Chapter 5 (Partial): Business Strategy: Strategic Metrics

Transcription

1 Chapter 5 (Partial): Business Strategy: Strategic Metrics Disclaimer: All logos, photos, etc. used in this presentation are the property of their respective copyright owners and are used here for educational purposes only Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.1

2 Outline/ Learning Objectives Topic Scenarios Metrics Brand Customer Product Description Review strategic scenarios facing most companies Discuss metrics to measure strategic-level performance Review metrics to measure brand-related performance Review metrics to measure customer-related performance Review metrics to measure product-related performance Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.2

3 Analytics Approach to Strategy Identify 3 typical strategic scenarios Marketing Mix: 4Ps: Product Price Place Promotion Strategy Marketing Mix Business Operations Results Strategic Metrics Strategic Metrics: Big Picture Business Operations: Supporting Functions Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.3

4 Strategic Scenarios Market Entry Market Approach Market Growth Typical Major Strategic Decisions for Most Companies: -Market Entry: -Market Approach: -Market Growth: Should I enter this market? How should I engage with this market? How can I grow within the market? Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.4

5 Strategic Scenario: Market Entry Market Entry Market Entry Market Exit Example: Diaspora in social networking Example: Siemens in radiation therapy Market Entry: Apply competitive advantages to characteristics of market Market Exit: Leave flat or shrinking markets, or those suffering from intense competition Organic growth: Entering markets by growing internal process and product/service line Acquisition-driven growth: Entering markets by acquiring companies already in the market Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.5

6 Strategic Scenario: Market Approach Generic Strategy Cost Leadership Differentiation Focus Southwest Airlines in airlines New York Times in newspapers Sunglass Hut in niche retailing Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.6

7 Strategic Scenario: Growth Growth Market Penetration Existing offerings; Existing markets Market Development Existing offerings; New markets Product/Service Development New offerings; Existing markets Diversification New offerings; New markets Expedia in travel booking Dunkin Donuts in international expansion L Oreal in haircare GE in multiple markets Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.7

8 Strategic Metrics: Strategic Scenarios Strategic Scenario Market Entry/ Exit Market Approach Market Growth Relevant Strategic Metrics Market size Market growth rate Revenue Profit Year on year growth CAGR Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.8

9 Strategic Metrics: Market Entry and Exit Metric Market Size Market Growth Rate Description and Example Calculation of potential revenue available in market Example: Smartphone apps: Market size of $15B + Execution: See chapter 2 for market sizing Periodic evaluation of market to monitor growth Wang Laboratories: Failed to notice shrinking market for word processors Execution: See growth rates slides later in this module Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.9

10 Strategic Metrics: Market Approach Metric Revenue Example Reports Description and Example Sales of goods and services into market Total Revenue Revenue by Business Unit Revenue by Product/ Service Revenue by Geographic Region Revenue by Segment Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.10

11 Strategic Metrics: Market Approach Metric Profit Example Reports Contribution Margin ROMI Description and Example Revenue, less costs of doing business Profit by Business Unit Profit by Product/ Service Profit by Geographic Region Profit by Segment (Selling Price per Unit Variable Cost per Unit) (Selling Price per Unit) Return on marketing investment (Revenue from Marketing) * (Contribution Margin) 1 Marketing Spending Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.11

12 Strategic Metrics: Market Growth Metric Year on Year Growth Description and Example Increase (or decrease) in revenue, profit, etc. from one year to the next; also called Y.OY. Growth Y.O.Y Calculations Example: Apple Annual Report, 2011 Revenue (2010)=$65.2B; Revenue (2011) = $108.2B Y.O.Y. Growth = [$108.2B - $65.2B] / $65.2B = 66% CAGR Compound Annual Growth Rate Increase (or decrease) in revenue, profit, etc. over a period of years (more than 2 years) Microsoft Excel: XIRR function to calculate CAGR CAGR Calculations (Ending Value) ^ (1 / Number of Periods) 1 (Starting Value) Revenue grows from $100K to $150K over 3 years: $150,000/$100,000 ^ 1/3-1 = 14.5% Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.12

13 Strategic Metrics: Brand Development Metric Brand Recognition Brand Recall Description and Example Ability to confirm prior exposure to the brand Kellogg s: Recognize cereal box in supermarket aisle Ability to retrieve brand from memory Roto-Rooter: First name people remember Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.13

14 Strategic Metrics: Brand Development Metric Brand Depth Brand Breadth Description and Example Ease with which brand comes to mind GE: Associated with appliances Range of usage scenarios for brand Greyhound: Limited use by professionals Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.14

15 Strategic Metrics: Brand Development Metric Brand Equity Index Equation Description and Example Measures relative strength of brands (Effective market share) * (Relative Price) * Durability Effective Market Share Weighted average of brand s market share in all segments, weighted by each segment s proportion of sales Relative Price Durability (Price of our brand ) / (Price of other brands) % of Customers who continue to purchase brand in the following year Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.15

16 Strategic Metrics: Customer Development Metric CLV Example: Equation Margin Description and Example Customer Lifetime Value Netflix: Long-term retention important to high CLV Margin * (Retention Rate) / (1 + Discount Rate Retention Rate) Revenue generated by the customer, less costs to service Discount Rate Cost of capital; Similar to interest rate on loan Retention Rate % of Customers who remain loyal over time Calculation If margin = $72/year; Retention = 99.5%/year; Discount = 5%/yr CLV = ($72) * (0.995) / ( ) = $ Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.16

17 Strategic Metrics: Customer Development Metric Description and Example Customer Profit Profit made per customers (Customer revenues) (Customer costs) Example: American Airlines AAdvantage customer loyalty program Tier 1: Executive Platinum Tier 2: Gold, Platinum Tier 3: No loyalty status Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.17

18 Product/Service Development: Metrics Categories Product/Service Development Metrics Development Process Metrics Measure competitive advantage in product or service development Development Innovation Metrics Measure ability to innovate Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.18

19 Product/Service Development: Process Metrics Customization Capabilities Dell: Configure PC to your liking Low Cost Capabilities Boeing: DFM and DFA on F-18 Development Process Metrics Quality-Oriented Capabilities Oneida Healthcare: Ongoing training Responsiveness Capabilities Zynga: Daily software builds Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.19

20 Product/Service Development: Innovation Metrics Breakthrough Products Changes industry Example: Original Apple iphone Next Generation Products Significant advancement Example: iphone 3 4 Development Innovation Metrics Correction/ Bug Fix Fix mistake Example: iphone 4 antenna Major Enhancement Noticeable improvement Example: iphone 4S Siri Minor Enhancement Extend product to new users Example: 8GB 16GB Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.20

21 Product/Service Development: Innovation Metrics Innovation Category Quarter 1 Quarter 2 Quarter 3 Q4 Breakthrough 5% 10% 10% 10% Next Generation 10% 20% 20% 20% Major Enhancement 15% 30% 30% 30% Minor Enhancement 40% 30% 30% 30% Correction/ Bug Fix 30% 10% 10% 10% Total 100% 100% 100% 100% Track % of each type of project over time Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.21

22 Check for Understanding Topic Description Terminology Know terms relating to basic strategic scenarios Strategic Metrics Review metrics for market entry, approach, and growth Brand and Customer Review metrics for brand and customer performance Products and Services Review metrics to measure product performance Stephan Sorger Analytics:Bus.Strategy-Metrics Ch.5.22