2009
Key analyses for determining the business opportunity for ‘XXX’
2
Example of a ‘problem statement’ and core ‘sub-issues’ to be solved
• What is the business opportunity for our new product, ‘xxx’?
• Market/ competitor analysis and novelina positioning
• Product and customer value proposition
• Business-model organization and processes required
• Management team skills and capabilities required
• Financial opportunity and returns analysis
• Risks and mitigation activities
• Implementation road map
Problem statement Sub issues to be solved
3
Example of a ‘problem statement’ and core ‘sub-issues’ to be solved
• What is the business opportunity for our new product, ‘xxx’?
• Market/ competitor analysis and Novelina positioning
• Product and customer value proposition
• Business-model organization and processes required
• Management team skills and capabilities required
• Financial opportunity and returns analysis
• Risks and mitigation activities
• Implementation road map
Problem statement Sub issues to be solved
4
500
2,000
4,000
7,000
11,000
1990
SIZE OF XXXXX MARKET
€ millions
1995 2000 2005 2010(E)
*Compound average growth rate
Source: …
CAGR 1990-2010 = 16.7%
5
XXXX DISTRIBUTION CHANNELS, 2006
%
Source: …
5530
15
Retail outlets
Catalogs
Superstores
Currently no novelina are sold online, but experience from foars (15% online sales and growing rapidly ) indicates future online sales potential
6
DEVELOPMENT OF MARKET SHARE OF XXXXXX
Source:…
%
100
0
0
Basic product
Improved product
Even better
product
1995 2000 2005
20
80
0
0
10
90
Our novelina
7
% of population currently owning XXXXX
Like
MARKET RESEARCH FINDINGS – POTENTIAL CUSTOMER NEEDS
%
*Quotations from customer interviews
Source: …
% of population liking their XXXXX
Don't like
Indifferent
Potential needs of novelina users*'Wish my XXX could …''Wish it had more …''Need help getting my XXX to …''Wish I could buy more XXX within my budget ...'
75
205
85
15
Own
Don’t own
8
MARKET RESEARCH FINDINGS – IMPROVEMENT OPPORTUNITIES
Source:…
Potential customer needs
'Wish my novelina could …'
Improvement opportunities
• Improve novelina ability to do A, B, C
'Wish it had more …' • Add options X, Y, Z
'Need help getting my novelina to …'
• Better instructions• Toll-free number• 24-hour service
'Wish I could buy more novelina within my budget ...'
• Scaled down, low-price novelina • Cut price on existing novelina • Volume discounts
9
60
40
Yes
WILLINGNESS TO SWITCH TO AN IMPROVED XXXX
% of respondents
No
… at a higher price?
90
10
Yes No
… at the same price?
95
5
Yes No
… at a lower price?
Source:…
Would you switch to a nnovelina with improved features ...
10
KEY FACTORS DRIVING CUSTOMER BUYING DECISION
Source:…
5
4
3
2
1
1
2
3
4
5
5 4 3 2 1 1 2 3 4 5
Options
Price
Customer service
...
Option lovers
Value seekers
Service seekers
Unimportant
Important
0
5Customer segment
Rating
11
DEMOGRAPHICS OF TARGET CUSTOMER SEGMENTS
%
Source:…
Demographics
Age
Education level
Buying behavior
Option lovers Value seekers Service seekers
20 - 30
30 - 40
40 - 50
> 50
High
Medium
Low
Catalogs
Superstore
Retail
Older customers with medium education level shop in superstores and retail outlets
Young customers with high education level prefer shopping through catalogs and superstores
Mid-aged customers with average education level strongly prefer shopping in retail outlets
12
XXXX INDUSTRY FORCES AT WORK
Source:…
Industry structure and economics• Small number of competitors• R&D and manufacturing scale
effects create barriers to entry• Industry profitable• Market growing
Consumer demand• Consumer willing to trade up• Demand consistently growing• No substitutes for novelinas
Competitive conduct• Competitors crowded out as others
upgrade product• No price competition• Innovation difficult and costly
External factors• Strong overall economic growth
fuels consumer spending• Expected legislation changes in
2003 could additional fuel consumer demand
XXX market is an attractive business
opportunity
13
MARKET SHARE OF XXXXX COMPANIES, 2006
%
40
30
25
5
Trinity novelina
Source:…
John's novelina Co.
Wonabynovelina
Kings novelina Co.
• Significant barriers for entry into novelina market: high research and development costs and scale requirements
• XXX companies with old product (e.g., Kings novelina Company) were quickly crowded out of market
14
ANALYSIS OF COMPETITORS
• EFC's competitors generally are not expected to innovate in the near future
• Trinity novelina has the highest capability to innovate in the medium future, all other competitors have only low to medium ability to improve their products in response to EFC's novelina
Company
• Trinity novelina
• Johns novelina Co.
• Wonaby novelina
• Kings novelina Co.
Current market share
40%
30%
25%
5%
Years since last novelina innovation
3
5
6
10
Innovation expected
Possible
No
?
No
Capability to innovate
Source: …
15
COMPETITIVE POSITION EFC vs. COMPETITORS
EFC • Ability for low-cost production
• Extensive experience with foar production
Skills
• Novelina patent • Well-established
brand name for foars
Strategic assets
• Existing relationship with some large national retailers
Special relationship
High
Low
Johns novelina Co.
• Very good management resources as part of the Johns conglomerate
• Strong brand name• Patent for enhanced
novelina
• Preferred supplier of medium-sized supermarkets
Kings novelina Co.
• New CEO• Beginning turnaround
• Old production facilities (cannot be upgraded)
• De-listed from Wesko supermarket two months ago
Trinity novelina
• Cost leader in current novelina production
• Patent for enhanced novelina
• Novelina retail chain
Wonaby novelina
• CEO left six months ago to Kings novelina Co.
• Partnership with novelina research lab
• License to produce enhanced novelina
• Experimenting with selling novelina online
Source:
16
Threats• Competitive reaction to market
entry of EFC, including possibility of price war
• Competitors leveraging relation-ship to existing distribution channel to block EFC's market entry
• novelina competitors attacking EFC on its home territory with entry into the foar market
• Product innovation through Trinity novelina
SWOT ANALYSIS FOR EFC XXX’S FUTURE BUSINESS
Strengths• Low-cost production capability• Patent for faster novelina • Well-established brand name for
foars
Weaknesses• Currently no experience with
online selling• No own retail activities • No relationship with medium-sized
supermarkets
Opportunities• Fast-growing market: CAGR
2000-2005: 9.5%• Profitable market: industry-wide
ROS 2005: 15%• Customers' openness to
innovation of novelina in the past: market share of even-better novelina in 2005: 90%
• Customers' willingness to switch to fast novelina in the future: 90%
EFC Novelina Business
Source:
17
Example of a ‘problem statement’ and core ‘sub-issues’ to be solved
• What is the business opportunity for our new product, ‘novelina’?
• Market/ competitor analysis and novelina positioning
• Product and customer value proposition
• Business-model organization and processes required
• Management team skills and capabilities required
• Financial opportunity and returns analysis
• Risks and mitigation activities
• Implementation road map
Problem statement Sub issues to be solved
18
• More options• Better performance• Lots of service• Value for money
Customer needProduct characteristics
• Emotional styling• novelina with
– Many new options– Enhanced
performance
EFC value added
• 24-hour customer service for novelina customers
• Leveraging experience as low-cost producer of foars to offer novelina at today's market price
NOVELINA VALUE PROPOSITION
Value proposition
A better product with more options and an innovative styling at the same price as regular novelina, plus 24-hour customer service
Source:
19
1.000 1.300 1.650 2.030 2.500
4.2404.436
4.7605.000
2.0002.300
2.640
3.040
3.500
4.000
2002
Service seekers
ESTIMATED CUSTOMER SEGMENT DEVELOPMENT, 2002-2006
'000 €
2003 2004 2005 2006
Value seekers
Option lovers
7,000
7,8408,780
9,830
11,000 12
CAGR*, 2002-06%
15
6
*Compound average growth rate
Source:
6
20
Example of a ‘problem statement’ and core ‘sub-issues’ to be solved
• What is the business opportunity for our new product, ‘novelina’?
• Market/ competitor analysis and novelina positioning
• Product and customer value proposition
• Business-model organization and processes required
• Management team skills and capabilities required
• Financial opportunity and returns analysis
• Risks and mitigation activities
• Implementation road map
Problem statement Sub issues to be solved
21
ORGANIZATIONAL STRUCTURE OF EUROPEAN NOVELINA COMPANY
Proposed new business unit
CEO
CFO COO Head of corp. center
Novelina SBU* Great foar SBU
* Strategic business unit
Source:
22
ORGANIZATIONAL STRUCTURE OF NOVELINA BUSINESS UNIT
Novelina SBU
Manufacturing Sales and marketing
Customer service
Systems support/
back office
Source:
23
Key activities
• Research and develop product innovations
• Understand customer needs
• Test/pilot new product innovations
Develop product Produce product
• Purchase raw materials
• Operate plant• Control quality
of output• Improve
production flow
Package product Ship product
• Develop package design
• Package product• Develop
innovative promotion format
• Control quality of output
• Store bulk product
• Load transport vehicles
• Track orders and shipments
CORE PROCESSES – MANUFACTURING
*Total quality management
Source:
Skills • Strong R&D, tied to marketing
• TQM*
• Purchasing• Cost control• Efficient plant
operations
• Cost control• Quality control
• Efficient packaging/ loading
• Transport deployment
StaffingFTEs
2 34 10 10
24
CORE PROCESSES – SALES AND MARKETING
Key activities
• Perform market research– Surveys– Question-
naires– Sales rep
feedback
Understand customer needs
Develop marketing strategy
• Gain in-depth consumer understanding
• Define product positioning
• Develop ad/promotions strategy and implementation concept
Develop sales strategy
Sell to customers
Bill customers
• Prioritize potential outlets
• Develop account plans
• Negotiate sales with retailers
• Conduct pricing analysis
• Close contracts
• Send bills• Process
payments
* Including 35 field sales managers
Source:
Skills • Quantitative/ analytic analysis of data
• Communi-cation
• Advertising expertise
• Marketing expertise
• Sales expertise
• Customer relations
• Communi-cation
• Negotiation• Pricing
analysis• Sales
experience
• Accounting skills
StaffingNo. of FTEs
2 5 5 37* 4
25
Key activities
• Select accounts to focus on
• Develop account plans• Schedule account visits• Visit/call on accounts
Maintain account relationships
Operate phone center
• Schedule 24-hour shifts• Train operators• Monitor calls
Respond to customer concerns
• Advise over phone• Send service reps to
customer• Operate in-house
service center
CORE PROCESSES – CUSTOMER SERVICE
Source:
Skills • Account planning• Customer relationship
management
• Communication• Technical knowledge• Operations efficiency
• Communication• Technical knowledge• Repair and maintenance
know-how
StaffingNo. of FTEs
5 8 90
26
Key activities
• Understand needs of manufacturing, sales, and customer service areas
• Design support systems to meet their needs
Design systems Operate systems
• Run day-to-day computer systems
• Run help desk• Advise with
technical support
Service systems
Provide back-office support
• Service malfunctioning systems
• Repair equipment
• Provide secretarial support to manufacturing, sales, and customer service
• Provide legal advice
• Provide accounting services*
CORE PROCESSES – SYSTEMS SUPPORT/BACK OFFICE
* Partly outsourced
Source:
Skills • Systems expertise
• Software design• Programming
skills
• Technical skills• Communication
• Equipment repair
• Secretarial skills• Legal• Accounting
StaffingNo. of FTEs
5 5 4 10
27
NOVELINA BUSINESS UNIT STAFF POSITIONS
Head of novelina SBU (1)
SVP of manufacturing (1)
SVP of sales and marketing (1)
SVP of customer services (1)
SVP of systems/ back office (1)
R&D specialists (2)
Plant personnel (50)
Quality control engineers (4)
Sales reps (35)
Advertising and marketing specialists (12)
Market researchers (2)
Billing coordinators (4)
Major account reps (5)
Service mechanics (90)
Phone reps (8)
Information technology (14)
Human resources (6)
Legal (2)
Finance (2)
FTE( )
Source:
28
Example of a ‘problem statement’ and core ‘sub-issues’ to be solved
• What is the business opportunity for our new product, ‘novelina’?
• Market/ competitor analysis and novelina positioning
• Product and customer value proposition
• Business-model organization and processes required
• Management team skills and capabilities required
• Financial opportunity and returns analysis
• Risks and mitigation activities
• Implementation road map
Problem statement Sub issues to be solved
29
DEVELOPMENT OF KEY FINANCIALS, 2007-2012
2007 2009 2012 2007 2009 2012
2007 2009 2012 2007 2009 2012
Revenue EBIT
ROS RONA%%
€ millions€ millions
BASE CASE
-144 -51
1,162
65
1,847
6,785
-3 17-222 -17
67
-178
Source:
30
FIVE-YEAR PROJECTION OF PROFIT AND LOSS STATEMENT
€ millions BASE CASE
Revenue
Expenses% of revenues• Cost of goods sold
% of revenues• Marketing and sales
% of revenues• Administration
% of revenues• R&D
% of revenues
EBIT% of revenuesInterestTaxes
Net income% of revenues
2007 2008 2009 2010 2011
65
209322
81125
558530464366
-144-222
30
-147-226
513
626122348
68152
3058116814
-113-22
80
-121-24
1,847
1,898103
1,18264
36220
1659
18910
-51-312
0
-63-3
3,887
3,51090
2,29559
61716
3058
2938
3781012
5
3619
6,785
5,62383
3,89157
96314
4807
4246
1,1621712
340
79312
Source:
31
FIVE-YEAR PROJECTION OF CASH FLOW STATEMENT
€ millions
BASE CASE
Cash year in2007 2008 2009 2010 2011
Sources of cashNet income:+ Depreciation (amortization)Increase/decrease in+ Trade and other payables+ Employee benefit liabilities+ Deferred tax liabilities+ Long-term debt and loans
Total sources of cash
Use of cashIncrease/decrease in: Trade and other receivables+ Inventories+ Fixed assets+ Interest
Total use of cashIncrease/decrease in cash+ Financing (increase of equity)
Cash years out
0 4 33 31 236
-1478
850
50
-12112
1630
80
-6319
2360
50
36185
36810
793103
499
840
1438
315
5412
83
62241216
156831235
227155
1248
-76 -10 +35 491 1,038
70-146150
77-87120
114-79110
286205
0
442596
0
4 33 31 236 832
Source:
32
FIVE-YEAR PROJECTION OF BALANCE SHEET – ASSETS
€ millions BASE CASE
Current assets
Liquid assets
+Trade and other receivables
+ Inventories
Total current assets
2007 2008 2009 2010 2011
4
14
15
33
54
8
46
81
33
68
18
119
101
20
81
183
31
130
34
195
152
39
113
299
236
286
69
591
279
124
155
751
832
513
117
1,462
509
227
282
1,744
Fixed assets
Gross value
– Accumulated depreciation
Total fixed assets
Total assets
Source:
33
FIVE-YEAR PROJECTION BALANCE SHEET – LIABILITIES AND EQUITY€ millions
Current liabilities
2007 2008 2009 2010 2011
Trade and other payables
+ Employee benefit liabilities
+ Deferred tax liabilities
Total current liabilities
Long-term liabilities
Long-term debt and loans
Total long-term liabilities
Total liabilities
Equity
Share capital
+ Retained earnings
Total equity
Total liabilities and equity
8
5
0
13
50
50
63
150
-132
18
81
24
8
0
32
130
130
162
270
-249
21
183
47
14
0
61
180
180
241
380
-271
109
299
83
22
1
106
180
180
286
380
85
465
751
132
31
85
248
180
180
428
380
936
1,316
1,744
BASE CASE
Source:
34
PROJECTION OF EBIT, ROS, AND RONA, 2007-2012
ROS%
RONA%
EBIT € millions
BASE CASE
-144 -113 -51
378
1,162
-178
-62-17
50 67-222
-22
-3 10 17
Source:
35
BUSINESS EVALUATION THROUGH DCF* METHOD
-144 -113-51
378
1,162
2008 2009 2010 2011 2012Residual value**
30 27 24 21 18 15.5Discounting rate%
NPV of free cash flows is € 4,653 million
BASE CASE
*Discounted cash-flow analysis**Last year’s cash flow with yearly growth rate of 2.5% discounted by 15.5%Source:
€ millions8,938
36
DESCRIPTION OF CASES
Base case• Development as expected
Worst case• Competitors (Trinity novelina, Wonaby novelina)
developing novelina in two to three years• Market growth limited (3%)• Price war driving down market price by 10%-15%
Best case• Market exit of Kings novelina company• Market growth exceeding expectations
(15%-20%) mainly driven by introduction of novelina
• Price discrimination for option levers by 10%
Source:
37
512
1,162
2,014
COMPARISON OF EBIT, ROS, AND RONA BETWEEN CASES
Worst case
EBIT€ millions
Base case Best case
ROS%
RONA%
5
1724
32
6785
Source:
38
BUSINESS EVALUATION THROUGH WEIGHTING CASES
Base case
Worst case
Best case
DCF€ millions
4,653
6,221
-138
Probability%
Value of EFC's novelina SBU€4,008million
Source:
39
Example of a ‘problem statement’ and core ‘sub-issues’ to be solved
• What is the business opportunity for our new product, ‘novelina’?
• Market/ competitor analysis and novelina positioning
• Product and customer value proposition
• Business-model organization and processes required
• Management team skills and capabilities required
• Financial opportunity and returns analysis
• Risks and mitigation activities
• Implementation road map
Problem statement Sub issues to be solved
40
IMPLEMENTATION ACTION PLAN AND TIMELINE
• Finish final product development
• Set up business unit
• Hire new staff
• Train new staff
• Begin production
• Develop marketing strategy/ads campaign
• Begin ads campaign/ sales rep visits
• Roll out novelina
• Start up customer service phone center
• Send out account reps
• Follow up surveys with early customers
• Fine-tune product
J F M A M J J A S O N DActivity
Month
Source: