Industry Analysis and Mapping

The Business System / Value Chain

William 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 & D
Manufacturing Marketing
Distribution
and
Service
Where can we attack?
Where can we achieve competitive advantage?
Where are existing rivals vulnerable?
Two Ways to Compete
Low Delivered Cost
Focus on PROCESS
High Perceived Value
Focus on PRODUCT
DELIVERED Cost
How did the Japanese capture more than half of the
watch industry from the Swiss, despite higher
manufacturing costs ???

Design
and
R & D
Manufacturing Marketing
Distribution
and
Service
They couldnt do
much here

So they attacked
here
They couldnt do
much here

Why PERCEIVED Value?
Why is one BMW 7-Series
worth more than ten Daewoo Ticos?
Design
and
R & D
Manufacturing Marketing
Distribution
and
Service
Its all
here
Its all
here
And
here
PC Industry Example
Customers
R & D
Design
Compo-
nents &
Software
Assembly Marketing Distribu-
tion
Service
Only these activities are inside the typical Personal Computer company
Disk Drives
Monitor
Circuit Boards
CPU
Operating System
Applications S/ W
SUPPLIERS DISTRIBUTORS
and RETAIL
CHANNELS
Sub-
Contractors
Advertising
Agencies
Service
Organizations
Technology and what we do
Isn't Enough . . .
Design
and
R & D
Manufac-
turing
Marketing
Distribution
and
Service
Consumers
and
Customers
You have to manage the
WHOLE BUSINESS SYSTEM
What Business are we in ?
Packaging Equipment Example
Cardboard
Forming
Equipment
Printing
Equipment
Direct
Agents
Fast Service
and Parts
Delivery
Consumer
Goods
Manufacturers
Two
Diversifications
1981 1985
Photo Word
Typesetting Processing
Equipment Equipment
Cardboard
Forming
Equipment
Printing
Equipment
Direct
Agents
Fast Service
and Parts
Delivery
Consumer
Goods
Manufacturers
Photo
Typesetting
Equipment
Word
Processing
Equipment
Printing
Equipment
Dealers
Office
Equipment
Dealers
Assistance
with
Financing
Training
Materials
Printers
Newspapers
Offices
What Business are we in ?
Different Different Different Different
Competitors Distribution Service Customers
Works Case
Assem-
bly/ and
Market-
ing
Whole-
sale and
Distribu-
tion
Retail
A Business System (Value Chain)
Swiss Watch Industry - 1984
Final
Consumers
25 50 8 83 134 300 SFr
Economics of the System
Swiss Watch Industry - 1984
Works Case
Assem-
bly/ and
Market-
ing
Whole-
sale and
Distribu-
tion
Retail
25 50 8 83 134 300 SFr
How did Seiko gain competitive advantage
in the 1980s?
200 SFr
A Business System (Value Chain)
Swiss Watch Industry - 1984
Works Case
Assem-
bly/ and
Market-
ing
Whole-
sale and
Distribu-
tion
Retail
Professional
Group:
Stihl
Jonsereds
Husqvarna
Solo
Skil
Branded Mass Mkt:
Homelite
McCulloch
Private Label:
Beaird-Poulan
Roper
Quality/
Brand
Image
High
Low
dealers
Mass Merchandisers Private Label
Retail Distribution
10-year old study by Michael Porter
Strategic Groups:
US Chain Saw Industry
U.S. Chain Saw Industry
ROI
Market
Share
Focus Stuck in
the Middle
Cost
Leadership
Husqvarna
solo
Skil
Roper
Beaird-Poulan
0
Porters Curve
Mercedes
Jaguar
BMW
Hyundai
Yugo
GM
Ford
Chrysler
Nissan
Toyota
Price/Quality
High
Low
Few Many Market Segments
Served
Auto Industry Strategic Groups
20-year old study by Michael Porter
Volvo
Saab
More Recent Auto Industry Map
Mercedes
Jaguar
BMW
GM
Ford
Chrysler
Nissan/Renault
Toyota
Price/Quality
High
Low
Few Many Market Segments
Served
Hyundai/Kia
Daewoo
Volvo
Saab
Peugeot/Citroen
Mazda
Mitsubishi
Fiat
Honda
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/Quality
High
Low
Few Many
Market Segments Served
Hyundai
+Kia
PSA
BMW
+ Rolls,
Mini
Fiat
+Ferrari,
Porsche
Mitsu-
bishi
Renault
PSA
Nissan
Honda
VW
Toyota
Daim-
Chrysler
Ford
World Top Ten 2003 Sales
GM
Hyundai
8.6 m units
$185.5 b Sales
2.4 m units
$42.2 b Sales
Area of circle = Relative Size
Only Toyota and Honda
in purely Japanese hands
Renault
PSA
Nissan
Honda
VW
Toyota
Daim-
Chrysler
Ford
World Top Ten with 2004 Profits
GM
Hyundai
$2.9 b
8.6 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 b
BMW $2.2 b 1.3 m units
Porsche $0.7 b .088 m units

The Big Squeeze
You have to be
BIG and you have
to offer VARIETY
You Have to be BIG
What if you arent BIG?
A Different Industry Map
High Delivered Cost Low
High



Perceived
Value




Low
Good Value
Good Price
A Different Industry Map
High Delivered Cost Low
European = Stylish, Sturdy
Japanese = High Quality, High Resale Value,
Good Service
Function of Design, Prestige, Distribution
Scale Economies, Platform Savings
Design and Speed Advantages
Distribution, Partnering, Supply Chain,
Capital + Investment Incentive Advantages
Worth More
Costs Less
High



Perceived
Value




Low
A Different Industry Map
High



Perceived
Value




Low
Low Delivered Cost
Competitors
High Perceived Value
Competitors
Stuck in the Middle
Out-Performing
Competitors
High Delivered Cost Low
Mercedes, BMW
An Auto Industry Map
High



Perceived
Value




Low
Volkswagen
Fiat
Jaguar, Audi
Saab, Volvo
Peugeot/
Citroen Renault
Hyundai,
Kia
Toyota
Honda
High Delivered Cost Low
Nissan
Result of Toyota Outperforming
0
1
2
3
4
5
6
7
8
9
10
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
1
2
0
0
3
2
0
0
4
2
0
0
5
GM
Ford
Toyota
Source: Global Insight
Fortune, The Economist
Blueovalnews.com
Millions of Units
Worldwide sales of cars and trucks
Value Creation/Destruction Map
Source of Advantages
Not a good
place to be!
Strategic Moves
High



Perceived
Value




Low
Mercedes Benz
Volkswagen
Fiat
Jaguar
Peugeot/
Citroen
Renault
Toyota
Honda
High Delivered Cost Low
Nissan
Hyundai
Kia
Strategic Moves- Why not ?
High



Perceived
Value




Low
Mercedes Benz
Volkswagen
Fiat
Jaguar
Peugeot/
Citroen
Renault
Toyota
Honda
High Delivered Cost Low
Nissan
Hyundai
Kia
Pure Strategies
High



Perceived
Value




Low
Mercedes Benz
Fiat
Jaguar
Toyota
Honda
High Delivered Cost Low
Hyundai
Kia
Under Threat
OK?
L-shaped Strategic Moves
High



Perceived
Value




Low
Volkswagen
Peugeot
High Delivered Cost Low
Outperforming
Competitors
L-shaped Strategic Moves
High



Perceived
Value




Low
High Delivered Cost Low
HP Intel Servers
Dell Intel Servers
While 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 Moves
at Bucks County School System
High



Perceived
Value




Low
High Delivered Cost Low
IBM Intel Servers
Compaq Intel Servers
We felt good about the experience
we had with IBM engineers they
were really trying to get to know
our environment.
Baseline Magazine, September 2004
IBM 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 Definition
Developing and deploying
Strategic Assets and
Capabilities that fit the needs
of a definable market and
environment at a given point
in time.