Frameworks Flashcards
What should you consider for a company that wants to acquire another?
Broader market
* Market size and trends
* Competitive landscape - are they the preferred brand? who are the competitors? how large is the threat of new entrants?
Standalone value of company you want to acquire (valuation)
* Financial health: future revenue and cost (profitability)
* Expected market share
* Brand and reputation
* Monetisation opportunities
Synergies
* Management, products, brand
* How much would it help grow our revenue
* How much would it help reduce our costs
Capabilities and risk
* Do we have the resources to execute the acquisition
* What is the deal price?
* How will we finance the deal?
* Breakeven time?
* Return on investment?
* Legal reasons not to acquire
* Response of competitors
How do you calculate revenue?
Volume x price
What is the difference between fixed and variable cost?
Fixed - doesn’t change with quantity sold e.g. rent, insurance
Variable costs - changes with quantity sold e.g. raw materials, labour
What should you consider if a business wants to grow?
Grow core business (organic growth)
- Grow in current segments (acquire, retain, or increase spend of customers)
* Improve products
* Improve marketing
* Competitive prices - Invest in fastest growing segments
* Look at geographies, customer types, or product lines likely to experience fastest growth
*More sustainable and controlled form of growth
Grow outside core business (inorganic growth)
* New products to existing clients
* Use capabilities to get into new businesses
* M&A
* Quickly increases size but may present with integration issues and cultural differences
How can a company cut costs?
Reduce the need
* Eliminate need
* Reduce service level - minimum level that maintains customer attraction
Meet need with less resource
* Eliminate waste
* Improve productivity (performance metrics - clear KPIs for measuring productivity gains, technology integration, training programs)
Reduce resource cost
* Cheaper alternatives (offshoring, develop a strategy to source from multiple suppliers)
* Renegotiate - explore bulk or long-term contracts that secure lower rates, strategic partnerships - build relationships with key suppliers to foster loyalty and better terms
A company wants to enter a new market. What should we consider?
Client
* Financial health
Market attractiveness on its own and to our client
* Market size, growth, and profitability
* Who are the customers (segments)
Competitive landscape and potential share that can be captured
* How strong is competition?
* Threat of new entrants
* Customer needs, sticky features (hard to leave one product for another)
Strategy (capabilities), if hypothesising that we should enter this market
* Enter ourselves with the same business modela and develop capabilities internally (organic) [more sustainable and controlled form of growth, but high risk if it fails]
* Partnering or forming a joint venture with a local exisiting player (inorganic)
* Acquiring an existing company (inorganic) [quickly increases size but may present with integration issues and cultural differences]
* Barriers to entry (access to capital, distribution channels, raw materials, technical knowledge, human talent)
Risks
* Regulatory risk
* Response of competitors
Financial implication of entering this market
What other points should you consider if your hypothesis involves entering a market?
- When should the company enter the market?
First mover advantage or wait to see how competitors enter the market and learn from their mistakes - At what speed should you enter
Target small subgroup to test their product or entire market immediately
What other points should you consider if your hypothesis involves not entering a market?
- Is there another potentially attractive market that the company should enter?
- Are there other projects or investments that the company should pursue?
What should you consider when launching a new product?
Choose a target segment, and look at its:
* Size and growth
* Competition
* Customer needs
Marketing strategy - how will we make the product attractive
* Product itself - something people want
* Competitive price
* Promote
* Distribution (meet customer demand and satisfaction)
Implementation (launching the product)
* Production
* Logistics
* Aftercare (analysing performance and gathering feedback)
What should you consider when pricing a product?
Value-based pricing
* Customers’ needs
* Perceived value of the product
* What are people willing to pay (price lower than this)
Cost-based prices (price higher than this)
* Investment costs
* Fixed costs
* Variable costs
* What is the profit needed to breakeven?
Price of direct and indirect competitors
What should you consider before making an investment?
Impact on costs
Impact on revenue - how many additional sales you’d make
Implementation - how much work would it take to make this happen
Benefits and risks to the client and those affected by the investment
How should a company respond to a competitive threat?
Estimate impact of threat
* Break down into segments affected
* Estimate clients estimated to lose
* Credibility of threat
Look at competitor
* Size of opportunity for them
* Profitability for them
Make an informed response
* Do nothing - limited impact,
* Align to compete e.g. lower prices
* Replicate e.g. launch a new product
* Collaborate / acquire
* Take legal actions
How can a company optimise its current processes?
Map out current process
* Capacity of each step
* Full utilisation of each step?
* Is there a bottleneck limiting capacity?
Improve process at each step
* Eliminate the step
* Reduce cost
* Increase speed
* Increase quality
Estimate gains from changes made
Which of the 3 Cs affect supply and demand?
Supply : company, competitors
Demand: customers
What is the difference between industry and market with regards to academic frameworks?
Industry - supply side (company / services)
Market - demand side (customers)
