Using Vertical Integration to Drive Revenue and Margin Expansion
The Challenge
Tower Strategy Group's client, a global manufacturer of highly engineered materials, was interested in leveraging newly acquired expertise and capabilities from a vertical merger to drive value creation in the form of both revenue and margin expansion. Specifically, they wished to understand if there was an opportunity to leverage the combined entity’s capabilities to access a handful of specific greenfield product markets and whether and to what degree further vertical integration was necessary to both establish a defensible market position as well as to meet senior management and shareholder margin expectations.
The Solution
Tower Strategy Group partnered with client’s Executive Leadership Team to:
Develop an understanding of client’s business drivers, capabilities, guardrails, hypotheses and concerns relative to entire breadth of market opportunities under consideration
Use that understanding to ID and prioritize the most attractive opportunities available in global marketplace (e.g., the major geographic markets delivering growth, the customer segments generating that demand, the relative attractiveness of those markets, etc.)
For the highest priority markets, define what drives share, revenue and profitability (e.g., product quality level, quality of consultative sales and post-sales support, etc.)
Based on those revenue and profitability drivers, map the value chain requirements for developing a profitable, advantaged position within the market
Based on that assessment, develop 2-3 growth scenarios (i.e., business model alternatives) that would allow client access to the opportunities available
Recommend, in relation to client’s existing manufacturing footprint and target markets, where to locate to-be-built value chain capabilities across a range of options in India, Western Europe and Brazil
Impact
Tower Strategy’s consultation resulted in a data-driven roadmap comprised of three business model options with varying degrees of value chain integration and a margin increase of 125% by Year 3 of the forecast period. These alternatives, outlined over a staggered 3-year timeline, were not mutually exclusive but rather progressive in nature (allowing the client to implement option 1, followed by 2, and then by 3 if it so chose). As a result, the client gained approval to begin actively implementing the first business model option with the intent of building towards a fully integrated value chain in its selected markets (option 3).
