October 27, 2010
The Upside
The 7 Strategies for Turning Big Threats Into
Growth Breakthroughs
Adrian Slywotzky
C O N F I D E N T I A L | www.oliverwyman.com
$ BB
$ BB
Value Migration®
US Steel
Nucor
Sears
Wal-Mart
Compaq
Dell
Motorola
Nokia
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No profit zone: Airline industry example
Industry Net Profit 1971-2008
8
6
Net Profit (1995 $BB)
4
2
0
-2
-4
-6
-8
-10
-12
'71
'73
'75
'77
'79
'81
'83
'85
'87
'89
'91
'93
'95
'97
'99
'01
'03
'05
'07
Source: Air Transport Association of America.
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Evolving no profit zones
 Airlines
 Beverage in Grocery
 Consumer Electronics
 Films
 PCs
 Agriculture
 Homeowner’s Insurance
 Environmental Remediation
 Cars
 Lots of Manufacturing
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Customer priorities trajectory
2013
Customer Priorities
2010
1.
2.
3.
Customer Priorities
2005
1.
2.
3.
Customer Priorities
1.
2.
3.
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Coca-Cola: Multiple customer thinking
Bottler
Type 1
Type 2
Type 3
Grocer
Fountain
Vending
Consumer
Local
franchise
Convenience Convenience Hotel chains
store
store
Taste
Regional
Local grocer
Restaurants
Price
Large,
sophisticated,
businessdriven
Large
regional
chains
National
chains
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Office
buildings
Local
Availability
organizations
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Supplier Power Index
Product
Customers
Suppliers/
Customers
Unique
Highly fragmented
90/10
Strongly
differentiated
Fragmented
70/30
Differentiated
Moderately concentrated
50/50
Weakly
differentiated
Concentrated
30/70
Pure commodity
Highly concentrated
10/90
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Automotive – 1970s
15%
Profitability
GM
10%
Ford
5%
Chrysler
0%
0%
10%
20%
30%
40%
50%
Market Share
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Automotive – 1990
Profitability
15%
10%
Chrysler
5%
Ford
GM
0%
0%
10%
20%
30%
40%
Market Share
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Automotive – 2002
Profitability
15%
10%
5%
GM
Chrysler
Ford
0%
0%
10%
20%
30%
Market Share
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Automotive – 2008
15%
10%
Profitability
5%
0%
-5%
Ford
-10%
-15%
GM
-20%
Chrysler
-25%
0%
10%
20%
30%
Market Share
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No-Profit Zones
 Cars
 Consumer electronics
 Music
 Newspapers
 Grocery
 Telco networks
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My business design
Today
Next
Customer Selection
Unique Value Proposition
Profit Model
Strategic Control
Scope
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Business Design Example: Airline Industry
Within a particular industry, companies may pursue very different
Business Designs
United
• International & domestic;
coach, business and firstclass travelers
• Broad network & loyalty
program
Southwest
• Domestic travelers;
coach only
• Low-cost, no-frills w/
highly consistent
customer service
Value Capture/
Profit Model
• Tiered fares based on
class, flexibility
• Ancillary revenues
• Every-day low prices
• High asset utilization
Scope
• Global hub-and-spoke
route system
• US-only point-to-point
route system
Strategic Control
• Controlled-access airports • Lowest costs
in key geos
• High frequency route
• Loyal frequent fliers
coverage
Organizational
Systems
• Sophisticated IT
• International Sales &
Regulatory capability
• Cultural emphasis on
Southwest way
Revenue
• $16BB
• $10BB
Market Cap
• $4.7BB
• $10BB
Customer Selection &
Value Proposition
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Southwest Next?
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Industry Risk
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Compete/collaborate: Timing
Collaboration
should begin
Industry
profit
margin
Collaboration
begins
Change the compete/collaborate ratio
soon enough to make a difference
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Compete/collaborate: Ratio
© Oliver Wyman  www.oliverwyman.com
Compete
Collaborate
100
0
90
10
80
20
70
30
60
40
50
50
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Compete/collaborate
Too late?
Still in play?
 Textiles
 Utilities
 Apparel
 Cars
 Steel
 Chemicals
 DRAMs
 Hollywood
 Consumer
electronics
 Pharma
 Music
 Aerospace
 Computing
 Airlines?
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Current Economic Situation –
A Short Recap
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The Bermuda Triangle
Debt
Savings
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Income
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Total HH debt to total HH income
165%
170%
160%
150%
140%
130%
113%
120%
110%
100%
90%
70%
80%
70%
60%
50%
1977
1979
1981
1983
1985
1987
1989
1991 1993
1995
1997
1999
2001
Total HH debt includes: Mortgage debt, home equity debt, non-revolving consumer credit and revolving consumer credit.
Source: Federal Reserve Board.
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2003
2005
2007
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Personal savings as a percent of disposable personal income
12%
10%
Percentage
8%
6%
4%
2%
0%
1980
1985
1990
1995
2000
2005
Source: Bureau of Economic Analysis
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Of the roughly 130 million jobs in the U.S., only 20 percent pay
more than $60K a year, while the remaining 80 percent average
$33K.
>$60,000 a year
20%
80%
$33,000 a year
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Average U.S. unemployment rate
10%
9.5%
9%
8%
7%
5.8% 6.0%
6%
5%
4.2% 4.4%
4.7%
5.8%
5.5%
5.1%
4.6% 4.6%
4%
?
3%
2%
1%
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: United States Department of Labor, Bureau of Labor Statistics
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The “Seven-Lean Years”
Economy?
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Before reaching for the
bottle of antidepressants …
 The tale of two economies
 Turnaround breakthroughs
 Next Generation business design
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The Tale of
Two Economies
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Four-Chain World
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The Four-Chain World
Technology
Media/Content/Advertising
Telco
Consumer Electronics
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The Four-Chain World Consumer
Jennifer Stone: 50-year-old, Small Business Owner
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The Four-Chain World Consumer
Jennifer Stone: 50-year-old, Small Business Owner
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Bloomberg: Simplifying the Trader’s Hassle Map
Without Bloomberg:
Multiple
connections/
subscriptions
It takes time and is
expensive to
connect to up to
200 exchanges,
communicate with
thousands of
brokers, subscribe
to countless news
and research
sources, and hook
up voice
communication
Multiple
logins
Accessing each
exchange and each
news source takes
time, and I need
data that is current
up-to-the-second
A la carte
pricing
It’s hard to keep
track of what
everyone charges,
and it’s expensive to
buy data access and
services a la carte
Many
screens
and
computers
To see all of the
data at once I need
to have a bunch of
computers and
screens at my desk.
Best alternative is
to toggle between
windows, which
takes time
Incomplete
information
No matter how
much research I
do or how many
people I talk to,
I’m never sure if I
have as good and
as current market
information as
our competitors
do
Data
comparison/
download
problems
Some data pricing
information is not
comparable across
sources and not all
of the data I have
can be easily
downloaded into
Excel for additional
analysis
With Bloomberg:
Single
comprehensive
platform
© Oliver Wyman  www.oliverwyman.com
Sleek dualscreen
terminal
Easy to
manipulate:
access and
downloading
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Hassle Map
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A Far Better Deal
for the Customer
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 High growth
 Premium price
 Stronger allegiance
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Value Migration
2001 Value
2009 Value
21 Leaders
$2.0 trillion
$1.5 trillion
7 cross-chain players
$24 billion
$503 billion
2%
25%
Share of value
Note: Bloomberg numbers are estimates since company financial data is not released.
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Turnaround
 Focus
 Mindset
 Energy
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Turnaround successes
 Apple
 Hyundai
 Autodesk
 IBM
 Best Buy
 Kellogg's
 Burberry
 LG Mobile
 Colgate
 Morrisons
 Continental AG
 Nissan
 Eastman Kodak
 Porsche
 Fiat
 Samsung
 Ford
 Volkswagen
 Harrah’s
 Xerox
 Hewlett Packard
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Can you reverse a
no-profit zone?
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Value
Added
Compete
On
Price
In the Same Way
Differently
Compete
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ROIC vs. Growth for Top U.K. Grocers, 2005-2008
Tesco
12
10
8
ROIC (%)
6
4
2
Sainsbury’s
0
2
-2
4
6
8
10
12
14
-4
-6
Morrisons
Growth (%)
Sources: Morrisons 2009 Annual Report; Tesco 2009 5-year record; Sainsbury 5 year record; Compustat Global Vantage
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Customer Perception Map
North American grocery retailers
Excellent
Offer
Perception
Poor
High
Low
Price
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TWO No-Profit Zones
 Memory chips
 Consumer electronics
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Sony vs. Samsung
$120
$100
$BB
$80
$60
Sony
$40
$20
$
1995
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1997
1999
2001
2003
2005
2007
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Sony vs. Samsung
$120
$100
$BB
$80
$60
Sony
$40
$20
$
1995
© Oliver Wyman  www.oliverwyman.com
1997
1999
2001
2003
2005
2007
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Sony vs. Samsung
$120
$100
$BB
$80
$60
Sony
$40
$20
$
1995
© Oliver Wyman  www.oliverwyman.com
1997
1999
2001
2003
2005
2007
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Sony vs. Samsung
$120
$100
Samsung
$BB
$80
$60
Sony
$40
$20
$
1995
© Oliver Wyman  www.oliverwyman.com
1997
1999
2001
2003
2005
2007
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Ford stock price: 2007 to 2010
$16
Price
$12
$8
$4
$0
2007
2008
2009
2010
Date
Source: Yahoo! Finance.
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Value chain profitability
30%
25%
EBIT
25%
20%
15%
15%
15%
12%
10%
9%
10%
7%
7%
8%
10%
8%
8%
5%
5%
1%
2%
2%
2%
0%
Tier 1
New Car
Sales
Auto
Mfg.
Ext.
Warr.
Fin.
Used
Car
Sales
Leasing
Parts
Mfg.
Ins.
Take-Care
Prdct. Mfg.
Add-On
Prdct. Mfg.
Parts
Ret.
Svcs. &
Repair
Energy
Rental
Veh.
Utility
Fleet
Mgmt.*
Source: Annual Reports, Compustat, Analyst Reports.
Note: Operating margin on net value added revenue.
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 How much to collaborate?
 How much to improve the customer experience?
 How much turnaround energy to tap?
 How quickly can I evolve my business design?
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My business design
Today
Next
Customer Selection
Unique Value Proposition
Profit Model
Strategic Control
Scope
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Which would you prefer?
Business
Design “A”
Business
Design “B”
Revenue
$10 billion
$8 billion
Profit
$50 million
$300 million
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Value
Added
Compete
On
Price
In the Same Way
Differently
Compete
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Vision of Next Decade?
 Capacity
 Compete/Collaborate Ratio
 Creative Business Design
– Compare:
- To other companies
- Today vs. 5 years ago
- Hassle map
- Revisit value chain
- Resource-sharing
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Value
Added
Compete
On
Price
In the Same Way
Differently
Compete
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Creative
Business Design
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Systems economics
The Customers’
Total Economic
Equation
“Big Box”
Product
“Little Box”
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My Little Box/Big Box
 What more should I sell?
 What economic problems should I solve?
My
Product
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Demand Matrix – Benefits and Buyers
More Sales
Greater
Differentiation
Reduce Errors
Cut Cycles
Cut Capital
Cut Costs
Product
Functionality
Purchasing Engineer
Agent
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Plant
Manager
Business
Manager
Function
Head
C-level
Executive
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Consumer “Big Box”
Time Savings
Affinity
Reduced Uncertainty
Peace of Mind
Reduced Hassle
Faster Response
“Big Box”
More Options
Personalization
Health/Wellness
Plannability
My
Product
Easier on Budget
Excellent Experience
Information
Convenience
Great Service
“Little Box”
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Using hidden assets to create new value for customers
Market position: Johnson Controls
R&D
Design
Engineering
Testing
Market Research
Manufacturing
Seats
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Doors
Instrument
Panels
Interiors
Electronics
Integration
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Using hidden assets to create new value for customers
Market position: Johnson Controls
R&D
15%
Design
Engineering
Testing
Market Research
3%
Manufacturing
Seats
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Doors
Instrument
Panels
Interiors
Electronics
Integration
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Johnson Controls: Financial performance
Revenues
Operating Income
Market Value
1991-2005
1991-2005
1991-2005
30
16
2000
CAGR: 14%
25
CAGR: 10%
CAGR: 18%
12
1500
15
$BB
$MM
$BB
20
1000
8
10
5
0
1991
1996
2001
2006
500
4
0
0
1991
1996
2001
2006
1991
1996
2001
2006
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Source: Compustat.
© Oliver Wyman  www.oliverwyman.com
Johnson Controls: Market value vs. components suppliers
Indexed Market Value
Johnson
Controls
400
300
Indexed
Market
Value
(1995=100)
200
Average of
Components
Manufacturers1
100
0
1995
1996
1997
1998
1999
2000
2001
2002
Source: Compustat., Data are for January of the year indicated.
1Arithmetic average of the following companies: Intermet, Superior Industries, Modine Mfg, Tomkins PLC, Dana Corp, Eaton Corp.
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JCI
Customer selection
 Purchasing agent
 Senior managers
Value proposition
 Low-cost components
 Lower fixed cost
– Design staff
– Capital equipment
 High quality
 Lower inventory
 Lower system cost
 Faster response
Profit model
 Gross margin
 Multi-year/program contract
Strategic control
 None
 Senior management
relationship/information flow
 Comfort Labs
– Proprietary information
Scope
 Parts
Organization structure  “Manufacturer”
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 Systems
 “Solutions provider”
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Air Liquide: Putting hidden assets to work (1991 to 2001)
Supply Chain
Effectiveness
Energy Costs
Safety &
Environmental
Risk Reduction
Production
Costs & Asset
Maintenance
Raw Material
Cost & Supply
IT systems: Tracking/Supply Chain, Remote Monitoring, …
Energy efficiency & on-site waste-gas electricity generation
Management of other production processes
Management of all Gas (& Chemical)
production processes
Management of on-site Gas
raw material distribution
Supply of
Gas raw
materials
Hidden Assets
Leveraged:
Gas production
expertise
Process/energy
expertise
HazMat
expertise
1 For Semiconductor Fabs only, following acquisition of TI’s chemical operations.
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Air Liquide’s services strategy helped fuel strong growth
14%
12%
10%
Three-year
rolling
annual
growth rate
Operating
Profit
8%
6%
Revenues
4%
2%
0%
87-90 88-91 89-92 90-93 91-94 92-95 93-96 94-97 95-98 96-99 97-00 98-01
Year
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Tetra Pak
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 Refrigeration
 Logistics
 Handling
 Storage
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 800 design and development specialists
 3,000 food processing and packaging
experts (engineers, microbiologists, etc.)
 Living with the customer
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Tetra Pak: “Life Cycle Partnership” means long-term customer relationships
Employing more than 3,000 food processing and packaging experts, Tetra Pak helps
reduce costs along the entire value chain from manufacturing to retail
Food and Beverage Manufacturing: Tetra Pak’s “Life Cycle Partnership”
E.g. Dairy
Manufacturer
Equipment upgrades & process flow improvements
Channel
selection
Supply chain
analysis
Equipment
selection &
financing
Installation &
start-up
Start-up training
Operational
fine-tuning &
process flow
Equipment
maintenance
and parts
Wholesale
and retail
distribution
process flow
Operational training
Tetra Pak key activities
One Tetra Pak key account manager for each customer
 Determine food
packaging and
performance
objectives:
– Product
quality
– Liters of
output per
hour
– Sustainability
targets
 Determine
distribution
requirements :
– Shipping
frequency
and method
– Wholesale
and retail
shelf space
– Weight
constraints
 Select
machinery and
packaging
 Provide
equipment
financing
 Management
training
– 15 “Train the
Trainer”
centers
 Test machinery
and factory
process flow
 Quality testing
with
distributors
 Hone product
quality
 On-site
operational
and
maintenance
training
 Increase
employee
productivity
with
professional
development to
maximize
availability of
equipment
– Human error
accounts for
most
equipment
failure
 Optimize parts
inventory
management
– 4 distribution
centers for
parts
 Optimize QC:
Who does what
to what
equipment,
when and how
– Access to 65
tech service
centers
 Periodic factory
review to avoid
“if it ain’t broke,
don’t fix it”mentality
 Periodically
obtain
feedback from
wholesaler and
retailers
 Incorporate
feedback into
next iteration
of food
processing and
packaging
design
Source: http://www.fao.org/ag/AGS/publications/docs/AGST_WorkingDocuments/J7193_e.pdf
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Project Risk
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“Delusions of Success”
– Harvard Business Review, July 2003
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Project risk: Failure rates
 New products (food)
78%
 New products (Rx)
96%
 M&A
60%+
 IT projects
76%
 VC/new business projects
80%
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 Overinvest
 Business design
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5%
“20 moves" to raise the odds”





















90%
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The Checklist Manifesto, by Atul Gawande
Chapter 3
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“Hybrid” business designs
Honda
Toyota
Customer
selection
 Moderate income
 High income
Unique value
proposition
 Energy efficiency
 Energy efficiency
 Drive, style, electronics
Profit model
 Lower-margin cars
 High-margin cars
Strategic control
 Patents
 Patents
 Brand evolution
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“Hybrid” business design comparison
Toyota
Prius
Lexus
RX 400h
Toyota
Highlander
Honda
Civic
Honda
Accord
Days to sell
8
10
16
10
36
56
45
Estimated
annual sales
105,000
22,000
20,000
147
28,000
20,000
48
Premium over
regular model
$1,150*
$11,110
$6,590
$5K
$2,790
$3,290
$3K
Source: BusinessWeek.
*Compared to four-cylinder Camry.
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The Toyota Way
(Chapter 6)
– Jeffrey Liker
© Oliver Wyman  www.oliverwyman.com
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What are three different
business designs for each
new growth initiative?
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Number of OnStar subscribers
4,500
4,000
3,500
000s
3,000
2,500
2,000
1,500
1,000
500
1
0
1996
18
44
105
1997
1998
1999
’99
Revenue:
$43MM
Source: Literature Searches, Harvard Business School Case N9-602-082.
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OnStar Business Design
I
II
III
Customer
selection
 Luxury
 All GM drivers
 GM and others
Value
proposition
 “Accessory”
 Safety/security
 Remote diagnostics
 Safety security
 Remote diagnostic
 Information,
entertainment
 Growing suite of
applications
Profit model
 Sell more cars
 Subscription
 Maximum volume
 Service tiers
Strategic
control

 Cost position/
installed base
 De facto standard
 Brand
Go-to-market
 Dealer install
 Factory install
 Factory install, GM,
and other OEMs
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?
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Number of OnStar subscribers
4,500
4,000
4,000
3,500
3,082
3,000
000s
2,469
2,220
2,500
’02 Revenue:
$1BB
1,725
2,000
1,500
630
1,000
500
1
0
1996
18
44
105
1997
1998
1999
2000
’99
Revenue:
$43MM
2001
2002
2003
2004
2005
Source: Literature Searches, Harvard Business School Case N9-602-082.
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Tale of Two Economies
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Stagnation Risk
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Mystery of Demand
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Building from the customer up
Scope
Strategic Control
Profit Model
Unique Value Proposition
Customer Selection
Demand:
The messy ambiguity of
market
the
How
does place
it happen?
 Why does it not?
 How does it change?
 Why does it always surprise us?
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The Underneath-the-Surface
World of Dali and Bosch
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Proceed with Caution
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What separates the winners from the rest?
iPod vs. Zune
Zipcar vs. Hertz
Nespresso vs. Lavazza
Kindle vs. Nook
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What separates the winners from the rest?
Netflix vs. Blockbuster
Salesforce vs. Oracle
Eurostar vs. Air France
Prius vs. Honda Civic
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How does this happen?
76M
311K
15M
2M
2M
2M
8K
0.4M
Zune vs. iPod
Nook vs. Kindle
Blockbuster vs. Netflix
Hertz vs. Zipcar
200K
50K
9M
9.2M
35K
0.9M
Air France vs. Eurostar
© Oliver Wyman  www.oliverwyman.com
0.7M
Lavazza vs. Nespresso Honda Civic vs. Prius
5K
Oracle vs. Salesforce
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Masters of the Demand Equation
 Nespresso
 FactSet
 CareMore (Health)
 Eurostar
 Dassault Systems
 Salesforce.com
 Netflix
 Kindle by Amazon
 Bloomberg
 Tetra Pak
 Bang & Olufsen
 Pret A Manger
 Zipcar
 OnStar by GM
 Facebook
 Growing Power
 Apple
 Capital IQ
 Wegman’s
 Capital One
 Virgin Atlantic
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The Demand Equation
How magnetic?
Behind the screen:
Are all pieces in place?
Response rate drivers
How fast are we getting better?
How many different types ?
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The Demand Equation: Rating all the components
1
Inert
No
Don’t know
© Oliver Wyman  www.oliverwyman.com
2
3
4
5
6
7
8
9
10
Irresistible
Yes
Maximize
Flat
Steep
One
Many
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Magnetic?
1
2
3
4
5
6
7
Quality
Magnetic
8
9
A
A
10
B
B
What’s my score?
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Emotional connection
Many of these winners, despite a very functional positioning, achieve a
degree of emotional connection with their customers
“I love this store”
2010 CPM survey responses
Percentage of responses
100%
80%
Strongly
disagree
Disagree
60%
Neutral
Agree
40%
Strongly
agree
20%
0%
Wegmans
© Oliver Wyman  www.oliverwyman.com
Trader
Joe's
Publix
Whole
Foods
Kroger
WinnDixie
Shaw's
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M=FXE
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Subconscious
Conscious
X
Functional
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Emotional
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Not first
mover,
but …
© Oliver Wyman  www.oliverwyman.com
First to create and
capture the
emotional space.
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Biggest Mistake #1
Stopping before we get to magnetic
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Behind the screen: Examples
 Infrastructure
 Ecosystem
 Deals
 Organization
Demand Leverage
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Demand Leverage
 Windows Software Writers
$5 billion?
 Amazon Customer Recommendations
$80 million?
 Netflix Customer Reviews
$30 million?
 Netflix Coupon in DVD player boxes
$75 million?
 iPhone App Developers
 Facebook App Developers
 Music Industry Supporting iTunes
 User data in GMail
$1.3 billion
$100 million?
$570 million
$500 million?
 Articles about Zipcar
$30 million?
 Articles about Starbucks (first 5 years)
$50 million?
 Articles about Pret a Manger
$75 million?
 Nespresso in First Class
$10 million?
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Demand Leverage: How do we engage others in our demand
process?
 Software developers
 App developers
 Customer review writers
 User-provided preference data
 Media Coverage
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Biggest Mistake #2
Assuming magnetic is enough
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 When was the last time I bought something I really loved?
 When did I first want to?
 When did I actually buy it?
 What triggered me to do it?
Purchase I Loved
Gap (weeks, months)
Trigger
1.
2.
3.
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Triggers
 6:1
Machine demo plus serve the coffee (Nespresso)
 10%  22%
Local processing center (Netflix)
 10%
Recommendation algorithm improvement (Netflix)
 15  5  3% to 10%
(Zipcar)
 20%
Parking and killer offer (Symphony)
 25%
Trial (Apple)
 50%
Word of mouth (Nespresso)
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Hassle map
Fight
with
spouse –
what
movie to
see –
“you
decide”
Go to
store
Get online;
construct
queue; get
recommendations
© Oliver Wyman  www.oliverwyman.com
Search
and
search
Receive
films in
mail
Pick
three
Go
home
Watch
Fight
again –
pick
one
Watch
Put in
mailbox to
return
Forget
to
return
Return
five days
later, pay
late fee,
get mad
Automatically
receive next
film in queue
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Post Office
© Oliver Wyman  www.oliverwyman.com
Processing Center
Customer
Brand
 Convenient
 Bland, or
 No damage
 Deep imprint
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Non-Obvious
Response Rate Drivers?
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 Word of mouth
 99.9 percent
 Recommendation engine
 Processing centers (4  1)
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Netflix: Response rate drivers
Processing center
25%
22%
20%
15%
10%
10%
5%
0%
Without
© Oliver Wyman  www.oliverwyman.com
With
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When you’ve won, you can:
a) Coast
b) Keep it dynamic
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Dynamic
 “Get better fast”
 Meaningful variation
You take an idea, and develop
it to its full potential
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Netflix responded immediately: they dropped price and raised their
number of titles
Titles: Blockbuster Online versus Netflix
2002-2008
120,000
112,000
Blockbuster
100,000
92,000
Netflix
Titles
80,000
60,000
40,000
25,000
20,000
20,000
0
2002
© Oliver Wyman  www.oliverwyman.com
2003
BB Online end of 2004
launch 8/04
2005
2006
2007
2008
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Netflix Demand Equation
1
Inert
No
Don’t
know
© Oliver Wyman  www.oliverwyman.com
2
3
4
5
6
7
8
9
10
Irresistible
Yes
Maximize
Flat
Steep
One
Many
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Eurostar’s Hassle Map
Air
Eurostar
 50 minutes
 10 minutes
 55€
 10€
 40 minutes (check-in, security,
walk a mile)
 10 minutes (check-in, customs,
security)
 WWF act with the bags
 Lots of room at end of car
 Heathrow: 30 minutes at Customs
 Done in advance
 Heathrow  London:
 St. Pancras to London
– 40 minutes
– 10 minutes
– 55£
– 10£
 Extra 160 minutes
 Extra 20 minutes
 Extra $150
 Extra $30
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Eurostar’s Hassle Map
Air
© Oliver Wyman  www.oliverwyman.com
Eurostar
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De-Averaging the Customer
Standard
£99 one-way
Economy Plus
110£ one-way
Fast & Cheap
Quiet cars,
Frequent traveler points
Business First
£175 one-way
Premiere First
£196 one-way
Business lounge,
Fast meal,
10-min check-in, taxi
to/from station
Lounge, Meal,
Champagne, 10-min
Check-in, Ticket
convertible to air
Note: Fares based on a single ticket for one-way service from London to Paris on December 10, 1997
Source: Eurostar, http://web.archive.org/web/19971210175921/http://www.eurostar.com/, access 08/13/2010
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Major Improvements
Customers
De-Averaged
Low cost
+0 Minutes
+52%
5.8
Belgium High
Speed rail
£1.1B cost
+30 Minutes*
+19%
First part of
‘High Speed 1’
£1.7B cost
+20 Minutes
+21%
7.6
Second part of
‘High Speed 1’
£1.7B cost
+20 Minutes
+17%
8.9
7.6
6.9
5.8
6.3
3.8
Pre
Post
1996-1997
1997-1998
2003-2004
2006-2007
Changes in Average Ridership
(in millions of passengers)
Source: Ridership based on multiple news reports; investment amounts are approximate.
Note: (*) Brussels line only. Changes in average ridership were estimated by finding average ridership in the pre-improvement interval and comparing this with ridership in the
post-improvement interval. Since customer de-averaging was introduced in 9/1996, the 1996-1997 period has been adjusted accordingly. In addition, the years 2001-2002
were excluded from estimates of the 1998-2003 interval due to the fall off in travel stemming from 9/11 and the business cycle downturn.
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Richard Brown, Eurostar CEO, 2002-2010
Under Brown’s leadership, Eurostar ridership grew 33 percent and
market share increased 15 percentage points.
"My instinct is to talk to
customers – what they want,
what more can we do. I'm not
sure everyone does this.”
Source: Derbyshire Life (12 March 2010), Business Travel World (October 2007)
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Eurostar has grown the market and increased market share
Eurostar and airline passengers (London to Paris by year)
10
Eurostar
Millions of Passengers
9
Airlines
7.8
8
6.9
7
7.1
7.3
7.5
7.4
7.7
7.1
7.5
7.8
7.9
8.2
6.3
6
5.4
5
4
4
3
2
1
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Eurostar
Market Share:
38%
63%
65%
77%
Source: http://www.anna.aero/2009/07/31/100-years-of-cross-channel-air-travel/UK CAA
© Oliver Wyman  www.oliverwyman.com
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Eurostar’s Demand Equation
1
Inert
No
Don’t
know
© Oliver Wyman  www.oliverwyman.com
2
3
4
5
6
7
8
9
10
Irresistible
Yes
Maximize
Flat
Steep
One
Many
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Two Endings
© Oliver Wyman  www.oliverwyman.com
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“War is a series of catastrophes –
resulting in victory.”
– Georges Clemenceau
“… for a little while.”
– Adrian Slywotzky
© Oliver Wyman  www.oliverwyman.com
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Can Giants Innovate?
 Nespresso
 Dassault Systèmes
 Playstation
 Swiffer
 OnStar
 White Strips
 Prius
 Sam’s Club
 Lexus
 Dayton Hudson/Target
 Kindle
 ING Direct
 IBM PC
 Droid
 xBox
 HP Printer
 iPod
 Bloomberg Media
 Hulu
 Aldi/Trader Joe’s
 NTT DoCoMo i-mode
 Tesco Financial Services
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Strategic risks and countermeasures
Extreme risk
Countermeasures
Technology shift
 Double bet
Brand
 Golden Triangle
Project risk
 Change the odds
Customer shift
 Proprietary information
Industry economic squeeze
 Compete/collaborate ratio
Stagnation risk
 Little box/big box
Unique competitor
 Change the game
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Technology Shift
© Oliver Wyman  www.oliverwyman.com
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Market Capitalization ($B)
Technology risk
$250
Lucent
$45
Xerox
$40
$200
$35
$30
$150
$25
$20
$100
$15
$10
$50
$5
$0
$30
Jan
98
Jan
99
Jan
00
Jan
01
Jan
02
Jan
03
Jan
04
Kodak
$0
$3
Jan
98
Jan
99
Jan
00
Jan
01
Jan
00
Jan
01
Jan
02
Jan
03
Jan
04
Polaroid
$25
$20
$2
$15
$10
$1
$5
$0
Jan
98
Jan
99
© Oliver Wyman  www.oliverwyman.com
Jan
00
Jan
01
Jan
02
Jan
03
Jan
04
$0
Jan
98
Jan
99
Jan
02
Jan
03
Jan
04
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Technology risk: Barnes and Noble
B&N.com vs. Amazon
(Net sales, media only)
Barnes & Noble vs. Amazon
(Market cap, June 2007)
$30
$2.0
$27.8
Amazon
$25
$1.5
$ billions
$ billions
$20
$1.0
$15
$10
$0.5
B&N.com
$5
$2.5
$0
$0.0
95 96 97 98 99 00 01 02
Amazon
Barnes &
Noble
Source: Compustat; annual reports.
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Double betting
Did
Did Not
 IBM
 Motorola
 Intel
 Nokia
 Microsoft
 Barnes & Noble
 Blockbuster
 Kodak
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“When you come to a fork
in the road, take it.”
– Yogi Berra
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Brand Risk
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Ford Brand Value
$40
$36.4
$30.1
$BB
$30
$20.4
$20
$17.1
$14.5
$13.2
$11.1
$10
$0
2000
2001
2002
2003
2004
2005
2006
Source: Interbrand.
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Sony Brand Value
$20
$16.4
$15.0
$15
$13.9
$13.2
$12.8
$BB
$11.7
$10.8
$10
$5
$0
2000
2001
2002
2003
2004
2005
2006
Source: Interbrand.
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Samsung Brand Value
$20
$16.2
$15.0
$15
$12.6
$BB
$10.9
$10
$8.3
$6.4
$5.2
$5
$0
2000
2001
2002
2003
2004
2005
2006
Source: Interbrand.
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The Golden Triangle
Product
Brand
© Oliver Wyman  www.oliverwyman.com
Business
Design
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Customer Shift
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Coach
80K
No. of interviews
60K
60K
40K
40K
17K
20K
10K
0K
2004
2005
2006
2007
 Batch to continuous
 Proprietary customer information
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Proprietary information
 Capital One
 Tsutaya
 Coach
 Harrah’s
 JCI
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“What do we know about
customers that others don’t?”
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“Risk is just an expensive
substitute for information”
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