Business Unit Strategy

1. Formulation of Business Unit Strategy in a turbulent environment 108 rue Damrémont 75018 Paris arestan@arestan.com Business Unit Strategy Examples and approach March 2003

2. What difference between Corporate Strategy and Business Unit Strategy? • Corporate Strategy addresses the development of a vision and a large portfolio of activities of a Group, whereas Business Unit Strategy is mainly concerned with the process of creating a plan for a unit to enable it to achieve the potential it has targeted in its market • Two critical aspects of the development of Business Unit (BU) Strategy are • Identification and communication to managers of the contribution the BU is making to the Group, and • The nature and the level of value created for the Group and for the unit through this ownership relationship. BU-Strategy(GB)

3. Special situations often introduce complexities which should be taken into account during the Business Unit Strategy development process • The unit does not possess all the critical means for its development • Financial and human resources • Key competences • The unit does not have a strategic autonomy in its activity scope or in certain segments of its market • Complex, often conflicting, relationships exist between the unit and other units of the Group in certain segments/markets • The unit does not belong to the parent company ’s future core portfolio, but nevertheless it has to develop while awaiting an evolution of its ownership BU-Strategy(GB)

4. The following example demonstrates how an external assisstance over a short period sparked the transformation of a unit in difficulty • The client • A transformation subsidiary of an industrial group • The subsidiary unit has • An industrial site in France • A subsidiary in the USA • A sales & marketing organization at the Headquarters in Paris • Supply agreements and sales force sharing arrangements with the parent company BU-Strategy(GB)

5. The General Manager was saying …. • In spite of an internal strategy exercise, we still do not understand our positioning • We know we have competitive handicaps in manufacturing and poor quality, and we are taking care of them, but • We do not understand how we can make any money in our target segments, even when we have upgraded our manufacturing facilities • Whereas, we think that our competitors do • It seems obvious to us that there are strategic links between us and our parent company, but every time we look deep into them, we cannot describe them coherently and quantitatively • We have to present our strategic plan to the Executive Committee soon, but we do not have the means nor the confidence to do it alone BU-Strategy(GB)

6. Key issues/objectives • To develop a strategy that clarifies the position and the organization of the Business Unit for a turnaround and profitable growth • To develop a strategic understanding of key success factors and cost structures for each of the segments in the portfolio • To clearly identify the segments where a Group approach is a strength, and adjust the relationships for the others • To share this vision with the Business Unit’s managers and the group’s executive committee BU-Strategy(GB)

7. A detailed and suported Strategic Plan in 9 weeks 6 weeks 2 weeks 1 week Strategic Diagnostics Strategic Orientations Finalization BU – Group relationships • Quantification of stakes • Relations with the Group • Implementation plan • Impact on the organization Competitive Analysis • Portfolio diagnostics • Identification of key questions Strategic Segmentation Target portfolio Evaluation of Intrinsic Profitability Of segments Target Organizational structure BU-Strategy(GB)

8. An iterative process resulting in appropriation, and removing last minute surprises Project Team Client + Consultants Member of the Executive Committee Steering Committee Frequency As needed 4 meetings: 2 Diagnostics 2 meetings: 1 Diagnostics 2 Orientations 1 Orientations Missions Outcome • Interviews with the personnel • Analysis and synthesis • Development of a market vision • Preparation of the steering committee meetings • Enrichment of the analyses • Modification/validation of conclusions • Review of the conclusions prior to presentation to the executive committee of the Group • Enrichment of the conclusions through an « executive » filter • A wide participation of the BU’s personnel within a controlled environment • Various syntheses marrying strategic understanding and quantitative analysis • Constructive discussions/ debates within the BU’s management committee • Conclusions shared by BU’s management committee • Pre-positioning of the topic with the Group’s executive committee BU-Strategy(GB)

9. At the end :A target portfolio clearly identified and positioned Portfolio Strategy • Within the Group’s sphere of decision to identify, negotiate, conclude and organize (with the BU’s assistance) a global strategic alliance • Reconfiguration of relations with the Group in raw material supplies and shared sales force • Reorganization of sales and marketing activities to align them with the target segments’ strategic logics • Definite and unequivocal stop of residual activities which were unlikely to develop Group Strategy BU strategic autonomy Portfolio before New vision of the portfolio Stop • Dispersed • Badly positioned • Badly organized • Understood • Mastered BU-Strategy(GB)

10. The client and the consultants combined their complementary strengths and competences to create this dynamics for change • Access to all the necessary competences • Project management • Knowledge and methodologies • Benchmarks • Facilitates rapid resolution of multi-disciplinary and multi-functional issues Client . . . Consultants . . . Focus Project appropriation Objectivity Detailed knowledge of the business Advantages Broad knowledge/ Benchmarks Access to the company’s Quantitative « memory » • Optimized solutions • Accelerated implementation • Sustainability in time • Of the performance • Of the mind-set change Experience in managing change programs Project continuity BU-Strategy(GB)

11. Appendix 1 A few methodologies in quantitative analysis

12. Competitive Analysis • Objective: To understand the company’s relative competitive position vis-à-vis its competitors in each segment • Portfolio Diagnostics • Attractivity/Strengths • SWOT • …... • Evaluation of the segment’s attractivity • Size, growth rate, • Intensity of the competition • Entry barriers • Risks / opportunities (substitution, new technologies) • Profitability Vision of the portfolio Identification of key questions • Identification of the company’s strengths • Relative position on key success factors • Relative position on key accounts/clients BU-Strategy(GB)

13. Analysis of the intrinsic profitability of segments • Objective: To understand the relative level of the profitability of the segments and the factors that impact our current performance • Design of the relevant economic model to succeed on the segment • Target Market Share • Target Marketing mix : offer, price, presence, promotion • Organization, headcount and costs for each stage in the value chain • Profitability: EBITDA/Sales • Evaluation of the gap between the current performance and the intrinsic level • Volume effect • Mix/price effect • Productivity effect • Non-quality effect • ….. Identification of key questions • Quantification of the company’s performance on each segment • Market share, Sales • Cost structure • Profitability: EBITDA/Sales BU-Strategy(GB)

14. Gap analysis • Objective: To identify what we need extra to capture growth opportunities in the segment • Identification of key growth factors for the segment • The most critical stages of the value chain to manage for success • The activities within the above mentioned stages that create the highest added value • Thereof, identification of key growth factors Evaluation of the level of accessibility of the opportunity for the company Identification of key questions • Evaluation with respect to the necessary levels • "Capabilities" : HR, competences, structure, process, technologies, IS, assets • Degree of difficulty to obtain them: financial, time, political, cultural BU-Strategy(GB)

15. Arestan Consulting Arestan Consulting works with executives and management teams on the development of their organizations’ future. Our collaborative approach is focused on the following expertise: Strategy Innovation Organizational Effectiveness • Create the environment to get the most from new ideas and intuition • Build balanced corporate structures and processes (rigor, flexibility, adaptability) to enhance a company ’s new ventures and intrapreneurship initiatives • Develop Strategic Business Designs and Models for new ventures • Develop Business Plans for new activities and innovative start-ups • Design structures and organizations for effective corporate governance • Build effective management processes (capital allocation, human resource management, budgeting, strategy and portfolio planning) • Design efficient and decision enabling reporting tools and processes • Improve the productivity and effectiveness of Sales, Marketing and Customer Service functions • Develop and implement successful outsourcing strategies • Create a dynamic business portfolio to deliver value through asset productivity • Develop and implement strategies to deliver profitable growth through leveraging the company ’s core competencies and assets • Transform the Business Planning exercise into a powerful business development and evaluation process • Enhance profits through innovative customer-focused value creating strategies • Develop innovative channel strategies • Develop and implement customer driven key account management strategies To obtain more further information on Arestan Consulting, you can contact us 108, rue Damrémont or Tel : +33 (0) 6 11 48 20 56 75018 Paris - France email: arestan@arestan.com BU-Strategy(GB)