Guide to competitive assessment

Guide to Conducting a Competitive
Assessment

Outline



Overview



Approach and Methodology



Thoughts on Research



Competitor Information and Analysis
I.

Develop Internal Cost Model and Capabilities Baseline

II.

Conduct Competitor Data Collection and Synthesis
1.
2.
3.
4.
5.

Business / portfolio overview
Management / people philosophy
Product and technology
Cost structure and operations (Manufacturing and Engineering)
Marketing

III.
IV.


Evaluate Size and Nature of Competitive Differences
Assess Potential Competitor Strategies and Key Implications

Interviewing Skills & Interview Guide
1

Overview

How Do We Define Competitive Analysis?

 An on-going analytical process which establishes a specific set of competitive issues

and a relevant peer group of competitors, collects data applicable to the issues, and
synthesizes data collected into meaningful and actionable “intelligence” for the
company

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 The ultimate goal of competitor analysis is to understand the strengths, weaknesses,

and strategies of the competition in order to predict their next moves and plan
accordingly

 Competitor analysis is related closely to market analysis (i.e., market sizing,

segmentation, customer needs analysis). There are usually significant overlaps in data
requirements and analytical approach between the two

The objective of this guide is to provide a foundation and structured approach for
developing a high quality competitor analysis

2

The following are key questions that a company should be able to
answer about a major competitor

Overview

 Why have we lost recent contracts / competitions to our competitors?
 What are our competitor’s plans for entering a new market? What are the impacts of

these plans on us?
 How might my competitor change its business model and thus the basis of competition?

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 What does my competitor's cost structure profile look like? What options might they

have to reduce cost structure?

 How does my competitor view a particular product in its portfolio (e.g., loss leader, cash

cow, commodity for higher margin products / services)?

 With whom and for what reasons does my competitor partner (e.g. technology, product

breadth)?

 What are the strategic disadvantages of my competitor that we might be able to exploit?

And/or their advantages to which we must respond?
 How is my competitor likely to respond to the strategic changes made by us? What

impact should this have on our strategy?
3

In order to be most impactful, competitive intelligence should:

Overview

 Have targeted scope to address critical business issues
− Analysis structured to answer specific questions
− Rapidly responsive to ad-hoc needs on a real-time basis
 Fully address the appropriate elements of the competitive situation, potentially including
− Competitor strategies, plans, and intentions
− Approaches to markets and customers (e.g. program bid approach)
− Capabilities, assets and cost structure
− Technology and product developments

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 Leverage data from multiple sources
− Combination of primary and secondary research
− Mix of quantitative and qualitative data

 Synthesize data into actionable information for decision making
 Support (and sometimes change) strategic directions
 Be executed continuously

4

Overview

There are two types of competitive intelligence

Enterprise

Definition

Program / Contract

Ongoing efforts to support strategic
planning, periodic decision, etc.

Efforts to support specific events
such as completing a
competitive bid

 Industry structure

 Competitive bid strategy

 Position in value chain

 Comparison of structural

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Sample Output

 Portfolio view of business units

 Product pricing or positioning alternatives
 Strategic options

advantages / disadvantages
relative to program

 Recommendation to enter a

market or not

 Comparison of structural advantages /

disadvantages at enterprise level

Focus of this document
5

Overview

Objectives of this guide

What is included?
 This guide contains a process which is intended to serve as a guideline for

conducting competitor assessment projects
 For the most part, the various steps described in the document are meant to be

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executed in sequential order – however, conducting a competitor assessment is an
iterative process
 This guide introduces tools and techniques for rigorous strategic analysis, and

provides tips, pitfalls and illustrative examples to aid understanding
What is not included?

 The focus of this competitor assessment process assumes that a significant

competitor has already been identified for investigation – this guide does not include
details on initial brainstorming for potential competitive threats
 This competitor assessment process focuses on high-level strategy development

and does not cover specifics around detailed financial analysis or execution and
implementation

6

Outline



Overview









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I.


II.


1.
2.
3.
4.
5.

Marketing

III.
IV.



7

The following analytical structure has been established to define the
scope for comparative analysis – highlighted by five key topic areas
5

Marketing

1

Customers and
Partners

Strategy

 Targeted customers
 Investments in

Business / Portfolio
Overview

Products and
Services

$$






Pricing
Bundling
Bid strategy
Service strategy
(logistics & aftermarket)

 Position in portfolio
 Financial health






Shared designs
Shared assets
Shared suppliers
Market / Customer
product linkage

Cost structures
 Manufacturing
 Design
 Overhead
 Procurement

2

Approach and
Methodology

Management / People
Philosophy
Process &
Capabilities

People

 Management talent
 Management

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Operations

Technology

customers
 Share objectives
 Channel relationships

 Key partners
 Alliances
 Supplier management

 Co-development
 Key relationships

3

 New product pipeline

Product and
Technology

philosophy

 Org structure

 Investments
 R&D efforts

 Incentives and

metrics

 Program

management

 Marketing

 Engineering talent
 Innovation

Cost Structure & Operations
(Engineering & Manufacturing)

4

8

 Strategic planning
 Cost management
 Make / buy









Manufacturing
Asset utilization
Volume / learning curve
Supplier management
Labor costs
Quality issues
Overhead ratios

Engineering
Design process maturity
Discipline
Approach
Management systems
Systems engineering







Our approach hinges on deriving the differences between the company
and the competitor and assessing the implications

I. Develop Internal
Cost Model and
Capabilities
Baseline

Approach and
Methodology

II. Conduct
Competitor Data
Collection and
Synthesis

 Costs

 Competitor data

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 Major processes

 Sources of difference

 Product portfolio

 Suppliers/partners
 Customer needs

III. Evaluate Size
and Nature of
Competitive
Differences

− Inherent
− Structural
− Systemic

 Magnitude of difference by source

(qualitative and quantitative)
 Implications

IV. Assess Potential
Competitor
Strategies and
Key Implications

 Potential competitor strategies
 Potential future differences
 Strategic, operational and

technology implications

9

Level of effort between the various steps in the process differ throughout
the project time line

Approach and
Methodology

• It is important to put aside much of the internal and
external research at this point in the project so you
can step back from the data to see what you have
High

IV. Access Competitor
Strategies and
Implications

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Level of Effort

III. Evaluate Nature /
Size of Competitive
Differences

II. Conduct Competitor
Data Collection and
Synthesis

I. Develop Internal Cost
and Capabilities
Baseline

Low

Beginning of Project

Middle of Project

End of Project

Time

• Beginning of the project should focus on
developing the internal cost and capabilities
baseline. This is critical as it will guide the
external research and analysis

• External research - level of effort is higher at
start of the project but continues to some
degree until the end of the project as getting
certain critical data can take several weeks

10

When conducted as a project, the typical competitive assessment ranges
from eight to twelve weeks

Approach and
Methodology

Example
Month 1
Week

1

2

Month 2

3

4

5

6

7

8

Develop project plan and kickoff
Develop Internal Baseline
•Conduct internal interviews & operations
evaluation
•Understand current business and capabilities
•Build baseline templates

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Competitor Data Collection and Synthesis
•Gather secondary market data
•Conduct external primary interviews
•Define and prioritize preliminary findings
•Assess competitive and comparative
environment
•Identify CSFs for further analysis

Evaluate Size and Nature of Comp. Gaps
•Compare competitor data to client data, focus
for more detailed gathering
•Assess advantages and disadvantages
•Evaluate strategic options
Assess Potential Competitor Strategies and
Key Implications for client
Deliverable / Status Meetings
(excluding informal data sharing and
executive updates)

11

9

Additional lessons learned and best practices

Approach and
Methodology



It is critical to define specific questions to drive data gathering



Efforts should be focused on the most important criteria relative to a bid, and then,
detailed analysis should focus on areas of significant difference and impact



The best way to structure and synthesize competitor information is to build an internal
baseline and then develop a relative picture of the competitor



Qualitative comparison often offers as much insight as quantitative—the key is balance



Collecting intelligence is like building a puzzle—the entire picture is created by
combining some hard data points with relative comparison and educated assumptions



The major findings usually include some of the “obvious”, but most critical issues tend
to be below the competitive surface

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Outline



Overview









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I.


II.


1.
2.
3.
4.
5.

Marketing

III.
IV.



13

General research methodology / approach and tips for getting started

1.

Perform ‘quick hit’ secondary research (e.g. internet, literature searches)
for a day or two to get an initial feel for recent developments in the
industry and key players

2.

Identify “points of potential differentiation”

Thoughts on
Research

3.
4.

5.
6.

7.

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Figure out key questions to pursue and where you might get answers

Conduct targeted primary research with known / suspected ‘friendlies’
(e.g. customers, industry experts) to get a lot smarter on the industry
specifics quickly
Formulate initial hypothesis and identify research “holes”

Perform additional primary and secondary research, continually refining
your perspective on what questions you are answering and where you
might get answers
Validate hypothesis and compile implications / output

14

Thoughts on
Research

Secondary vs. primary research

Secondary Research

Primary Research

• Secondary research refers to “second hand” sources of
information on markets, customers and competitors
− Printed publications, company web sites, etc.
• Secondary research can help you find facts on:
− Size of the industry, industry activities, market share,
competitor behavior

• Primary research refers to “first hand”
sources of information
− Essentially interviews with
customers, competitors and
industry experts

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• However, the availability and usefulness of secondary data
depends on factors such as:
− Is our product an extension of an existing product or a
radically new product?
− Are we researching private or publicly held
competitors?
− Are we looking for corporate level or division level
data?
• Nonetheless, this information can help you
− Test your key assumptions and hypotheses

− Create a reasonable model of future behavior
− Prepare you to conduct primary research

15

• Essential for:
− Quantifying the business need and
benefits of your solutions
− Identifying competitors serving
potential customers and any
performance gaps
− Estimating quantitative data not
readily available from published
sources

Secondary data can be grouped into three categories

Thoughts on
Research

The following is a partial listing of potential data sources in each category:
Industry / Market Data
•
•
•
•

•
•
•
•
•

•
•
•
•
•
•
•
•
•

Trade publications
Trade shows
General business press
Government
− Current industrial reports
− Producer price index
− Economic census
− Regulatory agencies
Market research reports
Sales organizations
Industry associations / organizations
Industry experts
Statistical sources
− S&P statistical sources
− Statistical abstracts
Online literature searches
Analyst reports
Gartner Dataquest
Forrester
Frost & Sullivan
IXYZ
Advertising agencies
Journalists
Executive recruiters / headhunters

Competitive Data
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•

Analyst reports
Annual Reports / 10K
Company websites
Company newsletters
Company directories / phone books
Compustat
Trade publications
Business press
OneSource
Internet & Online Literature Searches
Competitor product assessments
Ex-employees of competitors
Specialty consulting firms
Catalogues & publications
Local Sources, e.g., Chamber Of
Commerce, newspapers
Equipment vendors & material
suppliers
Court proceedings
Tax assessments
Customers / distributors
Plant tours / site visits

Contextual Data
• Statistical abstracts
• S&P statistical service
• Survey of current
business
• Federal Reserve Bulletin
• County business patterns
• Census
• General business
periodicals
• Business periodicals
index
• Online literature searches

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•
•
•
•
•

16

Thoughts on
Research

Data requirements should be matched to sources for easy reference
Example

Organization

Management incentives

Products, services, customers
Financial Performance
Strategies

Funded R&D efforts
Industry markets / trends
Potential growth
Channel management
Virtual enterprise
Portfolio analysis
Impact on value creation

17

Industry practitioners

Journalists

Competitor investor relations

Competitor public relations

Forecast associates

Financial reports

Annual reports

Contract award

Employees that have worked
with the competitor

Suppliers

Customers

Unions

Headhunters

Stock analysts

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Headcount / Demographics

Data Requirements

Govt./Legal reports (Anti-Trust)

Competitor newsletters

Industry experts

Company internal

Potential Data Sources

Thoughts on
Research

Secondary research: Top Tips and Pitfalls

Top Tips

Pitfalls

• Focus the research, abandon
unproductive avenues
• Organize, read, re-read, re-read again
• Confirm secondary information through
primary interviews and vice versa
• Check for changes/new developments
periodically
• Don’t over-rely on it; thread secondary
and primary findings together to support
hypotheses
• Take note of experts cited in articles, as
well as research listed in bibliographies to
identify additional primary and secondary
sources of information

• Spending too much time chasing down
everything
• Getting a lot of material but not really
using it
• Thinking secondary research gives you all
the answers you need
• Believing everything you read
• Failing to “refresh” research
• Searching databases without a search
strategy
• Doing research without a set of well
thought out questions

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18

Performing primary research involves interviewing customers, industry
experts and others

Steps

Thoughts on
Research

Comments / Questions

1. Create an interview
guide

• (Refer to page 19)

2. Make a list of contact
names
(Decide whether you
are contacting each
respondent via phone
or face to face, decide
how many people you
are going to call)

• Search on the companies’ websites or other sources for names and
phones numbers of appropriate people
• Websites often have press releases with quotes which provide names
and titles of senior level employees
• Also try industry experts (including internal colleagues)
• Primary interviews usually require a list that has 5-10 times the desired
number of meaningful responses
• You may need to make a few preliminary calls to reach the right
respondent. For example, start with the VP-Business Development or a
Product Manager when calling competitors, and follow the leads they
suggest

3. Prepare before the
interview
(Refer to ‘Interviewing
Skills & Interview
Guide’ section)

• Before you interview, do your homework. Focus your discussion on what
you cannot learn from published sources
• Prepare your introduction - Why are you calling? What will the
respondent get out of it? How many minutes do you need? As a general
guide, give information as well as get it

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Performing primary research involves interviewing customers, industry
experts and others

Steps
4. Complete Call / Visit

Thoughts on
Research

Comments / Questions
• Use the interview guide to stay on track and not miss important
questions, but remain flexible
• Ask further questions to get a very detailed understanding of the key
items
• Push the interviewee to qualify or quantify what he/she is saying
• Ask the interviewee to give anecdotes and examples
• Take notes, preferably in long hand. These are useful when you analyze
your interview—sometimes customers may offer you an insight without
you or them noticing it during the interview. Quotes can be powerful
evidence to senior management.
• When you are done, remember to: (1) Thank the respondent, (2) Ask if
you can call back if you have any follow-up questions, (3) Get missing
contact information (email address, fax number, etc., and (4) Ask if there
is anyone else they can refer you to talk to

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5. Document Interview

• Synthesize your interview notes into a story
• Type up your interview

20

Thoughts on
Research

Interview Guide

 The Interview Guide should be populated with questions to be used for both the internal and competitor

assessments (Note – guide can then be tailored by individual section teams)
 The Interview Guide should be organized according to the five categories outlined on Competitive

Assessment Analytical Structure grid
 Refer to ‘Interviewing Skills & Interview Guide’ section for a detailed example of an Interview Guide

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Example

Legend helps
identify question
location and
relative importance
of section

Check- box for
owner sign-off
once complete

21

Summary of competitive assessment interviewing lessons learned

Thoughts on
Research

 Be prepared – throw out a few key facts and figures early in the interview to gain

credibility. The interviewee will be much more willing to give up information if they
view you as credible and well-informed

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 Establish a relationship with the interviewee, be flexible! Do not rigidly follow an

outline; allow interview to flow naturally from one topic to the next, but be sure to
cover all important topics, anticipate responses to your questions

 Apply the 80-20 rule – Interviewing is 80% Listening and 20% Questioning

 Always ask the interviewee if they can recommend someone else for you to talk to –

and then use them as a reference… “Bob suggested I give you a call as you were the
expert in ____”

22

Thoughts on
Research

Primary research: Top Tips and Pitfalls
Top Tips

Pitfalls

• Prioritize your questions, so that you get the most important information early in the
interview

• Rushing into sensitive
interviews or topics

• Think on the fly--go beyond your interview guide if you can

• Not being prepared for
interviews

• Be persistent but if they refuse to talk, just move on

• Getting bogged down in
unrelated details - allow
the interviewee to speak,
but keep the interview
focused

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• Get them talking, then work in the hard questions in a matter-of-fact manner

• Don’t be shy about asking sensitive questions; you’ll be surprised what interviewees will
tell you

• Get a feel for what the interviewee is most interested in talking about, and would therefore
give you the most information about
• Synthesize the interview notes as soon as possible after the interview

Tips and Pitfalls related specifically to competitor interviews:

• Try to finish competitor interviews in 2-3 weeks, otherwise, they may come to know that
you have been asking questions

• Rushing into sensitive
interviews

• Complete / review secondary research & client interviews first

• Being too rigid

• Prepare a specific list of questions / info sought before interviewing, and keep re-thinking
questions as you learn more

• Ethical breaches

• Think on your feet; react to & follow up on info that comes out
• Generally talk to lower level people, only a few in each area, explain how you got their
name (i.e. from web site or other person in company)

23

There are many sources of primary information on competitors

Sources

Thoughts on
Research

What might you learn from source?

Issues to watch

• Other client
employees

• Understanding of and perspective on competitors
based on prior encounters

• May need to overcome
internal obstacles

• Industry experts

• Key trends in industry, technology, competitive and
customer needs
• How competitors are positioning themselves today
and in future given these

• Easy to do; may sometimes
demand to be compensated
before they talk to you

• End users

• End user perspective (benefits, costs, satisfaction
gaps) on competitor offerings
• Detailed information on competitor sales
programs/practices
• Data that may enable estimation of competitor costs

• Some end users may be
customers of other
company divisions; need
to be cognizant of
sensitivity around calling
other division accounts

• Channel
partners

• Channel perspective on competitors
• Detailed info on channel programs / practices

• May be difficult to do; word
may get back to
competitors that you are
asking questions

• Competitor
personnel

• Detailed info on organization, activities, programs /
practices, and strategies

• Difficult to do without misrepresenting yourself
• Consider using third party
with requisite
experience/contacts

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Outline



Overview









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I.


II.


1.
2.
3.
4.
5.

Marketing

III.
IV.



25

The approach hinges on deriving the differences between the client and
the competitor and assessing the implications

I. Develop Internal
Cost Model and
Capabilities
Baseline

I. Develop Internal
Baseline

II. Conduct
Competitor Data
Collection and
Synthesis

 Costs

 Competitor Data
 Sources of Difference
− Inherent
− Structural
− Systemic

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 Major Processes

 Product Portfolio

 Suppliers/Partners
 Customer Needs

III. Evaluate Size
and Nature of
Competitive
Differences

 Magnitude of Difference by Source
(Qualitative and Quantitative)
 Implications

Competitor
Strategies and
Key Implications

 Potential Competitor Strategies
 Potential Future Differences
 Strategic, Operational and
Technology Implications

26

Rationale for developing an internal baseline

I. Develop Internal
Baseline

 The internal baseline is critical to allow derivation of a profile of the competitor
− Basis for discrete qualitative and quantitative comparisons
− Interpolation of numerous data points gained on the competitor

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 The process of creating the baseline also helps guide competitive data collection
− Hypotheses about the competitor from the client

− Client business issues that may also impact the competitor

− Generation of specific sources of information (e.g., customers, suppliers)

 Baselining also provides an organizational “reference point” for changes in strategy

based on competitive position

− Key areas to address competitive advantages/disadvantages
− Base case scenario for options analysis

27

I. Develop Internal
Baseline

Collect Internal Information



Develop comprehensive Interview Guide
−

−



Create several in-depth interview questions for each point in each cell in the Competitive
Assessment Analytical Structure. Note that the Competitive Assessment Analytical Structure
is a grid comprised of 15 cells, however, information collected can be organized in the
following five topic areas:
1. Business / Portfolio Overview
2. Management / People Philosophy
3. Product and Technology
4. Cost Structure and Operations (Engineering and Manufacturing)
5. Marketing
Refer to section ‘Interviewing Skills & Interview Guide’ for sample detailed interview guide

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Identify key executives and staff
−
−
−

Identify executives and staff in all major functional areas
Schedule interviews to obtain responses to questions in the interview guide
Schedule site visits as required



Conduct interviews and site visits



Synthesize collected information to build baseline
28

Based on company interviews, a baseline should be documented for each
point in the 15 cells of the Competitive Assessment Analytical Structure

I. Develop Internal
Baseline

Example

 The following are examples for the Management Philosophy and Pricing / Bid Strategy bullets found

within the ‘Management / People Philosophy’ and ‘Marketing’ sections:

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Management Philosophy

Company Baseline
• Change/risk averse organization (e.g.,
burdening programs with NRE to
recover investments vs. amortizing)
• Engineering-driven vs. marketing driven
• Focus on the high-end segment
• Organization traditionally siloed
• “Limited urgency” to act at mid-low
management levels

Pricing and Bid Strategy

Company Baseline
• Company utilizes cost plus pricing
• Costs used are fully burdened costs
• Pricing structure allows for price breaks with volume
• Bidding begins with a pursue/no pursue presentation to management
• Then there is a reconnaissance done on the scope and fit of the
opportunity with the company’s strategy
• If there is a fit, then management gives the go-ahead to spend Bid &
Proposal dollars and have an RFQ
• At this point the bid or no-bid decision is made

29

Complete the Internal Manufacturing and Engineering Baselines

I. Develop Internal
Baseline

Identifying the following cost drivers:
Manufacturing Cost Drivers



Product design
Manufacturing process (level of automation,
lean, yield)

Engineering Cost Drivers


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Inherent













Design process standardization/ maturity
(design for re-use and cost)
Requirements definition process
Risk management

Facility scale/utilization
Wage and fringe rates
Occupancy cost
Make/buy
Learning curve

Supplier management
Organizational model/degree of integration
Overhead labor




Structural





Systemic




30

Engineering tenure and mix
Wage and fringe rates
Occupancy cost

Organizational model (support to design
ratio)
IPD maturity
Engineering tools
Overhead labor

Develop the Internal Company Cost Model and Capabilities Baseline

I. Develop Internal
Baseline

Example

Company Baseline – Manufacturing Process
• Total cycle time is 12-14 weeks
• Product design and manufacture done in one location.
Products that do not meet high-end application
specifications, are classified and shipped as lower grade
• In assembly, 60% of the process is complex and operator
sensitive
• High Degree of Automation
• Lean Process: Smooth flow of product and people
• Testing is a bottleneck
• Individual component yield is high
• First test as a system gives poor results
• Process flow across locations is similar

Company Baseline – Design Process
Standardization and Maturity
• On paper, standard design process, design rules
and IPD process exist but is not consistently used
or applied
• Design re-use sporadic due to missionization
requirements, and engineering’s desire to be
innovative
• Design to cost is slowly being employed—
traditionally design to performance organization
• Plans for the next generation is to minimize design
variants and increase standardization of hardware
and software

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31

Follow an approach such as the following to complete the internal cost
structure based on process and cost elements

I. Develop Internal
Baseline

1.

Obtain touch labor costs for the various segments

2.

Segment costs based on job function across the matrix (see next page)

3.

Apply fringe rates (taken from relevant overhead pools) to the touch labor costs to get
total labor costs

4.

Allocate labor-related overhead from the relevant pools to the process steps

5.

Spread labor-related portion of G&A across all process costs as a % of labor

6.

Add non-labor overhead (excluding IS and corporate allocations) to appropriate
process steps

7.

Classify IS and Allocations as other

8.

Apply direct material costs to manufacturing (with estimate to engineering and
support)

9.

Repeat above steps for each segment

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10. Add the costs for all segments to get the total cost structure for the company

(excluding cross-segment transfers)
11. Validate the approach with the company
Note – Sample cost structure shown on next page
32

Separate the company cost structure into process and cost elements to
establish a baseline for comparison
Illustrative Example

Total Company Cost Structure ($ mil)
Non-Labor
Costs

Labor Costs
Manufacturing
Labor

I. Develop Internal
Baseline

Engineering

Support 1

Design

Overhead 3

Overhead

Support 2

Direct
Materials

Other4
(IT &
Allocation)

Total
Cost

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% of
Total
Cost

Development

--

--

60

45

10

35

10

--

160

32%

Manufacturing

20

20

--

--

5

25

100

--

170

34%

Prgm/Bus. Mgmt

--

10

--

5

10

5

--

--

30

6%

Supplier Mmgt

--

--

--

--

15

5

--

--

20

4%

Mktg/Bidding

--

--

5

--

15

10

--

--

30

6%

After Mkt Services

5

5

5

10

10

5

10

--

50

10%

Other

--

--

--

--

--

--

--

40

40

8%

Cost Profile
Totals:

25

35

70

60

65

85

115

40

500

% of Total Cost:

5%

7%

14%

12%

13%

17%

23%

8%

1

100.0%

Manufacturing Support includes Planning, Quality Assurance, Facilities, Materials Handling, Supervision, and DOI and Indirect Manufacturing
Engineering Support includes Processes and Tools, CM/DM, Field Engineering, Supervision, and DOI and Indirect Engineering
3 Overhead includes G&A (Management, Finance, HR), BD, Procurement
4 This figure includes IT and Corporate Allocations
2

33

Outline



Overview









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I.


II.


1.
2.
3.
4.
5.

Marketing

III.
IV.



34


I. Develop Internal
Cost Model and
Capabilities
Baseline






Costs
Major Processes
Product Portfolio
Suppliers/Partners
Customer Needs

II. Conduct External
Assessment

II. Conduct
Competitor Data
Collection and
Synthesis
 Competitor Data

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III. Evaluate Size
and Nature of
Competitive
Differences

− Inherent
− Structural
− Systemic

 Implications

Competitor
Strategies and
Key Implications


35

The following section discusses gathering information on each of the
points of differentiation within ‘Business / Portfolio Overview’
5

Marketing

1

Customers and
Partners

Strategy

 Investments in

Overview

Products and
Services

$$






Pricing
Bundling
Bid strategy
Service strategy







Shared designs
Shared assets
Shared suppliers
Linkage between market
segments

Cost structures
 Manufacturing
 Design
 Overhead
 Procurement

2

1. Business /
Portfolio Overview

Management / People
Philosophy
Process &
Capabilities

People

 Management

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Operations

Technology

customers

 Key partners
 Alliances

 Co-development


(DARPA, etc.)

3

Product and
Technology

philosophy

 Org structure

 Investments
 R&D efforts

 Incentives and

metrics

 Program

management

 Marketing

 Innovation


4

36

 Cost management
 Make / buy









Manufacturing
Asset utilization
Supplier management
Labor costs
Quality issues
Overhead ratios

Engineering
Discipline
Approach
Management systems
Systems engineering







Points of Differentiation – Position in Organizational Portfolio
Point of Differentiation

Key Data Points

Selected Sources

 Position in

 Key Data Needed for Analysis

1. Business /
Portfolio Overview

 Source of Data

organizational
Portfolio

− Level of investment

− Level of investment – Analyst reports, press
releases, Competitor presentations to investment
analysts

− Number of employees
(engineers),

− Number of employees (engineers), - Press
releases (typically about layoffs), articles in local
papers, company website. Interviews with
employees

− Hiring of employees

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− Financial performance
− Wage Rates

− Hiring of employees – Company job postings on
website, HR department, Vault.com, Monster.com,
etc.
− Financial performance – Analyst reports, analyst
interviews, 10K, sales department
− Wage Rates – Executive recruiters, job postings,
interviews with current and former employees

Notes

 Determining the Business Unit’s position in the overall business portfolio requires analysis of various pieces of data. Trends in

hiring and investment are good indicators of whether the competitor views the business as a cash cow, growth engine, under
performer etc.
 Percent of re-investment made into the business in the form of R&D and capital expenditures is another potential indicator of a

core portfolio product
 Finally, once a hypothesis is developed this should be validated with industry experts and company insiders

37

1. Business /
Portfolio Overview

Points of Differentiation – Financial Health

Key Data Points

Selected Sources

 Financial Health


 Secondary: Annual Report, 10K, Analyst Reports,

(Company, Sector, and
Business Unit)

Research Reports (Frost & Sullivan). Quotes from
competitor executives or employees in news, trade
or other publications

− Sales Growth
− Market Share
− Profitability
− Data over multiple periods of
time

 Primary: Investment analyst interviews, customer

interviews, competitor interviews.

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 Other: Estimates based on relative comparison to

other market players. (i.e. Company X is
approximately 20% bigger than Company Y)

Notes

 Financial figures at the highest levels of the organization can be easily found in the segment analysis of the 10K or annual

report. However data at the individual level can be quite complicated. Using data from various sources is helpful to get
estimates of financial health at the segment or business unit level
 Key sources for specific financial information can be found by obtaining investment analyst’s financial models and sometimes

in commentary from competitor executives that are “boasting” about their business to a reporter

38

The Competitor has a high margin business in aggregate as
well as at the individual business unit level

Competitor – Financials over time

1. Business /
Portfolio Overview

Example

Competitor – Segment Analysis vs. Company

($ mil)
25.00%

2.0%

$10,000

0.0%
Business Unit C
Engines

20.00%
$8,000

Sales Growth

2.0%
15.00%

$6,000

$4,000

Company
Business Unit AUnit B
Business

4.0%
-

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10.00%

`

6.0%
-

8.0%
-

$2,000

5.00%

-10.0%

Business Unit A
Landing Systems

$0

0.00%

1998

1999

2000

Sales

2001

-12.0%
-10.0%

2002E

Margin

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Net CFROI

Data: 2001 10-K

Data: 2001 Competitor 10-K

Size of Bubble: Gross Assets

= $800 million

Economic performance and Business Unit A role in the portfolio

 Across the board, Competitor sales and profitability have declined but margins remain strong; the major elements of the

division’s portfolio are all value creating—Business Unit A has much greater returns than does Company
 Despite the downturn in market segment A, Competitor is still investing heavily in Business Unit A (~10% of sales) to

maintain market leadership
 Product A business appears to be one of the most profitable in Business Unit A and is described internally as a “crown

jewel” business
Sources: Annual Report, Analyst Presentations, Articles, Company Data, Competitor/Other Interviews, Consultant Analysis
39

Comparing the Competitor’s business to the Company demonstrates
the competitor’s size and profitability advantages

1. Business /
Portfolio Overview

Business Unit A (estimated)
Sales
Margin
Market A
Product A
Product B
Product C
Services
Total

$300-400M
$400-500M
$100-200M
$100M
$900-1,200M

Market B
Product D
Services
Total

TOTAL

Attempt to use
ranges when
estimating
revenues and
margins

Company
Sales
Margin

~18%
~16%

$300M
$100M
$50M
$50M
$500M

15%
10%
5%
20%
15%

$500-600M
$200-300M
$700-900M

~18-20%
~22%
~20%

$50M
$50M
$100M

10%
15%
12%

$1,600-2,100M

~18%

$600M

14%

~ 14-16%

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Sales and margin comparison – Key Findings
 Competitor’s and Company’s Product A business in Market are of similar size and profitability
 Product B is a much larger part of Competitor’s Market A business, driven by programs like Program A
 Competitor’s Market B business dwarfs Company in terms of sales and margin (largely due to a broader offerings)
 While Services are profitable parts of Competitor’s business, lifecycle economics (i.e., low product margin to secure the

services business) do not drive their strategy in the business
Sources: Annual Report, Analyst Presentations, Articles, Company Data, Competitor/Other Interviews, Consultant Analysis.
40

1. Business /
Portfolio Overview

Points of Differentiation – Facilities and People


Key Data Points

Selected Sources

 Facilities and People


 Secondary – Company website, facility directory,

− Size of Facilities
− Number of employees per
location
− Number of engineers per
location

press releases (typically about layoffs/hiring in
certain locations, 10K, articles in local papers.
Research resources such as Onesource US
Business Browser and Bureau van Dijk's Amadeus
provide employee estimates and various sites.

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 Primary - Interviews with current and former

− Main purpose of facility

− Amount of “shared” space with
other BUs at facility

competitor employees, Union representatives, local
chamber of commerce, city zoning and permits
department

 Other – Site visits and/or site tours if available

Notes

 The data from the facility and people spreadsheet is extremely important in that it drives various analyses in the cost baseline
 Getting the number of engineers or other technical talent that might be tracked is the hardest part. In some cases this may be

found through secondary research but in most cases this is best gathered through interviews with current or former
employees who have worked in that location
 The amount of “shared” space at a facility with other business units can be approximated upon inspection during a site tour or

through interviews with employees. Getting site tours is extremely rare but can be very helpful if they are offered

41

The core of Competitor’s Product A business is spread throughout the
United States

1. Business /
Portfolio Overview

Within Minnesota, Business Unit A draws resources from several locations:
 City A –Production and design. Serves as BU headquarters
 City B – Product A for Market A assembly & production
 City C – Technology Center for R&D and new product design
 City D–Center for tools and direct materials. Also plans to start building
Component B line 2003

Example

Component A Research &
Development; Component B
Production

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Market B
Integration

Source: Interviews and site visits

Integration location for
niche markets

Market A
Integration

Arrows designate flow of product

Competitor Facility and Employee Summary Sheet for Product A Related Businesses
Group

Location

What they do

Size – Sq. Ft.

Employees*

Engineers**

Business Unit A

City A

Product

1,000,000

1,300-1,600

300-350

Business Unit B

City B

Integration

1,000,000

1,600

400

Business Unit C

City C

Sales

95,000

300

125

*Employee are total facility employees including non-business unit A. **Engineers are Product A related only
Sources: Annual Report, interviews, Site visits, Consultant estimates
42

1. Business /
Portfolio Overview

Points of Differentiation – Make / Buy Decisions


Key Data Points

Selected Sources

 Make / Buy


 Secondary – Press releases (typically about new

− Percentage of manufacturing
process that is outsourced
− Number / Value of direct
materials that are outsourced

Notes

partners or suppliers), trade publications
 Primary - Interviews with procurement department,

suppliers of components, engineering or
manufacturing personnel

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 From a strategic standpoint, determining make / buy criteria is difficult unless access is gained to a senior internal employee,

however a high level assessment can easily be done by analyzing the press releases by different suppliers

 Interviews with suppliers of the competitor can be tricky since most are not willing to disclose too much information about the

competitor in fear of potentially harming their existing relationship

43

1. Business /
Portfolio Overview

Points of Differentiation – Organizational Structure


Key Data Points

Selected Sources

 Organizational


 Secondary – Company website, Press releases,

Structure

− Reporting Structure
− Business Unit information
− Name

 Primary – Interviews with company suppliers,

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− Employees

competitors and former employees

− Leadership

 Other

− Location

Notes

articles in business or industry publications (Dow
Jones Interactive). Annual report, Investment
analyst presentations

 This information is usually easy to get at a high level but increasingly difficult the further into the organization the organization

structure gets.

 Interviews are key to filling in the gaps, otherwise company employees will view the information as proprietary
 Be-aware company website and third party sources are not always updated

44

Identify both the internal reporting structure of the competitor as well as
how the various divisions and business units go to market

1. Business /
Portfolio Overview

Example
Competitor Corporate

Market A Sales &
Marketing

Business A

Business B

Business C

Market B Sales &
Marketing

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Market A Products

Business Unit A

Business Unit B

Sub Unit

Sub Unit

Market B Products

R&D Facility

Business Unit A

Sub Unit

Sub Unit

Partial Relevance to Company

Note – Based on 2001 data

Shading of the
relevant business
units allows the
reader to view
them in context
Direct Relevance to Company

Organizational structure findings
 Org Structure is a matrix of sales and products segments
 At the highest level Business Unit A, the home of Product A, is organized by Markets
 Several Business Unit units serve as internal suppliers; sharing of resources is commonplace across businesses (e.g.
software programmers)
 Complete integration of past acquisitions has been mixed, some units sell similar products to the same customer/market set
Source: Competitor annual report; customer, supplier, competitor, and internal Competitor interviews
45

points of differentiation within ‘Management / People Philosophy’
5

Marketing

1

Customers and
Partners

Strategy

 Investments in

Overview

Products and
Services

$$






Pricing
Bundling
Bid strategy
Service strategy







Shared designs
Shared assets
Shared suppliers
segments

Cost structures
 Manufacturing
 Design
 Overhead
 Procurement

2

2. Management /
People Philosophy

Management / People
Philosophy
Process &
Capabilities

People

 Management

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Operations

Technology

customers

 Key partners
 Alliances

 Co-development


(DARPA, etc.)

3

Product and
Technology

philosophy

 Org structure

 Investments
 R&D efforts

 Incentives and

metrics

 Program

management

 Marketing

 Innovation


4

46

 Cost management
 Make / buy









Manufacturing
Asset utilization
Supplier management
Labor costs
Quality issues
Overhead ratios

Engineering
Discipline
Approach
Management systems
Systems engineering







2. Management /
People Philosophy

Points of Differentiation – Management Talent


Key Data Points

Selected Sources

 Management Talent


 Secondary – Company website, press releases and

− Profiles of executives
− Reputation of management

articles about “leaders in the community.”
Onesource US Business Browser, Hoovers
Business Source, and the Bureau van Dijk's
Amadeus provide bio’s of executive leadership

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 Primary – Discussions with executive recruiters and

current or former employees

 Other – Analysis of which Business Units corporate

executives used to work in

Notes

 Executive recruiters have a good understanding of which companies (and which divisions within those companies) are net

exporters of talent

 Undergraduate and graduate students can add valuable insight into the reputation and current hiring needs of companies

47

2. Management /
People Philosophy

Points of Differentiation – Management Philosophy


Key Data Points

Selected Sources

 Management and


 Secondary – Press releases, articles in business or

People Philosophy

industry publications (Dow Jones Interactive).
Annual report, company website

− Management culture
− Average tenure
− Management responsiveness

 Primary – Interviews with key customers and

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− Key initiatives

− Planning / management
processes

suppliers, union representatives, current employees
and former employees.

 Other – Analysis of company history

− Hiring / recruiting practices

Notes

 Information regarding the company’s culture and management philosophy comes more from the culmination of many sources

rather than just from one or two interviews. The more interaction with the company the more accurate the analysis will be.
 The same interviewee can usually answer several questions related to this topic so it is to have questions prepared before

hand

48

2. Management /
People Philosophy

Example philosophy summation
Example

Business/Risk Management
 Profitability (both short and long

term) is a key driver

HR Approaches
 Staff development via transfer

across functions/business areas is
cultural norm
− Much more movement at
lower levels of org than
Company
− Minimal movement between
Market A and Market B

Cultural Orientation
 Commercially-oriented and

marketing/business focused

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 Investment is focused in highest

return businesses (via value-based
capital allocation)
 Managing cost and schedule is

viewed as a strength by customers
− Program management
structure/processes generally
more mature than Company
 Appear reluctant to deviate from

“standard” products – significant
focus on influencing specs early in
the process

− Commonality of design and
manufacturing of Product A
between Market A and Market
B is tighter than Company

 Though a net talent exporter,

Competitor does a good job of
identifying and retaining top
performers

 Recruiting is balanced between

business and engineering which
translates to a greater skill mix
with better business focus than
Company

Sources: Articles, Competitor/Other Interviews.
49

 Culture somewhat an

amalgamation of mergers,
some internal “us vs. them”
mentality

 Numerous management

initiatives potentially too many
“flavors of the month”

 Significant Company A

influence from failed merger
attempt
− Several new ideas but
significant turmoil

Points of Differentiation – Incentives & Metrics; Wage & Compensation

2. Management /
People Philosophy


Key Data Points

Selected Sources

 Incentives & Metrics


 Secondary – HR publications and sources such as

 Wage &

Compensation

− Incentive/Compensations
structure for executives
− Incentive/Compensations
structure for sales force

HR.com, & Salary.com. Company 10K lists
incentives and compensation for corporate
executives. On message boards such as Vault.com
or yahoo posts about wages and compensation can
usually be found

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− Wage rates and incentives for
manufacturing employees

 Primary – Interviews with sales force or manager

level employees (typically former employees). Union
representatives for manufacturing employees

Notes

 Wages and compensation information can usually be found through secondary sources such as industry publications or HR

compensations studies

 Primary interviews are needed to get detailed information about the particulars of the compensation structure.
 Typically only former employees are willing to share information about compensation, HR representatives

50

2. Management /
People Philosophy

Points of Differentiation – Program Management


Key Data Points

Selected Sources

 Program Management


 Secondary – Industry periodicals and research

− Management Responsiveness
− Cost and Schedule
Management

 Primary – Interviews with customers, suppliers,

union representatives and current & former
employees

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− Scope and Risk Management

Notes

reports such as Teal Group or Frost & Sullivan

 Most interviewees can’t usually answer questions regarding program management directly

 Piecing together several separate points is usually the best way to get an idea of a company’s philosophy on program

management

51

Points of Differentiation – Engineering Talent; Innovation

2. Management /
People Philosophy


Key Data Points

Selected Sources

 Engineering Talent


 Secondary – Industry websites, such as IEEE.org,

 Innovation

− Profiles of top engineers
− Thought leadership pieces

brochures of top engineering conferences, university
affiliations, new product development articles

− Emphasis and size of
Research & Development

 Primary – Interviews with current or former

− Number of PHDs

 Other – Facility profile of R&D facility (size, number

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engineers, interviews with speakers at conferences,
of engineers), analysis of new product development
process

52

Business Unit A is clearly viewed as a growth business as evidenced by
the current hiring numbers

2. Management /
People Philosophy

Example

Competitor experienced hiring (as of 10/1/2002)
By Business Unit…
Business Unit A
Business Unit B
Business Unit C
Business Unit D
Business Unit E
Business Unit F
Business Unit G
Business Unit H
Business Unit I
Business Unit J
Business Unit K
Business Unit L
Business Unit M

Job Postings
110
44
20
15
10
9

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8

7

6

2

1
1
1

15

Engineering
Sales
Manufacturing
Finance
Engineering Support
Admin/Business Planning
Materials Management
Operations
Marketing
Information Systems
Quality Assurance
HR
R&D
Other BUs
Other

30

45

By function…

Business Unit A

60

75

90

105

37

120
78

18

15

12

11
10

8
7
6
6
6
6
14
10

20

30

Source: Competitor website, job postings, recruiting information

53

40

50

60

70

80

Competitor strikes a recruiting balance between business and engineering
skill sets

2. Management /
People Philosophy

Example
Competitor campus recruiting plans for 2002-2003
Function
UNIVERSITY

Total

University A
University B
University C
University D
University E
University F
University G
University H
University I
University J
University K
University L
University M
University N
University O
University P
University Q
University R
Schools recruiting for
< 3 positions *

10
10
9
8
8
8
6
5
5
5
5
4
4
4
3
3
3
3
3
32

138

Eng/
R&T

Fin/
Acct

Ops/
Mfg

1
6
3
3
3
4
1
3
2
2
3

2

1
2
2

IT
2
1
1
3
2
2

Degree
BD/Mkt/
Sls

HR/
Comm

Ugrad

MBA

3

1

MM

5
6
6
4
6
7
3
3
2
1
4
1
3
3

5
3
3
1
2
1
3
1
2
3
1
3
1

1
1

Download at:
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Total

1
1
1
1

1
1
1
1

1

1

1

1

1
1

1
1

1

1

2
1

1
1

1

1

1

1

2

1

1
1

4
1

1

1

1

1
1

1

15
54

19

3

1
1
1

1
1
1

1

11

4

47

15

4

1
0

1
3

3

1

2
3
16

16

15

12

11

11

76

54

1

1

1

3
1
6

2
2
3

Ugrad/
Grad

1

points of differentiation within ‘Product and Technology’
5

Marketing

1

Customers and
Partners

Strategy

 Investments in

Overview

Products and
Services

$$






Pricing
Bundling
Bid strategy
Service strategy







Shared designs
Shared assets
Shared suppliers
segments

Cost structures
 Manufacturing
 Design
 Overhead
 Procurement

2

3. Product and
Technology

Management / People
Philosophy
Process &
Capabilities

People

 Management

Download at:
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Operations

Technology

customers

 Key partners
 Alliances

 Co-development


(DARPA, etc.)

3

Product and
Technology

philosophy

 Org structure

 Investments
 R&D efforts

 Incentives and

metrics

 Program

management

 Marketing

 Innovation


4

55

 Cost management
 Make / buy









Manufacturing
Asset utilization
Supplier management
Labor costs
Quality issues
Overhead ratios

Engineering
Discipline
Approach
Management systems
Systems engineering







3. Product and
Technology

Points of Differentiation – Co-development


Key Data Points

Selected Sources

 Co-development


 Secondary - Level of investment and scope of

alliance - Analyst reports, press releases, Partner
websites, Industry publications

− Is there joint R&D with
customers
− Technological partnerships with
other system level suppliers
− Dollar values of these efforts

Notes

 Primary – Discussions with public relations officers,
 Other – Trade shows

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current business development employees

 Secondary sources can give the information on who the Co-development partnerships are with. It is usually difficult to get the

dollar values from secondary sources

 Business Development and Marketing personnel at trade shows are great sources for this kind of information

56

3. Product and
Technology

Points of Differentiation – Key Relationships


Key Data Points

 Key Relationships

Selected Sources



− What are the key relationships
that the competitor has with
academic institutions,
technological development houses

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− What are the dollar values of
these relationships

Notes

alliance - Analyst reports, press releases, Academic
Institution websites, Partner websites, Industry
publications

 Primary – Discussions with public relations officers,

current business development employees

 Secondary sources can give the information on who the key relationships are with. It is usually difficult to get the dollar values

from secondary sources

57

3. Product and
Technology

Points of Differentiation – New Product Pipeline


Key Data Points

Selected Sources

 New Product Pipeline


 Secondary – Third party distributors, equipment

− What are the new products
currently being developed by
the competitor

vendors, marketing presentations
 Primary – Discussions with business development

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and marketing employees, both current and former

− What features do they have

− Are they based on new core
technologies

Notes

 Several discussions will be needed to get a good and accurate picture of new products that are in the pipeline

 The information on the new product pipeline should be triangulated with the information obtained on the competitor’s co-

development and key relationships

58

3. Product and
Technology

Points of Differentiation – Investments; R&D


Key Data Points

Selected Sources

 Investments


 Secondary - Level of investment - Analyst reports,

− What sort of investments like
manufacturing sites expansion,
acquisitions are being made by
the competitor

Press releases, Annual reports, Local chambers of
commerce
 Primary – Discussions with current and former

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employees

− Is this trend consistent with
history or is this a new trend

− What percentage of sales do
these represent


Key Data Points

Selected Sources

 R&D


 Secondary - Level of investment - Analyst reports,

Annual reports

− Areas of R&D
− Level of investment in R&D
and the trend over time

59


engineering employees

points of differentiation within ‘Cost Structure and Operations’
5

Marketing

1

Customers and
Partners

Strategy

 Investments in

Overview

Products and
Services

$$






Pricing
Bundling
Bid strategy
Service strategy







Shared designs
Shared assets
Shared suppliers
segments

Cost structures
 Manufacturing
 Design
 Overhead
 Procurement

2

4. Cost Structure
and Operations

Management / People
Philosophy
Process &
Capabilities

People

 Management

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Operations

Technology

customers

 Key partners
 Alliances

 Co-development


(DARPA, etc.)

3

Product and
Technology

philosophy

 Org structure

 Investments
 R&D efforts

 Incentives and

metrics

 Program

management

 Marketing

 Innovation


4

60

 Cost management
 Make / buy









Manufacturing
Asset utilization
Supplier management
Labor costs
Quality issues
Overhead ratios

Engineering
Discipline
Approach
Management systems
Systems engineering







4. Cost Structure
and Operations

Points of Differentiation – Key Partners / Alliances


Key Data Points

Selected Sources

 Key Partners



alliance - Analyst reports, press releases, Partner
websites, Industry publications

− Names of partners
− Key investment and
partnership areas

 Other – Trade shows

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− Dollar values of investments

Notes

 Alliances can tell us a lot about the strategic direction of the business. In particular if we know the levels of investment in

various areas like marketing or manufacturing. Sometimes this information can be buried in the annual report

 Typically a company will boast about such relationships in a press release but this information can also be obtained by talking

to leading professionals in the industry and by attending trade shows

61

4. Cost Structure
and Operations

Points of Differentiation – Supplier Management
Point of
Differentiation

Key Data Points

Selected Sources

 Supplier


 Secondary: Competitor website, Supplier

Management

−
−
−
−
−

Number of suppliers
% of business with top 10 suppliers
Key initiatives like Six Sigma
Long term pricing and volume agreements
Investments in suppliers

website, Industry publications, Press
releases
 Primary: Discussions with supplier sales

and marketing personnel, interviews with
former employees, discussions with current
employees when on site visits

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Notes
 This information is very important in competitive assessments since supplier management drives a major portion of cost
differentials
 Usually supplier marketing/sales people are great sources when they “boast” about deals and wins at certain companies
 Some current and former employees also give good insight into joint procurement across all divisions and into special
initiatives in the area of supplier quality
Example

Competitor Supplier Management
• Competitor is very involved in the management of its suppliers and helps lower suppliers’ costs and its own by training
them on Six Sigma (#1 supplier metric – on time delivery)
• Competitor gains leverage through volume discounts/long term agreements due to forecast accuracy
• Limitation on design changes or redesigns have minimized negative impacts on suppliers and allow aggregation
• Most alliances at sector or sub-sector level. Thus, few deals that aggregate across organization
• Struggling with multiple procurement systems
62

Points of Differentiation – Links between Business Segments (Shared
Designs / Shared Assets / Shared Suppliers)

4. Cost Structure
and Operations


Key Data Points

Selected Sources

 Shared Designs


 Secondary - Annual reports and organizational

 Shared Assets
 Shared Suppliers

(covered in Supplier
management)

− Are designs common across
customer segments or are
there a number of designs

announcements
 Primary - Discussions with third party distributors,

customers, and current, and former employees

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− How are the manufacturing
and engineering assets
shared for products being
sold to various segments

 Other - Site visits

− Is there sharing across the
corporation as a whole

Notes

 These are more qualitative points that come out in discussions with the third parties. Most of this information comes in

nuggets from various sources and not as an answer to a direct question

 Site visits when possible provide a great source for getting this information

63

4. Cost Structure
and Operations

Points of Differentiation – Cost Structure


Key Data Points

Selected Sources

 Engineering Cost


 Secondary – Competitor websites, websites such

Drivers
 Manufacturing Cost

Drivers

as Salary.com for labor salary information, Grubb &
Ellis for occupancy cost information

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 Other/Overhead Cost

Drivers

Notes

− Information nuggets on
competitors supplier
management practices,
manufacturing yields, facility
and occupancy costs for
manufacturing and
engineering, wage and salary
information, engineering
support ratios, design
discipline, employee tenure,
and overhead rates

employees to get more competitor specific data on
yields, supplier management practices, support
ratios, design discipline, tenure, and overhead
rates. Also discussion with equipment vendors can
sometimes provide valuable insight

 The competitor cost structure is derived by using the internal cost structure as a baseline (see slides on internal cost

structure development)

 Competitive nuggets obtained are translated into tangible cost structure differences through rigorous analysis (see analysis

examples in estimating size and nature of competitive differences section)

64

Points of Differentiation – Manufacturing Topic Areas: Asset Utilization

4. Cost Structure
and Operations


Key Data Points

Selected Sources

 Asset Utilization


 Secondary – Press releases, Industry publications

− Percentage of capacity
utilized, total production
capacity

 Primary – Discussion with former and current

manufacturing employees, discussion with union
representatives

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− Idle time of assets

− Utilization of facilities

Notes

 This is a point that needs to be confirmed with several sources and employees to ensure the validity of the information

obtained

65

Points of Differentiation – Manufacturing Topic Areas: Volume / Learning
Curve

4. Cost Structure
and Operations


Key Data Points

Selected Sources

 Volume / Learning



Curve

− Volume capacity of the
plants, at what percentage of
the volume capacity is the
competitor operating


representatives

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− Learning curve slopes
− Yield percentages

Notes

 This is a point that needs to be confirmed with several sources and employees to ensure the validity of the information

obtained

 Methods of measurement also need to be understood, i.e., how is yield measured, is it first pass yield or final yield

66

Points of Differentiation – Manufacturing Topic Areas: Supplier
Management; Labor Costs; Overhead

4. Cost Structure
and Operations


Key Data Points

Selected Sources

 Supplier


 See Supplier management section and cost

Management
 Labor Costs
 Overhead

− Supplier management has
been covered in a previous
section

structure section

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− Labor costs have been
covered in the cost structure
section
− Overhead costs are also
covered in the cost structure
section

67

Points of Differentiation – Manufacturing Topic Areas: Quality Issues

4. Cost Structure
and Operations


Key Data Points

Selected Sources

 Quality Issues



− Manufacturing process flow
and how linear is it?
− What percentage of the
process is automated?


representatives

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 Other - Site visits

− Is the process lean or is it full
of inefficiencies?

Notes

 This is a point that also needs to be confirmed with several sources and employees to ensure the validity of the information

obtained

 Site visits when possible provide a great insight into these metrics

68

4. Cost Structure
and Operations

Yield
Example
Competitor Manufacturing Process
• Product design at separate facility and manufacture is done in one location
• High Degree of automation
• Lean Process
• In doing system testing, competitor can test multiple systems at once owing to
investments in upgrading testing equipment
− Reduces dead time at testers
• High First pass yield
• Cycle time – 30 days
• Outsources machining of product cases
• Moving to greater outsourcing of tooling
• Labor at plant does not fight automation (machining of glass is automated)

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Competitor Product Design
• Does not vary product design
• Product is easier to manufacture and yields better to precision requirements
• Limited variants minimize rework
• “Competitor does a great job of finding applications for its lower grade products, this
saves them rework time and money” – Competitor source
Competitor IPD Maturity
• Consistent focus on design for manufacturing
• Design and manufacturing co-located at the main factory
69

Points of Differentiation – Engineering Topic Areas: Design Process
Maturity; Discipline

4. Cost Structure
and Operations


Key Data Points

Selected Sources

 Design Process


 Primary – Discussion with

Maturity

− What is the tendency for hardware design re-use
− Are standard components used in the design or
does the organization believe in using customized
components

former and current
engineering and marketing
employees, engineering
equipment vendors

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− What is the tendency for software design re-use
− Are there a lot of design variants


Key Data Points

Selected Sources

 Discipline



− Maturity of IPD (Integrated Product Development)
process
− How are product requirements defined
− How is risk managed
− Which engineering tools are used and how
widespread is their usage
− Is design done for manufacturability?

70

former and current
engineering and marketing
employees, engineering
equipment vendors

Points of Differentiation – Engineering Topic Areas: Approach; Systems
Engineering

4. Cost Structure
and Operations


Key Data Points

Selected Sources

 Approach



− What is the model used by the competitor,
i.e., support to touch design ratio, supervisor
to touch ratio

former and current engineering
and marketing employees,
engineering equipment vendors

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Key Data Points

Selected Sources

 Systems Engineering



− Number of system engineers vs. hardware
and software engineers

− Importance placed on system development
and improvement vs. development and
improvement of the core product

71

former and current engineering
and marketing employees

4. Cost Structure
and Operations

Design Process Discipline
Example
Competitor Design Process Standardization/Maturity
• IPD processes exist and are consistently used
• All engineers in the facility have a six sigma green belt and adhere to a standard set of
processes
• Large emphasis on leveraging previously done work even if it is across different
locations

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Competitor Risk Management
• Formal cutoff to design changes is enforced

Competitor Requirements Definition Process
• Marketing interacts closely with customers and educates them on yield impact of
stringent performance requirements
• Marketing, Engineering, and Manufacturing work closely together to finalize product
features
• Limited ECOs in production mode

Competitor Engineering Tools
• Use Matrix as the PDM. Very well integrated but will incur costs to integrate it into a new
ERP system (SAP)
• Have the latest user interfaces and use the web and client server based solutions
• Industry sales people feel competitor is ahead

72

points of differentiation within ‘Marketing’
5

Marketing

1

Customers and
Partners

Strategy

 Investments in

Overview

Products and
Services

$$






Pricing
Bundling
Bid strategy
Service strategy







Shared designs
Shared assets
Shared suppliers
segments

Cost structures
 Manufacturing
 Design
 Overhead
 Procurement

2

5. Marketing

Management / People
Philosophy
Process &
Capabilities

People

 Management

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Operations

Technology

customers

 Key partners
 Alliances

 Co-development


(DARPA, etc.)

3

Product and
Technology

philosophy

 Org structure

 Investments
 R&D efforts

 Incentives and

metrics

 Program

management

 Marketing

 Innovation


4

73

 Cost management
 Make / buy









Manufacturing
Asset utilization
Supplier management
Labor costs
Quality issues
Overhead ratios

Engineering
Discipline
Approach
Management systems
Systems engineering







Points of Differentiation – Targeted Customers / Customer Profiles;
Investment in Customers

5. Marketing


Key Data Points

Selected Sources

 Targeted customers /


 Secondary – Research reports such as Frost and

customer profiles
 Investment in

− Sales by Market
− Sales by Customer

Sullivan, Teal Group and Forecast Int’l., financial
press releases, annual reports and investment
analyst reports

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customers

− Customer Concentration
− Trends in Sales

 Primary – Customer and competitor interviews
 Other – Product mix and product development,

− Market Analysis

shared development programs

− R&D spending

Notes

 Some reports are sold individually while others are sold on a subscription basis. In most cases prices are negotiable,

especially if you are buying several reports. Request sample pages before purchasing the entire report and check for
subscriptions that the company may have already purchased
 Research services are a good source for production volumes, types of equipment on various platforms, etc. but they are less

valuable in terms on cost / price information
 By analyzing the product development offerings, it may be possible to see if the competitor is developing customer specific

product offerings

74

This slide illustrates the perception of the company vis-à-vis the
competitor in the eyes of the customer along several dimensions
Example

5. Marketing

Customer Weighting of Procurement Decision Attributes
Highest

Description
Description
Description
Description

Importance to customer

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Description

Dimension B

Dimension C

Dimension D

Dimension E

Dimension F

Commentary on heterogeneous nature of customer set and perceptions
Company

Perception of performance based on customer/other interviews:
Customer Requirements:
75

Competitor

Lowest

Dimension A

5. Marketing

Points of Differentiation – Share Objectives


Key Data Points

Selected Sources

 Share objectives


 Secondary – Research reports such as Frost and

− Current share information (by
market and customer)

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− Trending information

 Primary – Customer and competitor interviews

− R&D spending

 Other – Product mix and product development

− Market Analysis

Notes

Sullivan, Teal Group and Forecast Int’l., financial
press releases, annual reports and investment
analyst reports

 Once the profiles and requirements of the various customer segments have been identified, these should be mapped against

the attributes of the various company and competitor products and services

 The same exercise should be done for the competitor’s new product pipeline to get a better understanding of the markets

they’re targeting

76

This slide illustrates the current market positioning of the company and
competitor as well as anticipated market targets
Example

“High Value”

5. Marketing

Product Strategy relative to key Customer/Market segments*
* Bubble size reflects breadth of market footprint, not total market size
Company
Product A

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Market
B

Market A

Company
Product B

Competitor
Product A

Competitor
Product B

Market C

“Commodity”

Component

System

Competitor current and future positioning suggests Company’s best opportunities lie in
selected Market A programs

77

5. Marketing

Points of Differentiation – Pricing; Bid Strategy; Bundling

Key Data Points

Selected Sources

 Pricing


 Secondary - Analysis of contracts that

 Bid Strategy

− Pricing Methodology

 Bundling

− Shared costs
− Sample contract
− Number of products / product
breadth

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− Number of business units

− Relationship between Business
Units
− Integration of sales force and
technology between BUs
− Key customers and products
offered to customers

Notes

have been won – from government sources
(if available), investment analyst reports,
company website, press releases, industry
publications, news articles, company
website/catalog, organizational structure

 Primary – Customer and competitor

interviews, Competitor sales associates,
Resellers, Distributors, Dealership Network,
Repair and Maintenance network

 Other - Strength of relationships with

customers, review of any existing legislation
analysis of major contracts/programs won

 Pricing strategy may change from product to product so it is important to get multiple data points or to focus on key products
 For large companies there is typically some legal ramifications that they must abide by, if they exist they can usually be found

on the DOJ website
 Bundling may also occur in the form of combining several products into one, (i.e. by selling products as systems vs.

components)

78

Points of Differentiation – Service Strategy; Channel Relationships

5. Marketing


Key Data Points

Selected Sources

 Service strategy


 Secondary - Press releases, industry

 Channel

relationships

− Sales of product vs. services
− Profitability of product vs. services

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− Size and breadth of services

− Understanding of various distribution
channels available
− Revenues by channel

 Primary - Customer interviews,

Competitor sales associates, Resellers,
Distributors, Dealership Network,
Repair and Maintenance network

 Other – Relationships with information

− Margins by channel

technology companies, e-business
consortiums, partnerships etc.

− Channel trends

Notes

articles, analysis of recent contracts,
investment analyst reports, competitor
website, press releases

 Publications / directories providing contact information are available for companies in most industries and sectors. These can

be useful for sending out a mass emailing and then following up by phone with those that respond
 Note that channel relationships not only include sales network but also supply chain network

79

Outline



Overview









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I.


II.


1.
2.
3.
4.
5.

Marketing

III.
IV.



80


I. Develop Internal
Cost Model and
Capabilities
Baseline






Costs
Major Processes
Product Portfolio
Suppliers/Partners
Customer Needs

III. Evaluate
Competitive
Differences

II. Conduct
Competitor Data
Collection and
Synthesis
 Competitor Data
− Inherent
− Structural
− Systemic

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III. Evaluate Size
and Nature of
Competitive
Differences


 Implications

Competitor
Strategies and
Key Implications


81

Competitive differences can typically be classified as either qualitative or
quantitative

III. Evaluate
Competitive
Differences

Qualitative
 Includes differences in areas such as:

− Management philosophies
− Organizational culture

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− Business management
− HR practices

 Differences in these areas are not easily quantified and are best analyzed by first listing relevant points

for the company and the competitor and then deducing the potential implications

Quantitative

 Differences in Manufacturing, Engineering, Overhead, and Material Costs can typically be quantified
 Quantitative cost differences are usually best estimated as a percentage of the internal cost baseline
 All differences can then be added to arrive at the overall competitive cost advantage or disadvantage
 The overall picture can then be used to determine key areas where actions need to be taken to increase

the company’s advantage or to reduce the company’s competitive disadvantage

82

III. Evaluate
Competitive
Differences

Qualitative Differences Example
Example

Company Management Philosophy
• Change / risk averse organization (e.g., burdening
programs with NRE to recover investments vs.
amortizing)
• Engineering-driven
• Focus on high-end segment permeates the org
(e.g., design for mission rather than production)

• Commercial focus drives competitor to be more competitively
aggressive
• Better design & operations sharing between segments
• Incomplete integration of mergers leads to internal “us vs. them”
• Significant potential acquirer’s influence from failed merger
(e.g., moves from customer to product focus)

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• Organization traditionally siloed
• “Limited urgency” to act at mid-low management
levels

Potential Implications

+
+
+

Competitor Management Philosophy
• Marketing / business issues equal or exceed engineering—
profitability is a critical driver

• Extremely competitive environment between management in
business units

A similar number of both positive and negative implications
will assist in an unbiased and objective evaluation

Competitor limitations by exposure to commercial market swings
Competitor likely to be less monolithic in market as assumed
Competitor may not execute on merger-based changes
Company perception that Competitor makes “irrational” moves to win market share is unlikely to be true
Competitor likely to have greater ability to make and execute big bets in a timely fashion
Competitive nature helps motivate managers to compete more aggressively in the market and cut costs within the
business unit

Sources: Competitor management presentations; interviews with former employees, customers, suppliers and executive recruiters
83

III. Evaluate
Competitive
Differences

Quantitative Differences Example
Example

 The size and nature of competitive differences is calculated as a percentage of the internal baseline
 Consider manufacturing yield that incorporates the effects of manufacturing process, product design,

and Integrated Product Development (IPD) Maturity
 Yield impacts Manufacturing Labor and Material Costs

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 If we know the following about two companies, (X) & (Y), where (Y) is the competitor

Company (X)

Company (Y)

First Pass Yield

50%

70%

Percentage of material that is scrap

6%

4%

Note – The pictorial representation on the next page tells us the advantage Y has over X in rework
cycles and in ultimate yield

84

III. Evaluate
Competitive
Differences

Yield Analysis – Pictorial Representation
Example
Company (X)
X

Manufacturing Process
50% yield
(First Cycle)

Company (Y)
Y
0.5X

70% yield
(First Cycle)

0.7Y

0.3Y
0.21Y

50% yield
(Rework Cycle 1)

70% yield
(Rework Cycle 1)

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50% yield
(Rework Cycle 2)

0.25X

0.125X

50% yield
(Rework Cycle 3)

With 50% first
pass yield,
only the
remaining
50% of the
initial product
goes through
rework at
each stage

50% yield
(Rework Cycle 2)

Cum Yield = (0.7+0.21+0.05)X = 0.96X = 96%
Number of rework cycles = 2
Scrap Material = 4%

0.0625X

Cum Yield = (0.5+0.25+0.125+0.0625)X = 0.94X = 94%
Number of rework cycles = 3
Scrap Material = 6%

Y has a 2% ultimate
yield advantage and 1
rework cycle advantage

 Given these advantages, refer to calculations on the following page
85

0.09Y

0.05Y

Yield Analysis – Sample Calculation

III. Evaluate
Competitive
Differences

Example

 The labor cost impacted is cost of manufacturing labor and manufacturing support labor as a percentage of total cost
 The material cost impacted is the cost of materials as a percentage of total cost

(1)

(1)

X Yield

50%

CYCLE COST IMPACT ANALYSIS

Y Yield

70%

Total cost of Original pass and 3 rework passes
for X

$50.3 Million

Cost Per First cycle

$12.6

Cost for 3 Rework cycle

$37.7

Total

$50.3

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X

Manufacturing
Passes

Y

Percent
finished

Manufacturing
Cycles

Percent
finished

Original Pass 1

50%

Original Pass 1

70%

Net X Labor Advantage/(Disadvantage)

Rework Pass 2

25%

Rework Pass 2

21%

X Disadvantage of $12.57M on $50.3M of labor

Rework Pass 3

13%

Rework Pass 3

5%

Rework Pass 4

6%

Total Yield

94%

-25.0%

SCRAP COST IMPACT ANALYSIS

Total Yield

96%

The difference in yield gives Y two advantages
1. One less rework cycles and
2. 2% less scrap
Each analysis is done separately to determine total impact to cost
baseline

Summary of Impact on Cost Baseline

Yield affects Direct Material in the amount of
scrap produced
X Disadvantage

CYCLE COST IMPACT

Percent X Advantage/ Disadvantage

SCRAP IMPACT

-25%

Total Percent Yield X Advantage/Disadvantage

23%

-2.0%

Total X Advantage/ (Disadvantage)

-2%

8%

Percent of Cost Baseline Impacted

1

($12.57)

-0.5%
-2.5%

Obtained from Internal Cost Structure for Company X
86

-2%

The cost baseline
impacted is taken from
the company’s cost
structure shown on the
next page
These
numbers drive
the summary
for Yield

III. Evaluate
Competitive
Differences

Cost Structure Baseline used to assess Quantitative Differences

Total Company Cost Structure ($ mil)

The labor baseline
impacted in the yield
calculation is the
Manufacturing
sum of these as
a % of total cost Labor Support 1

Non-Labor
Costs

Labor Costs
Engineering
Design

Overhead 3

Overhead

Support 2

Direct
Materials

Other4
(IT &
Allocation)

Total
Cost

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% of
Total
Cost

Development

--

--

60

45

10

35

10

--

160

32%

Manufacturing

20

20

--

--

5

25

100

--

170

34%

Prgm/Bus. Mgmt

--

10

--

5

10

5

--

--

30

6%

Supplier Mmgt

--

--

--

--

15

5

--

--

20

4%

Mktg/Bidding

--

--

5

--

15

10

--

--

30

6%

After Mkt Services

5

5

5

10

10

5

10

--

50

10%

Other

--

--

--

--

--

--

--

40

40

8%

Cost Profile
Totals:

25

35

70

60

65

85

115

40

500

% of Total Cost:

5%

7%

14%

12%

13%

17%

23%

8%

100.0%

Material impact in the yield calculation

87

In Summary, the competitor’s Manufacturing Yields are higher than the
company’s, leading to lower manufacturing labor and material attrition costs

III. Evaluate
Competitive
Differences

Manufacturing Yield Differences
Example
Labor
• X has a much lower first pass yield than Y
in production (50% vs. 70%) due to:
• Difficulty producing the product
• Less mature IPD practices (less
engineering/manufacturing interface)
• Design for performance vs. design
for manufacturing mindset
• High number of product variants with
relatively low volume

X Labor Cost
Advantage /
(Disadvantage)

(25%)
(24)%

Materials
X Material
Cost Advantage /
(Disadvantage)

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• Yield differences impact manufacturing
costs through
• Increased re-work cycles, and
therefore number of manufacturing
labor hours, to get to ultimate yield
• Additional material required to make
up for the loss in attrition

X

Percent of Cost
Affected

Estimated
Percentage of
Total Cost

X

8%
9%

Percent of Cost
Affected

23%
26%

(2.0%)
(2.2)%

Estimated
Percentage of
Total Cost

(0.5%)
(0.5)%

Total estimated percentage
of Total Cost

88

(2%)
(2)%

(2.5%)

Similar analyses can be done for other manufacturing and engineering cost
drivers to arrive at the overall cost advantage or disadvantage

III. Evaluate
Competitive
Differences

Example

Manufacturing

Areas of Significant Operational Differences

Yield

Estimated Cost
Advantage/
(Disadvantage)
(2.5%)

Supplier Management

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Manufacturing Occupancy Cost/Utilization

From previous page

Engineering

Salary/Wage Cost

Design Process Discipline
Engineering Tenure

Engineering Support Ratio

Engineering Occupancy Cost/Utilization
Overhead Function Labor
TOTAL

+/- x.x%

It is also critical to map out steps the company and the competitor can take to improve on
its cost drivers and factor these into the analysis
Notes: “Co-variances” across areas of difference have been backed out to avoid double-counting
89

Outline



Overview









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I.


II.


1.
2.
3.
4.
5.

Marketing

III.
IV.



90


I. Develop Internal
Cost Model and
Capabilities
Baseline






Costs
Major Processes
Product Portfolio
Suppliers/Partners
Customer Needs

IV. Assess
Competitor
Strategies

II. Conduct
Competitor Data
Collection and
Synthesis
 Competitor Data
− Inherent
− Structural
− Systemic

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III. Evaluate Size
and Nature of
Competitive
Differences

 Implications

Competitor
Strategies and
Key Implications



91

Assess Potential Competitor Strategies and Key Implications - Overview

IV. Assess
Competitor
Strategies

 Understanding the key differences between the baseline and the competitor is necessary to

determine the potential competitor strategies and key implications
 The goal is to create actionable steps for the organization based on the findings of the

competitive assessment
− There are three steps that need to be taken before action items can be developed:

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Step 1

Analyze and evaluate competitive differences (Section III)

Step 2

Assess potential competitor strategies based on findings

Step 3

Implications based on competitor differences

Step 4

Creation of potential
strategic options

92

IV. Assess
Competitor
Strategies

STEP 1 – Review analysis of competitive qualitative and quantitative
differences (Section III)

 Summarize and group findings of competitive differences among the five main analysis segments
 Key questions to ask:

− What is the range of potential differences between baseline and competitor?
− What specific areas does competitor have advantage / disadvantage?

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The following example illustrates the range of potential difference in competitive
advantage over the next 36 months:
25%
d%

Cost Structure
Differential
21.4%
%

20%
c%

Current
Difference

14.3%
x.x%

14.3%
x.x%

Difference if both
improve – most likely

10%
b%

8.6%
%
a%
5%
Difference if company
improves, competitor does not

1.5%
%

0%
Today

18 Months

93

Three years +

Range of Potential Difference

% Competitor Advantage
(High end of ranges)

Difference if competitor
improves, company does not

Example

Guide to competitive assessment

Guide to competitive assessment

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