最新MULTIBUSINESS ORG

1、complementing product businesses with solutions an approach for multi-business companiespd documentjune 15, 2001confidentialthis report is solely for the use of client personnel. no part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior wri

2、tten approval from mckinsey & company. this material was used by mckinsey & company during an oral presentation; it is not a complete record of the discussion.authors: ted dezvane (ny), jochen heck (ny), joe heel (mi), eric roegner (cl), mark steen (mi)1the potential for higher margins, deep

3、er customer relationships and increased switching costs attracts many suppliers to solutions businesses, but only a relatively small percentage of suppliers (on the order of 25%) have successfully leveraged solutions to capture superior economic returns. the successful companies have demonstrated a

4、number of important qualities which can be used to guide the efforts of new entrants.potential solution opportunities can be identified and evaluated based the clients distinctive skills and expertise, its underlying product/service portfolio and detailed knowledge of customer needs. a methodology h

5、as been developed to facilitate this process and is complemented by a framework to develop initial top-down market and revenue potential estimates for these potential solutions.prospective solution providers have to decide which approach allows them to capture the most value from the solutions busin

6、ess given the degree of risk and investment they are willing to take on (e.g,. full transformation versus incrementally adding capabilities to existing businesses). in situations where full transformation presents significant implementation hurdles and risks which the client is not fully comfortable

7、 with, they may consider an incremental approach.an “incremental layer” which sells solutions across one or more business units can be set-up and launched relatively quickly (e.g., within 3-6 months) if it has the full support of the participating business units. this incremental approach helps to t

8、est the viability of solutions and to move up the learning curve in preparation for a more complete transformation into a solutions provider later on.summary and context2solutions definition and key success factorsidentifying and sizing the opportunityapproach for defining the organizationimplementa

9、tion stepscapturing the solutions opportunity3pricing comparison by supplier typerelative price indexbundlerscomponent specialistsintegratorsinte- gration gluesolution providersdefinitioncombine products and services through technical and commercial integration to create turnkey offerings which meet

10、 specific customer needsobjectivescapture price premiums to cover solutions development costs and contribute to increased profitsdeeply penetrate customer business systems and increase their switching costselevate and strengthen customer relationshipsbuild and maintain market position superior to ot

11、her suppliersdepth of integrationhighlowdegree of packaginghighlowcommercial integration only(subject to “bundling discounts”)solutionproviderstechnical integration only$110$80-90$125-150+$100solutions providers can capture significant price premiums in exchange for the customer value they create re

12、lative to other suppliers4rewardslaccess to new marketslhigh solutions pricing premiums capturedlsignificant increase in revenues and profitsnegative consequenceslunrecovered investmentlpotential loss of credibility with customersearly effortsoutcome still unclearglobal servicessolutionsunderperform

13、ersclear winnersenergy solutionstelecom solutionscall center solutionssolutionssolutionsmaintenance, repair and operations solutionssolutionslucent solutionsenergy servicessolutionssolutionssolutionswater treatment solutionssolutions provider exampleswhile many players are attempting to offer soluti

14、ons, few are emerging as “clear winners”25%*75%* mckinsey practice assessment indicates that 75% of solutions attempts fail to recover their cost of investmentsource: mckinsey practice experience and assessment of solutions ready sectors including computers, telecom, chemicals and transport5key succ

15、ess factors for new entrantsdevelop intimate understanding of customers technical and business system needs and tailor solutions development to those needsestablish dialogue with high-level decision makersconsultativecustomer interface top management ownership/ commitmentdistinctiveofferings build s

16、olutions based on world-class components; use external and even competing components when appropriateintegrate complex systems to create value for customersensure offerings are hard to replicate or disaggregateget full commitment from participating business units for each solutions effortbring toget

17、her and leverage relevant industry and functional expertiseintegrated processes clear governanceand controlsestablish close communication between sales and product/implementation teamsset up single point of coordination and leadershipintegrated billing and tracking systems (e.g., for solutions provi

18、ded from across multiple business lines)limit focus (at least initially) to a manageable number of industry verticalsdefine performance metrics/responsibilities and integrate with existing governance systems (e.g., pay incentives, review processes)ensure milestones and key metrics are satisfied; but

19、 also allow the business sufficient time to develop and grow (e.g., up to 5 years)successful solution providers tend to execute along five key dimensionssolutions offerings must be aligned with real customer needs and interests6solutions business example: ibmclient relationships transitioned over ti

20、me from sales force to services principalsleading-edge, customer-focused research (over 1/3 of all projects in the ibm research labs are conducted with customers)consultative customer interface top management ownership/ commitmentdistinctiveofferings e-business solutions based on industry-leading cu

21、stomer servicesindustry-focused solutions (e.g., point-of-sale systems for retail, banking crm)services for proprietary products (network management with tivoli)large-scale outsourcingintegrated processes clear governanceand controlsmatched industry and functional (e.g., crm, erp) experts to support

22、 sales processes and develop tailored solutionstransfer pricing determined through “fair share” system within pricing centers run by finance department (including appeal mechanism)“first win the opportunity, second optimize for ibm, third optimize for your profit center”appointed client executive fo

23、r each industry solutions unit (isu) across entire ibm businessp&l responsibility on a customer basiscreated 12 isus to organize and leverage vertical expertiselaunched initiatives like “business integrator” and “e-business services” to move ibm away from products toward customizable platformsva

24、lue proposition:reduce costs, reduce assets, and free up customer resources by providing design, build, maintain, and operate services to meet customer it needsibm global services has been instrumental in helping ibm create and capture value from solutions to drive growth for the company as a whole7

25、common pitfalls in attempting to build solutions businesseslacking understanding and appreciation of actual customer needs (push versus pull)failure to gain credibility and trust (insufficient technical capabilities and/or implementation)uncoordinated/disorganized customer contactstaking half measur

26、es without shifting real power from existing operating units to an integrated solutions businessnew structures and/or roles without new accountabilities and appropriate performance management processes (e.g., metrics)grossly underestimate time and funding investment required to succeedinsufficient l

27、eadership capacity -lacking visible, dedicated leader for the solutions effort -leaders without general management skills and experienceavoiding tough discussions and inevitable conflictsoveremphasizing structural versus behavioral changeover reliance on good intentions without providing the appropr

28、iate supporting mechanisms and processes to work across business or product linesconsultative customer interfaceintegrated processesclear governance and controlstop management ownership/ commitmentdistinctiveofferingsbuild solutions on non-competitive products or services (e.g., include non-competit

29、ive products in a solution just because they carry the client brand name)failure to add any quantifiable value beyond bundlingoffer product-driven rather than customer-driven solutionsinvest in solutions development without capturing a price premiums to cover the costsolution providers who do not ca

30、refully consider all five necessary elements are at risk of damaging their existing customer relationships and failing to recover their investment in solutions 8solutions definition and key success factorsidentifying and sizing the opportunityapproach for defining the organizationimplementation step

31、scapturing the solutions opportunity9proposed screening methodology for identifying solutions opportunitiesvertical expertisedistinctive industry knowledgeproprietary access to informationproducts/infrastructureproduct/service portfolioservice delivery / implementation skillsprioritized prospective

32、solutionspotential solution opportunitiesvalue creation potentialsizereplicabilitychannel conflictsdistinctivenesscompetitive positioningorganizational fitability to alignrelevance of existing assetscustomer accessknowledge of target customer needsability to establish a dialogue and build trustpoten

33、tial solutions opportunities can be surfaced by considering the suppliers unique knowledge and expertise, their world-class products and services, and understanding their customers real needsscreens must be flexible enough tosurface a stream of new ideas10sizing of solutions potential surface potent

34、ial opportunities (e.g., using the framework from the previous page) narrow down opportunity set to focus on areas withsignificant revenue potential (e.g., large revenue opportunity, repeatable)complex integration needs (e.g., high likelihood for solutions demand)identifiable target customers identi

35、fy attractive target markets whichcan be readily identified and sizedthe client can serve with distinctive capabilities (e.g., unique expertise, product/service portfolio)include strong existing (or high potential) customer relationshipssurface opportunities and identify potential target marketsquan

36、tify top-down solutions opportunityconfirm top down estimates with business case size external spending and estimate any addressable captive portions (e.g., internal spending on it processes) estimate portion of market addressable by solutions (up to 10-15% in “solutions-ready” markets like it and t

37、elecom) size revenue potential taking into account existing and likely client market share (e.g., strength of existing relationships and product/service portfolio positioning) prioritize opportunities based on revenue potential and distinctiveness of offering (e.g., versus next best alternatives) de

38、velop bottom-up revenue projections over time (solutions businesses often need 5 or more years to see significant profit impact and longer to reach full scale) assess system costs and cross-business unit coordination needs by segmenting opportunities which arecontained entirely within individual bus

39、iness or product lines (single bu opportunities)directly related to core activities of 2-3 business lines (potential for joint ventures)cutting across multiple business units but not related to their core activities (potential for new business units) confirm value proposition with potential customer

40、s assess potential risks and likely competitive response once surfaced, potential solutions opportunities should be carefully evaluated along dimensions ranging from market size to distinctiveness versus the next best alternatives11relationship between solutions market and total market* component sp

41、ecialist price indexed to 100source: mckinsey pricing practice experienceillustrativedepth of integrationhighlowdegree of packaginghighlowrelative price index*integrator:115solutions provider:125-150+component specialist: 100bundler:80-90solution providers can command significantly higher margins. .

42、 . however, solution providers can typically address only 10-15% of the revenue opportunity even in the most “solutions ready” markets10-15%total marketthe addressable market for solutions is typically only 10-15% of the total market even in the most “solutions ready” segments like it and telecomnot

43、 addressableno incremental integration value (e.g., low complexity)commodity componentsunwillingness to “outsource” core processes1225154020hardware3rd party services (external)packaged software (excluded)it/datacom market sizing 2001 percent* gartner group estimates that internal it spending (capti

44、ve market) is about 40% of external spending, i.e. about $70 billion for servicessource: idc, july 2000; multimedia telecommunications market review and forecast 2000 (mmta) example a: enterprise it hardware and services market100% = $500 billiontotal addressable marketcomponents only marketsolution

45、s addressable marketcompetitor market sharelikely client market shareonly 10 to15% of the addressable market typically has solutions potentialtop down revenue potential is typically 5% or less of the total addressable market400340-36040-6030-555-20illustrativecaptive services* (internal)potentially

46、interesting for client13828604administrationtransportationthird party/ contract logistics providerin-house (captive) logistics market (80% captive)percentwarehousing/administration$ billionexample b: logistics market* including interest, taxes, obsolescence, depreciation, insurance, excluding wareho

47、usingsource: cass and prologis, armstrong & associates100% $920 billionwarehousingcarrying cost*potentially interesting for client1102095-1009010-1514-14.50.5-1total addressable marketcomponents only marketsolutions addressable marketcompetitor market sharelikely client market shareillustrativec

48、aptive spending can be a significant portion of the potential14opportunity, revenue and profit distribution by degree of integration across businesses152530606060251510solutions market opportunityopportunities within single business units$100 (index)$5-10percentopportunities with some cross-bu integ

49、ration potentialopportunities requiring cross-bu integrationlikely client revenueincreasing integration needs across multiple product or business lines almost always increases complexity costs thus decreasing revenue and profit potential$0.5-1potential client profitillustrativeincreasing integration

50、 across business units increases complexity costs 15solutions definition and key success factorsidentifying and sizing the opportunityapproach for defining the organizationimplementation stepscapturing the solutions opportunity16degree of commitment to organizational transformationtransform the exis

51、ting product/service business to focus on solutions selling (e.g., ibm global services example)prospective solution providers should consider to what degree the opportunity justifies and requires organizational change / transformation to pursue solutionsoption 1: full commitment to solutionswhat deg

52、ree of investment and organizational change does the solutions opportunity justify? expected returns implementation risk timingoption 2: incremental approach to solutionslayer on solutions selling capability to complement existing product/service businesses (potential to expand solutions breadth and

53、 transform later on)refer to “moving from products to solutions”, (foote, hope, et.al., pd document)focus of the remainder of this documentillustrativehighmedium to low17minimum requirements for a multiple-business line solutions organizationconsultative customer interfacetop management ownership/ c

54、ommitmentclear governance and controlsaccess to products & services from participating bus at pre-determined transfer pricesability to contract outside vendors when necessary (e.g., on customer request)back-office support functionsforum for experience exchangetransparent review and cost accounti

55、ng on a market by market basisdirect reporting to bus/committees that provide investmentincentive structure to promote cross-bu collaborationstaged funding process contingent on meeting agreed-upon performance targets (including significant, if not full, contributions from participating business uni

56、ts) integrated processesestablish account manager as “face to the customer” who coordinates all solutions transactionsdevelop deep understanding of real customer needsprovide single billing, common terms & conditionsbranding as solutions providerdistinctiveofferingsenable access to all required

57、bu offerings and expertiseleverage implementation/service delivery and project management capabilities across all relevant business units and product /service lineseven the incremental approach to building solutions capabilities has significant implications for how business units interact with custo

58、mers and and with each other18few overlaps across bus or one bu has a dominating sharep&l responsibility contracts with bus and third partiescorporate sponsorship (e.g., linked to key account management program)cooperation between bus with dominating sharealign accountability and incentives prop

59、ortionate to bu shareincubation focus on high potential opportunities fast execution hand-over after set-up phasesignificant investment in resourcesbusiness unitjoint venture(s)incubatorlead bu sponsorcorporate ownershipindependent solutions company basic solutions entity organizational options for

60、multi-business companiesbu ledcorporate ledthere are five basic organizational options for incrementally layering on a solution business which spans multiple business/product unitstransformentire corporationfocus of this documenttransformindividual busnote: all five options can be applied either to the front end (e.g., joint