Evaluation & Priorities Setting Consultancy project: By Jakub Čech & Andrej Šišolák Note: Please after inserting your picture, “Right Click” on the picture and “Send it to Back” to get the “Gradient” effect. ‹#› J. Cech & A. Sisolak Our Agenda •Consultancy Project | Evaluation & Priorities Setting 01 10 min Segmentation 02 20 min BCG Matrix 03 20 min GE McKinsey Matrix 04 10 min The Hedgehog Concept Segmentation Evaluation & Priorities Setting By Jakub Čech & Andrej Šišolák Note: Please after inserting your picture, “Right Click” on the picture and “Send it to Back” to get the “Gradient” effect. ‹#› J. Cech & A. Sisolak Targets of Segmentation •Evaluation & Priorities Setting | Segmentation To split all the potential customers on the market into homogeneous groups, which could be identified with the same or similar needs and buying behavior. Customers within selected segments should have as much as possible similar needs and buying behavior. On the other hand, the needs and buying behavior of the customers across the selected segments should be different as much as possible. Definition There can be countless criteria found for the business-to-customer markets. Nevertheless, the most frequent ones are: § §Geographic (continents, countries, regions etc.) §Demographic (age, sex, ethnicity, religion, marital status etc.) §Socioeconomic (education, employment, income etc.) §Psychologic (personal values etc.) §Buying behavior (frequency and volume of purchase, brand loyalty etc.) B2C Segmentation Criteria The most useful criteria for the business-to-business market are: §Organization status (industry sector, size, culture etc.) §Operation status (production, purchasing process and frequency, quality requirements etc.) §Buying behavior (purchasing policy, decision making process etc.) B2B Segmentation Criteria ‹#› J. Cech & A. Sisolak Segments’ Key Performance Indicators •Evaluation & Priorities Setting | Segmentation Segment Growth Previous as well as projected growth of segment’s potential Segment Profitability Estimated average profitability level generated by all main market players Segment Potential Total possible sales of relevant products and services Market Reach Effective distribution and communication chain towards customers Market Share & Profit Total company’s sales vs. total potential of the selected segment. Company’s profitability in the selected segment. Product Portfolio Suitability and quality of the product range relevant to the customers’ needs CUSTOMER GROUP Nákupní vozík obrys Daň obrys Pruhový graf se vzestupným trendem obrys Harveyho ideogramy 30% obrys Skladové zásoby obrys Most obrys ‹#› J. Cech & A. Sisolak Segments Evaluation •Evaluation & Priorities Setting| Segmentation KPI’s Weight Segment 1 Segment 2 Segment 3 Segment 4 Market Segment Evaluation Market Potential 35% Market Profitability 35% Market Growth 30% Total 100% Company’s Market Position Evaluation Sales 20% Profitability 30% Product Portfolio 20% Market Reach 30% Total 100% Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní High Odznáček pro nové se souvislou výplní Odznáček pro nové se souvislou výplní Mid Odznáček pro nové se souvislou výplní Low ‹#› J. Cech & A. Sisolak Segments Evaluation •Evaluation & Priorities Setting | Segmentation Market Segment Evaluation Evaluation of the sales between the individual segments is based on comparing the company’s market share in every one of them. Market share is calculated as a quotient between the company’s sales and total market potential. Evaluation of the profitability of the individual market segment is based on comparing the company’s profit in each segment as well as the average profitability level achieved by the leading competitors. Process is the same like for the Market Segment Evaluation Sales and Profitability Evaluation Evaluation of the relevancy and quality of the product range is based on comparing the company’s actual product and service range with the existing and future customer needs and competitors’ offers. Evaluation of market reach is based on comparing the availability of the company’s distribution network with customers’ needs in selected segment and the competitors’ offers. Same process as for the Market Segment Evaluation could be used. Product Range & Market Reach Evaluation To differentiate one or more market segments from each other and recognize the level of attractiveness in all of them, we need to compare each one’s KPIs: § 1.Set up the thresholds to define the difference in between the low, mid, and high level of attractiveness 2.Set the importance of each KPI by the weight in performance 3.Compare each KPI individually between the segments 4.The total evaluation of the segments is based on the weighted average of each KPI score and importance BCG Matrix Evaluation & Priorities Setting By Jakub Čech & Andrej Šišolák Note: Please after inserting your picture, “Right Click” on the picture and “Send it to Back” to get the “Gradient” effect. ‹#› J. Cech & A. Sisolak BCG Matrix Introduction •Evaluation & Priorities Setting | BCG Matrix STARS QUESTION MARKS DOGS CASH COWS High Low Question Marks Segments with high market growth rate but low relative market share. Require lot of investments to be develop to the stars (typically new products) Stars Segments with high market growth rate in which company has a leading position. Generates lot of profit but requires a lot of investments to protect the position Cash Cows Segments with low market growth rate in which company has a leading position. Does not require a lot of investments and should generates high profits Dogs Segments with low market growth and low relative market share. Does not generate sufficient level of profits. Very often considers for divestment or cancellation Relative Market Share 10% 1.0 Odznak, otazník se souvislou výplní Odznáček pro nové obrys Kráva obrys Pes obrys ‹#› J. Cech & A. Sisolak BCG Matrix Introduction •Evaluation & Priorities Setting | BCG Matrix STARS QUESTION MARKS DOGS CASH COWS High Low Question Marks Segments with high market growth rate but low relative market share. Require lot of investments to be develop to the stars (typically new products) Stars Segments with high market growth rate in which company has a leading position. Generates lot of profit but requires a lot of investments to protect the position Cash Cows Segments with low market growth rate in which company has a leading position. Does not require a lot of investments and should generates high profits Odznak, otazník se souvislou výplní Odznáček pro nové obrys Kráva obrys Dogs Segments with low market growth and low relative market share. Does not generate sufficient level of profits. Very often considers for divestment or cancellation Pes obrys Relative Market Share 10% 1.0 GE McKinsey Matrix Evaluation & Priorities Setting By Jakub Čech & Andrej Šišolák Note: Please after inserting your picture, “Right Click” on the picture and “Send it to Back” to get the “Gradient” effect. ‹#› J. Cech & A. Sisolak GE McKinsey Model •Evaluation & Priorities Setting| GE McKinsey Model Grow Grow Hold Grow Hold Harvest Hold Harvest Harvest Business Unit Strength High Medium Low Grow Segments with the leadership position in the attractive market segments. Needs investments to grow or protect the position. Hold Selectivity | earnings segments. Invest into the business with the low position in the attractive markets or harvest the business with the strong position in not attractive market. Harvest Segments with weak position in the unattractive markets. Go for divestments of maximize the profit. Pruhový graf se vzestupným trendem obrys Rozdvojující se cesta obrys Půjčka obrys ‹#› J. Cech & A. Sisolak GE McKinsey Model •Evaluation & Priorities Setting| GE McKinsey Model Grow Grow Hold Grow Hold Harvest Hold Harvest Harvest Business Unit Strength High Medium Low Grow Segments with the leadership position in the attractive market segments. Needs investments to grow or protect the position. Hold Selectivity | earnings segments. Invest into the business with the low position in the attractive markets or harvest the business with the strong position in not attractive market. Harvest Segments with weak position in the unattractive markets. Go for divestments of maximize the profit. Pruhový graf se vzestupným trendem obrys Rozdvojující se cesta obrys Půjčka obrys Segment 1 100m$ 25% Segment 2 80m$ 18% Segment 3 45m$ 7% Segment 4 110m$ 15% The Hedgehog Concept Evaluation & Priorities Setting By Jakub Čech & Andrej Šišolák Note: Please after inserting your picture, “Right Click” on the picture and “Send it to Back” to get the “Gradient” effect. ‹#› J. Cech & A. Sisolak Jim Collins The Hedgehog Concept •Evaluation & Priorities Setting| The Hedgehog Concept The Hedgehog Concept is not a goal to be best, a strategy to be the best, an intention to be the best, a plant to be best. It is an understanding of what you can be the best at. Try to identify areas of business for which are you passionate about. Try to find a higher meaning of your activity. Do not try make people passionate about the vison or strategy. Be best in the world? And what you can not be the best in the world. Does not have to be your current core competencies. It can be something in which you are not even in yet. Drivers of economic engine? Define the most important profit denominator. Profit per customer, product, employee, customer visit, shop, sales region etc. Stadion obrys Trofej obrys Ukazatel obrys What Are You Deeply Passionate About ? What You Can Be The Best In The World At? What Drives Your Economic Engine? Passion about? ‹#› J. Cech & A. Sisolak Jim Collins The Hedgehog Concept •Evaluation & Priorities Setting| The Hedgehog Concept Gillette recognized that they have an unusual combination of two unique competencies: 1)Ability to produce billions of low-cost products with high durability (shaving blades) 2)2) Ability to build up global brands of consumable goods (Cocal Cola in shaving) Kimberly-Clark found out that they have a talent to create special kind of paper goods which are the top in their categories (Kleenex) Trofej obrys Be best in the world? Ukazatel obrys Drivers of economic engine? Profit per customer. Move from profit per division to profit per customer reflects the economic power of repetitive purchases (ex: shaving blades) multiply by profit per one purchase (ex: Mach3 ) Profit per product brand. Moving from profit per fixed asset (production plant) to the profit per product brand will be more resistant to economic cycles and more profitable during the bad and good times. 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