winning in a downturn: the breakthrough...
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This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Winning in a Downturn: The Breakthrough ImperativeDerek Gerow – Partner, Bain Dallas Office
September 2009
2Presentation - Sept 2009 Final External
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
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Agenda
•Brief discussion of downturn implications
•Breakthrough Imperative
•Case Study
Note: Some slides from meeting presentation have been omitted,however I would be happy to share on 1:1 basis. derek.gerow@bain.com
3Presentation - Sept 2009 Final External
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
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Headlines paint an uncertain picture
4Presentation - Sept 2009 Final External
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Recessions shuffle the deck, creating more casualties and more heroes
Downturn
Note: Casualties and heroes are defined as top- resp. bottom-quartile companies that fall resp. rise 2 or 3 quartilesNote: Quartiles are based on a combined measure of net profit margins and sales growth; pre-recession is ‘99-00 and post-recession is ‘02-03; data illustrates that one-third of companies in the top and the bottom quartile make a major shift down/up during a downturnNote: Based on one recession (2001)Source: S&P Compustat; Bain Analysis
-40
-20
0
20
40%
Percentage ofcompanies
Heroes
Casualties
36%
-36%
Over 1/3rd of companies in
top and bottom
quartiles make a major
shift up or down during a recession
5Presentation - Sept 2009 Final External
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
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• Developed detailed case studies with highlights on >100 companies in the book
• Interviewed 40 CEOs and General Managers for companies and non-profits globally
• Surveyed over 960 companies globally with deep dive for 180 on performance improvement
• Researched stock price performance for CEO’s of “sustained value creators”, and CEO departures
• Worked with clients on over 3000 performance improvement and change management programs
Our work codifies how great managers achieve breakthrough results
6Presentation - Sept 2009 Final External
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
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Successful GMs understand the “Four Principles”and have a clear roadmap for results
#4Simplicity
gets results
#1Costs and
prices always decline
#3Customers and
Profit pools don’t stand still
#2Competitive
position dictates strategy
Road to results
7Presentation - Sept 2009 Final External
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
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You can use each law and its supporting “must-have facts” to diagnose your company
12 must-have facts (MHFs)
Principle 1:Costs and prices always decline
Principle 2:Competitive position
determines your options
Principle 3:Customers and profit pools don’t stand still
Principle 4:Simplicity gets results
Relative cost positionAre your costs as low as best demonstrated practice?
2 Market size/growth and share trendsHow big is your market, how fast is it growing and where are you gaining or losing share?
5
Customer segmentation and needsWhich are your most attractive customer segments?
7 Product and service complexityHow much product & service complexity is justified by profit?
101 Cost/price experience curveAre your costs (and prices) declining as fast as competitors’?
3 Product line profitabilityAre all your products and services truly making you money?
4 ROA/RMS Is your profitability as high as your RMS justifies?
6 Customer and capability assets What creates your competitive advantages and disadvantages?
8 Customer loyaltyHow loyal are your customers?
9 Profit pool migrationsWhere are customer value and your share of industry profits migrating?
11 Org. and decision-making complexityDo you have a simple organization that promotes effective decision-making?
12 Process complexityDo you have the most streamlined processes in your industry?
8Presentation - Sept 2009 Final External
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
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Principle 1: Costs and prices always decline
3
5
10
20
30
300
500
1,00
0
2,00
0
5,00
0
10,0
00B
Revenue/share
2003
1990
R² = 0.99Slope = 64%
Trading
0.05
0.1
0.2
$0.5
2,00
0
5,00
0
10,000
20,0
00B
Revenue yield
2003
1978
R² = 0.94Slope = 75%
100
200
500
$1,000K
1 2 5 10 20 50 100
200
500
Value-added costper ton*
2003
1972
R² = 0.92Slope = 85%
Airlines Steel
10
9Presentation - Sept 2009 Final External
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
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The experience curve predicts that the most profitable companies will be market leaders
Price today
Real cost
Accumulated experience
AB
CD
10Presentation - Sept 2009 Final External
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
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0
10
20
30
40%
Sustained ValueCreators
30
Other
13
Customer Advocacy(Net PromoterTM Score)
0
20
40
60
80
100%
Percent of companies
Companies
SVC
Other
2,353
SustainedValue Creators
Marketshare
leadersin core
business
Other216
Relative Scale = Profitability Customer Advocacy = Growth
Principle 2: competitive position determines options
11This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
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0
10
20
30%
Return on capital
12% Costof capital
Distantfollower
3.8
Follower
8.6
Co-leader
14.3
Leader
22.3
Clearleader
28.5
<0.3 0.3-0.6 0.6-1.2 1.3-2.4 >2.5RMSposition:
Note: Net return on capital = capital gain + dividendsSource: Profit from the Core survey of over 2,000 companies; Bain Experience
Returns to scale: Bain experience across industries
Relative market share is highly correlated with profitability
12Presentation - Sept 2009 Final External
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
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Across industries, over 80% of companies fall within the normative band
In-band leaders
In-band followers
1
2
Example: Silicon Wafer Manufacturing
0
10
20%
0.1 0.2 0.5 1 2 5
$1B inSales
ROS: operating margin
$1B inSales
Relative market share
13Presentation - Sept 2009 Final External
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
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Measurement of customer advocacy
% Promoters
0-6
7-8
9-10
Net Promoter Score (NPS)
minus
% Detractors
Extremelylikely
Extremelyunlikely
SM
Would you recommend us to a friend?
14Presentation - Sept 2009 Final External
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
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-20
-10
0
10
20%
0 20 40 60 80 100%
CAGR
Net PromoterTM is highly correlated to growth
Net PromoterTM score
US credit card companies
Net PromoterTM score Net PromoterTM score
Source: Fred Reichheld, The One Number You Need to Grow; analysis from Bain & Company Boston Sept 2003; Satmetrix Net Promoter TM data 2001-Q12004, Nilson Report 2000-2004
-20
-10
0
10
20
30%
-40 -20 0 20%
CAGR
US supermarkets US retail
-10
0
10
20
30%
-50 -30 -10 10 30 50%
CAGR
15Presentation - Sept 2009 Final External
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
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0
20
40
60
80
100%
Percent of Sustained Growth Companies
Foundation of Growthfor Sustained
Growth Companies
Other
Multiple Strong Cores
Single Strong Core
Core Redefinition Experience
New-to-World BusinessModel or Market
Core Redefinition
Adjacency Expansion
Principle 3: profit pools don’t stand still
16Presentation - Sept 2009 Final External
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
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Changes in customer
preferences
Innovations in or out of
your industry
Bargaining power of
customers and suppliers
Changes in the business environment
Profit pool
shifts
Root causes for shifting profit pools
• Changes in lifestyle, fashion, spending patterns
• Government or regulatory changes
• Broad economic, political or social changes
• Power shifts between stages of the value chain
• Innovations cut competitor costs and help better meet customer needs
• Competitors collapse a price umbrella
17Presentation - Sept 2009 Final External
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Complexity = Value Complexity = Lost Revenue
“Any product you want”
Customer satisfaction
Increased market share and
profitability
“Any product you want”
Complex sales/customerservice process
Customer confusion
Meet any and all customer needs
Lost market share and high costs
Principle 4: Simplicity gets results
There are two views on complexity…
18Presentation - Sept 2009 Final External
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0
20
40
60
80%
Percent of respondents
68%
28%
19%
While many believe complexity is hurting performance, far fewer know how to fix it
Complexity problem
Believe excessive complexity is
raising costs and hindering growth
Really understand the
root causefor complexity
Reallyunderstand the
true costsof complexity
19Presentation - Sept 2009 Final External
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
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Current business system
Zero complexity baseline
Add back options, etc. to
meet truecustomer needs
• Cost out the new “one product”processand estimate quality impact
• Diagnoseroot cause of the gap
• Understand how processes change as complexity layered back in
• Determine full potential at customer required complexity levels
Zero-base approach allows companies to define and explicitly manage trade-offs
20Presentation - Sept 2009 Final External
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Case Study: Airline Case Study
• Details available upon request –derek.gerow@bain.com
21Presentation - Sept 2009 Final External
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
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• More dramatic gains and losses occur in downturns than any other time
• Gains or losses tend to endure
• Turbulence rewards strategic finesse
Downturnscreate extraordinary
threats and opportunities
Strategies must be customized to
specific situations
Key Takeaways
• The Four Principles aren’t prescriptions but descriptions of the way business works –you must work within their constraints
• Collect and analyze data necessary to define true POD with 12 must have facts
• The journey to point of arrival is about focus, engagement and tracking
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