[PPT] - Managers through the Use of Competitive Intelligence TPMA January PowerPoint Presentation

SLIDE 1

Improving the Effectiveness of Product Managers through the Use of Competitive Intelligence

TPMA January 27th, 2009

David Gibson Senior Vice President Kaiser Associates, Inc. Toronto, Ontario

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2

Purpose

Introduce Several Aspects of CI
Recommend Keys to Success
Offer Suggestions on Maximizing CI’s Impact

Questions are welcome at any time Evening Overview

What is CI?
Product

Management Applications of CI

It’s Still Too

Expensive Introduction Examples Exercise Agenda

SLIDE 3

3

What is Competitive Intelligence?

Introduction

SLIDE 4

4

Competitive Intelligence

Introduction

Timely and fact based data and analysis on which management may rely in decision- making and strategy development

2 1 Timely

Fact Based

Data and Analysis Decision Making Strategy Development

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5

Competitive Analysis is the Process

f Determining How Competitors

Will Try to Beat Us

Strategy Development is the Process

f Figuring Out How to Beat the

Competitors

Introduction

Two Different Ways of Saying the Same Thing

External Frame of Reference Internal Frame of Reference

Competitive Analysis & Strategy Development are the same thing

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6

Types of External Analysis

The process of determining the profit potential of an industry / market The process of determining a competitor’s corporate and business unit strategies A process for rigorously measuring performance against “best-in-class” performance and using the analysis to meet and surpass the best-in-class The process of analyzing customer needs

Market / Industry Analysis Competitive Analysis Competitive Benchmarking Customer Analysis

Introduction 1 4 3 2

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7

What is CI?
It’s Still Too

Expensive Introduction Examples Exercise Conclusion

Final

Thoughts

Product

Management Applications

f CI

SLIDE 8

“It’s still too Expensive”: Situation

Upscale appliance maker Miele Canada is …assuming more control of the sale of its products at retailers - and dropping the controversial practice of allowing customers to haggle on pricing. Starting today [Sept. 22, 2008], Miele is taking on the added cost of processing all of its customer purchases at retailers carrying its goods. It is storing inventory, rather than having retailers do it, delivering merchandise to customers, sending its own repair people to customers' homes and answering customers' questions from an in-house call centre. In return, Miele thinks it can keep closer tabs on its customers, respond more quickly to their needs - and get to pitch more stoves and refrigerators to them. The company's goal is to double its estimated $100-million of annual sales in Canada over the next five years. The move reflects a growing frustration among suppliers as retailers gain more clout in deciding which products to trumpet prominently in their stores. Robert Caplan, general manager of Caplan’s Appliances in Toronto, has been testing the new Miele system over the past couple of months. He said only one customer so far - out of "a couple of hundred" - walked out because he couldn't negotiate the price on a Miele appliance…His margins are only between 6 to 12 per cent, and he often has to keep inventory for up to a year before it is sold. Miele, on the other hand, is investing heavily in its new program. Competing producers hire outside contractors to do servicing. Germany-based Miele, which has operated in Canada for two decades, is best known for its quiet dishwashers and vacuum cleaners. But over the past five years, it has added a full line of appliances to its mix here, expanding its styles to larger models rather than just the smaller European ones. Miele has also developed lines of more affordable products so it carries both luxury and less-pricey models.

Source: “Miele takes new tack in sales, servicing” by Marina Strauss, Globe & Mail – September, 22nd, 2008

Exercise

8

Situation

SLIDE 9

“It’s still too Expensive”: Situation

Now, Miele is ready to put a bigger push on its sales. Miele's research found that its customers are surfing the Web for information and are often more knowledgeable than retailers' sales people. By the end of the year, Miele plans to start teaming up with existing retailers to open separate Miele stores. It is

ffering five- and 10-year warranties, while rivals often offer just one- or two-year warranties, Mr. Heck said.

To spread the word, this week the appliance maker will launch a $2-million ad blitz - about five times larger than any single previous campaign - to signal the changes. It recently hired Lowe Roche, its first ad agency in nine years. It previously did its ads in-house. In this new model, retailers become authorized Miele Chartered Agents and leave the manufacturer to handle every aspect of the customer experience from the moment the appliance is purchased, all the way through the product’s long lifespan. “Being able to responsibly communicate and interact with customers directly is a brand’s greatest asset which we will now be able to do to solidify the Miele brand in Canada for both us and our Miele Chartered Agents,” explains Kelly Lam, Director of Marketing, Miele (Canada) Limited. To ensure a consistent brand experience, Miele-branded boutiques will be showcased across all retail agents in

Canada. In addition to product education, retailers will now inform consumers of the new MCA model and process

sales orders through the manufacturer’s Web-based system. From there, Miele will contact the customer within 24 hours to confirm the purchase, answer any questions, and arrange for delivery and installation.

Source: “Miele takes new tack in sales, servicing” by Marina Strauss, Globe & Mail – September, 22nd, 2008

Exercise

9

Situation

SLIDE 10

“It’s still too Expensive”: Situation

“We’re the only company in Canada with our own service department,” added Heck. Every appliance is delivered using Miele branded trucks and installed by a fully-Miele dedicated service team. In addition, the manufacturer has introduced a national Toronto-based contact centre equipped with bilingual agents who are available to answer and address any customer inquiries 7 days a week, from 9:00 a.m. to 12:00 a.m. Retail agents will also no longer burden the headaches associated with inventory and product supply since Miele has opened three new warehouses (Vancouver, Calgary and Montreal) and hired a team to support this new system. Long time Miele retail partner, Caplan’s Appliances is a great supporter of the new business model. As general manager Robert Caplan puts it: “This is an innovative program to match the innovation of Miele appliances.” For Caplan, the MCA system will allow his sales team to direct all their energy and resources on what they do best – educating customers on the benefits and features of Miele appliances. “The consumer will appreciate the consistency of their Miele purchase, as the manufacturer puts the same quality into their product as they do their delivery, installation and service.” “This provides the customer with consistency from store to store,” added Caplan. “In essence, this new system is truly going to continue to position Miele as an industry trailblazer and solidify its place in the market.” To promote the MCA launch in Canada, Miele is offering the biggest promotional campaign in the appliance industry, with the world’s first 10 year manufacturer’s warranty on Miele washing machines and 5 year manufacturer’s warranty on all Miele kitchen appliances including dish washers until December 31, 2008.

1Source: “Miele Canada Sets New Course in Retail Appliance Industry” – company press release – www.miele.ca – September, 22nd, 2008

Exercise

10

Situation

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“It’s still too Expensive”: Creating a Plan

Our assignment is to help Fred Mertz, President, Whirlpool Canada, develop a strategic plan for dealing with Miele Canada. Our plan should have the following elements:

Exercise

Scope Data Sources Timetable Resources Required

1 2 3 4 1 2

11

Development of Miele’s New Market Approach Miele’s Go-to-Market Activities Miele’s Corporate Organization Managing Miele’s Operations- Fulfillment Primary Secondary

Activity

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Using 3 tiers of research will develop a detailed picture of your competitors.

10% 20% 70%

Tier 3: Primary research based on customers, direct competitors or best -in-class organizations:

Primarily open-ended telephone interviews
Rely on dozens of sources
Current employees and ex-employees
All data cross-validated for accuracy
Provides detailed quantitative and qualitative ideas

Tier 1: Secondary research

Previous studies
Company publications
Government filings
Trade publications
National / Local press

Tier 2: Primary research based on non- competitive sources:

Industry Experts
Financial Analysts
Suppliers
Universities

Source Source Type

External Internal “Go out and talk to competitors, suppliers and customers to find out how an industry or a company really operates.”1

Source: “Economist wrote the book on investments” – an obituary of Philip Fisher – legendary value investor – by Stuart Lavietes – Globe & Mail – May 5th, 2004. The quote above is actually from Warren Buffet – excerpted from a 1987 Forbes magazine article – the full text of the quote is: “I sought out Phil Fisher after reading his Common Stocks and Uncommon Profits and Paths to Wealth Through Common Stocks in the early 1960s,” he wrote in a 1987 article in Forbes. “From him I learned the value of the ‘scuttlebutt’ approach: Go out and talk to competitors, suppliers and customers to find out how an industry or a company really operates.”

Exercise

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It is important to abide by a code of ethics when conducting Competitive Intelligence Activities

To continually strive to increase the recognition and respect of the profession
To comply with all applicable laws, domestic and international
To accurately disclose all relevant information including one’s identity and organization, prior to all interviews
To fully respect all requests for confidentiality of information
To avoid conflicts of interest in fulfilling one’s duties
To provide honest and realistic recommendations and conclusions in the execution of one’s duties
To promote this code of ethics within one’s company, with third-party contractors and within the entire profession
To faithfully adhere to and abide by one’s company policies, objectives and guidelines

Source: http://www.scip.org

Exercise

Code of Ethics: Society of Competitive Intelligence Professionals

Situation

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Applying the Code of Ethics in Practice

1Source: “Tribunal to decide case of industrial espionage” by Jeff Pappone – The Globe and Mail July 26, 2007

“The wife of McLaren's chief designer, Mike Coughlan, tried to digitize a confidential 780-page document outlining technical details of Ferrari's 2007 car at a copy shop near McLaren's British headquarters. A shop employee informed Ferrari of the suspicious activity.”1

Exercise

Somehow, Mr. Coughlan decided to work with a competitor’s confidential document. Assuming, he received the document from someone else, what should Mr. Coughlan have done when he realized what the document was?

Situation Challenge

Activity

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Solutions: “It’s still too Expensive”

Our assignment is to help Fred Mertz, President, Whirlpool Canada, develop a strategic plan for dealing with Miele Canada. Our plan should have the following elements:

Exercise

Scope Data Sources Timetable Resources Required

1 2 3 4 1 2

15

Development of Miele’s New Market Approach Miele’s Go-to-Market Activities Miele’s Corporate Organization Managing Miele’s Operations- Fulfillment Primary Secondary

Activity

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Analysis of the new market approach of Miele

Project Title: Miele Canada New Market Approach

Client: Fred Mertz, President, Whirlpool Canada Description: Miele Canada [Miele] is altering its go-to-market approach – single price, assuming inventory and home delivery and repair – Senior Management needs to understand the competitive threat and prepare responses Objective: (what do we want from this project?)

1. Develop a deep understanding of Miele and their intentions in the Canadian market; 2. Develop competitive responses appropriate to

the nature and timing of the competitor’s expanded marketing strategies Scope: (What kinds of C.I. do we need to do?)

1. Corporate-level competitive analysis of Miele; 2. Market analysis: (i) Canada and, (ii) other past Miele marketing strategies; 3. Business-unit-level competitive analysis

Methodology: Several rounds of research and analysis

Internal Research:

1. Marketing Department
2. Logistics Department
3. Dealer Relations

Secondary Research:

1. Miele Filings
2. Lexis-Nexis
3. Trade journals

Primary Research:

1. Dealers
2. Logistics suppliers
3. Appliance consultants

Value to Client: (What strategic decisions can be made by whom?) Sr. mgt. can direct resources to counter the identified threats from Miele. Timing: Start Date: Sept. 23rd, 2008

Milestones: 1. Oct. 15th – Development of Miele’s new market approach 2. Oct. 30th – Miele’s Corporate Organization 3. Nov. 15th – Miele’s Operations 4. Nov. 30th – Miele’s Go-to-Market Activities Final Delivery Date: Dec. 15th

Resources: $: _________ Project Team Leader: ______________ Project Team Members: --------------, -----------------, -----------, --------------- Associated Issues: Results of this analysis will directly impact 2009 product launches 16

Exercise

Activity

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17

What is CI?
It’s Still Too

Expensive Introduction Examples Exercise Conclusion

Final

Thoughts

Product

Management Applications

f CI

SLIDE 18

Product Management Applications of CI

18

PM Applications

f CI

CI can be used to address many aspects of Product Management

Marketing Budget Application
Supply Chain Analysis
“Winning in Store”
Quantifying the Economic Impact
f Supply Chain Improvements
Pricing
Growth Market Analysis

Example 1 Example 2 Example 3 Example 4 Example 5 Example 6

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Marketing Budget Applications Used by Competitors

Approaches to Marketing Budget Allocation

Needs consolidated and

agreed at PG level

Silo organisation creates

fiefdom at PG level

Budget authority resides at

sub-PG level

– However, recently shifted to PG

US + Competitor 6

PG1

Bottom up Legacy Model

Sub-PG1 Sub-PG2 BS1 BS2

Principle is to allocate

decision authority where ‘knowledge’ resides

Fairly decentralised model

Competitor 5

Allocation depends

n type of budget

Specialist Model

ATL BTL

Top-down
Decision

with regional team

Bottom-up
Joint

decision region/ country

Prescriptive Approach Collaborative Approach Competitor 4

PG Sub-PGs CSs PG Region Country

Decisions taken at

Group/PG level, communicated down

Portfolio approach

to investment

Rigorous bidding

process (bottom up)

Top down allocation

based on profit

Cross-functional

input

Note: BS stands for Business Segment, CS for Customer Segment, Sub-PG for Sub-Product Group and PG for Product Group

Competitors 1, 2 & 3 Example 1

PM Applications

f CI

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Supply Chain Analysis: Benchmarking Competitor Costs and Activities

Cost Gap Analysis

Example 2

PM Applications

f CI
Identified competitor’s raw material types and sources, scope of operations and

resources used

Used top-down and bottom-up approach to specify cost structure of major

participants in the category Approach

~$33

Plastic 24

Analysis of Cost Variance - Competitors A & B

A uses

thinner gauge film

Supplier

choice (internal analysis)

Other Packaging and Variance Indirect Labor

Conversion waste, conversion overhead, direct labor and Lite oil costs are the largest components of B and A’s Lite blocks cost variance

Quantitative Benchmarking B Product 1 Cost per tons A Product 1 Cost per tons 5000 5500 6000 6300 7000 7500 $6300 Waste

~$228 ~$402

Overhead N/a

~$75

Direct Labor $7458

Competitor B has higher cost Competitor B has lower cost

Sources: Kaiser primary and secondary research. B’ total product 1 COGS/tons derived from plant Y cost breakdown; cost variances data based on independent audit calculations and purchase prices/tons

$1158/tons

8000

Cost per tons ($)

Continuous

Product making process

Waste

reduction efforts across process

Lower

Indirect Labor per line

Flexible labor

force

Lower

manning levels in continuous Product making and packaging

Lower hourly

salaries

~$5

Sleeve Foil

~$60 ~$295 ~$1

Artificial Flavors

~$41

Other Ingredients and Variance**

Price per

sleeve is identical

B has

slightly more sleeves per tons than A

A has

advantages from price negotiation s

A pays 50%

less B price for corrugated board

B is

advantaged in aspartame

A is

advantaged in E1143

Large volume

purchases for wider food business

~$224

Lite Oils

A may

have some advantag es from in-house flavor developm ent and blending

~$210

Dextrose

A pays

almost 50% higher price than B

Conversion Raw Materials

6500 Conversion Variance ~$6 A holds advantage in WIP and running costs

A’s advantages lie in eliminating the conditioning step for premium products and proprietary cubes packaging

Product Conditioning Rolling and Scoring Coating (and Polishing) Packaging

Key bottleneck of Product

manufacturing

Proprietary packaging machines:

cubes runs at 1300-1500 cubes/min; blocks at 400 sleeves/min in Long Beach and 300-350 sleeves/min in Portland

1 operator per cubes machine
1 operator per blister machine in

Long Beach, 3 in Portland

Slabs 2000/min
Cubes run rate 800-900

Cubes/min; blocks at 300-350 sleeves/min

1 operator per cubes machine
1.5 operators per blister machine
Key bottleneck of Product

manufacturing

A primarily uses 2-tons Klass

coating machines: 4 Klass, 1- 2 VAR

4 to 6 hours of coating and

polishing

Manning levels: 1 operator

per machine

4 to 6 hours for coating and

polishing, batch process

1 Klass, 5 VAR
Manning levels: 1 operator

per machine

Conditioning time varies

between Premium vs. Lite

A has eliminated this

process step for Premium Product

Premium: 0 hrs
Lite: 8 - 24hrs
Proprietary machine called

Cold-Scoring Machine conditions Premium Products at this stage

Currently developing similar

machine for Lite Product

8000 pounds per hour

Key Performance Driver(s):

Line speed

Key Performance Driver(s):

Time per technology

Key Performance Driver(s):

Machinery performance

Key Performance Driver(s):

Line speed
Technology: cubes/slab vs. blocks
SKU complexity

Process Comparison

8 to 24 hours across

Premium and Lite (can be up to 72 hours)

Sources: Kaiser primary and secondary research * Based on relative proportion of faster Klass versus the slower VAR

A has a minor advantage in advanced coating machinery* A is advantaged in cubes and blocks, B in slab

A B

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Supply Chain Analysis: Determining Cost Drivers

Example 2

PM Applications

f CI
Model behaviors of major cost components
Using cost curves, to identify cost ‘drivers’

– I.e., Major costs that changed dramatically, e.g., in response to volume, throughput and technology

Driver Analysis

Approach

20

Kaiser’s approach uses comparison with competitor data to enable insight into economic behavior of key cost categories

Cost Structure, %

75% 90% 70% 100% 60%

Image Sales Manufacturing 2 Logistics Image Sales Manufacturing 1

100 100

Economic Behavior (slope) Differential Cost Structure, %

Nice to Know How to Win

Manufacturing 1

Cost Drivers

(Could Also be Premium* Drivers)

Differential Cost Structure Illustration

Unit Cost Purchase Volume * See note on slide 5 Line Speed #SKUs Unit Cost Unit Cost Hi Lo

25

100 1000 10000 1000 10000

y = -74.3ln(x) + 2286 1000 10000 100 1000 10000

Sorbitol is currently a seller’s market due to current tight

market conditions

B buys Dextrose at $1,164 from STP Carbons
Based on B internal estimates, B could lower its Dextrose

procurement cost by 10%-15% through purchase volume increases (consolidation)

Sources: Primary Research. Cost Curve Data: Multiple interviews with suppliers y=--85.879Ln(X)+1721.6 $1,164 $989

Dextrose Cost/tons

B buys PVC at $1,969 from a single supplier in the US
Internally, it is estimated that a price reduction of 10%-15% is

achievable with a new supplier if there are significant volume increases

A buys PVC at ~$1200, 40% lower than B

– A’s low cost can be attributed to favorable supplier contracts PVC Pack Cost/tons

$1,969 $1,674

Cost Behavior Explanation

Procurement offers limited tactical savings derived, for example, from volume consolidation and negotiating more favorable contract terms

Theoretical Maximum Volume Theoretical Maximum Volume Cost Behaviors +100% V

15% $

+100% V

15% $

Price/tons ($) Price/tons ($) B B

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Supply Chain Analysis: Using Competitive Benchmarks to Win in the Cost Game

Example 2

PM Applications

f CI
Opportunity to substantially lower costs through the deployment of alternative

production technologies, reduction in the number of manufacturing steps and lower raw material costs

3304 3250 1443 1050 2711 2200 1000 2000 3000 4000 5000 6000 7000 8000

B A*

Conversion Packaging Ingredients 22

Cost per tons ($)

Comparison of B & A Lite blocks Cost Breakdown (Top-Down and Bottom-Up Calculations) A’s cost advantages in Lite blocks are driven by packaging and conversion

* Volume and COGS calculations based on 2003 CCM data, plant level primary research, Kaiser analysis Sources: B Data: From “MCC Cost” spreadsheet. A Data: CCM data, Kaiser primary research and modeling

B produces Lite blocks at a higher cost than A

Quantitative Benchmarking

Cost Gap Explanations:

Continuous manufacturing process
Efficiency in coating process
Lower manning levels
Lower waste levels
Packaging to content volume ratio
Foil thickness
In-house printing capabilities
Blister pack procurement
Corrugated board procurement

Total COGS: $7458 Total COGS: ~$6300-$6650

B Lite blocks Volume: 9.5 kT (2004

Standards)

A Lite blocks Volume*: 5.9 kT (2003

Estimates)

23

Cost Gap Explanations:

Continuous manufacturing process
Productivity levels
Scale
Lower manning levels
Lower waste levels
Utilization rate
Packaging line efficiencies
In-house printing capabilities
Standardized packaging

Cost per tons ($) * Volume and COGS calculations based on CCM data, plant level primary research, Kaiser analysis Sources: B Data: From “Rockford MCC Cost” spreadsheet. A Data: CCM data, Kaiser primary research and modeling Quantitative Benchmarking

Comparison of B & A Premium Cubes Cost Breakdown (Top-Down Calculation)

B is significantly disadvantaged in premium cubes conversion cost

A’s cost advantages are mainly driven by its large scale and experience in cubes production

Total COGS: $8021 Total COGS: ~$3900

B B’ Premium cubes Volume: 0.5 kT

(2004 Standards)

A Premium cubes Volume: 40 kT (2003

Estimates)

Results

Key Takeaway

SLIDE 23

23

Developing a better value proposition to “Winning in Store”

Example 3

PM Applications

f CI

Market assessment of key channels across major geographies to understand what key activities are performed at retail level and who the key decision makers are Identify BIC Performance Levels

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24

Identifying Opportunities to “Win in Store”

PM Applications

f CI

Determine coverage strategy, service levels and related cost used by best-in- class companies across geographies Gap Analysis

Example 3

Sales cost as a % of NOS – Category A

0.39% 0.36% 0.29% 0.11% 0.06% 0.25% 0.06% 0.07% 0.03% 0.51% 0.02% 0.04% 0.92% 0.59% 1.24% 0.34% 1.70% 2.30% 1.79% 0.37%

0% 1% 2% 3% 4% Competitor A Competitor B Client- Category A Client Total HQ Coverage Regional Coverage Retail Coverage Merchandising Coverage Multi-functional FTEs %NOS

Coverage FTEs by category

Observations & Conclusions

Client is out-covered by both competitors in nearly all areas within Skin Care

– High FTE allocation may also be contributing to Competitors’ substantial growth in the category

Conversely, in Hair Care the opposite situation exists: Client out-covers Competitor A and has experienced substantial

growth in the category

Client is out-covered by Competitor B in Hair Color where Competitor B has achieved high revenue growth

81 47 3 7 86 68 4 25 25 50 75 100 HQ Regional Retail Merchandisers

# FTE Client Competitor A Competitor B

Hair Care

78 21 29 20 30 18 2 12 25 50 75 100

HQ Regional Retail Merchandisers

# FTE

Hair Color

46 12 17 14 80 47 3 7 19 15 1 9 25 50 75 100

HQ Regional Retail Merchandisers

# FTE

Skin Care

2000 HC FTEs
Client: 183
Competitor A: 138
2000 Hair Color FTEs
Client: 62
Competitor B: 148
2000 SC FTEs
Client: 44
Competitor A: 137
Competitor B: 89

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25

“Winning in Store” by understanding the trade-offs between trade/retail spending vs. business profitability in order to

ptimize retail spending

Example 3

PM Applications

f CI
Develop action plan to highlight critical path including sequencing of key steps
Understand what is required to be competitive in retail by category, channel and geography
Identification of best-in-class metrics to be used

Key Takeaways

SLIDE 26

Competitive analysis determined how to transform the highest cost packaged goods operator to the lowest

Conversion Network supply

Driver : SAP

Current cost base Transformed cost base Procurement

Driver : Packaging Driver: Capacity realignment Driver: Process Improvement Driver: ERP / CRM System Driver: FrAPEght Consolidation Driver: Inventory Management

£23.6M £ 24.6M £59.3M £13.9M £ 53.3M £23.2M £25.4M

Driver : Labeling Automation

£ 57.2M

Driver: Scale

£ 56.3M

Driver: Scale

< £48.2M

Driver: Scale

£46.3M

£663.1M

Notes

1. Typically assumes that only 50% upside from initiatives is achieved

26

Example 4

PM Applications

f CI

SLIDE 27

Pricing mechanisms employed in Russia

Customized Quote based on % of Product Price
Custom quotes in Russia involve multiple price / cost

components:

– Generic “base” price based on cost estimates including % of product price – Provisions for overtime, travel, personnel in region, season, etc. – Provisions for Russian market “inefficiencies” – Municipal, fire, and sanitation codes – Unpredictable fees, bribes, and licenses due to strong in-house capabilities

Customized quotes allow price disaggregation on project-

by-project basis

– Due to strong in-house capabilities, Russian-market RFPs

ften require prices broken out by service type
Customized Quote based on Per Unit Price
Customer 4 alternatively calculates the base price

according to a fixed price per unit

% of Product Price
Often bundling service with product sales,

Competitor 5 can undercut competing service bids by charging a “very low percent of product price”

Increasing Frequency of Use

Gives vendors control at front-end of project to

hit target margins

Gives customers an up-front, easily-digestible

cost estimate – “Carriers have a very primitive concept of their budgets” – Network Engineer, Competitor 1 Custom Quote: % of Product

Most-frequently used for discrete tasks such as

base station installations

Allows more standardization by reducing

variation in technology and service requirements – “This pricing mechanism gives us a certain degree of flexibility” – Chief Services Engineer, Customer 2 Custom Quote: Fixed Price per Unit

Services are severely under-priced when

bundled with product sale – “More and more we are trying to decouple the product and service fees...the prices we have paid for service really depend on how you structure the deal” – Head of Project Management Office, Customer 3 Percent of Product Price

27 Example 5

PM Applications

f CI

SLIDE 28

Market-Sizing Methodology

Installed base and market size models were built bottom-up from research inputs

28

Average Annual Net New Nodes per Customer Number of Customers in Segment Segment Size Vertical Size Regional Market Size Worldwide Market Size Growth Trends of Top500 by Vertical Sum of Top500 Clusters not in survey Outlier Purchases by Vertical Top500 Growth by Vertical Survey Data Secondary Research Sales/Customer Data Top500 Data Calculation Sum Multiplication

Key

Primary Research Primary Research (where needed) Primary Research (where needed) Average annual net cluster increase and average installed base calculated per segment per region for data sets with >20 respondents Number of customers in segment arrived at through secondary sources (e.g. Hoovers) and interviews with industry experts Kaiser conducted interviews with CC admins/managers, industry experts, and CC experts in segments and verticals where survey responses were weak Obtained data such as average, low-end and high-end cluster sizes, number of clusters per org, number of orgs per segment, growth rates, etc. List of Top500 organizations was compared against list of survey respondents, and those not represented in the survey were added to installed base model Kaiser analyzed historical Top500 trends, going back 4 years in 6- month increments, to arrive at growth rates by vertical, and applied these growth rates to the supplemented Top500 installed base

Example 6

PM Applications

f CI

SLIDE 29

Driven by primary research, growth opportunities were developed and qualified for implementation

29

Situation Approach Outcomes

The client needed to understand where and how to target new software for the Cluster Computing (CC)

market

Previous efforts were based on OEM (supply-side) data which yielded inconsistent market size and

growth estimates

Secondary data could not provide sufficient insight into individual “Commercial” verticals
Primary CC customer research (demand-side) to understand CC users’ needs, capabilities, pain points, and

future direction : – Segmentation included U.S., Canada, Europe, Asia-Pacific, ROW; more than 8 verticals; Managers, Administrators, Developers and combinations; Commercial, Open Source and in-house applications; Linux, Windows and Unix; programming models; cluster size {# of nodes)

Determined pain points and required functionality – i.e. power cooling, hardware failures, finding qualified

personnel; and the functionalities [prioritized] that should be developed

The richness of the responses allowed analysis of core and “adjacent” CC to gauge the pace and direction of

innovation

More accurate sales targets, feature focusing and prioritization of specific verticals, i.e. Government,

Financial, Academic and Life Sciences

Direct product planning for immediate and future CC Software upgrades i.e. Engineering [what to build],

Marketing [where to target awareness] and Alliances [where to target partnerships], Example 6

PM Applications

f CI

SLIDE 30

Product

Management Applications

f CI

30

What is CI?
It’s Still Too

Expensive Introduction Exercise Examples Conclusion

Final Thoughts

SLIDE 31

To understand competitors’ approach to the market and assist the client in

defending itself from specific competitive threats posed

– To gain a detailed understanding of key competitors’ plan for this market space – To understand the types and levels of investments that key competitors plan in order to participate – To understand how key competitors intend to develop their future go-to-market strategies and service capabilities

A three phased approach was used throughout the course of this engagement

– Phase 1 – Kick-Off and Hypothesis Development – Phase 2 – Competitor Analysis – Phase 3 – Conclusions and Recommendations

To achieve the stated objectives, the organization conducted an external analysis
f seven primary competitors based in Canada, U.S.A., England and Germany

31

Extensive external analysis determined the competitive landscape for a specific suite of services 24 months from now

Objectives Scope

Conclusion

Case Study

SLIDE 32

32

The external analysis yielded 5 key findings

1. Competitors will invest in this market

Hypotheses

2. Competitors will invest in these services as a defensive move/loss leader to maintain or protect existing service business lines 3. Competitors do not view this services offering as an attractive stand-alone business because of low margins and some liability 4. Competitors will invest in these services to act as “Trojan Horse” to gain new full service clients from incumbents 5. Competitors will use these services as a way to define

utsourcing to include all data / communication, staffing

and/or systems needs of their clients

Key Findings

1. All seven competitors are investing in these services, have already dedicated significant resources, and intend to deploy their new services offering by 2003 2. Competitor F is the only competitor that perceives a concentrator service to be nothing more than a new requirement for global market participants 5. Competitors A, B, C, D, E and F will use these services to define

utsourcing in ways that are advantageous to them (e.g. An ASP

model vs. a full lift-out model) 4. Competitor A will not offer a stand-alone service offering, but will attempt to gain all new services business from its existing clients in order to displace incumbents 3. As the only two competitors that will provide a stand-alone service offering, Competitor C believes its data management competencies present an opportunity, while Competitor G will primarily use its stand-alone service offering to build its

utsourcing capabilities

Conclusion

Case Study

SLIDE 33

Weak Preference No

33

Competitors’ strategies represent a significant threat to the client’s existing lines of service business

Competitor

Hypothesis #1 Investment in Service Line Hypothesis #2 Service Line Attractive as Stand-Alone Hypothesis #3 Catalyst to Increase Existing Business Hypothesis #4 Define as Component of Outsourcing Hypothesis #5 Defensive Strategy Only

Comments Competitor A

Will likely use these services to

spawn new relationships

Competitor B

Investment in these services will

help define outsourcing services focused on data enhancement / communication

Competitor C

Believes it is strong now and will use

these services to boost its US

utsourcing business

Competitor D

Competitor D is promoting this

service line as a method to penetrate new outsourcing markets

Competitor E

Is strong in outsourcing and will use

these services to define outsourcing in an ASP model

Competitor F

Investment in these services only as

defensive move to retain existing lines of business

Competitor G

Will bundle this service line with

various back office outsourcing services Indifferent Yes Strong Preference

Conclusion

Case Study

SLIDE 34

34

All seven competitors have already dedicated significant resources to this service line and expect deployment by 2003

Competitor Outsourcing Focus Comments Competitor A

Initial investment occurred in late 1999; new services committee created in May 2001
An estimated 20-25 FTE’s dedicated to the development of this new product line
Competitor A estimates an investment of $20 – 30 million to date related to these initiatives
Anticipated critical mass go-live date is mid to late 2003

Competitor B

Initial service investment occurred in early 2000 and spun-off specific division in February 2001
Specific division consists of ~50 FTE’s dedicated to developing new service offerings
The new service offerings are among the top three investments at the parent firm currently
Anticipated critical mass go-live date is mid 2003

Competitor C

Initial investment occurred in 1995 and focused on streamlining internal business operations
Dedicated initiatives currently make up 65% of all internal technical work
Dedicates 70 FTE’s to the development of this new service offering
Critical mass go-live date is slated for 4th quarter 2002 or early 2003

Competitor D

Competitor D was a founding member of the industry association - initial investment in 1999
This new service investment is among the top two initiatives receiving funding
A team of 20 FTE’s is dedicated to launching the new initiative globally
Anticipated critical mass go-live date is mid to late 2003

Competitor E

Competitor E invested in the industry association and provided initial funding
Specific division solely responsible for these service initiatives
The division is supported by an additional team of ~ 20 FTE’s at the parent
Anticipated critical mass go-live date is mid or late 2003

Competitor F

Competitor F invested in the industry association in 2000
The new service initiative is support by 2 FTE’s
Estimates indicate 20 additional staff support the effort in an ad-hoc role
Anticipated critical mass go-live date is late 2004 or early 2005

Competitor G

Initial investment occurred in 1999, but the initiative lacked a clear focus until late 2000
Dedicated 7 Product Development FTE’s to the new service initiative with ~15-20 staff providing a support

role

Anticipated critical mass go-live date is mid 2003

No Weak Preference Indifferent Yes Strong Preference

Conclusion

Case Study

SLIDE 35

35

Competitor Extent of Threat Overall Concentrator Strategy Explanation Competitor D

Target new customer base and
ffer any level of service

desired

Competitor D’s flexible strategy leaves it well

positioned to succeed in the evolving market

Competitor B

Data / communications

component-based outsourcing

Has already established customers for its new offering

and will continue to gain momentum from ASP- focused clients

Competitor E

Build upon outsourcing

capabilities and offer a variety

f service levels
Established position will likely lead to continued

success in the evolving market

Competitor A

Develop new opportunities

and boost outsourcing business

Will remain focused on current services, but
utsourcing continues to be hindered by recovery

efforts

Competitor G

Bundle product with a full

range of current outsourcing services

Is strategically focused and could become a significant

threat given a stronger presence outside of Canada

Competitor C

Leverage data processing

strengths and increase

utsourcing business
Immature outsourcing business will prevent it from

realizing opportunities in the near-term

Competitor F

Provide services to existing

clients to protect current business

Conservative outsourcing strategy will place them

behind the competition in the global market

Consequently, competitors can be ranked by the level of competitive threat posed to the current business

Moderate Weak Strong

Conclusion

Case Study

SLIDE 36

Explaining Failure in 8 cases of U.S. Government Intelligence Experience

Collection Analysis

Key Inform. Missing

Inform. Not

Shared Poor Require- ments Denial and Deception Poor Imaginat’n Signal – to–Noise Ratio Faulty Assump- tions Inform. Misinter- preted Incorrect. Impact or Denial

Pearl Harbour

X X X X

Cuban Missiles

X X X X

Yom Kippur

X X X X X

Iran Revol’n

X X

Soviet BW

X X X X

India Nuclear

X X X X X

Sept. 11th

X X X X X X X

Iraq WMD

X X X X X

Adapted from: “Analysis and Process: Lessons from U.S. Government Intelligence Experience” – A workshop presented at SCIP’s 20th Annual International Conference and Exhibition, April 6-9th, 2005 by James B. Bruce – Director, Capabilities Assessment, Senior Intelligence Service Officer, WMD Commission. Jim has recently served in the National Intelligence Council as Vice Chairman, DCI Foreign Denial and Deception Committee, and as Deputy National Intelligence Officer for Science and Technology. During his 22 years at the CIA, Jim drafted and managed national intelligence estimates and has held senior analytical and management positions in the CIA's Intelligence and Operations Directorates.

Conclusion

SLIDE 37

37

Boeing sees more demand for small and midsize jetliners, while Airbus is more bullish on very large

models. Forecast demand of new jetliners: 2006-2025, by volume1

1Source: “Airbus, Boeing Forecast Clear Skies” by Daniel Michaels, November 24th, 2006 Wall Street Journal

5000 10000 15000 20000 25000 Single Aisle Twin Aisle Very Large Total Airbus Boeing

Note – very large: Boeing 990 vs. Airbus 1,665

Conclusion

World Aircraft Market- Airbus vs. Boeing

SLIDE 38

38

Competitive Analysis is the Process

f Determining How Competitors

Will Try to Beat Us

Strategy Development is the Process

f Figuring Out How to Beat the

Competitors

Two Different Ways of Saying the Same Thing

External Frame of Reference Internal Frame of Reference

Competitive Analysis & Strategy Development are the same thing

Conclusion

SLIDE 39

39

“Five Simple Questions Brought Strategic Thinking to Life for Me”

Source: “jack: Straight from the Gut” - by Jack Welch with John A. Byrne. 2001. Warner Business Books. New York, NY.

Conclusion What is the detailed global position of your business and that of your competitors: market shares, strengths by product line, and by region today? What are you going to do in the next two years to leapfrog any of their moves?” What are you most afraid your competitors might do in the next two years to change the landscape? What have you done in the last two years to alter that landscape? What actions have your competitors taken in the past two years that have changed the competitive landscape?

Strategic Thinking

1 4 3 2 5

SLIDE 40

Contact Information

David Gibson

Senior Vice President 16 Maxwell Avenue Toronto, Canada M5P 2B5 Tel: 416.932.9923 Fax: 416.923.9924 e-mail: dgibson@kaiserassociates.com www.kaiserassociates.com