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A division of a leading, publicly-owned industrial company recently went through a cyclical downturn. Its sales declined over 30% as market demand plummeted. Prices eroded as some competitors began bidding irrationally. Raw material prices spiked, driven by shortages of steel. Several competitors went out of business, and the Client’s division posted a financial loss.

During this time, the Client’s leading competitor, also a division of a public company, posted a somewhat milder sales downturn and claimed to earn a positive operating profit. The Client’s management team could not understand how their competitor could be faring so well under such challenging circumstances. They needed to benchmark their own financial performance against that of their competitor, but at a more detailed level than simply sales and operating profit.

Key Study Questions:

  • To what extent were differences in relative financial performance driven by top-line factors, such as product or customer mix, pricing / bidding issues, or related factors?
  • How did the Client’s cost structure compare to that of their best competitor? They needed to examine material, labor, PP&E, SG&A, etc., to identify potential areas of underperformance.
  • What can the Client do to improve its financial performance, both in down markets and as the market rebounds? Which of their competitor’s best practices could be duplicated or improved upon?
  • Armed with the answers to these questions, the Client was confident it could improve the financial performance of the company, in both good and bad times.

RSR Approach and Methodology

Exhaustive review of published materials: RSR thoroughly examined all pertinent SEC disclosures, trade publications, press releases and other industry research, both on the Client and on their competitor. This provided a solid foundation but lacked sufficient depth and detail to generate actionable recommendations for the Client.

Primary research interviewing with key industry experts. RSR used its proprietary, primary research interview techniques to generate more in-depth knowledge of the market and competitive landscape. Through interviews with key industry executives, we identified the key factors that were differentiating competitors’ relative financial performance.

Benchmarking. Armed with sufficiently detailed facts and figures, RSR compared the Client’s financials to those of their successful competitor on an “apples-to-apples” basis. We analyzed key factors individually to understand where the Client’s performance lagged, met, or exceeded that of their competitor. We challenged the Client’s assumptions about their own business, and we tested the validity of published materials regarding competitors’ performance.

Research Findings and Business Results

  • RSR presented the Client with a detailed written document that explained the financial performance of their key competitor, and benchmarked the Client’s operation against their competitor on a line-by-line basis.
  • We provided an in-depth examination of the following key financial metrics, benchmarking how the Client was performing relative to competition over a three-year period:
  • Sales by product type
  • Sales by market / customer segment
  • Sales by contract type (bid, negotiation, alliance)
  • Labor costs, including headcount, average wage rates, and total labor costs as percent of sales
  • Material costs, including total material costs as a percent of sales and the trend in material costs
  • Factory overhead, capital expenditures and depreciation expense levels and trends
  • >SG&A expenses, headcount, organization structure, and actions taken to manage these levels
  • Significant unfavorable gaps were uncovered in two of the above areas. In addition, we determined that the Client’s performance equaled or exceeded its competition in other areas that were initially assumed to be problems.
  • By understanding the root causes of their disappointing relative financial performance, the Client was able to prioritize and implement focused profit improvement initiatives. Armed with benchmarking data, they could see which areas required immediate attention, and where their performance was already as good as or better than their competition.

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