GiseleGarrawaySusanCaraviello,PaulDiPaola,andToddSenturiabcBusinessDefinitionMarch1998Author:Contributors:ToddSenturiaReviewer:Copyright©1998Bain&Company,Inc.2CU7121997ECAbcBOSCopyright©1998Bain&Company,Inc.BusinessDefinitionAgenda•Thebusinessdefinitionconcept•Applications•Businessdefinitionsteps•Clientexamples–BunkerHillDoorSystems–JJRIndustrialCoatings•Keytakeaways3CU7121997ECAbcBOSCopyright©1998Bain&Company,Inc.BusinessDefinitionAgenda•Thebusinessdefinitionconcept•Applications•Businessdefinitionsteps•Clientexamples–BunkerHillDoorSystems–JJRIndustrialCoatings•Keytakeaways4CU7121997ECAbcBOSCopyright©1998Bain&Company,Inc.BusinessDefinitionWhatisBusinessDefinition?•Indicateswhethertwobusinesssegmentsshouldbeoperatedasonebusinessorasseparatebusinesses•Helpsidentifywhatdrivessuperiorprofitabilityinanindustry•ServesasthefoundationforstrategicanalysisandsounddecisionmakingBusinessdefinitiondelineatestheeconomicboundarieswithinwhichcompaniesshouldcompete.5CU7121997ECAbcBOSCopyright©1998Bain&Company,Inc.BusinessDefinitionOneBusinessvs.SeparateBusinesses•Samecustomers•Samecoststructure•Samecompetitors•Differentcustomers•Differentcoststructure•DifferentcompetitorsIftwobusinesssegmentshavethesamecustomers,thesamecoststructure,andthesamecompetitors,theyareonebusiness.Iftheyaredifferentonallofthesedimensions,theyareseparatebusinesses.OnebusinessSeparatebusinessesCompeteinbothsegmentstotakeadvantageofsynergiesDonotcompeteinbothsegments6CU7121997ECAbcBOSCopyright©1998Bain&Company,Inc.BusinessDefinitionWhyBainUsesBusinessDefinitionStrategicinsightsTacticalinsightswithstrategicimportance•Shouldwebuyorselltherestaurantbusiness?•ShouldweexpandintoChina?•ArewevulnerabletoJapanesecompetitors?•Shouldweverticallyintegrateintogrowingvegetables?•Shouldwedropthisproductline?•Shouldwecross-trainoursalesforce?•HowshouldwegrouppurchasesforVMRs(valuemanagedrelationships?•Howshouldweconfigureourmanufacturingplants?Thecorrectbusinessdefinitioncanleadtocase-crackinginsights.7CU7121997ECAbcBOSCopyright©1998Bain&Company,Inc.BusinessDefinitionConsequencesofIncorrectBusinessDefinitionCompaniesthatdefinetheirbusinessesincorrectlymakepoorstrategicdecisions.CostsCompetitors•Incurunnecessarycosts•Forgoopportunitiestocapturesynergies•Donottransferexperience•UnderinvestinimportantR&Dinitiatives•Overlookrelevantcompetitivethreats•Miscalculate“marketshare”•Setinappropriateperformancetargets•Overlookrelevantcapacitychanges•MisjudgetruecostpositionCustomers•Neglectprofitablecustomersegments•Over-investinunprofitablecustomers•Forgoopportunitiestocapturesynergies•Misjudgerelevantmarkettrends•Overlookrelevantgeographies8CU7121997ECAbcBOSCopyright©1998Bain&Company,Inc.ExamplesofIncorrectBusinessDefinitionBusinessDefinitionSomerespectedcompanieshavemissedprofitopportunitiesorsufferedunnecessarylossesbecausetheydidnotdefinetheirbusinessescorrectly.•AmericanExpress•Allegis•Saatchi&SaatchiChargecardsandcreditcardsareseparateChargecardsandcreditcardsareonebusiness-plasticmoneyChargecarddivisionlostmoneyduetopoorcostpositionandmisguidedmarketingeffortsAirlines,hotelsandrentalcarsareonebusiness-caringfortravelersworldwideAirlines,rentalcarsandhotelsarethreeseparatebusinessesThecombinationprovidedlittlevaluetocustomers:AllegiswassplitupAdvertisingandconsultingareonebusi...
