Results

January – February 2006 | Business strategy brief

In this issue

Editorial 2
A passion for results

Management feature 4
Making foreign moves pay off

Bain toolkit 8
Strategy : Core growth strategy

Guest interview 10
We deliver results
A talk with Steve Ellis,
Worldwide Managing Director,
Bain & Company
 EDITORIAL

A PASSION FOR RESULTS

“Our desire to
have a profound
impact on clients
is hard-wired into
the DNA of Bain
& Company.”

Nicolas Bloch
Managing Partner
Bain & Company

Dear Reader,
Since its founding, more than 30
years ago, Bain & Company has
been relentlessly driven to deliver
results, not reports, to clients. Our
puts us in a unique position to
desire to have a profound impact on
understand the challenges that high-
clients is hard-wired into the DNA of
growth business face and help them
our firm. Bain’s Brussels office has
exhibited this passion for 12 years build their businesses.
now. Starting with a small office We are also part of a worldwide
with two people in 1994, we have network of 32 offices in 19
grown today to more than 70 people. countries, serving a large number of
Our growth has averaged 15% per Fortune 500 companies, mid-caps
annum over the last decade. and private equity firms. So we are
In that respect, Bain Brussels uniquely positioned to understand
resembles many of Belgium’s the challenges of global corporations
successful small and midsize and help them create value.
enterprises. Our entrepreneurial It’s no coincidence that we call our
spirit, combined with our obsessive Belgian newsletter “Results”. We
focus on making a difference, are proud to have participated in a

2
series of incredible success stories more about these management tools
in Belgian industries like telecom, throughout the year.
consumer goods, banking and • We will continue to explore the
insurance, and private equity. insights of individual business
As a sign of our continued leaders in our Guest Interview
dedication to you, clients and friends section. To inaugurate the
of Bain, we are proud to share with newsletter, our CEO interview is
you our new newsletter. We believe with Steve Ellis, Bain & Company’s
the name “Results” applies now worldwide managing director. Steve
more than ever. As we continue shares with you his views on growth
to publish knowledge and research opportunities for companies in
that we hope will help companies Belgium and in Europe.
improve their results, we will go Bain Brussels is dedicated to
deeper in content, and in openness continuing to share with you ideas
to our readers, six times a year. and inspirations, stories of growth,
• In each issue “Results” will bring and practical strategies for how to
you business insights through a achieve lasting results.
detailed Bain point of view called We are sure you share that passion
Management Feature. This issue’s with us!
Management Feature is about
making foreign moves pay off, an
article co-authored by James Root,
managing director of our New York
office, and our local champion Nicolas Bloch
Bertrand Facq, manager in Brussels.
• Each issue—and this is new—will
from now on share with you one
component of the Bain toolkit as
we codify it internally. The first tool
from the kit that we’d like to share
is “Core Growth Strategy.” Growth
strategy is a domain in which Bain
is a worldwide thought leader, with
Chris Zook’s acclaimed books Profit
from the Core and Beyond the Core.
We hope you will enjoy discovering

3
 MANAGEMENT FEATURE

MAKING FOREIGN MOVES PAY OFF

International expansion requires a sure-footed strategy. Bain analysis

shows that more than 60% of geographic moves fail entirely, and only
17% of companies achieve profitable foreign growth. But for those who
get it right, the rewards can be great. Consider how Nike recently eclipsed
Adidas as the leading seller of soccer shoes in Europe. The firm has grown
its soccer-gear business, which stood at €37,2 million in 1994, to more
“When companies
than €826 million worldwide through nimble marketing. Among other
understand the strategies, it equipped the 2002 Brazilian team with silver shoes that
four requirements flashed as they beat Germany (Adidas’s home turf) for the World Cup.
for success
abroad, they
can better assess
moves into How can companies score similar against established players in fixed-
overseas markets.” successes in overseas fields of line phone services, Vodafone
competition? Our research surfaced placed its bets on mobile service.
James Root
Partner four major conditions linked to From a strong home base in the
Bain & Company profitable international expansion: UK, it used acquisitions to build
a strong domestic core; a repeatable leading positions in the mobile
expansion formula; customer business overseas. In contrast,
differentiation that travels across many incumbent European telecom
national borders; and a favourable companies spread themselves thin,
industry structure. By assessing expanding in mobile while investing
these conditions, companies can in fixed-line service, Internet
predict whether foreign moves will service and directories. While the
pay off. incumbents struggled with the debt
and complexity brought on by their
“A repeatable A strong core
formula for different moves, Vodafone vaulted to
entering new A company with a weak domestic the top of the mobile market.
markets will help business cannot win easily abroad.
companies avoid In our study, 90% of the companies A repeatable formula for
risk as well as expansion
complexity.” with profitable foreign growth
began with a strong core business at By following one formula again and
Bertrand Facq
Manager
home. A relentless focus on its core again, companies develop critical
Bain & Company propelled Vodafone from a small aptitude and knowledge. They
national cellular company to the improve their ability to execute
global industry leader in a decade. quickly. A repeatable formula brings
Realising it couldn’t compete predictability to a process that is

4
The four keys to expanding across borders

Public companies with more than $500MM in revenue in 2000, Figure 1:

from the US, UK, France, Germany, Italy, Japan and Australia

Percentage of Only 17% of

companies
companies
32%
Total revenue growth >=8% achieve
sustained,
25%
Total operating income growth >=8% profitable
19962000
annual average foreign growth
International Revenue Growth >= 8%
21% International revenue growth >=8%

International operating
17% income growth >=8%

often experimental and chaotic. It

helps companies avoid risk as well manager in a new market, give them
as complexity. three years to train local managers,
and then tackle another market.
A repeatable formula helped Avon
It also would send out teams that
Products enjoy strong growth in
shared their expertise in emerging
emerging markets from 1994 to
markets, teaching local executives to
2004. Entering those markets, CEO
Andrea Jung has said, is “Avon’s handle such challenges as pricing
core competency.” The company’s products during hyperinflation.
direct-sales model, in which self- Similarly, Nestlé has a formula
employed “Avon ladies” take orders that it too has applied throughout
and deliver items in return for the developing world, from Brazil
commissions, allows Avon to operate to China. Because many of these
where infrastructure is weak. In countries lack steady, hygienic
Brazil, for instance, Avon reps have supplies of milk, Nestlé regularly
been known to paddle kayaks up teams up with government to
the Amazon to bring their wares to strengthen the dairy industry’s
remote mining camps. infrastructure. Tapping a team
Under that low-investment model, of 800 agronomists and field
Avon would bring in experienced technicians, Nestlé teaches farmers
hands as general manager and sales how to increase their yield. It offers

5
 MANAGEMENT FEATURE

them loans to build the size and footwear and launched a clothing
quality of their herds. Then it works line, both endorsed by the likes of
to improve roads and set up milk Brazilian soccer star Ronaldo and
collection systems with cooling the UK’s popular Manchester United
tanks and weighing machines, built team. Having established its brand
locally to Nestlé specs. Of course, and its distribution channels, Nike
sometimes the formula requires a began selling soccer balls.
cultural tweak: After finding that The result: Nike, once seventh in the
sun roofs for dairy cows in Brazil global soccer market, is now close on
increased milk production, Nestlé the heels of the number-one player,
tried to introduce them in Mexico. Adidas. And, as it has taken its
The Mexican farmers initially customer proposition overseas, Nike
balked, saying, “Our cows are no has seen its international business
princesses.” surpass its domestic one, accounting
Customer differentiation that for more than 60% of revenues.
travels Favourable industry structure
Developing a repeatable formula Some industries are naturally
requires building capabilities to global: In them, cost structures
serve the same customer segments improve with global scale, customer
overseas as at home, with the same requirements are similar worldwide
differentiated offerings. Only the or, in some cases, customers are
geography is different. That way, literally the same around the
companies can integrate marketing world. But in other industries, the
plans across countries. winners are those that build the
That has been Nike’s winning largest local market share—or best
formula. It consistently targets the appeal to distinctive local tastes.
athletic customer with the same Razors, for example, are naturally
series of propositions: sports shoes, global: lightweight and easy to
then clothing and equipment, ship, with customer needs the
endorsed by a top celebrity athlete. same everywhere. Beer is naturally
When it set out to conquer the global local, because it’s heavy and costly
market for soccer, Nike followed the to produce and transport. Plus,
approach it took with the running local taste preferences in beer vary
and basketball segments back greatly. When making overseas
home. It built a leading position for moves in local industries, companies

6
 Global Figure 2:
economies
Compelled by costs Naturally global
of scale
Automotive Ethical pharmaceuticals Some industry
structures
Personal computers Software
favour global
Razors/razor blades expansion,
Semiconductors while others
are naturally
Airline leasing
Cost structure local

Naturally local Compelling for customers

Beer Soft drinks

Specialty foods Investment banking

Grocery retail Oil extraction

Local
economies
of scale
Locally distinct Customer preferences Globally uniform

need to capture local share and tailor Understanding these four critical
offerings to local consumers. factors—a strong core, a repeatable
A clear understanding of the factors formula, customer differentiation
that drove profitability in its industry and industry economics—will help
your company avoid risky cross-
was one of the keys to Vodafone’s
border moves. Moreover, the right
rise, for instance. Success in mobile
kind of international growth can
phone service depends largely on
also be a launchpad for innovation
gaining local market share. The for worldwide markets. For example,
European telecom companies that Unilever’s Indian unit recently
established minority positions in introduced a detergent that reduces
the mobile markets had only a weak water consumption by a whopping
platform for growth. Meanwhile, 50%. That proprietary technology not
Vodafone, which acquired majority only is a boon to that arid country but
holdings in leading local operators, is likely to be in increasing demand
could capitalise on its local leadership as water supplies become stretched
to gain preeminence in each country. globally.

7
 BAIN TOOLKIT

STRATEGY: CORE GROWTH STRATEGY

Throughout 2006, we will feature each

Strategy
of Bain’s six main high-level capabilities.
These capabilities include : Strategy,
Organisation, Mergers & Acquisitions,

& Acquisitions

improvement
Organisation

Performance

Information
Performance Improvement, Information

technology
Mergers
Technology and Change Management. The
capability overviews will outline Bain’s point
of differentiation and approach and will be
supported by a management feature.

The first of the six highlighted

capabilities is Strategy and the tool is Core Change
Management
Growth Strategy.

Description
Strategy
Core growth strategy helps senior managers locate and expand the strong-
Performance improvement

est assets of their core businesses. Surprisingly, we’ve found that most core
Information technology
Mergers & Acquisitions

businesses don’t operate at their full potential. Our growth strategy tools
allow clients to accurately measure the capabilities within their existing
Organisation

business to unearth latent opportunities, and then helps them build upon
that potential.
Business unit strategy often reveals adjacent business opportunities that a
company can pursue to strengthen its core and grow its revenues.
Bain’s differentiation
Growth initiatives begin with a company’s accurate assessment of its core
Change
Management capabilities, which serve as the most solid base for future expansion. Our
teams work with companies to precisely answer such questions as “What
are your most differentiated and strategic capabilities?” and “What are your
most critical product and service offerings?” Once we’ve mapped out a core
business’s true capabilities, we help clients rank new opportunities based on
market strength and revenue potential.

8
Bain’s approach
In-depth, accurate understanding of a core business guides a company to
focus on its most profitable customers, its most important channels and its
most critical product offerings. To build an objective picture of a company’s
core business, we rely on product profitability analysis; customer, competitor
and cost-sharing analysis; and relative market share and cost-position analy-
sis.
With the most profitable core identified, we use pricing, competitor bench-
marking, and customer segmentation or loyalty tools to determine how cli-
ents can expand the core to its full potential.

• Need based
• Behavioural
• Demographic

• Customers • Retention
• Products Segmentation
• Share of wallet
• Knowledge • Crossselling
Selective Customer
acquisitions loyalty
Achieving
full potential
in the core

Pricing Productivity
improvement
• Economic value to • Eenablement
customer Competitive • Cost management
• Tiered pricing benchmarking • Utilisation and
• Price realization efficiency

• Competitors/similar
industries
• Internal
• Lead users

9
 Guest interview

WE DELIVER RESULTS

The new worldwide managing director of Bain & Company,

Steve Ellis, sees new growth opportunities for companies
in Belgium and in Europe.

Before your election to worldwide that set the benchmarks in their

managing director, you worked in industries.
A talk with
Silicon Valley. What can companies 2. We want to reinforce our position
Steve Ellis
learn from the world’s leading as one of the best employers in the
Worldwide
technology hotbed? world for the brightest talent in the
Managing Director
Bain & Company “Only by focusing relentlessly on economy.
innovation can global companies 3. We want to build the most
continue to succeed in today’s effective global delivery capability
market. That goes not only for our among the leading management
clients but for Bain & Company, as consultancies in the world.“
well. Our clients’ expectations are
Where does Bain see the biggest
steadily increasing. To answer their
growth opportunities? Do top
complex questions, we always have
consultancies also have to focus
to be one step ahead with innovative
heavily on the Asia-Pacific region?
approaches. The need for constant
innovation can be your friend and “It goes without saying that the
your enemy. We are working very importance of Asia-Pacific increases
hard to ensure that this relentless every day. The rise of China and
push for innovation is our and our India has led to upheavals in almost
clients’ closest friend.” every industry. Though Bain has
been in these markets for quite a
What’s your strategy for Bain in the
while—we opened our first office
coming years?
in China in 1993—we continue
“We want to reinforce our position to invest in building our presence
as one of the world’s leading in both markets to serve our local
management consultancies. and multinational clients. Today
Therefore, our strategy has three we practice what we preach to our
cornerstones: clients, as we offshore parts of
1. We aspire to work closely with our research and analysis tasks to
change-oriented owners and top a Bain capability centre in Delhi.
managers to deliver lasting results However, we must not lose sight of

10
the importance of Japan and Korea all about generating higher growth
in the Asia-Pacific region as well. or higher profit—or both—in a
Our teams there will continue to faster and more sustainable way.
play a decisive role in expanding our Our goal is to help our clients make
business in these markets.” the right moves, in everything from
Where do you see growth crafting the big-picture strategy to
opportunities for companies in motivating employees to winning
Europe’s mature economies, like new customers, and in so doing,
Belgium? help generate lasting results for
their businesses. That’s why Bain &
“Contrary to what many people
Company exists!”
think, growth opportunities in
Europe are enormous. Belgium still Interview conducted by Anja Wittrup
has clear advantages, including its
location, excellent infrastructure,
good educational system, political
stability and solid economic
foundation. From that strong
base, Belgian companies that have
maximized prospects at home
can look for global opportunities,
strengthening their competitiveness Steve Ellis
in the worldwide market. Bain Silicon Valley veteran
is keen to support these Belgian
corporations as they seek new ways • Steve Ellis, 42, became the
to grow.” worldwide managing director of
Bain & Company in 2005.
Bain & Company says it follows the
“making companies more valuable” • He has been working for Bain
approach. What exactly does that in Silicon Valley since 1993 and
mean? more recently was the head of
Bain’s San Francisco and Palo
“This describes the primary Alto offices. At the same time he
objective of any Bain team in was a leader in Bain’s worldwide
any project with every client. I Technology, Telecom and Private
would define it like this: There Equity Practices.
are different ways to increase a
• He holds an MBA from Stanford.
company’s value, but in the end it’s

11
Making companies more valuable

Bain clients outperform the market 4 to 1. Bain & Company Belgium, Inc.
Blue Tower  24th Floor
Avenue Louise 326
B  1050 Brussels
Percent increase
in share price (1980=0) www.bain.be

6000

For more information:

Anja Wittrup
Tel : 32 (0)2 626 2612
Bain
clients
[email protected]
3000
Publisher:
Patrick Demoucelle
Printing:
S&P 500 Buroform
Copyright 2006
Bain & Company
0
80 | 82 | 84 | 86 | 88 | 90 | 92 | 94 | 96 | 98 | 00 | 02 | 04

Note: Methodology and data are attested by PriceWaterhouseCoopers

through December 2004

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firms, serving clients across six continents on issues of strategy,
operations, technology, organization and mergers and acquisitions. It
was founded in 1973 on the principle that consultants must measure
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have outperformed the stock market 4 to 1. With offices in all major
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For more information visit Bain.be.

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