winning in a downturn: the breakthrough...

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


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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. [email protected]



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Headlines paint an uncertain picture



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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



8GXC

• 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



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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



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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?



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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



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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



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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



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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



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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?



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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



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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



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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



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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…



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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



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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



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Case Study: Airline Case Study

• Details available upon request –[email protected]



8GXC

• 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

winning in a downturn: the breakthrough...

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