1,Business Definition,Agenda,The business definition concept Applications Business definition steps Client examples Bunker Hill Door Systems JJR Industrial Coatings Key takeaways,2,Business Definition,Agenda,The business definition concept Applications Business definition steps Client examples Bunker Hill Door Systems JJR Industrial Coatings Key takeaways,3,Business Definition,What is Business Definition?,Indicates whether two business segments should be operated as one business or as separate businesses Helps identify what drives superior profitability in an industry Serves as the foundation for strategic analysis and sound decision making,Business definition delineates the economic boundaries within which companies should compete.,4,Business Definition,One Business vs. Separate Businesses,Same customers Same cost structure Same competitors,Different customers Different cost structure Different competitors,If two business segments have the same customers, the same cost structure, and the same competitors, they are one business. If they are different on all of these dimensions, they are separate businesses.,One business,Separate businesses,Compete in both segments to take advantage of synergies,Do not compete in both segments,5,Business Definition,Why Bain Uses Business Definition,Strategic insights,Tactical insights with strategic importance,Should we buy or sell the restaurant business? Should we expand into China? Are we vulnerable to Japanese competitors? Should we vertically integrate into growing vegetables?,Should we drop this product line? Should we cross-train our salesforce? How should we group purchases forVMRs (value managed relationships? How should we configure our manufacturing plants?,The correct business definition can lead to case-cracking insights.,6,Business Definition,Consequences of Incorrect Business Definition,Companies that define their businesses incorrectly make poor strategic decisions.,Costs,Competitors,Incur unnecessary costs Forgo opportunities to capture synergies Do not transfer experience Underinvest in important R however, what customers perceive can often conflict with the economic boundaries.,Perceptual barriers,Low,High,Customers view :,Examples:,Products are similar,Products serve different functions,Wooden canoes and aluminum canoes,Womens fragrances and mens aftershave,31,Business Definition,Business Definition Steps,Degree of emphasis,Does business definition pass the competitor acid tests? Do competitors offer similar products and serve similar customers and channels? Does profitability correlate with definition of market share? Do decisions a competitor makes in one business affect the decisions that a competitor makes in another business?,Less important,More important,Cost sharing,Customer sharing,Competitor acidtests,32,Business Definition,Competitor Acid Tests,Does business profitability correlate with market share as implied by the business definition hypothesis?,What impact do decisions made in one business have on another? pricing investment,What products do individual competitors offer? Which customers/channels do competitors service?,Consistency,Profit explanation,Independent actions,To validate our business definition hypothesis, we use three competitor acid tests.,33,Is there substantial customer sharing? How great is the degree of functional substitution? How great is the degree of customer base overlap? How high are customers perceptual barriers?,Is there substantial cost sharing? Is there substantial direct cost sharing? Are there substantial opportunities for experience transfer?,Does business definition pass the competitor acid tests? Do competitors offer similar products and serve similar customer/channels? Does profitability correlate with the definition of market share? Do decisions a competitor makes in one business affect the decisions that a competitor makes in another business?,Degree of emphasis,Less important,More important,Cost sharing,Customer sharing,Competitor acidtests,Business Definition,Business Definition Steps - Summary,34,Business Definition,Agenda,The business definition concept Applications Business definition steps Client examples Bunker Hill Door Systems JJR Industrial Coatings Key takeaways,35,Business Definition,Bunker Hill Door Systems* - Background,Bain used business definition to set a strategic foundation for Bunker Hill Door Systems. The team started with a hypothesis that there were three separate businesses.,Situation:,Complication:,Question:,Bunker Hill is a $400MM division of Hills Worldwide. This division manufactures entry doors, garage doors (GDS), and garage door openers (GDOs). Hills Worldwide has set aggressive growth targets for all divisions,Bunker Hill has suffered a continued financial decline in recent years and performance varies widely across the product lines. Moreover, Bunker Hill faces a strong set of well-established, low-cost competitors,How can Bunker Hill grow profitably?,Asse