Business Framework
Consolidation Endgame Curve
OPENING
All industries consolidate and follow a similar course
through a 4 stage lifecycle. Using this framework, a
business can strengthen its consolidation strategies and
facilitate merger integrations. A niche player can also
determine the appropriate niche strategy to use and
when is the best time to be acquired. Every major
strategic and operational move should be evaluated with
regard to the industry’s stage in the Consolidation Curve.
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SCALE
Profitability drops to
lowest point in this
stage, because
consolidation is at its
highest velocity and
companies are
responded to
increased competition
with price reductions
FOCUS
BALANCE
+ Std.
Dev.
Avg.
Profitability
Std.
– Dev.
We see the highest
profit margins (other
than the start of the
industry), as the
market giants have
already eliminated
most of the
competition
All industries traverse through a 4-stage lifecycle, known as the
Consolidation Curve or Endgame Curve
Overview
The Consolidation Curve, or Endgame Curve, is a
framework based on the theory that all industries
consolidate and follow a similar course through the 4
stages of: Opening, Scale, Focus, and Balance &
Alliance. This framework is based on a study of
25,000 firms globally, representing 98% of the global
market cap. The Consolidation Curve shows that
merger actions and consolidation trends can be
predicted.
OPENING
SCALE
FOCUS
BALANCE
CONSOLIDATION / ENDGAME CURVE
Using the Consolidation Curve as guidance, a business can strengthen its consolidation
strategies and facilitate merger integrations. A niche player can also determine the
appropriate niche strategy to use and when is the best time to be acquired.
Every major strategic and operational move should be evaluated with regard to the industry’s
stage in the Consolidation Curve. Likewise, endgames positioning also offers a guide for
portfolioisoptimization.
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The duration of the curve varies from industry to industry. For instance, the automotive
industry has been around for 100+ years and only at the end of stage 2 (Scale). With that said,
it typically lasts 20-25 years.
4
For a business to survive through the industry’s evolution, it must acquire
or merge—it cannot solely rely on organic growth
Growth Strategy Implications
This is no optimal or maximum company size—to survive, company must just
continuously grow
Organic growth is not the route to successful growth—mergers are inevitable if a
business wants to outgrow its competition
There are few protectable niche markets—as all industries become global, niche players
will be consolidated during the Focus and Balance & Alliance stages
– There are successful niche strategies at various stages of the curve that companies
can adopt (more on this in the Niche Strategies section)
Each stage implies specific strategic and operational imperatives
Learning how to successfully integrate an acquisition or merger partner is quickly
becoming a core competence of successful endgame players (i.e. a top 3 company)
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business units across the different stages
A merger or acquisition should advance the resulting entity
along the curve
of subsidiaries and
Aside: very few mergers between major
technology companies have resulted in
increased shareholder value and
improved customer relationships
7
At the end of the Opening stage, the industry is the most saturated—by
Balance & Alliance, only about 10% of those companies still exist
Market Consolidation
Stage I
Stage II
Stage III
Stage IV
OPENING
SCALE
FOCUS
BALANCE & ALLIANCE
100%
% of
Companies
in Curve
10%
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5
10
15
20
Years
Continuous throughout Scale and Focus, we see a rapid consolidation process—smaller
companies are either swallowed up, merged, or go out of business.
Source: Winning the Merger Endgame, 2002
10
The operational focus and challenges change significantly from stage to
stage
Strategy and Operations
Stage I
Stage II
Stage III
Stage IV
OPENING
SCALE
FOCUS
BALANCE & ALLIANCE
KEY
Product quality and
STRATEGIC AND
production is still in infancy
OPERATIONAL
TRAITS
Systems and formal
Companies shift the focus Goal is now to maximize
from product development
operational efficiency
to financial ones (e.g.
Detailed operational and
optimizing capital structure,
planning are minimal to
strategic planning is
financing growth)
nonexistent
streamlined through the
Product quality and
course of this stage
At this point, the company’s
production have been
strategy is simply to survive
Cost reduction and
refined to confirm with
management initiatives are
The business is trying to
industry standards and
pursued to manage
generate enough cash to
defined customer
profitability and remain
cover the demands
expectations
competitive
Systems and processes are
Systems are now fully built
improved, but still lack the
out to accommodate
capability of handling
existing operations and
significant growth—this
projected future growth
issue is exacerbated as
companies merge and
need to also merge
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There is a looming,
continued risk of
commoditization from
competitors
For a successful top 3
player, continued
innovation is key
Companies build out
budgets, strategic planning,
management best
practices, and cost systems
(as needed)
While technology can significantly streamline operations and reduce costs, poor postmerger technology/system integration can become a company’s bane.
13
Contents
• Overview
- Stages of Consolidation
- Growth Study Implications
- Key Takeaways
• Consolidation / Endgame Curve
- Market Consolidation
- Revenue Growth and Profitability
- Strategy and Operations
- Management and Organization
• Acquisition Targets
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• Niche Strategies
http://flevy.com/browse/document/consolidation-endgame-curve-framework-201
- Case Examples
• US Airlines Case Example
16
Each quadrant of the VBG Matrix presents different key challenges
Value-Building Growth Matrix – Key Challenges
CHALLENGES FOR
SIMPLE GROWERS
• How to increase value
creation?
• How to increase focus on
core activities and
competences?
CHALLENGES FOR
UNDERPERFORMERS
• How to restructure and
align both strategy and
operations?
CHALLENGES FOR VALUE
GROWERS
Simple Growers
Underperformers
Value Growers
• How to maintain stamina
in “value-building”
growth?
• How to prepare for next
growth step?
CHALLENGES FOR PROFIT
SEEKERS
• How to break out of the
profit trap?
• How to capitalize on profit
gains already realized?
Profit Seekers
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In assessing an acquisition target, it is important to understand the key challenges in
relation to the management team’s ability to combat these challenges.
Source: The Value Growers, 2000
19
Contents
• Overview
- Stages of Consolidation
- Growth Study Implications
- Key Takeaways
• Consolidation / Endgame Curve
- Market Consolidation
- Revenue Growth and Profitability
- Strategy and Operations
- Management and Organization
• Acquisition Targets
This document is a partial preview. Full document download can be found on Flevy:
• Niche Strategies
http://flevy.com/browse/document/consolidation-endgame-curve-framework-201
- Case Examples
• US Airlines Case Example
22
Rolls-Royce adopted the Product/Target Group strategy, launching a
luxury car at the end of the Opening stage
Niche Player Case Study – Rolls-Royce
DETAILS
• When Rolls-Royce entered the automotive industry, the market was already widespread—in
fact, the industry was just coming out of its Opening stage
NICHE STRATEGY
Product/Target Group
Rolls-Royce is a car
manufacturer founded in
1906 by Charles Stewart
Rolls and Frederick Henry
Royce
It adopted a Product/Target
Group niche strategy, where
it produced cars exclusively
for the highest luxury class
• The strategy of both Product (cars) and Target Group (the wealthy) was an effective
strategy
• For many decades, the Rolls-Royce was the vehicle of choice for the target customer
group—not only for royalty and popes, but also dictators and leaders of the underworld
• However, after WWII, many of society’s wealthy class was hit hard financially, and as a
result, so was Rolls-Royce
• Despite the reduction of its target market, Rolls-Royce stayed with its niche strategy and
ultimately went bankrupt in 1971
• In 1972, the company was nationalized
• In 2003, the brand was acquired by BMW
• BMW is a master of the product/target-group strategy and positioned the Rolls-Royce brand
for the wealthy
• AllFull
of document
the interiordownload
engineering
vehicles
were replaced with BMW technology
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Rolls-Royce adopted the correct niche strategy, but sold itself 40 years too late—for a
company following a niche strategy, cash-out value is a key performance indicator.
25
Contents
• Overview
- Stages of Consolidation
- Growth Study Implications
- Key Takeaways
• Consolidation / Endgame Curve
- Market Consolidation
- Revenue Growth and Profitability
- Strategy and Operations
- Management and Organization
• Acquisition Targets
This document is a partial preview. Full document download can be found on Flevy:
• Niche Strategies
http://flevy.com/browse/document/consolidation-endgame-curve-framework-201
- Case Examples
• US Airlines Case Example
28
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