Writing a Best Practice Business Plan A Blueprint

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					Key analyses for determining the
business opportunity for ‘XXX’




2009
Example of a ‘problem statement’ and core ‘sub-issues’ to be solved


  Problem statement      Sub issues to be solved



                         • Market/ competitor analysis and novelina positioning

                         • Product and customer value proposition

                         • Business-model organization and processes required
  • What is the
   business
   opportunity for our   • Management team skills and capabilities required
   new product, ‘xxx’?
                         • Risks and mitigation activities

                         • Financial opportunity and returns analysis

                         • Implementation road map


                                                                                  1
Example of a ‘problem statement’ and core ‘sub-issues’ to be solved


  Problem statement      Sub issues to be solved



                         • Market/ competitor analysis and Novelina positioning

                         • Product and customer value proposition

                         • Business-model organization and processes required
  • What is the
   business
   opportunity for our   • Management team skills and capabilities required
   new product, ‘xxx’?
                         • Risks and mitigation activities

                         • Financial opportunity and returns analysis

                         • Implementation road map


                                                                                  2
SIZE OF XXXXX MARKET
€ millions

                                                                   11,000




                                             CAGR
                                       1990-2010 = 16.7%   7,000



                                                  4,000


                                        2,000

                         500


                      1990              1995      2000     2005    2010(E)



      * Compound average growth rate
Source: …                                                                    3
XXXX DISTRIBUTION CHANNELS, 2006
%

                Superstores
                                  15




                                                         55      Retail outlets
                          30
             Catalogs




                        Currently no novelina are sold online,
                        but experience from foars (15% online
                        sales and growing rapidly ) indicates
                        future online sales potential


Source: …
                                                                                  4
DEVELOPMENT OF MARKET SHARE OF XXXXXX
%




              1995         2000             2005


     Basic           100          20        0
    product


  Improved    0                        80       10
   product

     Even
     better   0            0                         90
    product

    Our
  novelina




Source: …
                                                          5
MARKET RESEARCH FINDINGS – POTENTIAL CUSTOMER NEEDS
%
                   % of population currently                  % of population liking their
                   owning XXXXX                               XXXXX

                   Don’t own              15                            Indifferent
                                                                               5
                                                               Don't like 20


                   Own                    85
                                                                                      75
                                                                                           Like




                                       Potential needs of novelina users*
                                       'Wish my XXX could …'
                                       'Wish it had more …'
                                       'Need help getting my XXX to …'
                                       'Wish I could buy more XXX within my budget ...'


      * Quotations from customer interviews
Source: …
                                                                                                  6
MARKET RESEARCH FINDINGS – IMPROVEMENT OPPORTUNITIES



            Potential customer needs         Improvement opportunities

            'Wish my novelina could …'       • Improve novelina ability to do A, B, C

            'Wish it had more …'             • Add options X, Y, Z

            'Need help getting my            • Better instructions
            novelina to …'                   • Toll-free number
                                             • 24-hour service

            'Wish I could buy more           • Scaled down, low-price novelina
            novelina within my budget ...'   • Cut price on existing novelina
                                             • Volume discounts




Source: …
                                                                                        7
WILLINGNESS TO SWITCH TO AN IMPROVED XXXX
% of respondents

       Would you switch to a nnovelina with improved features ...
    … at a higher price?          … at the same price?         … at a lower price?

                                                                    95
                                       90



            60


                      40



                                                    10
                                                                                 5


            Yes       No              Yes          No               Yes         No



Source: …
                                                                                     8
KEY FACTORS DRIVING CUSTOMER BUYING DECISION
                                                                  Rating
                                                                   0 Unimportant
                                        Options                    5 Important
                                        5                         Customer segment
                                                                       Option lovers
                                        4                              Value seekers
                                                                       Service seekers
                                        3

                                        2

                                        1

            ...                                                       Price
                  5   4   3   2     1             1   2   3   4   5
                                        1

                                        2

                                        3

                                        4

                                        5
                                  Customer
                                    service

Source: …
                                                                                     9
DEMOGRAPHICS OF TARGET CUSTOMER SEGMENTS
%
 Demographics             Option lovers                     Value seekers               Service seekers

 Age         20 - 30         10                                           35                     20
             30 - 40               20                                    30                                40
             40 - 50                         40                      25                               30
             > 50                       30                     10                           10

 Education   High                       30                          20                                     40
 level
             Medium                               50                          40                      30
             Low                   20                                         40                      30

 Buying      Catalogs         10                                                   50      10
 behavior
             Superstore                 30                               30                10
             Retail                                    60           20                                          80

                Older customers with              Young customers with high             Mid-aged customers
                medium education level            education level prefer                with average education
                shop in superstores and           shopping through catalogs             level strongly prefer
                retail outlets                    and superstores                       shopping in retail outlets

Source: …
                                                                                                                 10
XXXX INDUSTRY FORCES AT WORK

  Industry structure and economics                   Competitive conduct
  • Small number of competitors                      • Competitors crowded out as others
  • R&D and manufacturing scale                        upgrade product
    effects create barriers to entry                 • No price competition
  • Industry profitable                              • Innovation difficult and costly
  • Market growing

                                    XXX market is an
                                   attractive business
                                       opportunity


  Consumer demand                                    External factors
  • Consumer willing to trade up                     • Strong overall economic growth
  • Demand consistently growing                        fuels consumer spending
  • No substitutes for novelinas                     • Expected legislation changes in
                                                       2003 could additional fuel
                                                       consumer demand




Source: …
                                                                                         11
MARKET SHARE OF XXXXX COMPANIES, 2006
%



            Kings novelina Co.
                             5
                                                         • Significant barriers for
Wonaby                                                    entry into novelina
novelina       25                     Trinity novelina    market: high research
                                 40                       and development costs
                                                          and scale requirements
                                                         • XXX companies with old
                                                          product (e.g., Kings
                                                          novelina Company)
                                                          were quickly crowded
                                                          out of market
                        30

    John's novelina
    Co.




Source: …
                                                                                      12
ANALYSIS OF COMPETITORS
                                                Years since
                                                last
                              Current           novelina          Innovation      Capability
       Company                market share      innovation        expected        to innovate

       • Trinity novelina          40%                3             Possible
       • Johns novelina Co.        30%                5             No
       • Wonaby novelina           25%                6             ?
       • Kings novelina Co.         5%               10             No




                      • EFC's competitors generally are not expected to
                       innovate in the near future
                      • Trinity novelina has the highest capability to innovate
                       in the medium future, all other competitors have only
                       low to medium ability to improve their products in
                       response to EFC's novelina



Source: …
                                                                                                13
COMPETITIVE POSITION EFC vs. COMPETITORS
                                                                                                High
                                                                                                Low
           Skills                        Strategic assets             Special relationship
EFC           • Ability for low-cost        • Novelina patent            • Existing relationship
                production                  • Well-established             with some large
              • Extensive experience          brand name for foars         national retailers
                with foar production


Trinity       • Cost leader in current      • Patent for enhanced        • Novelina retail chain
novelina        novelina production           novelina

Johns         • Very good                   • Strong brand name          • Preferred supplier of
novelina        management                  • Patent for enhanced          medium-sized
Co.             resources as part             novelina                     supermarkets
                of the Johns
                conglomerate


Wonaby        • CEO left six months         • Partnership with           • Experimenting with
novelina        ago to Kings novelina         novelina research lab        selling novelina online
                Co.                         • License to produce
                                              enhanced novelina

Kings         • New CEO                     • Old production             • De-listed from
novelina      • Beginning turnaround          facilities (cannot be        Wesko supermarket
Co.                                           upgraded)                    two months ago


Source:
                                                                                                   14
SWOT ANALYSIS FOR EFC XXX’S FUTURE BUSINESS


  Strengths                                           Weaknesses
  • Low-cost production capability                    • Currently no experience with
  • Patent for faster novelina                          online selling
  • Well-established brand name for                   • No own retail activities
    foars                                             • No relationship with medium-sized
                                                        supermarkets


                                       EFC Novelina
  Opportunities                          Business     Threats
  • Fast-growing market: CAGR                         • Competitive reaction to market
    2000-2005: 9.5%                                     entry of EFC, including possibility
  • Profitable market: industry-wide                    of price war
    ROS 2005: 15%                                     • Competitors leveraging relation-
  • Customers' openness to                              ship to existing distribution channel
    innovation of novelina in the                       to block EFC's market entry
    past: market share of even-                       • novelina competitors attacking EFC
    better novelina in 2005: 90%                        on its home territory with entry into
  • Customers' willingness to switch                    the foar market
    to fast novelina in the future:                   • Product innovation through Trinity
    90%                                                 novelina


Source:
                                                                                          15
Example of a ‘problem statement’ and core ‘sub-issues’ to be solved


  Problem statement      Sub issues to be solved



                         • Market/ competitor analysis and novelina positioning

                         • Product and customer value proposition

                         • Business-model organization and processes required
  • What is the
   business
   opportunity for our   • Management team skills and capabilities required
   new product,
   ‘novelina’?
                         • Risks and mitigation activities

                         • Financial opportunity and returns analysis

                         • Implementation road map


                                                                                  16
NOVELINA VALUE PROPOSITION



                                      Product
          Customer need                                          EFC value added
                                      characteristics

          • More options           • Emotional styling        • 24-hour customer
          • Better performance     • novelina with              service for novelina
          • Lots of service          – Many new options         customers
          • Value for money          – Enhanced               • Leveraging experience
                                       performance              as low-cost producer of
                                                                foars to offer novelina
                                                                at today's market price




                             Value proposition
                             A better product with more options and
                             an innovative styling at the same price
                             as regular novelina, plus 24-hour
                             customer service

Source:
                                                                                          17
ESTIMATED CUSTOMER SEGMENT DEVELOPMENT, 2002-2006
'000 €
                                                                        CAGR*, 2002-06
                                                                        %
                                                               11,000        12
                                                       9,830
                                               8,780           3.500         15
                                       7,840           3.040
                               7,000           2.640
                                       2.300
    Option lovers              2.000
                                                               5.000          6
                                                       4.760
                                               4.436
                                       4.240
    Value seekers              4.000


                                                       2.030   2.500          6
    Service seekers            1.000   1.300   1.650

                               2002    2003    2004    2005    2006



      * Compound average growth rate
Source:
                                                                                         18
Example of a ‘problem statement’ and core ‘sub-issues’ to be solved


  Problem statement      Sub issues to be solved



                         • Market/ competitor analysis and novelina positioning

                         • Product and customer value proposition

                         • Business-model organization and processes required
  • What is the
   business
   opportunity for our   • Management team skills and capabilities required
   new product,
   ‘novelina’?
                         • Risks and mitigation activities

                         • Financial opportunity and returns analysis

                         • Implementation road map


                                                                                  19
ORGANIZATIONAL STRUCTURE OF EUROPEAN NOVELINA COMPANY

                                                                                Proposed new
                                                                                business unit



                                                  CEO




                                                                       Head of
                        CFO                       COO
                                                                     corp. center




                                                        Great foar
                                      Novelina SBU*
                                                           SBU




          * Strategic business unit
Source:
                                                                                           20
ORGANIZATIONAL STRUCTURE OF NOVELINA BUSINESS UNIT




                                 Novelina SBU



                                                      Systems
                          Sales and       Customer
          Manufacturing                               support/
                          marketing        service
                                                     back office




Source:
                                                                   21
 CORE PROCESSES – MANUFACTURING


                                              Produce             Package
                        Develop product                                                  Ship product
                                              product             product

 Key                   • Research and      • Purchase raw      • Develop package • Store bulk
 activities              develop product     materials           design                 product
                         innovations       • Operate plant     • Package product      • Load transport
                       • Understand        • Control quality   • Develop                vehicles
                         customer needs      of output           innovative           • Track orders and
                       • Test/pilot new    • Improve             promotion format       shipments
                         product             production flow   • Control quality of
                         innovations                             output

 Skills                • Strong R&D, tied • Purchasing         • Cost control         • Efficient
                         to marketing     • Cost control       • Quality control        packaging/
                       • TQM*             • Efficient plant                             loading
                                             operations                               • Transport
                                                                                        deployment

 Staffing                          2                34                  10                     10
 FTEs


      * Total quality management
Source:                                                                                                    22
CORE PROCESSES – SALES AND MARKETING

                         Understand                Develop         Develop
                                                                                  Sell to         Bill
                         customer                  marketing       sales
                                                                                  customers       customers
                         needs                     strategy        strategy

Key                    • Perform                • Gain in-depth • Prioritize   • Negotiate     • Send bills
activities               market          consumer                  potential     sales with    • Process
                         research        understanding             outlets       retailers      payments
                         – Surveys     • Define product          • Develop     • Conduct
                         – Question-     positioning               account       pricing
                           naires      • Develop                   plans         analysis
                         – Sales rep     ad/promotions                         • Close
                           feedback      strategy and                            contracts
                                         implementation
                                         concept
Skills                 • Quantitative/ • Advertising             • Sales       • Negotiation   • Accounting
                         analytic        expertise                 expertise   • Pricing        skills
                         analysis of • Marketing                 • Customer      analysis
                         data            expertise                 relations   • Sales
                       • Communi-                                • Communi-      experience
                         cation                                    cation
Staffing                       2                5                        5            37*                4
No. of FTEs

          * Including 35 field sales managers
Source:
                                                                                                              23
CORE PROCESSES – CUSTOMER SERVICE


              Maintain account                                       Respond to
                                           Operate phone center
              relationships                                          customer concerns

Key           • Select accounts to      • Schedule 24-hour shifts • Advise over phone
activities      focus on                • Train operators         • Send service reps to
              • Develop account plans • Monitor calls               customer
              • Schedule account visits                           • Operate in-house
              • Visit/call on accounts                              service center

Skills        • Account planning        • Communication           • Communication
              • Customer relationship   • Technical knowledge     • Technical knowledge
               management               • Operations efficiency   • Repair and maintenance
                                                                   know-how


Staffing                5                           8                          90
No. of FTEs




Source:
                                                                                             24
CORE PROCESSES – SYSTEMS SUPPORT/BACK OFFICE

                                               Operate               Service              Provide back-
                         Design systems
                                               systems               systems              office support

Key                    • Understand         • Run day-to-day      • Service            • Provide
activities               needs of             computer              malfunctioning       secretarial
                         manufacturing,       systems               systems              support to
                         sales, and         • Run help desk       • Repair equipment     manufacturing,
                         customer service   • Advise with                                sales, and
                         areas                technical support                          customer service
                       • Design support                                                • Provide legal
                         systems to meet                                                 advice
                         their needs                                                   • Provide
                                                                                         accounting
                                                                                         services*
Skills                 • Systems            • Technical skills    • Equipment          • Secretarial skills
                         expertise          • Communication        repair              • Legal
                       • Software design                                               • Accounting
                       • Programming
                         skills
Staffing                         5                    5                       4                    10
No. of FTEs

          * Partly outsourced
Source:
                                                                                                              25
NOVELINA BUSINESS UNIT STAFF POSITIONS

                                      Head of novelina                                  ( ) FTE
                                      SBU (1)


          SVP of              SVP of sales          SVP of
                                                                        SVP of systems/
          manufacturing       and marketing         customer
                                                                        back office (1)
          (1)                 (1)                   services (1)

                                                                          Information
            R&D                                        Major account
                                 Sales reps                               technology (14)
            specialists (2)                            reps (5)
                                 (35)

                                 Advertising and       Service            Human
            Plant
            personnel (50)
                                 marketing             mechanics (90)     resources (6)
                                 specialists (12)

            Quality control      Market
                                                       Phone reps (8)     Legal (2)
            engineers (4)        researchers (2)


                                 Billing
                                                                          Finance (2)
                                 coordinators (4)


Source:
                                                                                            26
Example of a ‘problem statement’ and core ‘sub-issues’ to be solved


  Problem statement      Sub issues to be solved



                         • Market/ competitor analysis and novelina positioning

                         • Product and customer value proposition

                         • Business-model organization and processes required
  • What is the
   business
   opportunity for our   • Management team skills and capabilities required
   new product,
   ‘novelina’?
                         • Risks and mitigation activities

                         • Financial opportunity and returns analysis

                         • Implementation road map


                                                                                  27
DEVELOPMENT OF KEY FINANCIALS, 2007-2012
                                                                 BASE CASE
          Revenue                      EBIT
          € millions                                       1,162
                               6,785   € millions



                       1,847
             65                         -144        -51

             2007       2009    2012     2007       2009   2012
          ROS                          RONA
          %                            %                    67

            -222         -3     17      -178        -17




            2007       2009    2012      2007       2009   2012


Source:
                                                                             28
FIVE-YEAR PROJECTION OF PROFIT AND LOSS STATEMENT
                                               BASE CASE
€ millions
                        2007   2008   2009    2010         2011
Revenue                   65    513   1,847   3,887        6,785

Expenses                 209    626   1,898   3,510        5,623
% of revenues            322    122     103      90           83
• Cost of goods sold      81    348   1,182   2,295        3,891
  % of revenues          125     68      64      59           57
• Marketing and sales     55    152     362     617          963
  % of revenues           85     30      20      16           14
• Administration          30     58     165     305          480
  % of revenues           46     11       9       8            7
• R&D                     43     68     189     293          424
  % of revenues           66     14      10       8            6

EBIT                    -144   -113     -51    378         1,162
% of revenues           -222    -22      -3     10            17
Interest                   3      8      12     12            12
Taxes                      0      0       0      5           340

Net income              -147   -121     -63    361          793
% of revenues           -226    -24      -3      9           12

Source:
                                                                   29
FIVE-YEAR PROJECTION OF CASH FLOW STATEMENT             BASE CASE
€ millions
                                   2007   2008   2009   2010        2011
Cash year in                         0      4      33     31         236
Sources of cash
Net income:                        -147   -121    -63    361         793
+ Depreciation (amortization)         8     12     19     85         103
Increase/decrease in
+ Trade and other payables           8      16    23      36          49
+ Employee benefit liabilities       5       3     6       8           9
+ Deferred tax liabilities           0       0     0       1          84
+ Long-term debt and loans          50      80    50       0           0
Total sources of cash               -76    -10   +35     491        1,038
Use of cash
Increase/decrease in:
 Trade and other receivables        14      54     62    156         227
+ Inventories                       38      12     24     83         155
+ Fixed assets                       3       8     12     12          12
+ Interest                          15       3     16     35          48
Total use of cash                    70     77    114    286         442
Increase/decrease in cash          -146    -87    -79    205         596
+ Financing (increase of equity)    150    120    110      0           0

Cash years out                       4      33     31    236         832

Source:
                                                                            30
FIVE-YEAR PROJECTION OF BALANCE SHEET – ASSETS
                                                       BASE CASE
€ millions


                                  2007   2008   2009   2010        2011
   Current assets
   Liquid assets                     4    33      31    236         832
   +Trade and other receivables    14     68     130    286         513
   + Inventories                   15     18      34     69         117
   Total current assets            33     119    195    591        1,462


   Fixed assets
   Gross value                     54    101     152    279         509
   – Accumulated depreciation        8    20      39    124         227
   Total fixed assets              46     81     113    155         282


   Total assets                    81    183     299    751        1,744




Source:
                                                                      31
FIVE-YEAR PROJECTION BALANCE SHEET – LIABILITIES
                                                 BASE CASE
AND EQUITY
€ millions
                                     2007   2008   2009   2010   2011

    Current liabilities
    Trade and other payables            8    24      47    83     132
    + Employee benefit liabilities      5     8      14    22      31
    + Deferred tax liabilities          0     0       0     1      85
    Total current liabilities          13    32      61   106     248

    Long-term liabilities
    Long-term debt and loans           50   130     180   180     180
    Total long-term liabilities        50   130     180   180     180
    Total liabilities                  63   162     241   286     428

    Equity
    Share capital                     150    270    380   380     380
    + Retained earnings              -132   -249   -271    85     936
    Total equity                       18     21    109   465    1,316
    Total liabilities and equity       81    183    299   751    1,744


Source:
                                                                         32
PROJECTION OF EBIT, ROS, AND RONA, 2007-2012
                                                 BASE CASE

                                                    1,162
          EBIT
          € millions
                                           378



                       -144   -113   -51
          ROS
          %                          -3    10        17

                              -22

          RONA
                       -222                50        67
          %

                                     -17
                              -62
                       -178
Source:
                                                             33
BUSINESS EVALUATION THROUGH DCF* METHOD
                                                                                             8,938
€ millions
                                                                                    1,162              BASE CASE




                                                                                                       NPV of
                                                                                                       free cash
                                                                              378                      flows is
                                                                                                       € 4,653
                                                                                                       million



                                                              -51
                          -144             -113
                                                                                            Residual
                         2008             2009              2010             2011   2012    value**
 Discounting
 rate                      30               27                24               21    18     15.5
 %


      * Discounted cash-flow analysis
     ** Last year’s cash flow with yearly growth rate of 2.5% discounted by 15.5%
Source:
                                                                                                               34
DESCRIPTION OF CASES



                        • Competitors (Trinity novelina, Wonaby novelina)
           Worst case     developing novelina in two to three years
                        • Market growth limited (3%)
                        • Price war driving down market price by 10%-15%

                        • Development as expected
           Base case




                        • Market exit of Kings novelina company
           Best case    • Market growth exceeding expectations
                          (15%-20%) mainly driven by introduction of
                          novelina
                        • Price discrimination for option levers by 10%




Source:
                                                                            35
COMPARISON OF EBIT, ROS, AND RONA BETWEEN CASES


                       Worst case   Base case   Best case


          EBIT                                    2,014
          € millions                  1,162
                          512


                                                   24
          ROS                          17
          %
                           5


                                                   85
                                       67
          RONA
          %               32




Source:                                                     36
BUSINESS EVALUATION THROUGH WEIGHTING CASES

                        DCF                    Probability
                        € millions             %




          Base case                  4,653                   60


                                                                  Value of
          Worst case                                              EFC's
                       -138                          20
                                                                  novelina SBU
                                                                  €4,008
                                                                  million
          Best case                    6,221         20




Source:                                                                          37
Example of a ‘problem statement’ and core ‘sub-issues’ to be solved


  Problem statement      Sub issues to be solved



                         • Market/ competitor analysis and novelina positioning

                         • Product and customer value proposition

                         • Business-model organization and processes required
  • What is the
   business
   opportunity for our   • Management team skills and capabilities required
   new product,
   ‘novelina’?
                         • Risks and mitigation activities

                         • Financial opportunity and returns analysis

                         • Implementation road map


                                                                                  38
IMPLEMENTATION ACTION PLAN AND TIMELINE
                           Month

Activity                     J     F   M   A   M   J   J   A   S   O   N   D

• Finish final product
  development
• Set up business unit
• Hire new staff
• Train new staff
• Begin production
• Develop marketing
  strategy/ads campaign
• Begin ads campaign/
  sales rep visits
• Roll out novelina

• Start up customer
  service phone center
• Send out account reps
• Follow up surveys with
  early customers
• Fine-tune product



Source:                                                                        39