戰(zhàn)略分析工具分析方法課件

Author: GiseleGarrawayROS/RMSMarch19981Author: GiseleGAgenda

ROS/RMSoverviewApplicationsROS/RMSstepsClientexampleswirelessinfrastructuredrugretailingChallengesKeytakeaways2AgendaROS/RMSoverview2Agenda

ROS/RMSoverviewApplicationsROS/RMSstepsClientexampleswirelessinfrastructuredrugretailingChallengesKeytakeaways3AgendaROS/RMSoverview3ROS/RMSGraphROS/RMSisadiagnostictoolusedtocompareabusinessunit’sactualprofitabilitytoitspotentialprofitability.0%5%10%15%20%25%30%125DunsterEliotCurrierCabotProfitability$150MMRevenueNormativeband(Predictedpotentialprofitability)RelativeMarketShare4ROS/RMSGraphROS/RMSisadiagROS/RMSComponents

Whatismeasured:Howitismeasured?Scale:TherearethreemaincomponentsofanROS/RMSgraph:profitability,relativemarketshareandthenormativeband.*ThistoolistypicallycalledROS/RMSsinceROSisthemostcommonprofitabilitymeasureused**AllowsforeasyviewingofadoublinginrelativemarketshareProfitability(y-axis)Currentprofitabilityreturnoncapitalemployedreturnonequityreturnonassetsreturnonsales*LinearRMS

(x-axis)

AccumulatedexperienceandstrategicpositionRelativemarketshare(RMS)Logarithmic**Normativeband

Rangeofpredictedprofitability

Plusandminusonestandarddeviationfromregressionline-------5ROS/RMSComponentsWhatismeaROS/RMSRelationship

Companieswithhigherrelativemarketsharetendtohavemoreaccumulatedexperience.Higheraccumulatedexperiencegivesthepotentialforlowercostsandhigherprofitability.HigheraccumulatedexperienceispositivelycorrelatedwithRMSHigheraccumulatedexperienceprovidesanopportunityforlowercostsandhigherprofitsRMSisaproxyforaccumulatedexperience.RMSispositivelycorrelatedwithprofitabilityAccumulatedExperienceRMSRMSProfitabilityAccumulatedExperienceCostperunit6ROS/RMSRelationshipCompaniesImportanceofMarketShareSource:PIMS(Datafrom1970tothepresentof3,200businesses-66%manufacturing,20%consumerbusinesses,14%services)Usingrelativemarketshareasapredictorofprofitabilityissupportedbyempiricalevidence.ThePIMSdatabasedemonstratesthat,onaverage,acrossindustries,companieswithgreatermarketsharehavehigherprofitability.7ImportanceofMarketShareSourAgenda

ROS/RMSoverviewApplicationsROS/RMSstepsClientexampleswirelessinfrastructuredrugretailingChallengesKeytakeaways8AgendaROS/RMSoverview8ApplicationsBainhasusedROS/RMSeffectivelyformanyclients.ExamplesofBainworkare:Computers&OfficeEquipmentElectric&PowerEquipmentSituation:Result:AmajorPCmanufacturerrecentlysufferedsignificantoperatinglossesandwasexperiencingseverecashflowproblems

Anelectric&powerequipmentcompanywasevaluatingamanufacturerofdiscretesemiconductorsforpurchase.Theclientwasconcernedaboutindustrycyclicalityandwhetherthetarget’sprofitmarginswereunsustainablyhighBainusedROS/RMSanalysistoexaminethePCindustryandfoundthatmovingtheclientintothenormativebandthroughoperationalimprovementswouldresultina$174MMprofitbeforetaximprovementRMS/ROSanalysisrevealedthatthetarget’smarginsreflecteditsmarketsharepositionandaccumulatedexperienceandwerethereforesustainable;thetarget’shighRMShelpeddriveEBITmarginsinexcessof20%9ApplicationsBainhasusedROS/Agenda

ROS/RMSoverviewApplicationsROS/RMSstepsClientexampleswirelessinfrastructuredrugretailingChallengesKeytakeaways10AgendaROS/RMSoverview10ROS/RMSSteps

TherearefivebasicstepsinvolvedinROS/RMSanalysis:DefinethebusinessCalculateprofitabilityCalculaterelativemarketsharesDrawnormativebandDetermineactionimplicationsKeySuccessFactorsDeterminetheeconomicboundariesofthebusinessIdentifyrelevantcompetitorsAchievecomparabilityacrosscompetitorsIncludeanysharedexperienceIfbusinessislocalorregional,weightmarketsharesCalculatethenormativebandusingregressionanalysisDetermineifstrategicoroperationalimprovementsarerequired11ROS/RMSStepsTherearefivebROS/RMSStepsDefinethebusinessCalculateprofitabilityCalculaterelativemarketsharesDrawnormativebandDetermineactionimplicationsDeterminetheeconomicboundariesofthebusinessIdentifyrelevantcompetitorsKeySuccessFactors12ROS/RMSStepsDefinethebusineDefiningtheBusiness

EffectiveROS/RMSanalysisdependsoncorrectlydefiningtheeconomicboundariesofabusiness.Costsharingandcustomersharingaretheprimarydeterminantsofbusinessdefinition.HighCostsharingLowLowHighCustomersharingOnebusiness

(chargecardsandcreditcards)Onebusinesswithpotentialfordifferentiationornicheposition

(CrosspensandBICpens)Separatebusinesswithpotentialforcostleadership(oilandrefineryby-products)Separatebusinesses(beeranddistilledspirits)Separatebusinesseswithpotentialforbundling(touringqualitymicrophonesandspeakers)Onebusinesswithpotentialforsubstitution(milkcartonsandglassmilkbottles)13DefiningtheBusinessEffectivCorrectMarketShareMeasure*StatisticalmarketareasDeterminingwhetherabusinessislocal,regional,ornationalisalsoimportant.Incorrectlydefinedbusiness

Nationaldiscountdepartmentstore

Correctlydefinedbusiness

Regionaldiscountdepartmentstores0.310.96R-squared:Whenbusinessdefinitioniscorrect,thereisameaningfulpredictiverelationship14CorrectMarketShareMeasure*SRelevantCompetitors-IncorrectBusinessDefinition

AnincorrectbusinessdefinitionmayexcluderelevantcompetitorsfromROS/RMSanalysis.NationalTextileLaunderingItappearsGibbhasthreemajorcompetitorsandisunderperforming15RelevantCompetitors-IncorreRelevantCompetitors-CorrectBusinessDefinition

RegionalhealthcarelaunderingRegionalindustriallaunderingGibbhassixcompetitors.Gibbisinthreeseparatebusinesses,allofwhichareregional.Thecorrectbusinessdefinitionwillensurethatallrelevantcompetitorsareconsidered.Regionallinenlaundering16RelevantCompetitors-CorrectROS/RMSSteps

DefinethebusinessCalculateprofitabilityCalculaterelativemarketsharesDrawnormativebandDetermineactionimplicationsKeySuccessFactorsAchievecomparabilityacrosscompetitors17ROS/RMSStepsDefinethebusinNetincomeaftertaxSalesAftertaxoperatingprofitAverageassetsNetincomeaftertaxesAverageequityNetincomeaftertaxesCapitalemployed*Pre-taxprofitabilitymeasuresarepreferablebecausetheyexcludeanyfirm-specifictaxissuesROCE

(Returnoncapitalemployed)ROE

(Returnonequity)Disadvantages:DifficulttomakecomparableacrosscompaniesDifficulttomakecomparableacrosscompaniesNotalwaysclearwhichassetmeasurestouse(Bookvalue?Beforedepreciationorafter?)ROA

(Returnonassets)Advantages:Bestproxyforreturn

oninvestmentsBestproxyforreturnonshareholders’investmentsEasytocollectcomparablemeasuresacrosscompetitorsBainexample:DrugstorechainsRetaildepartment

storesBeverageindustryCalculation:*ROS

(Returnonsales)Theprofitabilitymeasureusedvariesfromcasetocase.Thekeyistouseameasurethatwillallowforanapples-to-applescomparisonacrossrelevantcompetitors.EliminatestheeffectsofhowassetsarefinancedResultsaresometimesunclearwhensomecompetitorscommandalargepricepremiumBuildingproductsCalculatingProfitability18NetincomeaftertaxSalesAfterROS/RMSSteps

DefinethebusinessCalculateprofitabilityCalculaterelativemarketsharesDrawnormativebandDetermineactionimplicationsKeySuccessFactorsIncludeanysharedexperienceIfbusinessislocalorregional,weightmarketshares19ROS/RMSStepsDefinethebusinCalculatingRelativeMarketShare*Revenuesorpointsofsharecanbeusedwhenunitsarenotavailable.Therelativemarketshareforthemarketleaderiscalculatedinrelationtothe#2player;theRMSforallotherplayersiscalculatedinrelationtothemarketleader.Leader’sRMS:Anyotherplayer’sRMS:Marketleader’sunitssold#2player’sunitssoldOtherplayer’sunitssoldMarketleader’sunitssoldItispreferabletouseunits*insteadofrevenuesincewebelieveaccumulatedunitsofexperiencedrivethepotentialforhigherrelativeprofitability20CalculatingRelativeMarketShSharedExperience(1of2)Whenpotentialsharedexperienceisignored,thepredictivepowerofROS/RMSislimited.Inthisexample,marketshareinoutboardmotorsdoesnotexplainprofitability.21SharedExperience(1of2)WhenSharedExperience(2of2)Whenthebenefitsofsharedexperiencewithlawnmowersandmotorcyclesisincluded,apositivecorrelationappears.WorldwideRelativeMarketShareofOutboards,IncludingSharedExperienceWithMotorcyclesandLawnmowersPretaxReturnonCapital6x54321.580%60%40%20%0%(20%)(40%)YamahaOMCMercuryChryslerOutboardMotorsvolume22SharedExperience(2of2)WhenROS/RMSSteps

DefinethebusinessCalculateprofitabilityCalculaterelativemarketsharesDrawnormativebandDetermineactionimplicationsKeySuccessFactorsCalculatethenormativenormativebandusingregressionanalysis23ROS/RMSStepsDefinethebusinDrawingtheNormativeBand(1of2)*TheBainGraphicsWizarddrawsthenormativebandautomaticallywhentheRMSandROSdatapointsaregiven.Itwillnothowever,calculateanR2ThefirststepindrawingthenormativebandistorunaregressiononROSandthelogofRMS.Wethencalculatethebestfit,orregressionline.CompetitorUnits(MM)RMSIn(RMS)CannonCastleHolmesPeabody4,9603,4002,1786,2000.800.550.351.25-0.22-0.60-1.05-0.22MultipleRRsquareAdjustedRsquareStandarderrorObservations0.7412980.5495230.3993630.399363

Intercept0.1145

X-variable1CoefficientsStandarderrorT-statP-value0.01547.450.0050.04650.02431.19130.152Regressionstatistics5ROS12.3%10.8%4.5%10.5%Whitman3,1820.51-0.678.4%Regressionoutput(fromExcel)Y=mx+bROS=0.0465(lnRMS)+0.1145BestFitLine24DrawingtheNormativeBand(1DrawingtheNormativeBand(2of2)

RMSOnestandarddeviationThenormativebandisdrawnbyapplyingplusorminusonestandarddeviationtothebestfitline.ProfitabilityBestfitline(regressionline)Where, n=numberofobservations x=observedvalue m=mean=1n-1ni=1(Xi-m)225DrawingtheNormativeBand(2NormativeBandTheBainGraphicsWizardwilldrawanormativebandautomaticallybasedontheinputvaluesofROSandRMS.26NormativeBandTheBainGraphicAdjustedNormativeBandIfwebelievethataplayerhasmismanageditscostsandhasnotgottenthefullbenefitsofitsexperience,wecanexcludeitfromthecalculationofthenormativeband.*Theresultingnormativebandwillbemorenarrow.*IntheWizard,gotothe“Series”menuandselect“removeseriesfromnormativeband.”27AdjustedNormativeBandIfwebROS/RMSSteps

DefinethebusinessCalculateprofitabilityCalculaterelativemarketsharesDrawnormativebandDetermineactionimplicationsKeySuccessFactorsDetermineifstrategicoroperationalimprovementsarerequired28ROS/RMSStepsDefinethebusinActionImplications

Afirm’spositionontheROS/RMSgraphhelpscaseteamstodeterminewhetherabusinessshouldpursuestrategicpositioningoroperationalimprovements.Examples:Suggestedactions:Peabodyisbelowthenormativeband;itsprofitabilityislowgivenitsrelativemarketshareCostreductionstrategyBlandfordcanimproveitsprofitabilityifitincreasesitsmarketshareandcapturesexperiencebenefitsGrowthstrategyMergersandacquisitionsOperationalImprovementStrategicPositioning29ActionImplicationsAfiAgenda

ROS/RMSoverviewApplicationsROS/RMSstepsClientexampleswirelessinfrastructuredrugretailingChallengesKeytakeaways30AgendaROS/RMSoverview30LAGTEL*-Background*DisguisedclientcaseSituation:LAGTELisa$6Btelecomplayer.Wirelessinfrastructureisa$2BbusinessunitofLAGTEL,anditistheonly“star”businessinLAGTEL’sportfolio.Allotherbusinessunitsaredogs.Complication:Thewirelessinfrastructuredivision’sprofitabilityisfallingamidrisingovercapacityinNorthAmerica.Managementexpectsthattheover-capacitywillcontinuetodrivepricesdownward.Moreover,LAGTEL’sreturnsare2%whilefourcompetitorsearninexcessof10%operatingmarginsQuestion:HowcanLAGTELimproveitslong-termprofitability?BainusedROS/RMSanalysistodevelopastrategyforawirelesstelecommunicationsbusiness.31LAGTEL*-Background*DisguisedSource:NatwestSecurities;CSFirstBoston;Killen&Associates;WirelessOperatingPlan25%20%15%10%5%0%(5%)(10%).11.5251020LAGTELCallumsE-telLuciaAlliance$2B1995WirelessInfrastructurerevenue

RelativeMarketShare(TotalTelecom)OperatingProfitMarginTelcoTheprofitabilityvs.overallscaledidnotdemonstrateorclearnormativeband.LAGTEL-Background32Source:NatwestSecurities;CLAGTEL-WirelessRMSSource:NatwestSecurities;CSFirstBoston;Killen&Associates;WirelessOperatingPlanTheteam“peeledtheonion”andfoundastrongerrelationshipbetweenwirelessonlyRMSandwirelessinfrastructureprofitability.$2B1995WirelessInfrastructureRevenue25%20%15%10%5%0%(5%)(10%).11.52510LuciaAllianceE-telTelcoLAGTELCallumsRelativeMarketShare(Wireless)OperatingProfitMarginBilltelR2=0.5233LAGTEL-WirelessRMSSource:NLAGTEL-Technology-WeightedRMS

*WeightedbymanufacturerrevenuebytechnologyWhenRMSwasadjustedforthemixofwirelesstechnology,anevenstrongerrelationshipappeared.LAGTEL’sprofitabilitywaslowconsideringitsshare,andLAGTELwasconsiderablybehindfourkeycompetitors.$2B1995WirelessInfrastructureRevenueSource:NatwestSecurities;CSFirstBoston;Killen&Associates;WirelessOperatingPlan20%15%10%5%0%(5%)(10%).2.3.511.52510LuciaE-telAllianceTelcoLAGTELCallumsBilltel.1Technology-weightedRMS*OperatingProfitMarginR2=0.7334LAGTEL-Technology-WeightedRLAGTEL-StrategicRecommendation*WeightedbymanufacturerrevenuebytechnologyAfteradditionalcompetitoranalysis,theteamrecommendedapossiblemergerwithoneofthetopfourplayerstoimproveLAGTEL’sprofitability.$2B1995WirelessInfrastructureRevenueSource:NatwestSecurities;CSFirstBoston;Killen&Associates;WirelessOperatingPlan20%15%10%5%0%(5%)(10%).2.3.511.52510LuciaE-telAllianceTelcoCallumsBilltel.1Technology-weightedRMS*OperatingProfitMarginLAGTEL(current)LAGTEL(projected)R2=0.7335LAGTEL-StrategicRecommendatLAGTEL-RegressionPredictedSynergyValues

Source:BainROS/RMSRegressionModelTheteamusedtheROS/RMSregressiontopredictthesynergyvalueofpossiblecompetitorcombinations.Thesynergyvaluesrangedfrom$1.2Bto$2.3B.36LAGTEL-RegressionPredictedAgenda

ROS/RMSoverviewApplicationsROS/RMSstepsClientexampleswirelessinfrastructuredrugretailingChallengesKeytakeaways37AgendaROS/RMSoverview37Pillz*-Background*DisguisedclientexampleSituation:Complication:PillzisaleadingretailerofpharmaceuticalsinCanada.Itparticipatesinthesaleofprescriptionsandover-the-counterdrugsintraditionaldrugstores.Pillz’smanagementhasaskedBaintoassistinrepositioningPillztobecomethemostprofitabledrugretailerinNorthAmericaPillz’sdominanceisbeingthreatenedbytheentryofnon-traditionalcompetitorsincludingfoodretailersandmassmerchantsBainusedROS/RMSanalysistounderstandtheprofitabilitypotentialofaCanadiandrugstoreretailchain.38Pillz*-Background*DisguisedPillz-IndustryROS/RMS

TheBainteamidentifiedtwonormativebands:oneforfood/drugcombosanddiscountmerchandisersandanotherfortraditionaldrugstores.Source:IMS,ChainStoreGuide,annualreports,Pillzinternaldata(5%)(3%)(1%)1%3%5%7%8%RegionalROS2.04.010.0RegionalRMS$500Mrevenue

LDPrairiesLawtonsAtlanticPPONPillzAtlanticPillzPrairiesSafewayWal-MartLDBCJCPQLoblawsPillzONTraditionalchannelNon-traditionalchannel39Pillz-IndustryROS/RMSTheBPillz*-SummaryPillz’sprofitability(ROS)ishighlycorrelatedwithregionalRMSPillz’scompetitorshavesignificantcostadvantagesBecausethenormativebandforthenon-traditionalchannelissteeperthanforthetraditionalchannel,anincreaseinrelativemarketshareforanon-traditionalchannelcompetitorhasagreaterimpactonprofitabilitythanthesameincreasewouldhaveforatraditionaldrugstorecompetitorPreliminaryROS/RMSanalysishelpedtheBainteamdevelopsomekeyinsights.40Pillz*-SummaryPillz’sprofitAgenda

ROS/RMSoverviewApplicationsROS/RMSstepsClientexampleswirelessinfrastructuredrugretailingChallengesKeytakeaways41AgendaROS/RMSoverview41Challenges

Insomesituations,ROS/RMSanalysisisdifficulttoconduct.ItisdifficulttodefinethebusinessCompetitionhassignificantsharedexperiencefromotherbusinessesthatisdifficulttocaptureintheRMSmeasureMarketsharesmustbeweightedbecausethebusinessislocalorregionalOneormoresizablecompetitorsarenotleveragingtheiraccumulatedexperiencetoreducecosts42ChallengesInsomesituations,OtherBainTools

BainusesothertoolstoestimatepotentialprofitabilitywhenRMSorscaleisnottheprofitdriver.ExampleindustriesBaintoolKeyprofitdriverCustomerloyaltyPercentofcategorywhichispremiumpricedandrelativemarketshare

ofcategorySpeedofproductdevelopmentandreleaseRetentionHighroad/LowroadTime-to-marketAutoinsuranceCreditcardsAdvertisingConsumergoodstoothpasteready-to-eat-cerealsTechnologysemi-conductorsRetailfashionathleticgymshoes43OtherBainToolsBainusesothAgenda

ROS/RMSoverviewApplicationsROS/RMSstepsClientexampleswirelessinfrastructuredrugretailingChallengesKeytakeaways44AgendaROS/RMSoverview44KeyTakeaways(1of3)

OverviewROS/RMSComponentsROS/RMSisadiagnostictoolusedtocompareabusinessunit’sactualprofitabilitytoitspotentialprofitabilityROS/RMSsuggeststhatafirm’sprofitabilityshouldfallwithinapredictedrangebasedonitsrelativemarketshareTheROS/RMSrelationshipisbasedontheempiricalevidencethathighRMSispositivelycorrelatedwithhighprofitabilityProfitabilityisonthey-axisandisplottedonalinearscaleProfitabilitymeasuresincludeROCE,ROE,ROAorROS.ROSisthemostcommonRelativemarketshareisonthex-axisandisplottedonalogarithmicscale.RMSisaproxyforaccumulatedexperienceThenormativebandisthebandinwhichcompaniesshouldfallbasedontheirRMS.Itisdrawnbyapplyingplusorminusonestandarddeviationtothebestfitline.45KeyTakeaways(1of3)OvervieKeyTakeaways(2of3)

ImplicationsofROS/RMSAnalysisTheleader’sRMSiscalculatedasfollows:Anyotherplayer’sRMSiscalculatedasfollows:AfirmthatfallsbelowthenormativebandrequiresoperationalimprovementstoimproveprofitabilityAfirmthatlieswithinthenormativebandcanimproveitsprofitabilitybyimprovingitsstrategicpositionandgainingshareChallengesInsomesituations,ROS/RMSanalysisisdifficulttoconductitisdifficulttodefinethebusinesscompetitionhassignificantsharedexperiencefromotherbusinessesthatisdifficulttocaptureintheRMSmeasuremarketsharesmustbeweightedbecausethebusinessislocalorregionaloneormoresizablecompetitorsarenotleveragingtheiraccumulatedexperiencetoreducecostsMarketleader’sunitssold#2player’sunitssoldOtherplayer’sunitssoldMarketleader’sunitssold46KeyTakeaways(2of3)ImplicaKeyTakeaways(3of3)

OtherToolsWhenRMSorscaleisnotakeydriverofprofitability,ROS/RMSisnotanappropriatetool47KeyTakeaways(3of3)OtherTTakeawaySlides(1of2)

Normativeband(Predictedpotentialprofitability)RelativeMarketShareHigheraccumulatedexperienceispositivelycorrelatedwithRMSHigheraccumulatedexperienceprovidesanopportunityforlowercostsandhigherprofitsRMSisaproxyforaccumulatedexperience.RMSispositivelycorrelatedwithprofitabilityAccumulatedExperienceRMSRMSProfitabilityAccumulatedExperienceCostperunitROS/RMSGraphROS/RMSRelationshipROS/RMSComponentsROS/RMSStepsDefinethebusinessCalculateprofitabilityCalculaterelativemarketsharesDrawnormativebandDetermineactionimplicationsKeySuccessFactorsDeterminetheeconomicboundariesofthebusinessIdentifyrelevantcompetitorsAchievecomparabilityacrosscompetitorsIncludeanysharedexperienceIfbusinessislocalorregional,weightmarketsharesCalculatethenormativebandusingregressionanalysisDetermineifstrategicoroperationalimprovementsarerequiredWhatismeasured:Howitismeasured?Scale:Profitability(y-axis)RMS(x-axis)NormativebandCurrentprofitabilityAccumulatedexperienceandstrategicpositionRangeofpredictedprofitabilityreturnoncapitalemployedreturnonequityreturnonassetsreturnonsales*Relativemarketshare(RMS)PlusandminusonestandarddeviationfromregressionlineLinearLogarithmic**-------48TakeawaySlides(1of2)NormaTakeawaySlides(2of2)

ActionImplicationsCalculatingRMSCalculatingProfitabilityOtherBainToolsExamples:Suggestedactions:Peabodyisbelowthenormativeband;itsprofitabilityislowgivenitsrelativemarketshareCostreductionstrategyBlandfordcanimproveitsprofitabilityifitincreasesitsmarketshareandcapturesexperiencebenefitsGrowthstrategyMergersandacquisitionsOperationalImprovementStrategicPositioningROCE

(Returnoncapitalemployed)ROE

(Returnonequity)Disadvantages:DifficulttomakecomparableacrosscompaniesDifficulttomakecomparableacrosscompaniesNotalwaysclearwhichassetmeasurestouse(Bookvalue?Beforedepreciationorafter?)ROA

(Returnonassets)Advantages:Bestproxyforreturn

oninvestmentsBestproxyforreturnonshareholders’investmentsEasytocollectcomparablemeasuresacrosscompetitorsBainexample:DrugstorechainsRetaildepartment

storesBeverageindustryCalculation:*NetincomeaftertaxesAverageequityAftertaxoperatingprofitAverageassetsNetincomeaftertaxSalesROS

(Returnonsales)EliminatestheeffectsofhowassetsarefinancedResultsaresometimesunclearwhensomecompetitorscommandalargepricepremiumNetincomeaftertaxesCapitalemployedBuildingproductsLeader’sRMS:Anyotherplayer’sRMS:Marketleader’sunitssold#2player’sunitssoldOtherplayer’sunitssoldMarketleader’sunitssoldItispreferabletouseunitsinsteadofrevenuesincewebelieveaccumulatedunitsofexperiencedrivethepotentialforhigherrelativeprofitabilityExampleindustriesBaintoolKeyprofitdriverCustomerloyaltyPercentofcategorywhichispremiumpricedandrelativemarketshareofcategorySpeedofproductdevelopmentandreleaseRetentionHighroad/LowroadTime-to-marketAutoinsuranceCreditcardsAdvertisingConsumergoodstoothpasteready-to-eat-cerealsTechnologysemi-conductorsRetailfashionathleticgymshoes49TakeawaySlides(2of2)Actio

Author: GiseleGarrawayROS/RMSMarch199850Author: GiseleGAgenda

ROS/RMSoverviewApplicationsROS/RMSstepsClientexampleswirelessinfrastructuredrugretailingChallengesKeytakeaways51AgendaROS/RMSoverview2Agenda

ROS/RMSoverviewApplicationsROS/RMSstepsClientexampleswirelessinfrastructuredrugretailingChallengesKeytakeaways52AgendaROS/RMSoverview3ROS/RMSGraphROS/RMSisadiagnostictoolusedtocompareabusinessunit’sactualprofitabilitytoitspotentialprofitability.0%5%10%15%20%25%30%125DunsterEliotCurrierCabotProfitability$150MMRevenueNormativeband(Predictedpotentialprofitability)RelativeMarketShare53ROS/RMSGraphROS/RMSisadiagROS/RMSComponents

Whatismeasured:Howitismeasured?Scale:TherearethreemaincomponentsofanROS/RMSgraph:profitability,relativemarketshareandthenormativeband.*ThistoolistypicallycalledROS/RMSsinceROSisthemostcommonprofitabilitymeasureused**AllowsforeasyviewingofadoublinginrelativemarketshareProfitability(y-axis)Currentprofitabilityreturnoncapitalemployedreturnonequityreturnonassetsreturnonsales*LinearRMS

(x-axis)

AccumulatedexperienceandstrategicpositionRelativemarketshare(RMS)Logarithmic**Normativeband

Rangeofpredictedprofitability

Plusandminusonestandarddeviationfromregressionline-------54ROS/RMSComponentsWhatismeaROS/RMSRelationship

Companieswithhigherrelativemarketsharetendtohavemoreaccumulatedexperience.Higheraccumulatedexperiencegivesthepotentialforlowercostsandhigherprofitability.HigheraccumulatedexperienceispositivelycorrelatedwithRMSHigheraccumulatedexperienceprovidesanopportunityforlowercostsandhigherprofitsRMSisaproxyforaccumulatedexperience.RMSispositivelycorrelatedwithprofitabilityAccumulatedExperienceRMSRMSProfitabilityAccumulatedExperienceCostperunit55ROS/RMSRelationshipCompaniesImportanceofMarketShareSource:PIMS(Datafrom1970tothepresentof3,200businesses-66%manufacturing,20%consumerbusinesses,14%services)Usingrelativemarketshareasapredictorofprofitabilityissupportedbyempiricalevidence.ThePIMSdatabasedemonstratesthat,onaverage,acrossindustries,companieswithgreatermarketsharehavehigherprofitability.56ImportanceofMarketShareSourAgenda

ROS/RMSoverviewApplicationsROS/RMSstepsClientexampleswirelessinfrastructuredrugretailingChallengesKeytakeaways57AgendaROS/RMSoverview8ApplicationsBainhasusedROS/RMSeffectivelyformanyclients.ExamplesofBainworkare:Computers&OfficeEquipmentElectric&PowerEquipmentSituation:Result:AmajorPCmanufacturerrecentlysufferedsignificantoperatinglossesandwasexperiencingseverecashflowproblems

Anelectric&powerequipmentcompanywasevaluatingamanufacturero