulation map ................................................................................................ 96
SWOT analysis ............................................................................................................... 98
Traffic light charts............................................................................................................ 100
Value chain analysis ....................................................................................................... 102
Value disciplines ............................................................................................................ 104
Weighted column chart ................................................................................................... 106
Feedback form ................................................................................................................ 108
Strategic intent
100% bars
Description
Typical
application
Typical
process
Excel has an option to create 100% bars as part of its Chart Wizard,
so they are easy to create.
Gather the data appropriate to the particular application you are
using the 100% bars for, from expert interviews, analyst and
brokers reports and, if necessary, client interviews.
Ensure that you are happy with the data you have gathered and
that, if you are creating a series of bars, the information refers to the
same type of data.
Annotate the chart and draw conclusions from it.
Unless you are dealing with many categories, it is best to put the
absolute size of each item at the end of the bar.
For comparisons between bars over time, clearly mark the CAGR
for each of the key elements of the bar.
Example
output
100%
% of
Total
17m
80%
40% of
customers
generate 90%
of profit
60%
40%
D
20%
0%
Customer ranked
by profitability
Net profit
Source: RBS presentation, Feb 2001
% of
Total
$7.2tr
$16.6tr
$17.4tr
$23.1tr
Africa
Middle East
S. America
80%
60%
Asia
40%
N. America
20%
Europe
0%
1986
1996
1997
2000
Tricks
and tips
Use shading to highlight key messages you wish to show to the client.
100% bars are often interchangeable with (or augmentations of)
Mekkos and Parfait diagrams.
Activity maps
Description
Typical
application
Typical
process
Example
output
High-level activity map for fixed line telecoms: Now and Future
Media/ Publishing
Content
Production
News
Films/ Music
Programming
Corporate
Advertising
Rich Interactiv
Media
e
User Applications
Content
Provision
Internet
Access
Provision
Backbone
Network
Customer management
Portal
Walled
Garden
Local
Equipment
Fixed
Mobile
ISP
Video
Exhibition
conference
ASP
ISP
Hosting
Network Provision
xDSL Radio
Fibre
Devices
Fixed
Mobile PDAs
Handsets Handsets
Tricks
and tips
Web Traditional
sites offline
media
Voice
Middleware
Mobile
Portal
Open Walled
Garden
National
Internl Bandwth Colocn/ Switching/
Backbone Backbone Trading Hotelling routing
Local Access
Communications
Co-ax Fibre
Mobile
2G
2.5G
3G
GPRS
Applicatio
ns
Operatin
Local
Specialist
Middleware Local Apps
g
Systems
Key areas of future
activity - owned or as
part of an alliance
Note: the above example is not to scale (was originally the size of a
powerpoint slide). To present this much data in a client situation,
ensure that all boxes are clear and well spaced.
You can shade boxes according to competency or desired
competency if you wish to draw out key messages.
Overlaying current with desired activities helps clarify key conclusions
in advance of alliance, M&A activities, etc.
Consider adding rows for parameters which fall outside the value
chain, but which can help distinguish competitors, e.g. geography,
customers.
Typical
application
Typical
process
Example
output
Can change
customer behavior
Can improve
customer
behaviors
Can increase
contribution
from best
customers
Can identify
Can identify
profitable
borrowers,
customers
and make
Can retain them them borrow
longer
more
Can increase xsales
Can reduce LLP
Tricks
and tips
Cost reductions
can be made
Can manage
out poor
customers
Can convert
more prospects
Declining
market
position
Can identify
Can identify good Can increase
poor customers prospects
share of wallet
Can price them Can design
Can increase xout profitably
attractive CVPs
sales
Can manage
Can win converts Can partner
attrition
from competition profitably
Poor
customer
relnship and
targeting
Can reduce
costs for
sourcing of
goods
Rewards do
not solicit
required
behaviors
Can reallocate
balance sheet
costs
beneficially
Source: Example
10
Typical
application
Typical
process
11
Example
output
Internet
derivatives
management
and settlement
Brand extension
Far satellite
Internet
derivatives
management
and settlement
Internet
Private
Bank
On-line
wealth
management
tools
Near satellite
Mobile
Institutional Operational research
Gold and
Operational
fixed
risk on-line provision
jewellery
Institutional
risk on-line
income
advisor
trading
investor trading
advisor
transaction
and risk
platform
management
Mobile
hub
credit
XML
Open
derivatives
derivatives
architecture
Core
Mobile
trading
ECN for US
bond
platform
equities
syndication
Open
Internet
tool
architecture
Private
ECN for UK
Mobile
Bank
Interest rate
equities
credit
derivative
derivatives
network
XML
Institutional
derivatives
fixed
Forex
portal
trading
income
platform
transaction
platform
Market extension
Product extension
Tricks
and tips
Dont let suggestions in the far satellite region get too far away from
reality. But balance this against the need for individuals to test their
creativity.
Use extension modelling alongside scenario planning, beachhead
mapping, etc.
12
Business definition
Description
Typical
application
Typical
process
There are many uses for business definition, but key applications
include:
- establishing the boundaries of new e-business;
- deciding how to manage a portfolio of opportunities;
- as a basis for market entry studies;
- to support new business start-ups; and
- value proposition development
Begin by getting a contextual understanding through background
reading.
Use this knowledge to identify discrete business activities in the
area your client is working (as is). For example, food manufacture,
pet food brand management, wheat milling, food distribution (US),
food distribution (France).
Determine the cost structure (i.e. the key components) for each
activity. Use the 80:20 approach, but dig down as quickly as
possible into existing management accounts.
Plot 100% bars for costs against each other, and identify through
shading where cost sharing occurs (or could occur).
Map the channel processes at a high level, which serve the
customers for each business activity.
Plot this as a value chain, each against the others and identify
areas of channel/customer sharing.
Plot each business activity on the cost sharing vs. customer
sharing matrix.
13
Example
output
Cost sharing
Single business
Distinct business
(with cost leadership
potential)
50%
Distinct businesses
Distinct
Single
businesses
business
(with channel
(with
sharing
substitution
potential)
potential)
0%
0%
50%
100%
Customer sharing
Source: Example
Tricks
and tips
14
Capability assessment
Description
Typical
application
Typical
process
Determine the key capabilities you wish to assess the company by.
These may be the three core capabilities from the value disciplines
model, or other categories (agreed with the client in advance), indeed
almost anything that can be broadly termed a capability. This might
include:
- superior skills in producing high quality products;
- superior system for delivering customer orders accurately
and swiftly;
- better after-sale service capability;
- more skill in achieving low operating costs;
- unique formula for selecting good retail locations;
- unusual innovativeness in developing new products;
- better merchandising and product display skills; and
- superior mastery of an important technology
Conduct a comprehensive survey of a predetermined target audience
(customers, employees, etc.) based on ranking each capability.
Average the results for each category to get a single score for each
capability.
Plot the results of the survey on a spider chart so that each capability
runs along its own axis. Join the points on each axis together to form
a complete shape.
You may wish to shade the area enclosed by the lines to indicate a
rough overall performance.
Annotate your results carefully so as to highlight the conclusions you
have drawn.
15
Example
output
Rapid
implementabili
ty
Success of EXN
2
1
0
Enhancing fund
management
infrastructure
Leveraging of
EXN
relationships
Industry leadership
EXN
BW
Industry collaboration
1- low importance
4- high importance
Assets
Cash generating activities
Fina
Hu
m
Phy s
ica
l
ncia
A
optimsset
isati
on
Customer
operations
d
Bran
Realistic
re
ltu
Cu
ort
Supp
Rep
utati
on
t s
se on
As rati
e
op
Regu
la
politi tion &
c al
C
M om
ar m
ke e
tin rci
g al
&
Tricks
and tips
16
Typical
application
Typical
process
Tricks
and tips
17
If you cannot fit all of your summary onto a single page you have
not understood the issue or the competitor well enough. Revise.
18
Schwab
Institutional
Investment
Operational
advice to retired
support, trading
and technology
Services to plan
solutions for
administrators
independent fee TrustMark
compensated
services
investment
advisors
Schwab
Retirement Plan
Services
Customised
services for HNW
customers
Trading, research
and support
services for
institutional clients
Trade execution
Capital Markets
& Trading
International businesses
Retail services
Products
Organisation
24,300 employees
Philosophy
High tech, high touch
Technology leadership
A culture of innovation
Structure
Value creation
Performance
Conduct
Example
output
Conversion waterfall
Description
Typical
application
Typical
process
19
Example
output
% of population
100%
90%
New Holland
80%
Competitor
70%
60%
50%
40%
30%
20%
10%
0%
Awareness
Knowledge
Liking
Preference
Tested
Purchase
Tricks
and tips
20
Typical
application
Useful for any company which has to compete for and retain
customers (i.e. all of them). The concept is easily extendable to
employees (internal customers), suppliers, partners and other
shareholders.
Improving customer profitability is only possible if you change the
customers behavior (e.g. buy more, use lower cost channels,
recommend to friends etc.) Measuring customer behaviour at every
interaction point with the company allows you to advise on where
your client must invest (i.e. change things) in order to bridge the gap
between customer expectations and delivery against them.
Many other tools can contribute to this analysis, including CVP
definition, root cause analysis, customer satisfaction surveys, product
prioritisation, financial return modeling, customer segmentation etc.
Typical
Process
21
Example
output
Progress monitoring
One point of contact
Telephone problem solutions
Consume
Consume
On time transaction
completion
Effective problem
handling
Follow up contact
Payment alternatives
Account set up
No additional charges
No billing enquiries
required
Evaluate
Evaluate
Deliver
Deliver Service
Service
Pay
Pay
Purchase
Purchase
Detailed
Detailed
selection
selection
Awareness
Awareness
Interest
Interest
Search
Search for
for
alternatives
alternatives
Access to
Service
financial advice
Financial advice
requirement
Price differences
Advertising and
identified
Promotional
Media
Ease of contact for
materials
Personal
enquiry
Overview of
Recommendation Initial contact
products, services
enquiry
and options
Marketing material
Repurchase
Repurchase
Product/Service quality
Sales Consultant recommendation
Price, delivery times
Additional services (e.g. all in one
provider)
Ease of access/convenience
Recommend
Recommend
Tricks &
Tips
22
Customer segmentation
Description
Typical
process
23
Draw out the implications of your findings as they may require the
client to readdress its marketing strategy and/or business model.
Example
output
x
Visitors
x
x
x
x
Shoppers
x
x
x
x
x
Event
x goers
x
Meeting
xgoers x
(business)
x
Risk
averse
x
x
x x
Commuters
x
x x
Vulnerable
people /
careers (1)
Regular
Note: size of bubble represents the approximate size of potential segment
1: Bubble size representative only
Tricks
and tips
24
Typical
application
Typical
process
25
Example
output
Retired
savers
100m
90
MidAffluent
Lifetime
NPV
85
4.8%
80
MidWealthy
75
70
100
150
Young
Affluent
Young
Wealthy
Students
200
250
300
350
400
450
Source: Example
Tricks
and tips
Priorities
targets
Develop
CVP
Create
market
position
Segment by:
Economic value
Demographics
Purchase
behaviors
Usage behaviors
Channel
Attitude
low relevance
26
high relevance
Reach
Dupont analysis
Description
Typical
application
Typical
process
27
Example
output
Sales
PAT
Assets
X
Assets
Sales
Margin
(Marketing
efficiency)
Asset turnover
(Production efficiency)
PAT - dividend
Debt + Equity
X
Debt + Equity
Capital leverage
Equity
Equity leverage
PAT
Retention ratio
ROC
profit
exceptional
capital
employed
revenue
price
volume
costs
unit
cost
fixed
costs
fixed
assets
fixed
assets
working
capital
stock
debtors creditors
Tricks
and tips
suppliers
buyers
substitutes
potential
entrants
28
Economies of scale
Description
Typical
application
Typical
process
Begin by gathering the relevant data on cost per unit from your client
(e.g. get exact capacity and cost per tonne for client in four plants).
Research your clients competitors costs through desk based or
direct research. If necessary, with project partner approval, you can
also interview competitors. For missing data, try and use your
ingenuity (e.g. by how much would your cost per unit drop if the size
of organisation doubled).
Organise your results in a table showing output and the effect of a
change in output on cost input. Use the Excel scatter function to
create your chart, and the r2 function to determine whether there is a
strong correlation.
29
Example
output
Cost per
Tonne
1,0
(excl.
materials,
1993,
0,8
k/Tonne)
Broxburn
Linkoping
Hatton
Durango
Ashby
Gyor
0,6
Lauragais
X1
Carlisle
Maastricht
Dortmund
0,4
Jyvas Hyva
X2
0,2
R2 = 65%
Genoa
Tyneside
0,0
1 000
10 000
100 000
Source: Example
Tricks
and tips
Be aware that the quality of result will depend on the number of data
points used (e.g. five gives an illustrative outcome, ten to twelve
points will give more confidence).
The example above illustrates economies of scale via a decreasing
average cost curve. It is also possible to illustrate the same effect
with an increasing returns to scale diagram where the scale on the
vertical axis is inverted.
Economies of scale operate at the level of factory or plant rather than
company for manufacturing .
Be aware that there are two versions of the scale curve: one is really
about learning, the other is about scale. In the first case, the
horizontal axis should represent the cumulative number of units
produced to date and the vertical axis, the cost per unit over time.
(e.g. aeroplane manufacturing where few units are produced each
year and the cost of each unit falls as assemblers get better at it). In
the second case, the horizontal axis should represent the size of a
given process and the vertical axis the cost per unit for this process
in various plants (as above).
Manufacturing directors/managers are not often approached for
market research and are may be more willing to discuss production
units and capacity if asked the right way.
30
Executive dashboard
Description
Typical
application
Typical
Process
Example
output
Tricks
and tips
Forecasting techniques
Description
Typical
process
33
Down-stream
industry
demand
Up-stream
industry
supply
Complementary
industry
demand
Lateral
industry
demand
To forecast ...
Demand for
steel
Demand for
car rental
Demand for :
- automotive
OEM
- ship building
Supply of :
- winter holidays
Demand for :
- business trips
Demand for :
- video games
E.g.
Industries whose
product / service is
bought in conjunction
with ours
Buyer
intention
surveys
Sales force
opinion
Expert
opinion
Frequently used
Particularly to interview competitor sales people
Be aware they may try to promote a product but can be useful to
understand major changes
How was
the market
estimated?
Reconcile
with other
research
Is the source
reliable?
Tricks
and tips
34
Typical
application
Free cashflow represents the net cash flow that a firm or project
expects to generate. Unlike a cashflow statement, which attempts
to reconcile sources/uses of cash with starting/ending cash
(accounting perspective), free cash flow focuses on the key
strategic component of the generating/financing equation.
Given this, the free cashflow diagram can be used in almost all
circumstances where you need to display the commercial outcome
of any strategic business investment. It is one of the most
frequently used tools in the strategy consultants armoury.
Typical
process
35
Example
output
100
80
Base Case
Cash Flow
(m)
Cumulative
cash flow
Corporate Actions
60
Outsourcing
TCA
40
Order routing
OMS
20
ABCD
0
Ongoing costs
-20
Break-even
Fixed Investment
-40
Maximum
exposure
-60
2003
2004
2005
2006
-35
2002
-7
18
34
64
NPV (m)
-35
-38
-20
51
Tricks
and tips
With a little bit of tweaking you can use this format to display other
time dependent factors most relevant to your client.
Try to avoid including terminal values in this presentation of cash
flows. Most business project planning anticipates pay back in the
medium term (3-4 years). In some industries terminal value can
dominate (e.g. telecom 3G licences, rail investment), in which case it
warrants a completely separate argument and representation.
Cashflow isnt everything. Consider the results of the cashflow
diagram in the light of softer issues, which may also have an impact
on the project. These could include organisation culture, recruitment
or change management.
36
Gantt chart
Description
Typical
application
Typical
process
Gannt charts are used to help plan and manage projects. They
should be used in almost any proposal to help explain how we
would carry out the engagement. They should also be updated
regularly during projects to aid project management. Whilst
Gannt charts are rarely used in final client presentations, they can
be very useful in intermediate presentations to show progress and
future plans, and to highlight project constraints.
The information to be plotted on a Gannt chart should be
obtained during the course of project planing and ongoing
management. This should include:
Project phases
Project workstreams
Activities within each workstream
Project milestones
Planned duration of activities
Effort required for each activity
Availability of resources
Gannt charts can be drawn directly in Powerpoint or developed
using a project management application such as Microsoft
Project.
Involve the project team members and the client in the
development of Gannt charts.
37
Example
output
Meetings
Consolidation
Clients
Kick Start
29 30 31 1
2 3 4 5 6Proposal
7 8 9 10 11 Gantt
12 13 14 15
16 17 18
Project
Chart
19 20 21 22 23 24 25 26 27 28
as is client /products
Interim meeting
Consolidation meeting
Final meeting
Tricks
and tips
38
Typical
application
Cash cow
Growth rate
Typical
process
Star
Hold or build
market share
Question mark
Build market
share,
specialise,
harvest, divest
Cash cow
Hold market
share or
harvest
Dog
Harvest,
divest or
specialise
Question mark
Low market shares in high growth
market needs large cash input to
finance growth, but poor yields
due to weak competitive position.
Dog
Low market share, low growth,
usually a cash trap
39
Example
output
Business Units
Product - Markets
25
Star
20
E
A
15
Market
Growth
(%)
Cash
Cow
10
Dog
B
0
10x
5x
3x
2x
1x
0.5x
0.3x
0.2x
Tricks
and tips
Source: Example
40
Typical
application
Typical
process
41
Example
output
Company C
Company B
5%
Company D
Company E
Company F
0%
Company G
Company H
-5%
-10%
-10%
Company A
-5%
0%
5%
10%
CFROI - CoC
= $1 Billion Inflation Adjusted Gross Assets
Source: Example
Tricks
and tips
42
Typical
application
KPC comb charts form part of gap analysis and have implications for
resource allocation. As such, they are a core part of any market
segmentation analysis exercise.
Understanding the importance of specific criteria to customers allows
a company to align its products and services more closely to those
customers and deliver greater value.
Typical
process
The data for KPC comb analysis comes from a structured customer
survey programme. Any interview programme is a major exercise
and should be carefully planned.
Take particular care to separate wish list needs from preferences
that apply in reality: ultimately, every consumer would like the product
to overperform, arrive immediately and be free!
The survey should be structured so to rank each criteria for each
competitor in the market.
Create an Excel table with the results and calculate an average score
for each competitor on each category.
Plot the results on a Bar + Line chart.
43
Do not forget to set the minimum and maximum for the vertical axis
to the range offered to the customers in the interview process (say,
from 1 to 10, not 0 to 10).
Apply the results with intelligence and consider accompanying the
chart with qualitative comments gathered in the interview process to
flesh out your conclusions.
Clients can take different messages from the results of this analysis.
They may wish to refocus their efforts on areas of weakness; or they
could change the messages they are taking to market so that their
stronger performance is recognized.
Example
output
10
Score
(1 to 10)
9
8
7
Criteria
Comp 1
Comp 2
Comp 3
Client
6
5
4
3
2
1
Criteria 1
Criteria 2
Criteria 3
Criteria 4
Criteria 5
Criteria 6
Source: Example
Tricks
and tips
44
Marimekko charts
Description
Mekkos are one of the simplest ways of displaying data with a high
level of visual impact to develop strategic insight.
Typical
application
Typical
process
To create Mekkos, you will need to use the Magic Mekko Macro.
Gather your research data from appropriate sources. Divide the
data into the segments and sub-segments you wish to analyze. If
there is insufficient data for small areas, use estimates or
assumptions and document what you have done.
Create a table of the results, with one segment per column, ranked
by decreasing size. Each sub-segment of a given segment is
placed in the successive rows of the relevant column.
Copy your table into the macro tool. Format your Mekko: state the
values at the top of each bar and state the total at top right. Shade
to highlight key messages.
Note that it is possible to make a mekko without using the mekko
maker. Use the following (Agarwal) process, by developing a set of
of stacked bar charts and then stretching them in Powerpoint to the
appropriate width.
45
Example
output
555
373
348
Japan
UK/
Ireland
211
378
240
North West
Europe
2,297
Southern
Europe
100%
Scandinavia
103
90%
80%
70%
60%
50%
40%
30%
20%
0%
Tatami
Parquet (wood & cork)
Ceramic
Laminate
Rubber
Linoleum
Vinyl (incl. Chlorfree)
Textile
Tricks
and tips
US
Germany
France
10%
Source: Example
In general, dont put numbers on Mekkos - they distract the reader from
the impact of the image. If it is necessary to include data or
descriptions, use a separate slide.
For clarity of reading, segments of 5% or less should be grouped into
an other segment.
46
Market definition
Description
Typical
application
Typical
process
47
Example
output
Percent
UK population
100%
Total Population
80
Potential market
Potential market
Available market
Qualified available
market
Served market
(target market)
Penetrated market
60
40
Available market
Qualified available market
20
Served market
Penetrated market
Tricks
and tips
Be sure that the definition is relevant to the clients situation; make sure
that your definition has not been driven by data that is available.
Do not confuse markets with industries - a common mistake. Industries
are defined from the supply-side: hence, there is a single white goods
industry (built from common components in common factories), but
washing machines and dishwashers compete in different markets. Be
careful about the distinction: particularly when looking at companies
that operate in overlapping markets by selling bundled products. The
bundle provider is effectively competing against players in a series of
markets, but also attempting to create a new market for the bundle as
a whole.
48
Typical
application
Typical
process
Exit Barriers
Identify exit barriers to understand
industry profitability and attractiveness
Identify exit barriers when considering
exit to allow for action to be taken to
reduce them
49
This should enable you to form and robustly defend a view of:
- the degree of industry vulnerability to new entrants;
- the sustainability of the current competitive structure;
- the drivers of current costs and margins; and
- the existing profitability structure and how it may change
High
Entry Barriers
Example
output
Low
Low
Tricks
and tips
50
High
Exit Barriers
Source: Example
Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels /
property rights
Cost disadvantages independent of
scale, e.g.
favorable location
proprietary technology
access to raw materials
Government policy, e.g. licensing
Specialized assets
low liquidation values or high
transfer / conversion costs
Fixed costs of exit
labor agreements
spare part capability
Strategic interrelationships
image
financial markets
shared facilities, etc.
Emotional barriers
Government / social restrictions
Market sizing
Description
Typical
process
Sanity
checks
Triangulated
estimate
51
To construct:
- gather all the available data on the market you are trying to
estimate as well as data on broader industry sets;
- make a list of the cuts for which you have data; and
- split the starting object into a sub-set by applying the cut for
which you have the least data (e.g. split recorded music into
digital/non-digital before type).
The example below illustrates the cuts you might undertake to arrive
at one of the segments in question 3.
Estimated size of the global archive footage market 2000
Cut
$6 billion
Average Amount of
Low Alcohol Beer
Consumed/Annum
65+
9,0 m
7 liter / yr / pers
55-64
5,6 m
14 liter / yr / pers
45-54
7,1 m
20 liter / yr / pers
35-44
7,6 m
5 liter / yr / pers
25-34
9,1 m
3 liter / yr / pers
20-24
3,8 m
2 liter / yr / pers
15-19
3,5 m
Age Group
Market Volume
358m liters
52
Every financial (Excel) model should have a control panel as its first
page. This panel should display all the key variables (inputs) and all
the key results (outputs) from the model calculations.
Typical
application
Typical
process
53
Example
output
Tricks
and tips
If you cant build a simple front panel you have not got to the heart of
the problem. Ask yourself what is really critical to the strategic
outcome of the situation I am modelling?
In most cases, an informal process is sufficient, but for large-scale
models, building this methodology into the JAL and milestones.
The best way of learning how to use Excel controls is to design some
yourself using a new workbook. Learn how to use scrolls bars,
spinners, option buttons and group boxes, drop down boxes and
check boxes.
When you have discovered a new (for you) trick to simplifying your
front panel, pick up the phone there and then and tell a colleague.
54
Parfait charts
Description
Typical
application
Typical
process
Plotting a Parfait chart requires an Excel table and the Area function
in the Chart menu.
Begin by defining the market you are assessing and obtain figures,
typically of sales, for each competitor.
Gather your data from analyst, company or brokers reports. Take
care to account for the reliability of the information - examine how the
market was estimated, how it compares to other estimates, and so
on. If no data is available you may need to infer from contiguous
industries (suppliers or buyers).
Plot the chart with time on the horizontal axis and sales on the
vertical. Reorder your chart to put the largest data group at the
bottom and changes that only occur later in the period at the top.
In addition, calculate CAGRs for the period of examination.
Once you have completed the construction of a chart, take time to
look and think about its meaning. You should be able to begin to
make general assertions about the drivers of change - increasing
revenues may be derived from growing volumes or rising prices, for
example.
55
Example
output
CAGR (%)
(1992-96)
18
16
14
213%
B
C
-9.8%
12
6.1%
10
8
7.4%
D
6
4
-0.8%
2
0
1992
1993
1994
1995
1996
Source: Example
Tricks
and tips
Ensure you are assessing the market in real terms (meaning that you
are compensating for inflation). To do this, obtain indexed inflation
rates (usually available from government resources), and divide your
figures by the indexed inflation rate - you may need to rebase your
figures if the index year is not the year in which your statistics begin.
Once a market estimate has been published by a reputable source, it
is often drawn on widely. Always check the source of your data to see
how carefully the researcher has assessed the marketplace and
whether multiple sources of data have been employed. Take care to
trace sources and evaluate their reliability. If you are uncertain about
the reliability of a source, trace the analyst and ask them how the
estimate was made.
When inferring market growth from contiguous industries, try and
make reasonable inferences based on shared characteristics. For
example, demand for car rental might be inferred from demand for
business trips. However, always take care to specifically state your
inferences and the limitations they may have (see forecasting
techniques tools).
Use annotation and/or commentary to bring out the key messages of a
particular chart in advance of discussion or presentation to the client.
This will allow you to clarify your view on the behavior of the market.
Use shading to pull out key messages you wish to present to your
client.
56
Partnering maps
Description
Typical
application
Typical
process
Well in advance, decide as a team what the critical value driver is.
Typically, this might be potential to generate customer intimacy; an
alternative axis may be relative capacity to differentiate, or
something quantitative such as NPV.
Ensure you have a complete list of relevant activites.
Try to have a dry-run of the exercise with the project team at least
once before the actual client meeting. List all the key challenges that
are likely to arrive when the exercise is repeated with the client.
In discussion with the client, place each activity on the map - with
relative capability on the horizontal axis, and the key criteria on the
vertical.
Remember, this is a rough and ready exercise, designed to separate
activities into three broad categories. The exact position isnt crucial.
Challenge the client vigorously, but not dogmatically.
57
Example
output
Must have
Nice to have
High
Application
integrator/ developer
ISP
Data
mining
Billing
ePurchasing
/payment
provider
Potential for
building
customer
intimacy
Other
product/ service
provider
Highly innovative
application
developer
Nice to have
Customer
adviser
Brand
manager
Content
Packager
Customer
problem
solver
Sales
Customer data
manager
Channel
license
owner
Banking
product
provider
Standards
influencer
Marketing
(context
building)
PDA
provider
Community
builder
Credit
Risk
assessor
Certifying
authority
Binary
transaction
processor
Low
Financial
controller
High
Handset
manufacturer
Channel
provider
Dont want
Market
analysis
Underwriter
Bad debt
manager
Current capability
Low
Tricks
and tips
58
PEST analysis
Description
Typical
application
Typical
process
59
Technological Factors
Technology is vital for competitive advantage, and is a major driver
of globalization. Consider the following points:
- does technology allow for products and services to be made
more cheaply and to a better standard of quality?
- do the technologies offer consumers and businesses more
innovative products and services such as Internet banking, new
generation mobile telephones, etc?
- how is distribution changed by new technologies, e.g. books via
the Internet, flight tickets, auctions, etc?
- does technology offer companies a new way to communicate
with consumers, e.g. banners, Customer Relationship
Management (CRM), etc?
Example
output
PEST assessment
Scale of impact
High
Low
Low
Tricks
and tips
Probability
High
60
Porters Five Forces model is probably the most famous and widely
used strategic tool. It is a useful check list of issues that needs to be
considered when analyzing and assessing a companys competitive
positioning. The five forces are: rivalry amongst competitors; threat of
new entrants; power of suppliers; power of customers; and the threat
of substitution
The underlying principal is the weaker the competitive forces, the
greater an industrys profitability. By implication, a company whose
strategy and market position provides a good defense against the five
forces can earn above-average profits.
At root, it is a great checklist for describing an industry. It helps you
organise your research and provides a good framework in which to
present your findings
Typical
application
Typical
Process
61
Example
output
Bargaining power of
suppliers
Rivalry among
competitors
Threat of substitution
The changing
preferences and
bargaining power of
customers or buyers: the
impact of volume,
choice, information
availability on behavior
Source: Example
Tricks
and tips
62
Portfolio matrix
Description
Typical
application
Typical
process
63
Example
output
56 million
Overall
proposition
20
Inherently attractive
Basic
proposition
20m
NPV
2002-2006
15
Financial
attractiveness
NPV 2002-2006
(m)
Back-office outsourcing
10
Corporate actions
Light blue shading
indicates key
elements of core
proposition
5
Trade cost analytics
OMS
0
High
Inherently unattractive
Low
Ease of implementation
Tricks
and tips
64
RACI analysis
Description
Typical
application
Typical
process
65
Example
output
AB PR SS
TJ AD DC SD NN PW
Specify Resources
Build Acceptance
Criteria
Identify Providers
Develop Provider
Review Processes
Interview providers A
Document
Interviews
Cultivation
relationship
Integrate
HC DC ED LY MC Dept
C
RD PdV
GR OS PF
JH Dir. PY
C
C
C
R
I
C
I
R
Source: Example
Tricks
and tips
This analysis does not take the place of process design, but builds
upon it. However, you should always look to simplify the process
and the number of people involved.
This step is often highly contentious. Ensure that you have
rigorously tested your ideas internally before taking them to the
client. It is always better to co-develop a RACI chart with proactive
client team members first.
RACI charts are often called RAID charts (Responsible
Accountable - Informed - Discuss)
66
Reverse costing
Description
Typical
application
Typical
process
67
Example
output
20
Labour
Activity 3
15
Materials
Labour
Cost
Per 10
Unit
()
Activity 2
Materials
5
Labour
0
Materials
Client Costs
Activity 1
Competitor Product Design
Our Technology
Our Factor Costs
Our Scale
Competitor Product
Competitor Technology
Our Factor Costs
Our Scale
Competitor Product
Competitor Technology
Competitor Factor Costs
Our Scale
Competitor Product
Competitor Technology
Competitor Factor Costs
Competitor Scale
Source: Example
Tricks
and tips
68
Risk matrix
Description
The risk matrix is a simple structure for identifying the key risks
associated with an opportunity, and prioritising the actions necessary
to mitigate those risks. There are many possible structures that could
be used to achieve this end, however all share the common property
of defining both scale and controllability of each risk.
Typical
application
The risk matrix is useful for clarifying decisions around complex, nonindependent risks which arise from almost every business decision.
Typically, any individual investment project or portfolio decision would
benefit from such an analysis.
A very common situation in which this tool is used is when deciding
whether to take part in an alliance venture. In this instance it helps
answer the questions like:
- what is my greatest risk?
- how costly will it be if I cannot mitigate it?
- what shape of alliance would minimise my risk exposure.
- for those risks outside my control (e.g. market risk), what is the
potential downside? etc.
Typical
process
69
Example
output
C
High
F
Significance of risk
Medium
O
HIGH
A. Level of inbound order flows from
partners
C. Exchange rate changes
D. Tie in of OMFS affiliate companies to EA
E. Trading role (Sell order-flow or agency)
F. Handling of corporate actions
K. Partner competence and fit
P. DVP and intra-day cash exposure
G
H
Q
R
Low
W
U
X
Manageable risk
Key
Risks falling
under the
following
categories:
T
S
Internal risks
Project risks
Market risks
Mitigation /
Negotiation
MEDIUM
B. Single currency cost transparency
G. Merrill Lynch competitive product
H. Jiway competitive product
I. E-Cortal competitive product
J. Market consolidation
L. Lack of clearly defined exit scenarios
M. Quality of research delivered
N. Technology competence
O. Custody systems
Q. Need to route all overseas business
R. Potential failure of EA network
LOW
S. Quality of research received
T. Free riding on partner research and
orders
U. Ability of EA to change fee
V. Additional finance
W. CLSA directors power
X. Marketing of EA
Tricks
and tips
Use common sense when identifying risks, consider only those with a
realistic possibility of occurring or having impact. List only the issues
that are at the root cause of the risk, rather than a number of knockon effects entirely dependent upon it.
Do not be precious about the absolute location of the bubbles. The
critical factor is whether the key risks (top right hand side on the
above chart) can be borne by your client.
Do not stop when you have finished your risk chart. You must drive
on to determine what actions must be taken to guarantee minimum
risk and to determine the benefits case in this instance.
70
RONA chart
Description
Typical
application
Typical
process
Asset turnover
(Sales/net assets)
71
Typical
application
Typical
process
72
Finally, populate the tree and derive implications for your client.
Example
output
Normalized to
100 customers
20%
80%
I considered you
50%
25%
15%
50%
Weak
relationship
Poor
product
features
Not top
of mind
Recomme
ndation
12
3
52%
Poor quality
staff
10
I wasnt aware of
your products
30%
Not top
of mind
17%
3%
Reputation
Conven
- ience
12
29%
11%
Too
infrequent
contact
Poor contact
processes
40
2
8%
Not
proactive
Source: Example
Tricks
and tips
73
ROS/RMS analysis
Description
Typical
application
Typical
process
Obtain annual reports for the last three to five years for each of the
competitors you have identified. Strip down competitor sales to the
relevant segments and estimate comparative profitability.
Make sure you are comparing like with like: watch out for profits on
sale of investments, extraordinary write-offs or other unusual items.
Create a spreadsheet in Excel with sales and profits over time for
each competitor.
Plot the table as a bubble chart with the relative market share (at the
end of the period of analysis, relative to the largest player) on the
horizontal axis and the return on sales on the vertical.
Use a log scale for the relative market share (small market shares
should be towards the left.
You can use the bubbles to represent the size of company.
74
Add trend lines to draw out the general economy of scale tendency in
the industry. The angle (steepness) of the trend lines indicates the
relative economies of scale at work in the industry.
Identify any competitors that are significantly different and check your
data. If you are confident you are comparing like with like,
investigate what the competitor does differently.
Example
output
ROS - RMS
Industry A
ROS - RMS
Industry B
25%
ROS
(last 3
years,
%)
25%
ROS
(last 3
years,
%)
20
15
10
5
0
-5
20
15
10
5
1.00
-10
-10
-15
-15
-20
-20
-25
RMS (log)
1.00
-5
-25
RMS (log)
Source: Example
Tricks
and tips
Do not forget to use at least a three year average for return on sales.
Plot the data you have even if it is not complete: partial data is better
than nothing.
Consider calling the competitor if no information is available (after
discussion with the projects manager) - to gain an idea of segment
profitability (i.e. higher or lower than others).
The tool is best used comparatively - see diagram above.
75
Scenario development
Description
Typical
application
Typical
process
76
Example
output
High
technology
state control
Universal
surveillance
Police
states/blocks
Global media
giants
Control of all
content/ formats
Increasingly
politically and
economically
guided
Non-individual focus
Power becomes
more centralised
Tomorrow
never dies
Big brother
Technology
becomes less
popular
Technology
becomes more
popular
Technology
pull
Today
Technology
push
Virtual
communities
Technophobia
Technological
rejection
through
possible
technology
failure
Spiritual
Renaissance
Power becomes
less centralised
Individual focus
Geographical
boundaries
become less
relevant
Change from
haves/ have
nots to wants/
dont want
Tricks
and tips
77
Sector charts
Description
Typical
application
Typical
process
78
Copy and paste chart into Powerpoint, then ungroup the chart,
deleting all but the stacked column.
Group the column, rotate (using flip function) so that largest segment
lies on left hand side and adjust re-size to fit in area, ensuring that
you have locked the aspect ratio.
For each segment follow the previous steps, but instead of flipping, fit
the columns to the segment size.
Example
output
Company C
Company I
30%
Company D
20%
Real
Annual
Growth
(%)
Company B
Company J
10%
Company K
Company A
0%
Company F
-10%
-20%
2X 1.5X
1X
0.5X
Sector
CAGR = 8.6%
Company H
0.3X
0.2X
0.1X
Company G
0.05X
0.03X 0.02X
0.01X
Source: Example
Tricks
and tips
79
Sensitivity charts
Description
Typical
application
Typical
process
80
Example
output
2%
4%
6%
8%
10%
12%
14%
15.2%
Inbound volume
13.3%
Exchange rate $/
7.2%
7.1%
US % of total inbound
6.0%
5.5%
5.0%
3.9%
Market making
3.9%
2.4%
2.3%
2.2%
Dividend distribution
Outbound volume factor
US settlement fee
Tricks
and tips
16%
2.0%
1.0%
81
Typical
application
82
Internal measures
Typical
process
83
Typical
application
Typical
process
84
Example
output
Share movements by competitor, Music, Cards & Video retail, UK, 1995-1999
60%
Competitors
gaining share
Blockbuster
50%
Paperchase
40%
WH Smith
30%
Disney Store
Disney Store
20%
Our Price
Boots
WH Smith
Woolworths
J. Menzies
Competitors
losing share
Woolworths
J. Menzies
10%
0%
-10%
0%
10%
WH Smith
-10%
Music
20%
30%
Cards
40%
50%
60%
Video
Total Market Growth
Source: Example
Tricks
and tips
85
Typical
application
Typical
process
86
Example
output
100
Cumulative net
contribution to
ABCD
2001-2006 (
million)
c.12m
c.30m
50
c.8m
c.10m
c.27m
c.2m
Core element of ABCD
Related element of ABCD
Potentially independent of ABCD
0
Connectivity and
standardisation
(Basic ABCD)
OMS
Smart
order
routing
system
Trade cost
analytics
Back-office
outsourcing
Corporate
actions
Tricks
and tips
87
Typical
application
Typical
process
88
Example
output
To
be a
profitable
manufacturer of
branded, core, low-risk
investment products for
pre-eminent intermediaries
in chosen advice-led retail markets
Vision
Necessary competitive
advantages
Leading
asset
manager,
leveraging
economies of
scale to provide
out-performance to
clients, and share
value with intermediaries
Implementing
leading-edge
management
information systems
Battlegrounds
which facilitate
understanding and
management of the
drivers of profitability at
customer and product levels
Key
Rationalize
initiatives
product set by
reviewing
profitability and
mapping to needs
of target customer
segments
Focus product
development capability
on controlled product
innovation aimed at
meeting intermediaries
demand for new retail
products
Worldclass,
proven
research
and
investment
processes,
core to
differentiate
d products
Establishing
company as top
10 UK provider
of retail
investment
products, while
retaining
profitable
offshore
business, rapidly
followed by entry
into European
markets
Develop high
quality
management
information on
customer
profitability, sales
effectiveness,
etc.
Ability to build
and access
leading
intermediaries
in the retail
market
Winning the
hearts and
minds of
intermediaries
and endcustomers on
the use of the
advanced active
product as a
component of a
balanced
portfolio
Develop a
channel
strategy for
customer
acquisition
History
and
pedigree
which may
have the
potential to
be leveraged in
intermediary
retail markets
Employing best
customer
relationship
managers and
best managers
of customer
relationship
management
systems to sell
proposition
Design and
implement
sales and
customer
service
processes and
infrastructure
Developing
the capability
for faultless
administration to
meet
intermediaries
requirements and
manage the risks to
which BGI is
exposed by the new
business
Develop a
brand and
marketing
strategy to
build retail
and active
reputation
Create operational
infrastructure to
support retail
business,
including
automated service
offering
Underway
Tricks
and tips
During interviews, make sure you push to the logical end of any line of
questioning, even if that involves asking hard questions. Not asking
enough is worse than asking too much - provided you are polite and
have a clear and well reasoned logic to your argument.
Always be prepared to defend your assertions to the CEO.
89
SWOT analysis
Description
Typical
application
Typical
process
Define the market the client company is competing in and list the
key players in the market.
Gather exiting analyst reports, expert interviews, annual reports,
players analysis, strategic group analysis
Draw out what seems to be the most important themes in the
research you have gathered
Fit each item into the relevant section of the SWOT model and add
any additional conclusions you may have drawn
Try to be MECE. Issues cannot be both opportunities and threats or
strengths and weaknesses.
After completing your SWOT analysis, ask yourself these questions:
- How can the client leverage strengths to capitalize on the
opportunities?
- How can the threats identified be overcome?
- What does the client need to do to overcome its weaknesses?
- How will the client overcome the identified threats?
90
Strengths
Strength
Skill, knowledge/experience
Organizational resource or
competitive capability
Market advantage
Competitive assets
Experienced players
Key real estate location
Cultured football methods
shared across the squad
Midfield play
Weaknesses
Opportunities
Example
output
Threats
Opportunity:
External chrematistics that
provide potential competitive
advantage or growth
Threats:
Factors that may undermine
existing business model HR,
technology, new products,
regulation, politics, demographics
Source: Example
Tricks
and tips
91
Typical
application
Traffic light charts are a very versatile tool, and can be useful
wherever a rigorous comparison between market players has to be
made.
They are often used to summaries business opportunities or
competitor behavior.
Typical
process
Do not begin to construct your traffic light chart until you are sure
that you have agreement on the key criteria under assessment.
Also, be sure to define the criteria very clearly.
Next, set up a template for each criteria which captures the subelements and commentary that will eventually lie behind each
colored circle.
Complete the templates in detail and make sure you have
tracked and logged all of your logic.
Summarize all thinking into the final traffic light chart.
Sanity check the answers coming out: is this sensible overall, not
just as a summation of individual elements.
Look at the shape, shading, and patterns that may lie in the chart.
Use these observations to draw strategic assessments.
92
93
Overall
European understanding
Service capability
Segment focus
Adoption of technology
Management capability
Scale/distribution capacity
Financial strength
Brand
ol
G
an
m
d
JP
n
ga
or
M
s
ch
a
S
i
C
ril
er
M
SB
-S
p
ou
se
r
tig
ha
/C
h
C
SB
H
c
yn
L
l
B
SP
C
ch
Strong
e
D
s
ut
N
AB
PB
Am
r
B
Pi
Average
s
liu
Ju
ro
et
ct
l
be
rd
ba
m
Lo
Weak
o
nt
Vo
er
di
O
Example
output
European market entry - competitor review
Typical
application
Typical
process
94
Example
output
Suppliers
100
Player
7
Player
6
Player
5
80
60
Manufacturers
Player 10
Distributors
Wholesalers
Retailers
Player 10
Player 9
Player 9
Player 8
Player 8
Player 12
Player 11
Player 11
Player
3
Player
2
40
Player 10
Player 7
Player 7
Player 10
20
Player
1
Player 6
Player 5
0
0
20
Player 5
Player 4
40
Player 7
Player 7
60
80
100
Source: Example
Tricks
and tips
95
Value disciplines
Description
Typical
application
Typical
process
96
Example
output
BMW
Rolls
Lada
Vauxhall
Daewoo
Operational
Excellence
Customer
Intimacy
Source: Example
Tricks
and tips
97
The weighted column chart is a bar chart in which the width of the
columns shows a second dimension. It helps display, for
example, competitor profitability and competitor share.
Typical
application
The weighted column chart has many uses, the most common of
which is to analyze the profit performance of competitors or book
value and value generated relative to their market share. If the
data is available, the chart can equally be used to examine:
- business units within a company; or
- departments within a particular business unit
Typical
process
Begin by carefully defining the market you are looking at. List the
competitors to be included in your assessment, and obtain data
reports for each.
The weighted column chart always takes the same format, and
there is an Excel-based tool to automate its creation. Create an
Excel table for last years sales and the profits for the last three
years, and plot the results on the chart. Place the share of
market along the horizontal axis and the return on sales on the
vertical.
Annotate competitors carefully if there is incomplete and/or
misleading data. This might be due to:
- less than three years of financial figures;
- year of sales is not last years;
- data does not compare like with like; or
- figures include activities not directly related to the market
you are looking at
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Example
output
10
5
Comp 1
Comp 2
Etc
0
0
20
40
60
80
100%
-5
-10%
Share of market, by competitor
Source: Example
Tricks
and tips
99