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Each material is used for packaging but differs in physical properties in terms of £04is. weight, ‘and general performance. Each material can be coated wth ay one of four or ive types of comical Conting which make the nts ‘more or less impervious to heat light, water, vapor, et. All of the machines on which these materials are made are housed in one enormous factory location. Each machine is capable of running any one of the ‘Various materials and /or coating combinations. Question ‘The client has asked us what combination of products he should run. How would you go about determining the optimal mix af potential products.on these machines? Minimal requirements Candidate should, at a minimum, address the following issues: 1 Are there market lmiations tthe potential production of anyone 2. Is there competition for these products? 3. Are there differences in Gost in the manufacturing ofthese materials? For example, do some coatings cost more than others? Do some materials have inherent cost differences? 4 Is there flexbitity in pricing of these products? Better answers ‘Additional questions and observations should include 1. Are there differences in setup time and cost for various materials ot coatings? 2. Do these materials move at different speeds through the machines? RECEIVED THE OV. 9, 12:53% PRINT TIME nov. 9, 12'S6 \Candidate Invrviewing Recruiting Cases 3 pee r Tite: ‘Merger Candidate in Chemical Industry ee Type Industry Analysis wee Purpose: To deterinine whether the candidate is able to structure a basic industry analysis. Background ‘One major chemical producer has retained MeKinsey to evaluate another major ‘participant in the industry. Both companies are bulk commodity chemical Producers. We have been asked to begin our work by analyzing the future, of the target. /s major product ‘aes include: ‘Production ofthis chemical has slowly dectined over the last ive years. Prices have dectined rapidly. 11. There are seven to eight major producers; the largest producer has 1 30 percent share; number two has 20 percent our target company has 38 percent; the restis divided among other ‘Taw ewo argent competion eam s small than: the AISEL SOeAnL probably at breakeven: rest are at break-even or loss. 1 Largest competitor has just announced construction plans for a major new modem plant. Question How would you go about structuring an analysis ofthe target company’s future prospect in this product ine? Minimum requirements Candidate should, at a minimum, address the following issues: 11. What markets use this chemical, and what has been the nature of ‘growth in these markets? (End-use markets were largely automotive: related.) 2. How much overall capacity exists now? (Far too much) RECEIVED TIE fev. 9. 12:53 PRINT TIME nov. 9, 32158Candidate Interviewing Recruiting Cases 5 Tie: Oil Field Service Equipment Type: Evaluation of Capacity Expansion Purpose: The case is designed to test a candidate's ability to structure an abalyzis to produce an elementary cash flow. Case fact are not important and you can substitute any industy for oil Geld services, Backgroumd McKinsey was asked by a large diversified manufacturing company to evaluate a ‘request fora capital appropriation from a subsidiary, ‘The request was for $500 million to expand and modemize a plant making equipment for oil drling. 1 The drilling equipment industry was large, growing quickly, and very prostabe, 1 The sub held about a 10 percent market share (third largest) ‘The domestic industry was losing share tothe Japanese, ‘T. Quality was a dominant selling point and a primary motivation for the ew expansion. Question you were on a McKinsey team faced with the problem and your engagement ‘manager asked you to sketch outa response, what would you say? Minimum requirements ‘A candidate should be able to respond that the desirability of the investment depends on the size and the probability of furure cash flows, which in turn will depend upon: 1, The level of demand (which is dificult to predict and subject to wide swings). 2. The company's relative cost posit. 3. The amount of available capacity. Better answers Better candidates should be able to push each element inthe logic tee several branches and sketch out an approach to analyzing each. 1. Demand - demand for oll field service equipment is clearly dependent on the level of drilling activity which in turn depends RECEIVED TE nev. 9. 12s PRINT TIRE nov. 9. 12:56Candidate Interviewing Recruiting Cases 7 Tide: Video Games Type Industry Analysis Parpose: To determine whether the candidate is able to structure abasic industry analysis ‘manufactures video games. ‘Specifically, he needs to know if he should approve 4 $200 milion capital rues for sgnicany expanding the divion’s eee (Question You area member of the McKinsey team assigned to this project. Assume you and Lare at the first team meeting. What are the citca issues we should plant amine and why? ‘Miniomam requirements ‘The following issues would need to be covered for the candidate to have done an acceptable job: 5 1. What Candidate needs to question the 2 What isthe compeitie outlook? Should at let recognize the need fo ‘concentration of market shares; control of retail channels; and R&D ‘capabilities (rate of new product introductions, etc.) 3. What willbe the price/ volume relationships inthe future? Issues of Prices need to be considered. RECEIVED TIME FOV, 9, 12:53 PRINT TIME nov. 9. 12:56RHCandidate Interoiewing Recruiting Cases 11 Title: Big 8 Accounting Firm Type: Service Industry Strategy Purpose: Test candidate's ability to fame proftabiliy and strategic issues fora profesional service fem Background MGnGey was asked by a Big 8 accounting frm to conduct a mujor strategy review. 1 Growth in accounting and auditing had slowed to 1 to 2 percent. ‘I There was increased competition far auditing cients. 1 Severe price pressure on auditing fees. ‘Questions ‘There are two questions to be addressed in this case: 1. Whats the most meaningful measure of protability? 2 Te market share important for ar accounting frm? If so, why, and at what level: national, regional, ot local? Answers: question 1 ‘The best answer to this question is given by those candidates who realize that Staff rations (leverage), I Staffutilization. 1 Biling rate. RECEIVED TIE tev. 9. 2:59 PRINT THE nov. 8. 12:55: Quark ion ee Yoo mar Romh Kio shee fe a smberrr me Title: Steam Boiler Hoses Type: Profit Improvement Purpose: To determine whether the candidate is capable and comfortable with constructing a logical framework which will expose opportunities for profit improvement Background McKinsey was asked by a diversified manufacturing client to help turn around the steam boiler hose division. L_ Boiler hoses are sold both with original equipment and as replacements. | There has been increasing price pressure in the industry 1 Last year, P&L showed (as a percent of sales): Raw material 70% Labor 20% Distributed overhead 10% SG&A 15% Profit (15%) Client is third of eight industry participants. At least two of the other companies in the industry are making moderate profits, L_ The raw material is a commodity petrochemical Question How would you structure analysis aimed at restoring profitability? Where do you expect to be able to save costs?Minimum requirements Weaker candidates will get bogged down in one of the following areas: 1. Drop the product line (apparently not possible because hoses are necessary for boiler sales). 7. Raw material prices (they are the same as everyone else's). 3. Allocation of overhead (not sufficient potential plus no cash savings) 4. SG&A (standard industry fee paid for independent installers). Better answers Better candidates will move beyond the previous answers to consider: A+ Scale economies (client is big enough to achieve scale production), A. Production technology (company has modern plant). 4. Labor costs - both wages and productivity. ‘4. Raw material purchasing practices. Outstanding answers The best candidates, following a logical progression, should stumble upon the actual answer: the product has been over-designed, requiring excess raw material. They should consider the following organizational implication J. How is our product engineering operation wired into the marketplace? 2. What kind of feedback are we receiving from our sales force? 3. Are there other areas in the company where similar problems exist?+ Qeeskra 3 Title: Video Games Type: Industry Analysis S,rrrr—~—“O_OOOOOOCSCOCSF able to structure a basic industry analysis Background team to examine the operations of a subsidiary of his corporation that manufactures video games. Specifically, he needs to knew if he should approve 3 $200 million capital request for significantly expanding the division's capacity Question You are a member of the McKinsey team assigned to this project. Assume you and Late at the first team meeting. What are the critical issues we should plan to examine and why?; Minimum requirements The following issues would need to be covered for acceptable job: 1. Whatis future market potential? Candidate needs to question the continuation of overall industry growth. He/she might ask about the saturation of markets, competitive products (home computers), and declining "per capita” usage. 2. Whats the competitive outlook? Should at least recognize the need to examine competitive dynamics. Issue areas might include: concentration of market shares; control of retail channels; and R&D capabilities (rate of new product introductions, etc.) F the candidate to have done an 3. What will be the price/volume relationships in the future? Issues of prices need to be considered. Better/outstanding answers No bounds on creativity, but better answers would address: 1. Market potential * Recognize that there is a relationship between market penetration and growth in new users which, when combined, yields an industry volume estimate. * Address the shifting mix of product purchases, in this case from hardware (player unit) to software (video cassettes). * Seek to look at buyer behavior in key buyer segments, ie., “fad” potential of product. 2. Software + Recognize technology standards are set by industry leaders. In this situation, the division as a secondary player will have to follow these standards. + Recognize that different distribution needs may exist for different i products (in this case, hardware versus software). 3. Price/volume relationships * Discuss the effect capacity additions can have on overall industry price/volume relationships and on industry price levels, 4. Company ability to compete * Should ask what the capacity expansion is designed to do. + Explore the cost position of the client division relative to that of other competitors. + Seek to understand reasons for poor profit performance of division.CHECKLIST FOR INTERVIEWER Please fill out this checklist after the interview + Logical structuring - Has the interviewee identified the key issues of the case? ~ Has he/she structured the problem solving process logically? — Has he/she forgotten items which could have a major impact on the solution? - Has he/she clearly isolated the different components of the solution and solved them in a logical order? ~ Has he/she generated creative and compelling arguments? * Business judgement ~ Does the interviewee make logical, broadly logical assumptions? ~ Does he/she get caught up and lose time in peripheral details? ~ Do the analyses/solutions suggested by the interviewee reflect solid “business sense”? Does he/she go beyond simply “solving the case”?Darden School of BusinessBEHAVIORAL INTERVIEW Questions ‘Amxiety over the ease interview can cause one to overlook the behavioral interview. The following information may help you prepare for the behavioral interview. In addition to the list of possible behavioral questions listed below, we have included the following brief suggestions gleaned from consulting behavioral interview workshops: ‘There are three general types of questions that are usually asked in a consulting interview: Fit, Resume, and Behavioral/Situaional Most interviewers will use your resume as a script forthe interview. ‘The interviewer wants to discern your typical behavior patterns and find repeated evidence of behavior traits considered important for the position. They will use this evidence as 2 proxy for future behavior. ‘You must know yourself and what you want. ‘Thoroughly understand both what is said and what is unsaid on your resume. ‘You must be knowledgeable about the firm as well as the requirements of the position ‘You must be able to organize your thoughts and answer questions in a concise and thorough manner. Find out why peopl like the firm by talking to their Darden alumni and the second years who worked there as summer interns, Be concise and don’t ramble. ‘Stes your role in any achievements. Develop an interview agenda that includes your most important relevant traits and accomplishments. ‘Try wo cover the agenda items not covered during the interview in a brief closing statemezt. Prepare for the interviews as you would for an MC presentation, Keep the interviewer interested with concise 2-3 minute answers to most questions. ‘Always give specific examples in the answer to very broad questions ‘Ask good questions at the end of the interview but don’t ask questions that you should already know the answer to. Fit With Consulting: Name the 3 reasons why you stand out from all of your talented classmates who also want te work in consulting. How does a job with our consulting firm fit into your long-term career plans? ‘What would be the biggest challenge to you about consulting? The biggest reward? ‘Why do you want to be a management consultant? How would you feel about being a small fish ina big pond? ‘What do you think about spending a lot of time on the road? ‘What would you like most about being a consultant? Can you work under pressure and how do you handle tension? You have been given a project that requires you to interact with different levels within the company. How 4o you do this? What levels are you most comfortable with? ‘With your background and your interest in consulting, why don’t you have more academic honors? ‘Why are you interested in our firm? Have you had any contact with people working as consultants with our firm? What do you forecast for our firm/industry inthe future? The Consulting Club at The Darden School of BusinessBEHAVIORAL INTERVIEW Questions Job before B-School: 1, What's the most interesting business problem you've faced in a previous job? 2. What did you like/dislike about your last job? 3. Tell me about the last time you felt anger on the job. 4, What are some of the things about which you and your supervisor disagreed? 5. How did your boss get the best out of you? 6 What have your other jobs taught you? 7. Tell me how you moved up through your last employers ranks. 8. What type of decisions did you make on your last job? 9. Inyour last job what were some of the things you spent most of your time on, and why? 10, In what ways has your job prepared you to take on greater responsibility? 11. What did you like the least about your previous job? 12, What did you like the most about your previous job? 13. How did you make a difference in your last job(or in college)? 14. Why did you choose your previous field? 15. What did you like or dislike about that field? (especially if you're changing fields after B-school) 16. What did you lea from your previous job(s) that you can apply to this position? 17. What did you think of your last boss? 18. Youhad a great job. Why did you quit? Are you sure you will not go back? 19. In what ways did your previous job (or summer internship) challenge you? 20. Tell me why you changed jobs before B-school (If applicable) Choice of Schools: 1. Why id you decide to anend Darden? 2. Why did you decide to attend a case school for graduate study? 3, We tied to hire people from your school before and they never seem to work out. What makes you different 4, I'd be interested to hear about some things you learmed in school that could be used on the job ‘Summer Job: 1, Tell me about your summer. 2. Were the recommendations you made to your suramer employer adopted? 3. You had a great job. Why did you quit? Are you sure you will not go back? 4. If you come work for us this summer, what will be your greatest challenge? Miscellaneous: 1. Whatare your top 3 strengths and weaknesses? 2. What is the most difficult thing you have ever had to do? 3. Why should I invite you toa party? 4. Discuss the most important event in your life. 5. Have you done the best work you are capable of doing? 6 How iong would you stay withthe company? 7. How long would it take you to make a contribution to our company? 8. Whatare your biggest accomplishments? The Consulting Club at The Darden School of BusinessBEHAVIORAL INTERVIEW Questions 9. How do you organize and plan for major projects? 10. What would your references say? 11, How do you take direction? 12. Tell me about yourself. 13, What kinds of things do you worry about? 14. How have you benefited from disappointments? 15. With hindsight, how could you have improved your performance. 16. What kinds of decisions are most difficult for you? 17. Are you willing to take calculated risks when necessary? 18. See this pen I'm holding? Set it to me. 19. Whatis the worst thing you have heard about our company? 20. I'm not sure you're suitable for the job. 21. Wouldn't you feel better off in another firm? 22. What would you say if1 told you your presentation this aftemoon was lousy? 23. What do you think are the most important skills a manager must posses? 24. Why was your intemship successful? 25. Tell me about something in college or a previous job that you didn’t like and what you did about it 26. Where would you rank yourself...top 10%, 20%, or where? 27. Based on what you know about our firm’s opportunities, does Darden prepare you well? How well? 28. Why should we hire you when there are so many people at Darden with better grades and more experience? 29. What was your biggest disappointment personally or professionally? 30. Who are your role models? Why? 31. Why should I hire you? 32, Who else has made you offers? Who else are you interviewing with? 35. Whats your job search strategy? 34, Are you aggressive? Can you take a tough stand? When have you been either tough or aggressive? 35, Why did you major in in undergraduate school? 36, What questions of yours can I answer? Example/Situation 1, Tellus about atime when you failed and what you leamed from the experience. 2. Describe 2 situation where your work or an idea was criticized 3. Have you ever encountered a situation in which you were wrong? What did you do to correct your ansiver? 4, Give me an example of when you led a team to achieve a major goal. 5. Give mean example of when you had to sell one of your ideas. 6. Givemean example of when you had to make a major presentation. 7. Give me example of when you had to confront a co-worker/teammate about performance. 8. Give me example of when you received negative feedback and how you handled it, 9. Give me example of when you applied your technical knowledge to solve a problem. 10. Give me an example of when you came up with an origina idea 11. Give me an example of when you leamed something new and applied itto solve a problem. 12, Giveme an example of how you have worked witha difficult person. 13. Give me an example of when you had to lead without authority. 14, Give me an example of when you took ask. 15. Give me an example when you showed initiative. 16. Give me an example of when you demonstrated creativity. ‘The Consulting Club at The Darden School of Business Page 24BEHAVIORAL INTERVIEW Questions 17. Give me an example of when you worked effectively with upper management. 18. Give me an example of when you had to sift through a large amount of data to perform an analysis and make a recommendation. 19. Give me an example of when you were involved with 2 team project thet didn’t go in the direction you ‘wanted it to go in and tell me whet you did to correct the situation. 20. Describe a difficult problem you've had to deal with 21, What would you do when you have a decision to make and no procedure exists? 22. Tellme about a difficult situation where you had to rely on your communication skills, Leadership/Teamwork 1. What things have you done to demonstrate your leadership abilities? 2. Describe a team project you've worked on recently. 3. What role do you usually play on teams? 4. What role did you play in your study group? 5, What kinds of people do you like to work with? 6. Whatkinds of people do you find it difficult o work with? 7, How have you successfully worked with this difficult ype of person? 8 Whatis an example of an experience in which you took on a leadership role? 9. How have you demonstrated initiative? 10. How would you define your leadership style? 11, Whatare some key lessons you have leamed about motivating people? 12. How do you get along with different kinds of people? 13. How do you motivate people to do things they don’t want to do? 14. Do you prefer working with others or alone? 15. How would your peers describe the way you interact with other people? ‘The Consulting Club at The Darden School of Business Page 25FRAMEWORKS Summary Ce Wruree A framework can help you "structure" your thoughts during a case interview so you don't confuse yourself and miss something basic to the problem. I's much better to cover all the basies and get the solution wrong than to miss @ A framework can also help you avoid the "20 Questions” mistake. You will lose points by asking a series of seemingly unrelated questions and then popping your answer out at the end. If you're brilliant (or you knew the answer from prior experience), you might impress your interviewer with your intelligence, but you will lose points ‘on the “structured thinking" scale, What is a framework? Each framework includes some kind of model ofthe business issues at hand and an implied logic leading to a set of business conclusions. The model is, in turn, composed of alist of things to think about and a set of relationships between those things. For example, one of the most often used, basic, and useful models isthe profit framework, a simplified form of the income statement. If your interviewer asks, "Our client would like you to help him figure out ‘why profits are down,” you can reply by building the profit model and applying the logic. ‘The profit framework includes the following parts: The (Simplified) Profit Mode! Things Profit, Revenue, rice, Volume, Cost, Fixed Cost, Variable Cost, Raw Materials, Direct Labor, Shipping & Selling, Overead Relationships Profit = Revenue- Cost Revenue = Price x Volume Cost = Fixed Cost + Variable Cost Variable Cost = Raw Materials + Shipping & Selling Fixed Cost = Overhead + Direct Labor (sometimes this is variable or semi-fixed) The Implied Logic of the Profit Model Businesses want to maximize their profi To do so, they must maximize revenue while minimizing cost. Maximizing revenue requires maximizing price and volume. Minimizing cost requires minimizing Fixed Cost and minimizing Variable Cost, etc. Ifa business has seen a change in prof, find out which ofthe parts changed, starting a the top level of Revenue & Cost and working down from there. The Consulting Club at The Darden School of Business Page 26FRAMEWORKS Summary (enone et eee cee ‘MeKinsey outlines 5 steps in their advice on handling consulting interviews (see separate handout): Step 1. State the problem (usually done by the interviewer) Step 2. Disageregate the issues Step 3. Eliminate all non-key issues ‘Step 4. Conduct critical analysis, altemating between data and hypotheses Step 5. Synthesize findings and build argument Frameworks are particularly useful in step 2, and shows up again in step 5. Itmay take one or two How do | use a framework? First, lit on your pad of paper the parts of the model (or just the major ones if you like). This becomes a sort of checklist to make sure you don't miss something important. Second, use the logic to work backwards from the question being asked to the relationships and parts of the model that could effect that issue inthe question. For example, here is possible use of the profit framework. Step 1. Interviewer: "Our client is a small manufacturer of plastic cups. He called us in because his profits ‘are 50% less than last year and he is very worried about the furure of his business. How would you look at this problem?" Step 2. You: [Applying the Intemal-Extemal framework} "First I'd want to know if the problem is with the company or the industry. Have profits across the plastic cup making industry dropped as well?” Interviewer: "No, his competitors seem to be doing fine.” ‘Step 1 again, You: "Then the problem is intemal tothe company. We need to look for the drivers of profi that changed in his company.” Step 2 again, You: "I like to look at the various revenues and costs to see where the problem might be How have revenues and costs changed over the last year?” Interviewer: “Revenues are flat or slightly up, but costs have risen." ‘You: "Has fixed or variable cost increased?” Interviewer: "He's not sure which of his costs are fixed and which are variable.” [Here you push down a level and adapt the framework to the problem at hand.) ‘You: “l would imagine that the major cost components inthis business would be labor, raw materials like plastic and coloring, shipping utility bills, depreciation on the machinery, marketing, ren, and managers Fularies In this situation, raw materials and shipping are probably the only variable costs. How have these costs have changed?” Interviewer: "Shipping has gone up 100%. Everything else is pretty close to last year's figures.” Step 3. You: "Then it seems we can rule out revenue and fixed cost, and we should focus on the shipping ppart of the variable cost.” ‘The Consulting Club at The Darden School of Business Page 27FRAMEWORKS Summary EEUROMECE ere} ‘Step 4. [The conversation continues as you analyze the drivers for shipping cost and find that shipment sizes dropped as customers try to hold less inventory.) Interviewer: "Great job. We only have a couple minutes left. Can you summarize what we have discussed and what we should do as a case team going forward?" Step 5, You: "Sure. We looked at the various components of his profit and found that the most Significant Change was a large increase in shipping cost due to smaller and more frequent orders. It seems that he will avert either pass on these costs to his customers by increasing prices with a volume discount, changing the way he bile for shipping, or finding a cheaper way to ship the product in small volumes. We should Jook deeper inte the shipping patterns to see which ofthese options looks bet inthe short and long te." ‘You might apply a second framework tothe results of your analysis with the first one. thus chaining them togehet Inthe example above, you might have discovered thatthe loss in profits was due to reduced sales volume, fo aon eelermine tet the company needed a beter marketing plan, you could apply some ofthe frameworks fom werheting to figure out what to do. Remember that the question asked is often not he answer needed (Le sought By the interviewer) Donat use a famework you do not understand well enough to explain to someone with an example. You are Hiely to make a mistake and/or show your ignorance. First Years will have seen only « few of the frameworks presented here by the time they interview, though mest of thom are covered by the end of the year (particularly in Strategy). If you don't understand framework, 8 @ Second Year to explain ‘The Consulting Club at The Darden School of Business Page 28FRAMEWORKS Overview ON Ziniom eer eed ‘Questions Answered! ‘Type of Case Source of financial difficulty ‘Profits are down ‘© What would happen ifI did X in my existing business Costs vs. Benefits ‘+ Why should client do/not do X? ‘Any decision involving existing choices Internal Factors ~ Why should dofnot do X? ‘7 Almost any case Extemal Factors ‘© What would you expect the result of action tobe? ‘Value Chain + Whereis the most value being added? = Compare two providers of ‘+ What are the economics built into a service: e.g. existing firm vs, product/service? start-up ‘+ Where should we focus our cost reduction efforts? Five Cs = What options are available tome andmy | » Strategy, Marketing competitors in a given market? STPE the Ps = How do we introduce a new product? = Marketing Porters Five Forees |» Is this an attractive industry/market tobe in? | Industry Analysis, ‘© DoThave a sustainable competitive advantage? ‘© What are the major forces trying to reduce | my profits? | Tndustry Attractiveness [= Why should(at) we be in a market? Business Expansion = Competitive Position |» Which divisions in our company should we ‘Cash Management in a Matrix invest in? Divest? Harvest for cash? Diversified Corporation (generalization of the Growth-Share Matrix) Forte's Diamond | Is county X atrasive asa bate of + Country Analysis operations? ‘Manufacturing > What should we focus our manufacturing on | © Manufactaring/Marketing to competitively satisfy the market? problems | ‘The brief framework write ups thet follow do not include EOQ, Supply-Demand, NPV, or any of the other dozens of tools you can in class because these are not frameworks in that they don't help you disaggregate the problem. Thave included only a few of the most generally applicable frameworks here, and may well have missed some great ones ‘out of neglect. My Recommendation: If you have time, read The 10 Day MBA, which was written by @ Darden grad. It's not great on everything, but it covers a lot of tools, frameworks, and basic ideas from a generalist perspective (and isn't that what Darden is about, anyway”). 7 Note that every framework artemps to answer the question, "What are the major factors to consider in this ease?" 2 Not much to say about this one - you've been doing it since high school. It has no write up here. The Consulting Club at The Darden School of Business Page 29FRAMEWORKS Types Esra ey ed Prot Made Prot aasnize) ——— 1 Revenue Coat rncmize) Cui) ——F_—— —— Pace Guay tix] [Producing Con Owenead ———t —— Fad Verso] [7 s@ea_] [eres] L{ taser] [[Rewntatera] Lf Deprecaton} L{ shipping Eneay ‘Note: usually the point of ab ss is not just to generate profit, but return on invested capita 18 $1,000,000 a year i great until consider tha I invested $50,000,000 to get it (2% return) Expanded Prott Model Retum on invested Capital (Maximize) —_-F Prof Invested Capital (Maximize) (Minimize) NetAssels |. may think making Net Warking Capital Food Capital [Cash + AIR + Inventory “AVP PPAE Cash [Accounts Recehabie “Accounts Payable Inventory More info: See 10 Day MBA or a corporate income statement. The Consulting Club at The Darden School of Business Page 30FRAMEWORKS Types ctu ar ae =e nese ‘This framework may be the starting point for many cases, and it may quickly lead you to another framework. Internal Factors (The Darden class list) Model A: Core Business vs. Overhead Core Business: Marketing & Selling ‘© OPS: are you efficiently making the thing desired by customers? ‘© MKTG: are you effectively reaching the customers you need to sell to? Overhead ‘+ ACCIOB: Is your internal accounting system creating inappropriate behavior? ‘+ STRIMC: Is your strategy appropriate? E.g. If the market wants low price, are you trying to compete ‘on quality? (3 generic strategies: price, differentiation, niche) Do the right people understand what the strategy is? FIN: Is your debvequity mix making your capital expensive (e.g. interest payments)? (OB: Is there some major trust or corporate culture issue holding you back? (e.g. union & management fights) Model B: 7S “The {deal company has « mutually supportive set of 7S characteristics. Structure should support stategy, systems should support improvement of skills, etc. More info: See 10 Day MBA. The Hard Triangle ‘Structure: Organization chart. Divisional boundaries. Vertical vs. flat. Geographic vs. product line Funetional vs. matrix, Strategy: whatever longer term plans the company is tying to execute. This drives operational decisions, Basis of competition: cost, differentiation, niche. ‘Systems: Formal and informal procedures for ‘+ Information: gathering, storing, processing, and moving information inside tc ‘enterprise and with the outside world. + Materials: moving stuff around + Financial: financial controls (e.g. cost accounting system) The Consulting Club at The Darden School of Business Page 31FRAMEWORKS Types SEUSS tc ne ee Coll The Soft Square Superordinate Gols (usually placed in the middle): What the organization says it is about, usually in a mission statement, 1) Profitshareholder value 2) Customers 3) People are usually important elements. ‘Style (Culture): "The way we do things around here". Conservative or risk taking. Numbers or ‘ut. Goal oriented or process oriented. Staff: HR systems - appraisals, training, wages, motivation, morale, atinude 'd) Skills: 3M's research ability. GE's ability to grow good management talent. P&G's consumer marketing prowess. External Factors Industry/Market * Industry capacity (over/under) + New products + Substiutes + New technologies ‘Changes in customers desires Outside the Industry ‘© Regulation (Government or other body) + Economy: uptum, downturn (BPE) ‘+ Related industries e.g. steel price -> car price) The Consulting Club at The Darden School of Business Page 32FRAMEWORKS Types ‘You must first figure out exactly which part of the chain you are looking at, If we are a automotive supply company, we own the chain from the bulk purchase of upholstery material, plastic and steel to the delivery of a finished car seat to GM. We do not own the chain from raw chemicals through plastic to nylon upholtey, nor do ‘we own the chain from car seat through car assembly to car sale. If you want to reduce costs, look at the biggest cost item in the value chain. Below, we should thitk about raw materials, assembly of parts, and the three material adaptations. The value chain implies these would be better targets for cost cutting than packaging the finished goods because they are larger (no one ever said frameworks had to be complicated - packaging up common sense is largely what consultants get paid to do). If you want to compare two competitors, think about how the elements of the value chain would be different for ‘each. For example, a small start up player in the industry will probably have a higher raw material cost because bigger competitors will negotiate for lower prices. The start up may have lower labor costs, however, because the ‘workforce hasn't had time to unionize. A company in the same state as the buyers should have lower vansportation cost than a foreign supplier. Here is amade up example for a car seat maker: Price: Y%of Value Chain for Pallet of Car Seat $200 _price Supplier 40 | 20% Profit Margin jo} 10 [3 ST 10 [3%6_| Package finished seat for shipment 40 | 20% Assembly of parts ‘Agaping Material 50 | 25% | Cutting & Sewing Fabric: $20 | ‘Welding Stee! Frame: $20 Forming Plastic: $10 Raw Material 50 | 25% Upholstery, Stee! tubing, Plastic pellets ‘You can drawn a value chain for a whole business chain as well (this is the compact form of the value chain, without the $ amounts): raw iron ore —> basic steel ->steel tubing ~>seat frame —>seat —>car._ You might say that the most value is being added in the seat —> car step, $0 you would expect the most money difference to be there, so we should expect whoever ov this step (the auto maker) to have the most control over this whole chain (which they do). More info: See 10 Day MBA T Some people might not consider shipping and other logistics costs as part ofa value chain because it doesn't add value that the customer cares about. The Consulting Club at The Darden School of Business Page 33FRAMEWORKS: Types Porter's Diamond ‘These four all tend to increased a county's ability to compete globally in a given industry because they all drive ‘innovation (these are usually drawn as a diamond with arrows between each point showing that they reinforce each other): Factor Conditions ‘These are the classic factors (land, labor, capital) seen through a new lens: Human resources: how educated & skilled are your people? (Hard to get) Physical resources: gold mines, harbors, farm land ... Require unsophisticated investment to yield profit Climatic conditions: hard to make a buck farming wheat if monsoons come every year Knowledge resources: what do people here know that few elsewhere do? (e.g. scientific research at universities) Hard to get. Location: being next to a big consumer, . Capital resources: how much do people save? Is your capital market efficient? Infrastructure: telecommunications networks, highways, rail, ports, NOTE: weakness in one or two of these can spur the country to work harder. E.g. Japan had limited capital after WW II, so it worked harder to be efficient with this capital Firm Strategy, Structure, Rivalry If firms compete a lot (i.e. reduce profits to compete for market share) they will tend to innovate on cost to try to capture greater profits. Demand Conditions Sophisticated customers who anticipate global tends are the most demanding. They will drive domestic producers to make the best products, which will then handily defeat other country’s players in non-domestic markets. Related and Supporting Industries Having the highest quality, lowest cost steel producers would tend to make your cars cheaper. Having 2 world-class fax making industry will end to put demands on the electronics parts industry, making it more effective. The Consulting Club at The Darden Schoo! of Business Page 34FRAMEWORKS Types EE ee NETO generalization of the BCG Growth-Share Matrix. ‘This is a two dimensional way to analyze a business mapping to the following two questions: 1, How attractive isthe industry? ‘© How fastis it growing? Faster is better. ‘+ How profitable is it (return on invested capital)? Higher is beter. ‘¢ How big is it? Bigger is better. 2. How competitive are we in this industry? © Whatis our market share? © Dowe have the leading product technology? # Do.we have the best operations to provide what the market wants (be it price, quality, performance, innovation ..) ‘+ How are we perceived by our customers The BCG model used marketshare as the primary measure for industry atwactiveness, based on a strong correlation, they had found between market position and profitability. ‘McKinsey altered this mode! by adding a number of other factors for the client to weigh, from legal risk to technology leadership. Competitive Strength High Low High [— Star 2 Industry CFtor- | CF:- Atractiveness Low | Cash Cow | Dog. cr:+ | CF +or- ‘Dog: Divest by selling the business or raising prices to reduce market share. Use any cash generated for Stars or question marks. Cash Cow: Hold by investing to maintain market share. Use net cash generated for Stars or question marks. ‘Star: Invest cash to expand the business, if needed. ‘Question Mark: Consider the future of the business: Can we invest to gain a better position in the industy? If so, invest cash from Dog Balance cash needed going forward to make this a star with cash available. Consider risk that this business may slip to Dog status ifthe industry becomes less attractive. eon a divisional level but can just as easily be done on a product level by changing "matket attractiveness", ‘This analysis is normal! ‘industry attractiveness” ‘Note: 2x2 diagrams usually put the most positive or interesting thing in the upper right quadrant. This matrix is peculiar in that respect (stars in the upper left) because it puts the focus on the question marks. More info: See 10 Day MBA. The Consulting Club at The Darden School of Business Page 35FRAMEWORKS Types This is from Ed Davis's Operations Strategy class, It can be used for manufacturing or service operations. The ‘whole theory is to much to explain here, but this i the part that can be useful to people who haven't taken the class. ‘There are 6 primary order winning criteria that a production system can focus on. It cannot focus on them all (as marketing would have you believe it must). Usually one or two is the maximum. Figure out what your market (oF targeted segment) wants, then focus your production system to get it. 1. Delivery: either being fast at tuming around orders or simply delivering on time. The less inventory the ‘customer holds, the more important this is. 2. Quality: Not Rolls Royce, but Toyota - everything sent to customers is within specifications. Very few or zero defects in shipped goods. If there is something wrong with your Rolls, they will be happy to come fix it for ‘you, but Toyota can't afford that so they standardize and nune the production process to the point that it puts out only acceptable products. 3. Price (ie. low cost): To the price sensitive customer, everything looks the same so why pay more for any feature? Commodities have price as their only order winning criteria. In the past many people assumed that quality (in this sense) was a trade off with price, but the Japanese ear manufacturers proved them wrong. Delivery, quality and price often go together. 4. Performance: Rolls Royce. BMW. Any product that does something better than the competition and which ‘customers are willing to pay for. 5. Flexibility: There are many kinds of flexibility, but this refers to the ability of a production system to adjust to changing product mix and volume quickly, easily, and cheaply. Cranking out 51 million copies of Elton John's "Candies in the Wind" for Princess Di in a few weeks required some serious flexibility 6. Innovativeness: Mountain bikes, computer hardware, clothes. Production systems that can quickly bring in new ideas and get them to market faster will win, Note that this is mot a measure of how creative the firm is. ‘Whether the idea came from the outside (competitor, government lab...) or inside (your own R&D, your plant floor, Marketing ..) doesn't mater. A fast follower that copies the leader's innovations and quickly gets them to market ranks high on innovation. The Consulting Club at The Darden School of Business Page 36FRAMEWORKS Types ‘Taken from the Harvard College Guide to Consulting Questions Pree es) ‘Another way to solve business problems is with the SCs method. The five “Cs” stand for company, cost, competition, consumer, and channels. This is the most elementary method or framework for answering ‘case questions. The advantage of this methodology is that it allows you to touch on all the key areas. Even if you don’t know @ lot about a particular company, you should be able to seem reasonably intelligent and well organized. However, the SCs have been around for a while and recruiters aren't particularly impressed with someone who just steps through them. If you use this framework, itis best to punctuate your answer with questions that initiate a conversation, so that your answer doesn’t se like a laundry list ‘The SCs are: 1 Company ‘What do you know about the company? What industry are they in? What kind of products or services does the company offer? What size market share does the company have? Costs What are their major costs? How can the company reduce them? How do their costs compare ‘with the rest ofthe industry? Competition ‘Who is the competition? How do their products compare to your clients? What advantages or disadvantages does your client have compared to the competition? What kind of marketshare do they own? Consumer or Customer ‘Who are their customers? How well do they know their needs? How well do they hs. customer service? How do they retain their best customers? How do they atract new ones? Who are their competitors’ customers? Channels How does the company get its product to market? What kind of distribution channels do they use? How can they increase the number of distribution channels? How much are they costing the client? Is there a better way to reach their customers/vendors? ‘The Consulting Club at The Darden School of Business Page 37FRAMEWORKS Types Taken from the Harvard College Guide to Consulting Questions DCR ‘The 4Ps, like the SCs, is an elementary framework. It consists of useful points that can inspire thought and generate conversation. However, as with the SCs, if you sound like you are listing off the 4Ps, your answer may be suitable, but you will most likely lose points for creativity. Product ‘What is the company’s product? What features should it have in order to satisfy the needs of the target customer? What is the company’s niche? Should the product be high quality or is a basic. mode! called for? How much will the product cost to design and manufacture? Who will make it? Price ‘What price are the customers willing to pay? How does the company determine price? How will their price compare to other similar products? Place How do they physically get the product to the customer? What distribution channels will they use? What distribution channels do their competitors use? How much will distribution cost through these channels? Promotion How do they plan to promote and market their product? How do the competitors market their products? What are the costs of getting this message out and how will the company pay for it? The Consulting Club at The Darden School of Business Page 38FRAMEWORKS Types ‘Taken from the Harvard College Guide to Consulting Questions Michael Porter’s “Five Forces” or RSL Le EAE) eles Ur Porter's “Five Forces” are brilliantly explained in his bestseller, Competitive Strategy. Please refer to the book for a more detailed account. Figure B shows a diagram of the five forces driving industry competition. ‘The state of competition in an industry depends on five basic competitive forces: 1 ‘The threat of mew or potential entrants: This includes new companies or acquisitions of ‘established companies by a new player. If barriers are high or if newcomers can expect entrenchment or retaliatory measures ffom existing competitors, such as a price war, then the threat of entry is low. According to Porter, barriers to entry include: economies of scale product differentiation capital requirements switching costs ‘access to distribution channels proprietary product technology government policy Intensity of rivalry among existing competitors Pressure from substitute products, i., sugar versus high-ffuctose com syrup and artificial sweeteners Bargaining power of buyers: “Buyers compete with the industry by forcing down prices, bargaining for higher quality or more services, and playing competitors against each other-all at the expense of industry profitability Bargaining power of suppliers: Forces 4 and 5 have to do with supply and demand. When there fare many suppliers but few buyers, the buyers have the upper hand, When there are many buyers but few suppliers, the suppliers have the advantage. ‘The Consulting Club at The Darden School of Business Page 39FRAMEWORKS ‘Taken from the Harvard College Guide to Consulting Questions Michael Porter’s “Five Force: (CeriTe)) Types FIGURE MICHAEL PORTER'S $ FORCES" Forces Driving Industry Competition POTENTIAL ENTRANTS Threat of new entrants Bargaining power of suppliers INDUSTRY | Bargaining power COMPETITORS | of buyers PY SUPPLIERS BUYERS ad Rivalry Among Existing Firms ‘Threat of substitute products or services |SUBSTITUTES The Consulting Club at The Darden School of Business Page 40‘FRAMEWORKS By Case Type 1 PROFIT IMPROVEMENT CASES Profit improvement cases can cover a wide range of topics in strategic analysis. Rather than simply repeating Porter's and Ohmae's models, this outline will give you some general ideas to consider in solving profit improvement cases. You will be able fo zero in on the main issues by using the 3 C’s. The three C's are costs, customers, and competition. The relationship between these three factors is summed up in the equation Profits = (Price - Cost) X Volume. Costs can be broken down into fixed and variable costs. An analysis of costs will vary greatly with the type of industry being examined. Possible areas to investigate will be suppliers, materials, plant utilization/investment, ‘quality control, economies of scale, and distribution. Changes in production methods can create substantial cost savings, but factors such as the negative effects ofthe learning curve will need to be considered if you're advocating large changes in operation procedures. Labor and marketing costs are also frequently relevant in profit cases, Price increases offer another way for companies to increase their profits. Three methods of pricing are: 1) Cost plus basis 2) Matching competition 3) Charging what the market will bear. Charging what the market will bear isthe most hcrative ofthe three choices. In order to be able to engage in this type of pricing, it helps to differentiate yourself from the competition. Segmentation by market, product, ‘geography, quality, ete. ean help distance a company from its competitors. In depth analysis of current market conditions and future industy expectations can help a firm establish @ position in a less competitive industry niche. Less competition translates into higher prices. The introduction of a ‘ew product or type of service can help a company price its goods at a high premium. The relative power of buyers ‘and the competition from substitute goods are other issues that can surface in cases. Volume is the third component of profit. Growth in current market share or expansion into new areas can help a future increase its volume. Changes in the product, sales network, marketing, and price can all impact on volume. Intangibles such as quality of service ean also be improved or marketed to help increase volume. Price, cost, and volume are all interelated, Companies need to find the best mix of the tree items and realize that improving one aspect can negatively impact the other two items, thus lowering firm profit, If a firm increases volume by cutting prices, what happens to profit? If increased volume necessitates higher costs through plant expansion, how is profit affected? These examples show that the analyst needs to balance the three ‘Components to find the best swategy for the company as a whole. The Consulting Club at The Darden School of Business Page 41FRAMEWORKS By Case Type 2. INDUSTRY ANALYSIS CASES Issues To Address: ‘What are the relevant markets, and what has been the nature of growth of these markets? ‘What does demand look like? What is the future market potential? ‘What are the relative cost positions of competitors? How severe is competition? Is there competition for the product? What would the likely competitive reaction to a new entrant be? ‘What isthe price competition like? Is pricing rational? Discuss the effects that an increase in supply ean have on industry price levels If an expansion is being considered, why is this so? What is the expansion designed to do? Why does the company need it? Is there a market niche to exploit? Is this relevant?” ‘Are there barriers to entry/exit? How often do companies enter/exit the industry? Are there economies of scale? Is there a learning curve? Are there any government regulations? What will the salvage value be if the firm does enters? ‘What is the real nature of the product and what are the potential substitute products? ‘Additional Information You May Want to Ask For: ‘What does the market share look like? In the relevant firm an industry leaders? Recognize that technological standards are set by industry leaders. If the firm is a secondary player, they will have to follow these standards. Who are the customers/consumers? ‘What is the sales history? What are sales like now? Is there a trend? What do Company X’s sales look like compared to Company Y's? How do costs compare across competitors? Are their economies of scale? What are the main cost:? What is the mode of distribution? If there is more than one relevant product, recognize that different distribution needs may exist for different products. How profitable has the industry been? How is it currently? Are there any trends? ‘What isthe tue nature of the product? Static? Constant revisions? Does success inthe industry require a lot of research and development? The Consulting Club at The Darden School of Business Page 42FRAMEWORKS By Case Type 3 MARKET EXPANSION CASES Example: A tele-communications compary that is switching from the defense industry to the private sector. Market Analysis Can they compete? Use Porter's Five Forces analysis. Use the basic supply/demand microeconomic analysis. Determine any future trends that may affect demand. How well does the Company's strengths match the new market? Need to define the market and its size? ‘What is the current competitive situation in the market? What value-added technology can the Company add? ‘Can the Company capture a niche in the market? Focus on the customer's preferences and current bebavior. Can the current sales force be effective? Financial Analysis ‘What isthe timing ofthe capital outlays? Focus on the Company's payback, Net Present Value (NPV), Can the Company gain enough market share to be profitable? How fast can the Company capture revenues? ‘What is the current capacity situation in the market? Is the market characterized by high fixed costs? How do margins compare in the two markets? ‘What price can the company expect the market to bear? ‘What possible pricing retaliation can be expected from the markets current participants? The Consulting Club at The Darden School of Business Page 43FRAMEWORKS By Case Type 4. PRICING CASES dentify the type of market: ‘Monopoly - You have significant control over prices. Set prices to maximize profits, but be careful thatthe ‘market doesn't become too attractive tothe competition. Consider the characteristics of the monopely and the barriers to entry. Oligopoly - You have marginal control over prices. Resist the urge to eut prices; your competition will likely match your price cut and then you'll both lose. Perfect Competition - Without any product differentiation, you will be a price taker. Issues To Address: Consider what the market will bear. ‘Think about the long-term effects of pricing decisions. ‘Think how the competition will respond to changes in pricing, ‘What isthe elasticity of demand? Consider the consumers sensitivity to price changes. Consider methods to create price discrimination. Consider using strategic tactics such as creating ‘loss leaders’ or ‘traffic builders." Be careful not to price too low, doing so could compromise the reputation of the brand, The Consulting Club at The Darden School of Business Page 44FRAMEWORKS By Case Type 5. _ INVESTMENT CASES General Example: Cases involving the decision of whether to invest ina particular product or market segment. Issues to Examine Sustainability of profits in segment. Market size and dynamics. Competitive position. Product differentiation and standards. Price dynamics. Distribution of costs Key Analytical Tools Profit-Tree analysis is probably the most useful. Porter's analysis: Identify company's comparative advantage. The Consulting Club at The Darden School of Business Page 45FRAMEWORKS By Case Type 6 WILDCARD CASES ‘The best advice for preparing for Wild Card cases is just to know basic demographic facts about the U.S. (©. U.S. population is 250 million). Recruiters just want to See your thought process when they give these type of eases, The Consulting Club at The Darden School of Business Page 46Stern School of Business The Case Interview Guide Fall 1997Overview ‘The purpose of this section is to provide a summary of standard business thought written by two of the more ‘respected and recognized authors in their field. It is important to note that student's should focus on the principles ‘and applications presented in the brief summary of several works presented below. In order to better understand the concepts presented in these outlines, you may find it useful to read the entire books by these authors. Porter's Five Forces The nature and degrees of competition in an industry hinge on five forces: ‘The threat of new entrants ‘The bargaining power of buyers (customers) ‘The bargaining power of suppliers ‘The threat of substitute products or services (Changes in the relauive standing or positioning among current competitors ‘The strength ofthese threats determines the profitability ofthe market: moomp> Threat of New Entrants Industry ‘Competitors Bargaining Bargaining Power of —s | Rivary Among J+— Poveof — Gee Suppliers EestagFinme Buyers Threat of Substitute Products i, Intense competition allows minimal profit margins fi, Mild compeution allows wider profit margins ‘The goal of the strategist is to determine whether a firm should enter/exit the industry or to find a position in the industry where the company can best defend itself against these forces or can influence them in its favor. Jt isnot a strong enough goal to simply find an ideal market position. Stern Schoo! of Business . New York University‘A. There are several sources of barriers to entry: i, Economies of Scale ii, Product Differentiation - Established firms have brand identification and customer loyalties iii, Capital Requirements iv. Switching Costs - One-time costs facing the buyer of switching from one supplier's product to another's ‘v. Access to Distribution Channels vi. Cost Disadvantages Independent of Scale Proprietary product technology Favorable access to raw materials Favorable location Government subsidies Learning and/or experience curve Government Policy viii. “The newcomers expectations about likely retaliation of the incumbents or the slow growth of the industry B.A buyer group is powerful if: i. Itis concentrated or purchases large volumes relative to seller sales fi. The product it purchases from the firm represents a significant fraction of the buyer's costs or purchases iii, The product it purchases from the industry are standard or undifferentiated iv. It faces few switching costs vy, Buyers pose a credible threat of backward integration vi. The industry's product is unimportant to the quality of the buyer's products or services vii. The buyer has full information CC. _Asupplier group is powerful if: i. Itis dominated by a few companies and is more concentrated than the industry it sells to fi, tis not obliged to contend with other substitute products for sales tothe industry fii, The industry is not an important customer of the supplier group iv. The suppliers group is an important input to the buyer's business 'v. The suppliers group's product are differentiated or it has built up switching costs vi The supplier group poses a credible threat of forward integration D. Substitute products that deserve the most attention are those that: i. Are subject to trends improving their price-performance trade-off with the industry’s products ii, Are produced by industries earning high profits. E. _ Rivalry among existing competitors increases if: i, Numerous or Equally Balanced Competitors ii, Slow Industry Growth iii, High Fixed or Storage Costs iv. Lack of Differentiation or Switching Costs aaa v. Capacity Augmented in Large Increments vi. Diverse Competitors Low High vii. High Strategic Stakes Tow Siable | Low Risky viii, High Exit Barriers: dow | Returns ‘Returns a. Specialized assets Entry b. Fixed costs of exit Barriers | pig | High Stoble | High Risky ‘¢._Strategic interrelationships Returns Returns 4. Emotional barriers e. Government and social restrictions a ‘Management Consulting Association The Case Interview Guide