Das Consulting Case-Boook

Initiiert durch das WHU 2000 Career-Management-Team

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Die meisten Beratungsunternehmen benutzen „Cases“ im Rekrutierungs-Prozeß. Die Interviewer erhoffen sich davon Informationen über die Fähigkeit der Kandidaten, ihre eigenen Gedanken zu strukturieren, sinnvolle Fragen zu stellen und zu plausiblen Lösungen zu gelangen. Dabei ist die Vorgehensweise mindestens so wichtig wie die Antwort selbst. Dieses WHU-Consulting-Case-Buch soll Euch bei der Vorbereitung auf solche Case-Interviews helfen. Ihr findet eine kurze Einführung in die Beratungsbranche (aus einer US-amerikanischen Perspektive); grundlegende Konzepte werden im Ansatz wiederholt und einige allgemeine Interview-Ratschläge sind aufgeführt. Den Kern bilden jedoch rund 75 beispielhafte Cases, die am besten in Probe-Interviews zu zweit geübt werden können. Grundlage für dieses Buch waren die von den Consulting-Clubs der J.L. Kellogg Graduate School of Mangement und der University of Michigan herausgegebenen Case-Sammlungen. Aufbereitet und zusammengestellt wurde es vom WHU 2000 Team Career-Management. Wir wünschen Euch viel Spaß bei der Vorbereitung und viel Erfolg in den Interviews! Wolfram Gerlof Carolin Torner Bernd Trautwein Robert Vollrath Malte Wulfetange

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Inhaltsverzeichnis
1 OVERVIEW OF THE CONSULTING INDUSTRY................................................................ 5 1.1 WHAT IS CONSULTING? .............................................................................................................. 5 2 CONSULTING ARTICLES.................................................................................................... 11 2.1 THE MANAGEMENT CONSULTING INDUSTRY ............................................................................ 11 2.2 REFLECTIONS ON FIRST-YEAR RECRUITING ............................................................................. 15 2.3 IS CONSULTING THE RIGHT FIELD FOR YOU?............................................................................ 23 3 4 5 OVERVIEW OF CASES......................................................................................................... 29 DIFFERENT TYPES OF CASES ........................................................................................... 32 FRAMEWORKS FOR CASES ............................................................................................... 33 5.1 GENERAL MODELS ................................................................................................................... 33 5.2 ADDITIONAL MODELS .............................................................................................................. 35 6 7 8 9 DOS AND DON’TS ................................................................................................................ 47 HOW TO PREPARE FOR THE CONSULTING INTERVIEWS?........................................ 49 GENERAL INTERVIEW QUESTIONS ................................................................................ 50 SAMPLE CASES .................................................................................................................... 51 9.1 CHINA PRODUCTS DIVISION ..................................................................................................... 51 9.2 HEALTHCARE COMPANY .......................................................................................................... 53 9.3 ELECTRONIC JOINT VENTURE ................................................................................................... 54 9.4 TELEVISION CABLE COMPANY ................................................................................................. 55 9.5 MAGAZINE SUNDAY SUPPLEMENT............................................................................................ 57 9.6 AMERICAN EXPRESS CHARGE CARD ........................................................................................ 58 9.7 TELEVISION CABLE COMPANY 9.8 CREDIT CARD DIVISION OF BANK ............................................................................................. 61 9.9 MOVIE RENTAL BUSINESS ........................................................................................................ 62 9.10 AUTO SERVICE STORES ............................................................................................................ 64 9.11 SPORTS FRANCHISE .................................................................................................................. 66 9.12 DURABLE GOODS DISTRIBUTION CASE .................................................................................... 67 9.13 BUSINESS FORMS CASE ............................................................................................................ 68 9.14 “HIGH-END” POTS & PANS COMPANY CASE ............................................................................ 69 9.15 PAPER PRODUCTS MANUFACTURER CASE ................................................................................ 71 9.16 PIANOS ..................................................................................................................................... 72 9.17 COKE VS. RC VALUE CHAIN ..................................................................................................... 74 9.18 FERTILIZER ............................................................................................................................... 75 9.19 AIRPLANE MANUFACTURER ..................................................................................................... 76 9.20 MYSTERIOUS AUDIOCASSETTE MARKET .................................................................................. 77 9.21 WINDMILL ................................................................................................................................ 78 9.22 BANK OF LUKE ......................................................................................................................... 78 9.23 CANDY COMPANY .................................................................................................................... 81 9.24 SKYSCRAPER ............................................................................................................................ 82 9.25 CONSULTING FIRM (I)............................................................................................................... 82 9.26 COSMETIC COMPANY IN EUROPE .............................................................................................. 84 9.27 SEMICONDUCTORS .................................................................................................................... 85 9.28 AIRLINE INDUSTRY ................................................................................................................... 86 9.29 OIL TANKER ............................................................................................................................. 87 9.30 FERTILIZER ............................................................................................................................... 87

........31 RETAIL ADVERTISING PRICING ............3 9...................................75 BEVERAGE COMPANY COST STRUCTURE...85 DELI MEAT PRODUCER .................. 134 9...................................................................................................... 130 9....... 111 9................................... 98 9.................................................60 LOCAL BANKING DEMAND ........................................... 124 9...........................83 PIPELINE COMPANY ............. 114 9.78 CIGAR BAR ..............................................................................42 MERGER CANDIDATE IN CHEMICAL INDUSTRY.....................................................................................................................................................................................................................82 INFORMATION SERVICES COMPANY .................................................................................................................................50 CABLE TELEVISION COMPANY (2) ............................................................................................................................................................ 123 9............ 146 9............................................................ 105 9... 131 9.......61 FROZEN DESSERTS ..................................... 133 9............................ 88 9.............................................................................................................................................. 92 9.......................................................................................................70 REGIONAL GROCERY STORE CHAIN .................................................................... 115 9.......................................... 94 9............. 120 9............................................................49 DIAPERS ............54 FRENCH PIZZA MARKET ....................................................................35 MEAT PACKING INDUSTRY ....................... 117 9..........................................................58 AIRLINE EXPANSION .......... 133 9.................................................................................................................................................................................................................................................................................................................... 128 9.57 PACKAGING MATERIAL MANUFACTURER...................................................................45 AGRICULTURAL EQUIPMENT MANUFACTURER ..................................... 142 9.................................................................................................76 PERMANENT LIGHT BULBS ........................................................... 125 9........... 126 9.......................................56 OVERSEAS CONSTRUCTION....................41 STEAM BOILER HOSES .........................73 CEMENT MANUFACTURER CAPACITY ADDITION ...................................................................................................................51 CHILLED BEVERAGES ............................................33 SCIENTIFIC INDUSTRY ........ 132 9.............................................. 120 9.. 128 9...................................................................................... 141 9..................68 SHIPPING CONTAINER MANUFACTURER ......................................52 DISTILLED SPIRITS ......43 MACHINE-LOADING CASE ...................................................................................................71 MAGAZINE DISTRIBUTION ........................ 138 9............................................................................................................................................36 PIANO TUNERS.. 107 9....................................47 CONSULTING FIRM (2) ................................ 136 9................................................. 137 9.............................................................................................55 GOLFBALL MARKET ENTRY ...............................48 POTS & PANS (2) ............ 127 9............64 TELECOMMUNICATIONS DIVERSIFICATION ............63 CHEMICAL SWEETENER MANUFACTURER ....... 129 9.................................................................................................................................................................................................. 96 9.........................................................................80 CASTOR MANUFACTURER....................... 119 9................................................................................................ 121 9........................................................................................................................................................................ 148 ......................................................................38 CORN FEED COMPANY ................................67 CONCRETE MANUFACTURER ................................... 143 9... 119 9....................................................................................................................................................... 135 9.............69 HEALTHCARE COMPANY GROWTH ............................... 118 9...................59 HEALTH CARE COSTS ........................................................46 INSURANCE COMPANY ......................................... 116 9............................................39 SELECTIVE BINDING CASE .72 KNITTING MACHINE DEMAND ........................... 112 9.................66 FILM PROCESSING ............................... 144 9............................................................................................... 140 9..............................................77 SUPER REGIONAL BANK ......................... 103 9................................................................... 114 9..........................37 CONSULTING FIRM STRATEGY .......................................................................... 124 9................................................................................................ 89 9...53 CHEWING GUM MARKET ...............................................74 SNACK FOOD COMPANY ................................................................................................................................................ 122 9......................................34 ALUMINUM INDUSTRY ..... 93 9....................62 DIRECT MAIL RETAILER ...........................................................79 NEW MAGAZINE .................................................................................32 AUTOMOBILE INDUSTRY .....................84 AUTO MANUFACTURER .................................................................................................................... 100 9.................. 115 9.................. 121 9....................... 109 9..............44 OIL REFINING INDUSTRY ....81 LOGGING COMPANY .................................................... 90 9.....................................................65 ALUMINIUM CAN MANUFACTURER .......40 VIDEO GAMES ........................................................................................................

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. To obtain information about where the company stands in an industry. consulting firms classify their services into of three categories: Strategy. 1.1 Why Do Companies Hire Consultants? There are several reasons that firms hire consultants: 1. To provide resources to address a specific problem.1 What is Consulting? By the University of Chicago Graduate School of Business Management Consulting Group: 1 In this section. 3. provided that you come with specific questions you would like answered. so the consulting firm delivers what is perceived as an objective analysis. Business Process Reengineering (or simply "Reengineering") and Specific Services. consultants may offer labor power to coordinate and execute an implementation. the consulting firm may have done similar projects in the past for comparable companies. These categories are not mutually exclusive and the distinctions can easily blur. Consulting firms can avoid the day-to-day distractions that the clients' managers cannot. Further.1. To obtain an objective viewpoint regarding a given business problem or issue. 2. Consulting firms often develop benchmark data on the performance of industry average and best-in-class companies in order to provide expert advice regarding performance improvements. Additionally. the types of consulting. we will provide an overview of the profession. This perspective can be important for motivating employees to change. In effect. Understanding each firm's approach to consulting services is extremely important to landing a job – that is why corporate presentations can be so valuable. projects. 1. Consultants are relatively unaffected by a company's politics or the way in which business was conducted in the past. For example.5 1 Overview of the Consulting Industry 1. Please note that portions of the article that were only applicable to the Graduate School of Business (at the University of Chicago) have not been included for the convenience of the reader. Often. and how consulting firms are structured. 4. clients simply do not have enough time or resources to devise solutions to certain problems. To utilize the specific expertise of the consulting firm. the consulting firm may offer an industry authority to which the client would like access.1.2 Consulting Project Types Generally. there are as many different types of consulting projects as there are business 1 This article was obtained from the 1997-1998 Resource Guide prepared by the Management Consulting Group of the University of Chicago.

Generally. Implementation is a major issue among consultants today. For example. For example. Reengineering engagements more often include an implementation phase in a project than do strategy engagements.1. Others require only sporadic assistance for portions of the project. client personnel become an integral part of the consulting project.2 Business Process Reengineering The term reengineering has been popular since Hammer and Champy's book Reengineering the Corporation became a best seller. they ought to assist the client in implementing the solution.2. There is a definite trend in the consulting industry toward having consultants assist in implementation. Consultants who permit the client to implement a solution believe that success will be realized when the client is forced to take ownership of the solution. In extreme cases. increase quality. through benchmarking against similar companies.2. Regardless of project type. 1. On the other hand. or deciding what services the company should provide ten years from now are examples of strategic projects. After recommending a given strategy. if not the practice. other consultants argue that. Firms follow very different approaches to involving client personnel. 1. Most consulting firms will perform a "Five Forces"-style or value chain analysis (both from Michael Porter's book Competitive Strategy) to evaluate all strategic options available to a firm and determine a suggested or potential course of action. a strategy project involves a "life cycle crossroads" for the client. the project would either conclude or lead to an implementation phase. etc. In fact. There is nothing mystical about the term . client involvement is extremely important to the eventual success of any project.1 Strategy Consulting Strategy is the most difficult type of project to explain. since responsibility for the direction of the company lies there. A consultant would then analyze the individual steps of the order fulfillment process and determine ways to cut time. consultants are being judged by clients on their ability to implement change. because it means different things to different firms.1. but keep in mind that it is impossible to describe the full spectrum of consulting services in this Guide. For example. more often than ever. . Some recent literature suggests that reengineering is losing favor and that certain firms are distancing themselves from the term. enhance customer satisfaction. some firms require a certain amount of full-time client resources dedicated to the project. A strategy consulting engagement will typically involve the highest levels of the client's organization. This would include a detailed financial projection of the different scenarios.6 problems. We will try to explain each of these types in some detail. A revised process is determined and then proposed to the client. because their firm was instrumental in developing the solution. a firm may decide that it takes too long to fill customers' orders.it simply means taking an objective look at the way in which a business is run. such as financial analysis or engineering problems. determining if the client should expand its product line or focus on existing products.

Overseas Expansion . The financial backers of the new hospital would rely on the consultant's findings before proceeding with construction.g..1.2. 1. 1.2. provide economic analysis. Although the various issues relevant to this type of consulting are innumerable. with firms competing to build a client base in various countries. in the healthcare consulting field. 1.1. Range of Services .3 Specific Services Another component of the consulting industry concerns itself with specific tasks and expertise needed by clients.8 Other Industry-Specific Services Many niche firms fall into this category.1.5 Human Resources Consulting Human resources (HR) consultants help firms make compensation decisions and offer insights on benefit packages.Much of the growth in the consulting industry has been international.Many firms have moved toward offering a broader range of services (e. economic forecasts.1.7 1. pension funding. downsizing. Mergers and expansions are fueling this trend. and strategies for creating shareholder value. and reengineering phase of the 80's and early 90's.1.4 Technology and Systems Consulting Systems consulting is chiefly concerned with giving clients advice about the ideal configuration of their information systems.2. consultants are often asked to justify the need to build a new hospital (a "feasibility study").1.3 Trends Growth .Major consulting firms have been boasting double-digit rates of growth.7 Financial Consulting Finance consultants provide guidance to corporations and money managers in the areas of securities pricing. and employee development.2.6 Litigation Consulting These consultants work with law firms to plan case strategies.2.1. and develop courtroom tactics and/or evidentiary presentations. For example. Executive compensation is a hot topic in HR consulting. strategic projects have developed around continued growth and expansion overseas. strategy through implementation). a few specific areas are currently prominent: 1. Decreasing Growth of Strategy Consulting – After the restructuring. 1. the introduction of client-server computing. 1. and software and hardware purchases. .2. workplace diversity.

1. and analyzing the information to draw conclusions.1. At the senior associate level.4. consultants. The associate is usually given the role of information gatherer. the principal also begins to take on administrative duties within the firm. The senior associate will manage client team members (if applicable). The associate is typically given very broad directions and is expected to be creative and thorough in collecting relevant information. the associate may manage a subgroup of client team members. the project budget becomes a concern. with approval from the managing partner on the engagement.3 Senior Associate / Engagement Manager The senior associate or manager classification implies day-to-day supervisory responsibility on engagements. The ultimate responsibility for a project's success falls on the partner's shoulders.1. Associates are often asked to present part of the project team's findings to the client because associates are typically most familiar with the data collected.4. Frequent contact helps to ensure additional projects in the future. 1. This will typically involve research.1. but the responsibilities are generally similar.1 Business Analyst I Analyst These positions are not held by MBAs. 1.4 The Structure of Consulting Firms Most firms will have very few job classifications. but particularly in this case because the principal typically has the most frequent contact with upper level management. Titles vary by firm.4.5 Partner/ Director/ Vice President Partners are responsible both for negotiating engagements and for reviewing the work generated by those engagements. The principal is responsible for setting the direction for a project.4. obtaining information from clients via interviews and/or financial data. The following are the basic classifications and job descriptions: 1.1. and business analysts on the project. The analyst's responsibilities range from research and data gathering to functioning on a level equal to post-MBA consultants. The business analyst position is typically held for 1-3 years between undergraduate and graduate school. With several projects to oversee at once in .1. These conclusions must usually be presented to the rest of the project team in the format of a presentation. In projects where there is a client team.8 1. Client relationships are critical at all job classification levels.4.4 Principal /Associate Partner / Senior Manager Those at the principal level are required either to manage several projects simultaneously or one large project full-time. In many cases. 1. but rather by the most capable individuals right out of top undergraduate programs. 1.2 Associate / Senior Consultant Entry-level for MBAs.

For internships.to four-year mark. If you have lifestyle concerns. Second. it may not be possible to “have it all. some firms have recently instituted part-time programs. A partner's travel schedule is generally more hectic than that of the more junior consultants.000 in the most recent recruiting year. It is also possible to ask lifestyle questions of recent alumni or second-years that interned at the firm in question. so do not be shy about asking tough questions concerning the amount and frequency of travel and other lifestyle concerns. many firms have institutionalized Fridays in the office or allow consultants to work from home on Fridays. Given the high investment made by consulting firms in developing personnel.000 to $25. etc. Contrary to popular belief. A new employee is sometimes eligible for a performance bonus after the first year. the best time to ask these questions of firms is during the recruiting receptions. Most of these programs only require three days of work per week. being in a position of responsibility usually translates into long hours in the office and frequent travel. For example. . These receptions are extremely low-risk.1. Since only about one percent of consultants go on to become partners. they typically receive job offers from clients and frequent contacts from corporate recruiters. what happens to the other 99 percent? There are two main reasons for the attrition. To reduce the out-of-town burden. For some people it is. The partner attends important meetings with senior client managers. 1. In short. if a spouse or children are in the picture.5 Compensation The median salary for full-time consulting positions was $85. These people are known as partners. most firms offer a signing bonus of $10. consulting firms usually pay the monthly equivalent of their full-time salaries. firms have implemented programs designed to lessen the burden on consultants and.9 addition to their marketing duties. consulting looks like the ideal job: immediate responsibility. First. To address concerns about raising a family. the partner may only periodically visit each client site. Keep in mind.000. since consultants are in such high profile positions. compensation is outstanding compared to what most of us were being paid before business school.” The greatest amount of attrition occurs around the three. This limits their being away from family and friends only three nights per week.1. however. theoretically. opportunity to make a difference. some firms will pay for the second year of business school (and recently. it is very hard to be rejected because of one's performance at a reception. Other firms have a more office-intensive style that involves going to the client site only when necessary. when consultants have gained enough experience to be offered positions involving a better balance of work and personal life at the same or higher compensation. partners are often the hardest-working consultants in the office. As the partner juggles several projects at one time.6 Lifestyle So far. reducing attrition can save a lot of money. In addition. Lately. 1. one firm offered to pay for both years of business school as part of their full-time offers to summer interns). that first-year total compensation is usually much higher. This does not leave much time for a personal life. Also. prevent valued employees from wanting to look elsewhere. excellent pay.

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This skewed size distribution reflects the low barriers to entry to this industry: anyone can hang out a shingle bearing the title "Consultant. Such a large. another quarter come from Europe. while enjoying a more direct career path into line management. often serving a single client. 1988. This article describes how the management consulting industry can be segmented and identifies some important trends in the industry with attendant implications for those intending to pursue a career in management consulting. and one-third employ fewer than four people. .1. Whether these firms are attractive starting points for new consultants is debatable. Data estimates are from Consultants News. while an estimated three-quarters of all consultants work in firms employing more than 100 professionals. If the typical consulting firm is small. and probably most significant. February 13. downsizing. Contrary to the prevailing belief. Corporate policies of early retirement. since they lack both the breadth of clients and depth of support of the big firms. Collis David J. often one-person. dynamic industry is by no means homogeneous.11 2 Consulting Articles 2. While management consulting fluctuates with the business cycle. 7. While the industry definition. many large corporations have their own internal consulting arms.1 The Management Consulting Industry By David J. usually affiliated with a planning department. however. p.1 Segmentation The first. strictly speaking. the typical consultant works for a large firm: the fifty largest consulting firms in the United States account for approximately three-quarters of domestic revenue." and many former executives do just that. operations: half of all consulting firms generate less than $500. however. many of these small shops exist. 2 generating about $25 billion in annual revenues. and. Professor Collis has extensive experience with consulting firms. Collis is an assistant professor of business administration at the Harvard Business School and faculty adviser to the Management Consulting Club. A second and often overlooked distinction in consulting is between in-house and external consultants. Most consulting firms are small. 3 Just over half of these consultants come from the United States. veteran consultants often end their careers in their own consulting firms. and outsourcing have created both the supply and the demand for independent consultants. June 1992.000 people worldwide work full-time in the management consulting industry. and various earlier issues. Approximately 100. However.000 in annual billings. Internal consultants perform essentially the same functions as external consultants. the industry has nevertheless grown more than twice as fast as GNP for the last decade. way to segment the consulting industry is to compare large and small firms. only I in 1000 consultants makes a direct transfer to a top executive position in a client organization 2 3 Economist survey. covers only outside consultants. 2.

and ensuring that it matches your interests. organization design. Among the world's top twenty 4 Journal of Management Consulting. 3. Transfers at junior levels are common. A last distinction among consulting firms is their degree of internationalization. it is usually not representative of a profound difference in the type of work the firm undertakes. Some specialists in "change management" exist.S. consulting firms fall into this category. or government. most consulting firms generate the majority of their revenue from one type of work. 4 Internal consulting can be an attractive option. but most of the 20% annual rate of turnover among consultants is not due to consultants being hired by clients. but even they would like to be involved in developing the direction of change. such as BCG and Bain. This area includes the generalist management consultants. Summer 1984.12 and only then after many years in the consulting firm. The other functional or industry specialists in consulting tend to be small. the generalist consultants concentrate on higher value-added consulting for senior management. for the most part. and differences between them are now of degree. Of these specializations. with annual billings exceeding $1. which is. the domain of the accounting firms: six of the ten largest consulting firms in the world are the consulting arms of the big six accounting firms. health care. All firms in all categories of consulting recognize that their role must involve effecting change in the client organization. logistics. or management education . For those who are not convinced that consulting is a lifetime career but who want a variety of experiences and exposure to senior management problems at an early stage in their careers. but the extent of non-domestic business varies substantially. The second largest specialization is compensation and benefits consulting.5 billion. these firms generate over $3 billion in billings annually. Understanding how each consulting firm specializes. Although these firms are ostensibly full-line consultants. Booz Allen. albeit in a more limited number of settings-there are five times as many external consultants as internal consultants. Instead. for example. not of substance. and their newer first cousins. such as McKinsey. Most firms now have offices or affiliations outside their home country. When the publicity for a firm surrounds a particular solution to a general problem. While all firms provide a variety of services. management information systems (MIS). Vol. is therefore a vital first step in considering which firms to approach for a position. Similarly. Four of the top twelve U. the strategy consultants. . The two main dimensions of specialization are function-for example. the largest is MIS consulting. these reputations are usually more a reflection of marketing than of a fundamentally different approach to consulting. In third place as a specialization is management/strategy consulting. The third important basis for segmentation in the consulting industry is degree of specialization. clients often find their cost structure uneconomic for consulting on functional activities such as logistics. like time-based competition for strategy. reflecting their origins as one-person shops run by an executive with a particular skill or industry knowledge. The consulting industry no longer draws a distinction between formulation and implementation. In the United States alone. financial services. such as BCG and the experience curve in the 1970s.and customer group or industry. although some firms may be known for a particular technique tool.

The rationale for these acquisitions lies in the economies of scope that a broad line competitor can exploit. predicting which corporate activities will be outsourced could give you a head start in identifying the next growth specialty in consulting. In fact.2 Trends Management consulting will continue to grow. does only 7% of its work outside the United States. one firm. this expense could be substantially reduced. The industry will also continue to move to an hourglass shape: increasingly. is won in competitive bids against comparable consulting firms. However. the success of broad scope consulting firms and of outside ownership remains doubtful. so they can be responsive to local needs. It has been estimated that only a third of a consultant's business comes from repeat clients. Saatchi & Saatchi is the most obvious example of the failure of an outsider to build a broad scope consulting business. This structure results both from the ease of entry for newcomers. but even those companies like . Hewitt Associates. and from the competitive advantages of larger firms-reputation.13 consultants. particularly in marketing. 2. there is a bimodal distribution of firms into the large (annual billings in excess of $100 million) and the small (less than $5 million in annual billings). for example.K. This implies that working for an international consulting firm will not necessarily allow you to work overseas.1. The rationale for hiring consultants-to access the specific expertise needed to quickly solve a current problem-will remain and will. You usually have to ask explicitly for an overseas assignment and often have to recruit with the overseas office in addition to the domestic office. and only I% of consulting firms are more than fifty years old. Unfortunately. this suggests that the key question to be answered before committing to the attractions of fast promotion at a newer rapidly growing consulting firm is. more cyclically than in the past. even those firms with extensive overseas networks tend to have independent offices. "Does it have the capability to break through to the first tier?" This question is particularly important if you anticipate a lifetime career in consulting: more than half of the consulting firms currently operating did not exist fifteen years ago. firm did 94%. or if a strategy consulting report can recommend hiring the sister benefits consulting firm for the follow-on organization study. Other industry trends are the acquisitions by outsiders of consulting firms and the move toward broad scope consulting firms. For the potential consultant. If an accounting firm can leverage its audit relationship into MIS consulting. diversified client base. While a few firms are able to break through the mid-size plateau to become recognized large players .or are acquired by other firms looking for broader scope-many bump along unsteadily at $ 10 million to $20 million in billings before falling back as the initial momentum subsides. but still faster than GNP. and broader geographic base. increasingly. At least half of the top twenty firms have made recent acquisitions-three of which propelled the acquiring parties into the top twenty-and there have been more than fifty substantial acquisitions since the mid-1980s. if anything. about 20% of a consulting firm's costs lie in acquiring clients. under which single ownership provides a variety of consulting specialties. cover more tasks in the future as firms reconsider the costs of all their internal functions. compared with McKinsey's 60% and the U. As a result. while new business.

and yet leverages the audit relationship into consulting work. for example.14 Mercer. This network can be created by establishing alliances with overseas affiliates but is now more often achieved by setting up foreign offices. it is doubly true for management consultants. To serve the increasing global needs of clients effectively. As consulting firms increase their geographic scope. Twenty years from now there will be far more interaction among geographic markets and. for example. However. firms dominate the U.the CFO or controller . Most foreign offices are currently operated with a great deal of autonomy.is. particularly in the junior positions. partly because the problems resulting from merging cultures cause the firms' major asset-people-to leave. nor is the ease of buying a range of consulting services from a single source of much value to a client when compared to the ability to choose the best specialist for a given type of work. I suspect. which are still operating successfully. any large consulting firm today needs a global network of offices. maintains a wall between consulting and auditing. would not be dissimilar to working at Monitor or at Braxton when each was independent. and the accounting firms are still struggling to establish a relationship with their consulting arms that peaceably compensates consultants more than auditors.S. There is. few acquisitions of one strategy consulting firm by another. both to serve your clients effectively and to learn from best practice in other countries. have yet to demonstrate the value of broad scope. you must be prepared to learn a foreign language and to travel overseas. In considering a career in consulting. In practical terms this will mean that consultants will have to be less formulaic than in the past. however one industry trend that will affect you: globalization. Working at Braxton (now owned by Deloitte & Touche). As a result. The rapid diffusion of information and techniques within the industry prevents anyone from monopolizing a concept for any length of time and means that clients are often familiar with the new frameworks themselves. U. The final trend with implications for management consultants is the continuing pressure that increased rivalry places on consulting firms to truly provide value to clients. Today. who must be leaders in the development of skills if they are to continue to provide value to clients. their impact on your daily activities. The purchaser of the audit . European firms the European market. Although this prescription is true for all executives. to match the globalization of clients in the future. The value provided by consulting firms will have to come from their ability to apply . As future management consultants. a larger Asian presence. market. There have been. will be relatively limited. The issue really relates to the clients' decision-making process. and Asia is undeveloped both as a market for and a source of consultants. One reason is the difficulty inherent in merging cultures. most of the broad scope firms are essentially umbrella-holding companies for a set of independent specialists having little interaction with one another. Although it is true that these acquisitions are occurring. for example. I would therefore suggest that the ultimate ownership of the firm you might work for is not of great importance.S. Citibank tried and exited consulting. global competition is likely to increase. This is an expensive process that has been one reason why medium-sized consulting firms have willingly sold to outsiders prepared to make the necessary investments. consulting firms are themselves likely to further integrate their worldwide operations. usually not the purchaser of strategy consulting.

2. obtaining summer positions in the consulting industry has become increasingly competitive. challenging. Instead. As a result. based on your interests and long-term career plans. your focus will shift to the most critical step: getting an offer. 2. consulting will have to become an even more exciting.2 Knowing the firms One of the most difficult aspects of preparing for a consulting job search is that there are many types of consulting firms. not simply from their possession of a particular technology. and effective recruiting will by necessity require significant focus.15 concepts and to customize them for particular client needs.1 Why consulting? Perhaps the first and most important step in first-year recruiting is deciding what type of summer position is right for you. Thus the pyramid structure inside consulting firms will change-on average in the large firms. and more versed in people skills than the functional expert of the past. repetitive tasks more cost effectively.2 Reflections on First-Year Recruiting By Phil Collins Class of 1993. you may end up with a great summer position for all the wrong reasons-a choice you may regret in the long run as you begin planning for your full-time career. one partner supports eleven consultants-as the number of very senior and very junior employee swells. the good news is that to truly meet client demands for value for money. Don't let the herd set your priorities: make sure you understand and can explain clearly why you are interested in consulting for the summer. No longer will a 24-year-old MBA be able to add value simply by applying a concept the client has not seen before. To meet these sort of demands. These senior consultants will be supported by junior "para-consultants" who can perform the mechanistic. one could argue that management consulting has replaced it as the most sought-after business profession in the 1990s. Once you decide that pursuing a job in the consulting field is a productive way for you to spend your recruiting effort. it has become increasingly important for prospective candidates to expend considerable effort in preparing for the recruiting process in order to ensure that their skills are appropriately highlighted and communicated. Otherwise. each with its own selection criteria. and ultimately rewarding career than ever before.2. This will require a more experienced consultant.2. more capable of understanding the manager's role. Harvard Business School If investment banking was the career of choice in the 1980s. 2. As competitiveness for summer positions in consulting has intensified. An effective job search will require you to assemble a considerable amount of information about . it is likely that the employee profile of consulting firms will alter somewhat. Finally. consulting firms will work more closely with client management in defining and analyzing problems and in formulating and implementing solutions. Your time and energy will be limited.

other than knowing why you. traits often demonstrated by a record of past achievement. most firms are looking for the same kind of people: smart.2. Understand what consulting firms are looking for. Understand clearly why you want a job in consulting. successful candidates must communicate their unique strengths clearly and convincingly. Here are some tips: 1. Given the nature of the work. consulting firms are also looking for people who are energetic and have an appetite for new challenges. which will be useful in two ways: this information will assist you in determining which firms you would be interested in working for.1 Getting an offer Once you have a good understanding of the various consulting firms. Generally. and how does it support the professional development of its consultants? • • • 2. There are no experience prerequisites for getting a summer job in consulting. 2. and will therefore be ready to begin pursuing a summer position in earnest. and it is important to understand how each firm differentiates itself Consider the following issues: • Type of work: Does the firm specialize along functional. Given that most students at top business schools possess all of these requirements to some degree.2. creative problem solvers whose interpersonal skills will allow them to work well in a team environment. While understanding the characteristics of each firm will be helpful. and do these engagements sound interesting? Focus on implementation: After developing a set of recommendations. and it will be crucial in preparing for interviews.16 each for the firms. Another valuable resource not to be overlooked is your classmates who worked at particular firms before business school or who went through summer consulting programs with firms. Consulting . you should be able to identify those in which you have a sincere interest. who will give you a more detailed and realistic understanding of the firms' focuses and values. While preparing materials and attending recruiting briefings and career fairs will be helpful. does the firm actively participate in implementation? Practice development: Does the firm have a strong commitment to developing competencies in its practice and to disseminating its expertise throughout the firm? Focus on professional development: What kind of resources does the firm bring to bear on problems? What is the role of a new consultant on a project? What kind of training programs does the firm have. you should also take advantage of any opportunity to learn about the firms from the consultants themselves. want it and being able to clearly communicate your conviction. industry or geographic lines? Are new consultants encouraged to be specialists or generalists? At what level of the client's organization does the firm work? Does it have a very strong practice in certain specialties. firms differ along a few important dimensions. or does it attempt to be strong across a number of areas? What kinds of problems has the firm worked on before.

Viewed in this way. Listen carefully and take time to think clearly about the problem before formulating a response. Identify your weaknesses. This is an important distinction with implications for how you should respond to case situations. Save the best interview for last. For most firms. 7. The last thing you should have to worry about is remembering case facts and numbers. and move on with enthusiasm to the next interview. 4. Experience will allow you to become more relaxed. I suggest keeping the following points in mind: 1. interviews and cases will make or break your candidacy. There is a learning curve in this process. A couple of bad interview experiences with a particular firm should indicate that this is not a place where you would be happy spending your summer-let alone your career. While they are clearly a crucial element in evaluating prospective employees. confident and convincing. Keep in mind that they are not looking for a "correct" answer. Be grateful that you figured this out early. Provide concrete examples from your previous experience which demonstrate that you have been a creative problem solver. so prepare clear and convincing answers. 2. but instead are trying to understand how you think and how you approach problems. What are the one or two questions that you hope they will not ask? They will. it is also important to be honest and to be yourself. Good questions are firm-specific and thoughtful. Be yourself and be honest.2. Take notes. and that you have demonstrated leadership abilities. You should have. and you should schedule your interviews accordingly.3 Preparing for the case interview Nothing causes more anxiety in first-year students trying to land a summer job in consulting than the prospect of interview cases. they are not nearly as frightening as one might expect. 5. that you are successful working in teams. Firms will inevitably ask you at the end of the interview if you have any questions. Firms use cases to evaluate your analytic abilities and problem-solving skills. Ask insightful questions. While it is important to be at your best in framing and communicating your skills. . Frame your skills and experience in terms of how you can add value to the firm and its clients. They should be designed to demonstrate a strong understanding of the firm and to help you gain further insight into whether the firm is a top choice for you. Getting a job at a firm full of people with whom you would not get along. so feel free to take notes during the case portion of the 2. but a major career change may require some explanation. is not in the best interest of either you or the firm.17 firms hire people from a wide variety of backgrounds. or where you would not enjoy the type of work being done. Look carefully at your resume and identify your weak spots. the case interview can become considerably less daunting. 6. and provides an opportunity to showcase your knowledge and skills. Stay calm. 3. A good case interview is no more than a discussion about an interesting and challenging business problem. This is especially important because it is difficult to recover from a hasty start.

This often helps you to concentrate on the problem-solving aspect of the case. Some cases might require microeconomic analysis. What are the underlying causes of the case situation. brush up on your microeconomics. Each problem is unique and will require a unique approach. and develop a framework that is appropriate. Some cases are long and complex. what opportunities does the client have to take actions that will improve their performance? 4. Some firms may ask you to analyze an industry you have worked in. Try to determine what is critical. the cases will require integration of knowledge of a number of subjects and functional areas. Give the interviewer a road map of where you are going to take the discussion: the framework is a key to understanding how you think and approach problems and illustrates your ability to think about problems in a systematic way. Given an understanding of the key issues. and what impact have they had? Develop a clear and logical chain of reasoning and understand the linkages between key elements of the problem. prefabricated and inflexible analytical framework. If you make assumptions. You may be handed pages of data and asked for your impressions. Identify the most important issues in the case up front.18 interview. while others may rely on knowledge of first-year marketing. Review the major frameworks developed in first-year courses. it can also be a challenging. Think causally and logically. Be flexible. The questions you ask are often as important as your answers in helping the interviewer understand how you think and what issues you believe are important for further clarification and consideration. while others may be much shorter or less quantitative. Break the problem down into its constituent parts. and even fun experience. and linkages. so don't bother. you will be challenged to think on your feet to . Most often. One good way to do this is to practice a few mock cases with another student. and develop hypotheses to explain what is driving the important issues. or you may have a situation described to you in a qualitative way. as opposed to what is merely interesting. and approach them in a logical way rather than generating random thoughts. 3. state them clearly. 6. If you are on the wrong track. 8. The bottom line is that case interviews have been designed so that you cannot study for them. Develop a framework for approaching the problem. Drive to action. Adapt your analysis to the problem. 7. You will meet a wide variety of intelligent and interesting people. causes. Don't try to force every problem to conform to a generic. 5. Ask questions. encompassing a number of issues and presenting a lot of data. Keep in mind that each firm approaches cases in a different way. and then concentrate on ways of enhancing and demonstrating your problem solving skills. while other firms will deliberately ask you about industries with which you are unfamiliar. the interviewer will often interrupt you and provide additional data. rewarding. While a consulting job search will require a great deal of time and effort.

We extend more offers for permanent positions. seek the perspectives of many people who have experience at that firm. interview skills and resume workshops. Overall. the second-year recruit's most important resource. the interviewing process for second-year candidates is refreshingly slower paced and more manageable than the first-year cyclone. When you are planning your post-graduation career. are classmates and friends. In addition.5 Investigating Consulting Firms We often under-utilize the vast career resources provided by our schools to assist us in identifying the right career "fit" after graduation. recruiting. When interviewing with consulting firms for summer positions. Harvard Business School First-year interviewing for summer jobs in management consulting can be characterized as an exciting. and you will gain a broader understanding of the different firms and of consulting as a career. "Don't be discouraged if things don't work out for the summer. Spend some time early in the process getting familiar with the workings of your career center. the process consists of five or so days crammed with as many as 20 interviews. whether you are successful or unsuccessful. head-spinning whirlwind of back-to-back meetings. the primary goal of most first-years is simply to land a job at the firm of choice. If you are particularly attracted to a certain firm. the recruiters speak the truth. lifestyle preference.2. and company-specific literature that enable us to build a knowledge base on potential employers in a matter of days. with less emphasis placed on . so your chances of receiving an offer second year increase. office location. by far. including career counseling services. The resounding line eloquently uttered by every recruiter that becomes particularly meaningful as the second-year process draws near is. Speak to as many people as possible about their summer job experiences. and the nature of the projects worked on. 2.2. For many. and decision making. Though the information available through formal school channels provides valuable background on particular consulting firms. School career centers/placement offices offer a variety of tools.4 Second-Year Recruiting: Looking for the Long-Term By Jim McManus: Class of 1990. The focus of your information search will also differ in the second year. to overlook the recruiting expertise and insights that your schools have amassed over the years clearly would be to forego one of the greatest benefit of business school. You will often find that one friend's views of a summer or pre-business school experience at a firm differ considerably from someone else's at the same firm.19 work through complex business problems. the process of pursuing a permanent position can be broken down into three broad components: investigating consulting firms. you are sure to pick up important new insights with each informal conversation with classmates. nitty-gritty details of what life is really like at Firm X or Y." Fortunately. Given the variables of personality. 2. these discussions will provide you with the most pertinent.

generation or cost focus. you should get a feel for other important attributes of each firm. What is the firm's long-term strategy. Although the high starting salaries in consulting are undoubtedly attractive.2. Can you see yourself working well with the people you have met before and during the recruiting process? It is important to be honest with yourself here! You will be spending a lot of time with these folks. The "details" that you were willing to live without for an 8. one of the most critical attributes to consider is the culture of the firm. and an otherwise great project can quickly become a negative experience if you do not get along well with the other team members. You may find it helpful to evaluate consulting firms on three broad criteria: 1) the nature of the work they do. This is also important when looking into various office alternatives within a firm. In addition. These "informal" get-togethers give students the opportunity to evaluate firms before getting into the more time-intensive . many firms invite students to information sessions and dinners throughout the fall to introduce prospective candidates to the firms' people and practices. you can gain tremendous insight into a firm's commitment to its people and into the career opportunities available by evaluating the critical policies of training/skills development.6 The Recruiting Process Management consulting firms do not wait long after the beginning of the school year before kicking off their recruiting campaigns. In terms of their consulting work. Second. and assistance in outplacement. compensation. industry focus. as reflected by its employees. firms (and even different offices within the same firm) differ markedly in their degree of emphasis on the following dimensions: implementation vs. you should consider the size and stability of the firm's client base and its vulnerability to a downturn. and how well positioned is it to achieve that strategy? As a prospective candidate. Though every firm will highlight the collaborative nature of its client relationships. Though the interview season does not officially begin until later in the school year. The summer experience is a relatively risk-free way to figure out whether or not consulting in general and a firm in particular will make sense for the long-term. both in the office and traveling. strategy. compensation should be just one of many criteria you use in deciding which firms to pursue.year recruiting is for the longer term. and weigh these factors against your particular preferences. and functional specializations. 2) the characteristics and cultures of the firms. Issues such as the size of a typical case team and the role of the new consultant on a team should be considered. performance evaluations. Besides understanding the firm's personality and values. 2.to 10-week summer will become critical second year. there are significant differences in policies relating to the amount of time spent at clients' offices that will have a direct effect on the amount of travel and often the level of client impact you can expect. and 3) the nature of the career opportunities offered. revenue. especially given our high debt levels. lifestyle and culture. promotion. In assessing the characteristics of each firm. which will help you to differentiate between the many opportunities you are likely to have. including the availability of international opportunities and the number (and size) of offices.20 such "details" as location.

Again. If you do receive offers from more than one firm. and such consideration is not likely to be forgotten by employees. so it is a good idea to understanding detail your school's policies at the start of the second year.7 The Decision-Making Process Most people feel that the challenge in the recruiting process is actually landing a great job at the firm of first choice. Make sure that you have met and are comfortable with enough people at all tenure levels of the organization. When going through case interviews. Although a case should be expected in most interviews. Receipt of an offer does not allow you to extend your job search indefinitely. the second-year process takes place over a period of several weeks rather than several days. being considerate throughout the recruiting process can only enhance your image in the eyes of the recruiting firm. but the real fun begins if you have the good fortune of having to decide between two or more firms of similar caliber. Depending on the firm. In general. One final word of advice: make sure that there is clear agreement between you and the firms from which you have offers as to their deadlines for accepting or rejecting offers. the second-year interviewing normally consists of three or four rounds of interviews. while others are more relaxed. refer to the selection criteria you established at the outset of the entire recruiting process. Unlike the first-year schedule. it is a pretty good idea to review the various strategy frameworks before beginning the interview season. the best advice here is to know the policies of recruiters and of your school and to work within those policies. and the long-term career opportunities. If other variables are relatively equal. Professor Collis's article provides more detailed advice about how to make choices between firms.2. (As a practical matter. However. You certainly have nothing to lose! Arrangements for interviews differ by school and by firm. These firms recognize that . dress codes tend to be casual for on-campus presentations and professional for off-campus events. the characteristics of the firms. Some schools have very strict schedules. however. you may need to send a cover letter requesting an interview. take the initiative to call one of their recruiting coordinators to express an interest in attending. with the final rounds taking place at the firms' offices.21 interview process. Like the first-year process.) If you are particularly attracted to a certain firm but have not been invited to attend their fall functions. the use of cases varies widely from firm to firm and even from interviewer to interviewer within the same firm. taking into account differences between the work the firms do. Since many consulting companies give strategy cases. remember one important word of advice-relax! 2. paying particularly close attention to what the junior people are saying. after all. Furthermore. many consulting firms have "open schedules" that allow you to arrange an on-campus interview directly through your school's career services office. recruiters use the first and second rounds to evaluate a candidate's problem-solving prowess and the final rounds to determine the personality "fit" between the candidate and the firm. recruiters are under pressure to firm the size of the incoming class in a reasonable period of time. the issue that should weigh most heavily in the decision should be the people with whom you will be working.

and many companies employ so-called "up-or-out" policies. you should be aware that in almost any consulting firm. In most firms that have such a policy. as it allows fresh ideas to be constantly brought into the firm by new recruits.8 Career Paths Career paths in consulting and industry differ considerably. either because they decide consulting is not for them or because another tremendously exciting opportunity presents itself to them.to three-year time frame. Most people who leave consulting firms do so of their own will. In industry. and if you happen to have plans that evening. However. frequent feedback allows employees to judge their own position within the firm accurately. As a potential employee. the commitment to the firm and time scale of your progress is still fairly long term. to make sure that you understand fully what kinds of lifestyles people in your prospective consulting firm really do lead and to be sure that you would find a similar lifestyle rewarding. and who are not able to do so because of the up-or-out policy is actually quite small. and an up-or-out is one way in which a firm ensures its ability to regenerate itself. in industry generally. the policy is very sensitively administered. it is still true that.22 many of the brightest MBAs do want to have happy and fulfilled personal lives outside the office and do not want to sacrifice everything for their careers. in practice it is not always so. then. These policies require that you develop certain skills within a defined time frame in order to be allowed to continue with the organization. Many firms have excellent out-placement services. and employees very rarely get kicked out unexpectedly. but my experience is that most firms are very happy to explain how their promotion policies work and would much rather you understand these up front. the time frame can often be shorter. the policy ensures that the environment will be dynamic and that the organization will provide a constant stream of new and challenging opportunities. such a policy makes a lot of sense. 2. you should inquire about the consulting firm's promotion policies. and moving out is not considered failure by any stretch of the imagination. you may find that the opportunities presented to you by the firm diminish somewhat rapidly! Although an up-or-out policy may at first sound rather brutal. a traditional career path might be to start fairly low down in the organization and to work one's way up the corporate ladder. Though increasingly.2. From the firm's point of view. usually administered unofficially through contacts with alumni. If you are unable to develop these skills. you are going to find it very hard to avoid canceling your plans and going to Timbuktu! My advice about lifestyle is. Promotion decisions tend to be made in the two. In practice. step by step. who feel they are at the right firm. there are firms that have job rotation schemes and fast tracks to allow them to identify and promote their best people quickly. . From the employee's point of view. Rather. The survival of a professional service firm is quite dependent on its ability to remain at the forefront of its field. if the client phones your partner and says that he or she wants to see you in Timbuktu by 8:30 am the following morning. In consulting. This can often be a difficult subject to raise. the number of people who want to continue in consulting.

are some of the issues involved in making the consulting versus industry decision. Good luck. many of you are giving management consulting a hard look. Whatever decision you come to.9 Remuneration Until relatively recently.3 Is Consulting the Right Field for You? By Tim Opler Consulting is hot! Salaries are up. While it is still true that on average most larger firms in industry pay less than most consulting firms. These placement numbers have caught many business schools by surprise and. and in each individual situation there will be many other personal factors involved. At the same time. if you really do want to work in industry. consulting firms were very much the leaders in MBA remuneration. And more MBA students have entered the field within the last few years than any other area. These. she received a blank look and the reply. often with significant signing bonuses or tuition relief. high technology companies are increasingly recognizing the value that MBA students can add within their firms. then. how should you conduct your job search? A careful examination of your own skills. particularly given the wide range of available career options. offers have been continuing to increase (several firms are offering packages well into six figure territory after a few investment banks upped their ante). and if remuneration is particularly important to you (and there is every reason that it should be. too. who was being recruited by a major manufacturing firm. But is consulting really the right field for you? And. consulting companies tend on the whole to have very well-oiled.000 per year. we are all "mini-LBOs" by the time we finish our MBAs). found that when she asked about the possibility of a signing bonus. the number of exceptions to this particular rule is increasing every year. today. It is a tough choice. some industry salaries are rapidly approaching those offered by consulting firms. so getting a high-paying job tends to be less work for the recruit. Certainly. "What's that?" It is by no means all industrial firms that are approaching remuneration parity with consulting firms! Moreover. effective recruiting machines. you can be assured of an exciting. .2. given that in the words of a classmate of mine. Small. I understand why! Work in consulting is stimulating and the pay can be excellent. challenging experience. Even some large traditional Midwest manufacturing corporations are responding to increasing competitive pressures by becoming more aggressive in recruiting bright young management talent. Salary offers at top MBA schools in 1996 for consultants averaged $80. you should not rule out a career in industry. In this process. even if your objective is to pay back your MBA debt in as few years as possible. As of December 1996. Another classmate of mine. values and interests is an excellent idea. you will have to spend more time and effort searching out the best opportunities. However. and have fun! 2. if so. deans and administrators are scrambling to ensure that their MBA programs offer the right type of courses for prospective consultants.23 2.

some of the Big Six accounting firms have made tremendous inroads into the strategy consulting business. the better you will do. its why the big IT consulting shops. It's absolutely vital that you not let this happen. will continue to experience meteoric growth. specialists apply specialized process and functional knowledge to real organizations with real problems. CICS/VBASIC/UNIX.24 I recommend that you commit to an ongoing and serious process of introspection and skill inventorying before marching into your next job interview. meaner and more efficiently. Speaking of generalist. Booz Alien & Hamilton. And. More people work for Andersen today than do for the top five generalist firms combined. It's very easy to see the time you're planning to spend exploring careers get taken up with other more immediate priorities. To say nothing of long-term personal happiness. After all. Mercer and Monitor plus a growing list of mid-sized consultancies and smaller boutiques. Coopers and Lybrand.3. like Andersen Consulting. At the same time. for example. Let's start by asking what skills are in demand among consulting organizations. The most rapid growth is currently being seen in developing economies such as Brazil and Indonesia. Just over half of these consultants come from the United States. It's great work that offers clear value to many organizations. over 300. has a very high quality strategic consulting unit and is managing to attract some of the very brightest students from institutions like NYU and Wharton. the hottest area in consulting today is informational technology. There can be no doubt that this industry will continue to expand rapidly over the long-run although short-run retrenchments can and will happen. BCG.1 The Options There are basically two career options in consulting. In all. of course. better.000 people work full-time in the management consulting industry. Generalist firms include well-known names such as Bain & Company. Given the scope and size of this career opportunity. Not surprisingly. it is well-worth asking where you might fit into the industry. sales force automation. Doing a good job today in finding a career that matches your values and skill set is an investment that will pay off for many years to come. another quarter come from Europe. Without doubt. Generalist or specialist. 2. . cheaper. The more convincingly and honestly you can answer questions about why you are across the table from the interviewer. McKinsey. And. making a difference in a career that you enjoy is an important part of life. This is technical stuff that offers strong productivity improvements to countless businesses in areas like client/server. generating more than $30 billion in annual revenues. the other option available is to work for a firm which provides a wide variety of advice designed to make enterprises run faster. whether you want to fit in.

I would add that firms aren't nearly as pedigree-sensitive as some seem to think. You can't smell it. You need to enjoy problem -diagnosis. You can't eat what a consulting firm makes. but excelling along other dimensions (e. for that matter. getting stuck on cases. of course. a personal commitment to excel in meeting the needs of your clients is vital to enjoying the profession. A good consultant has to be a great thinker with a passion for ideas. has recently been aggressive in its pursuit of attorneys. an insight. You need to be the type that does well in school and likes it. After all is said and done. Those who . problem-framing and problem-solving.g. Common skills on interviewer check lists include.. knowing that they you can generate more value for them than you are being paid. Leaders of some of the most prominent firms in the consulting profession have made it with degrees from institutions far below the top-ranked schools. consulting is a service profession and most firms screen carefully for commitment to others and ability to excel in meeting client needs. This means that their most important asset has to be the ability to generate relevant ideas through rigorous thinking and careful research.25 2. a case question and questions about your past behavior (the much dreaded behavioral interview approach). many different approaches to interviewing and.2 The Skills in Demand Consulting firm interviews typically involve a combination of general background questions.g.. engineering. Pedigree can neither guarantee one success nor condemn one to failure. There are. While intangible. it can be easy to get into the profession for the wrong reason. I guess sheepskin is sheepskin. PhDs and the like. In a recent letter published by Mitchell Madison Group. The product is an idea. McKinsey. Hence the frenzy to hire the best and the brightest of America's business schools. the MBA degree itself need not be necessary. If you find yourself struggling with the academic-side of business school. With all of the money being thrown around by the consulting firms these days. A number of firms are hiring persons with other degree backgrounds (e. law. As a consultant you will always be working to help others. medicine). to being interviewed. For that matter. consulting firms are nothing more than repositories of pure human capital. a seasoned ex-McKinsey consultant put it this way: "It is only through personal excellence that this profession becomes truly enjoyable. You may very well get a job offer anyway. This intellectual focus of consulting is clearly important in deciding whether you would do well in the field. often in two or three year programs which are expected to be followed by a stint at business school. Firms may hire you opportunistically. Skill #1: A Passion for Ideas.. Ultimately. of course. disliking writing. many undergraduate students enter consulting. But the bottom line is that firms are screening for skills that match their needs. But advancing and leading may be a different matter altogether. And. a suggestion. in particular. You can't drive it. a way of thinking.3.. Your ability to serve clients will determine your success and the prospects of your employer. public administration. Skill #2: A Passion for Client Service. It is vitally important that you make every effort to understand what these skills are before you step into the interview room. human interaction or entrepreneurialism) you probably should not be a consultant.

logical thinking skills. Anne Harris. the individual needs to excel and generate his or her own marketability. The screening process. What then is your next step? This all depends on where you are going to school. understand and communicate with clients. it's vital that you enjoy. Through their intellectual leadership they gain respect from the clients. whether it be by charm. They typically become engagement managers sooner. These relationships are what can make the long hours. let's assume that you don't yet have offers from the three firms that you truly want to work for. This isn't to say that you must be the ultimate extrovert. lasting partnerships with a number of clients through repeated contact and hard work. the partners and their teammates. but instead because he had built life-long.3. But this practice is the exception. I have observed that unfriendly clients become attentive when listening to people of excellence because their contribution is unique. Not because he didn't cherish his spouse and family. willingness to travel and facility with languages. Moreover. These individuals are in such demand that. writing skills. In a business world where institutional loyalty is rare. at the University of Virginia's Darden School argues that the most important aspects of conducting a consulting firm career search involve preparing the right resume. You pick them and they pick you. Over the years. The financial rewards become window dressing and the high of the experience becomes the drug of first choice. Not necessarily a natural combination of abilities you might say.26 demonstrate superior skills gain personal control early in their careers. Most students who land positions in the consulting profession do so by scrambling. superb IT skills. it's an odd admixture in demand at the consulting firms. tolerance for absolutely abusive hours." Skill #3: A Passion for People. likable people who are good at helping others. humor. It's a field where the gregarious do well with their teammates and their clients. Consulting firm interviewers are looking for people that they'd like to work with themselves. Consultants who enjoy talking to people do well. A consultant once told me that some of the most fulfilling relationships of his life were with clients. At some institutions. However you accomplish this. It's only human.3 Landing the Job You Want Let's suppose for the moment that you've decided that you would like to pursue a position in consulting. Smart. can vary widely and many firms are looking for a unique traits. the ability to work quickly in spreadsheets. a tolerance for ambiguity. stressful travel and corporate frustrations encountered by consultants worthwhile. all the big firms show up and will talk to you. 2. So. not the rule. listening or hard-work. they have numerous options to choose from. Those who achieve excellence feel great about themselves and are more likely to find the consulting experience a path to fulfillment. hustling and working hard in the job search process. personal appearance. at any point in time. not the reverse. Other characteristics in demand including understanding of specific business issues. of course. . The result is that the institution needs the individual. but you do have to connect. networking in the profession and getting "face time". Head of MBA Career Services. and tend to set the pace for their teams.

A good interviewer is looking for experience. keep trying. The best way to get acquainted is over the telephone. but effective trick. It's not particularly important to worry about font choice and paragraph formatting. you will need to strike out on your own." More likely. Instead of being pushy or hanging up. A dirty. engineering or finance) and a track record of successful experience. This is when the real work gets done and you'll be often surprised to hear the person you are calling pick up the phone and be willing to talk. This may be costly. One of the most helpful things you can do is to get personally acquainted with consultants at firms that interest you. Better yet. ask for voice mail and leave a voice mail introducing yourself and explaining why you are calling. Now. It's important to be sincere. is to call the office in the evening. This is a great opportunity to get a conversation started. what you should do is ask for names of others that you might contact in your efforts to learn about the field and locate a position." Unfortunately. some relevant functional expertise (e. If you don't hear back. alternatively. enthusiasm and skill." If your contact is not available. solid schooling. there is no good substitute for meeting someone. Or. even if only for ten minutes or so. If you go to school outside of a major metropolitan area. you will need to visit people at the . If you indicate in an interview that you already know someone at a firm your chances of landing a position will go up dramatically. "I'll be in New York (or wherever) next week and would love to ask you a few questions over breakfast. many networking phone calls end up with one of two negative outcomes: (1) "the person is not available". There are lots of good ways to network. be direct and ask for help with your job search. If you are on the job market now. you might ask for help with an upcoming interview. You should contact people at the firm you are interested in who come from the same school you attended or who you are linked to in some other way. The firms are typically tolerant of "career changers" but will be looking for you to provide a coherent story about why you are changing. Face Time: Ultimately. It really helps to have others batting for you and educating you about the profession. It's not as hard as many seem to think. "Can I send you my resume?" "What are you looking for?" You might ask a series of questions about the pros and cons of the firm. Consulting firms are looking for organized resumes that convey the skills they are looking for. what if your contact indicates that they are the wrong person to call or that they are not looking? This is the time to ask for help networking with other people. You want to call a consultant and let them know that you are a student with a specific interest in their work or firm.g. Sometimes the firm you want is right on campus and provides an opportunity to get acquainted at a cocktail party or other so-called "cultivation event. polite. but it's almost always worth it.27 The Resume: The resume is a necessary evil in your job search. Networking: The key to landing a consulting position is to network. Not bad since a consultant has to be a natural networker. Most people will be willing to help you if you give them the chance. the work and the life. or (2) "sorry but we are not looking. You can overcome the "intimidation factor" by practicing this technique with a colleague or your friendly career services director. ask for a meeting. friendly and very interested in the person you are calling on. Making The Phone Call: The networking phone call is the single most valuable weapon in your job search arsenal.

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firms that interest you. It's human nature to favor those whom we know and like in the hiring process.

2.3.4 Recommended Resources
A big part of getting started on a consulting career is to survey the profession. It is very helpful to know the histories of the various firms, the values that they hold and the practices they are in. On a more practical level, it's vital to have access to current contact information and to be able to locate the firms. Below, I have listed a number of resources that might be helpful in this regard. Ace Your Case! The Essential Management Consulting Case Workbook. From Wet Feet Press at 1-800-926-4JOB (349 Liberty Street, San Francisco, CA 94114-2953). Also try their web site at http://www.weffeet.com. Management Consulting: Exploring the Field, Finding the Right Job and Landing It! Convergence Multimedia and Harvard Business School Publishing, 1997. On CD-ROM. Cost $39.95. Consultants and Consulting Organizations Directory, 1996, Gale Research, Detroit, MI, (800) 877-GALE Consultants News, Kennedy Publications, Templeton Road, Fitzwilliam, N. H. 03447, Available from the Consultants Bookstore at 1-800-531-0007 or fax, 603 585-9555. Directory of Management Consultants. Kennedy Publications, Templeton Road, Fitzwilliam, N. H. 03447. Available from the Consultants Bookstore at 1-800-531-0007 or 1-603-585-2200. Harvard Business School Career Guide: Management Consulting 1997. Available from Harvard Business School Publishing. Try their web site at http.//www. hbsp. harvard. edu. So You Want to be a Management Consultant. From Wet Feet Press at 1-800-926-4JOB or 1-415-826-1750 (349 Liberty Street, San Francisco, CA 94114-2953).

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3 Overview of Cases
1 A case is: 1.1 1.2 1.3 2 3 Description of a business situation A problem Based on a real situation

The purpose of a case is to judge problem-solving abilities, the basis of consulting. What are consulting companies looking for in a candidate? 3.1 3.2 3.3 3.4 Problem solving skills Personal impact Leadership Drive / Aspirations Ability to think through problems: 4.1.1 4.1.2 4.1.3 4.1.4 4.1.5 4.1.6 4.2 Clear, logical reasoning Curious, probing mind ⇒ candidate to engage in solving the problem Ability to synthesize Basic numerical agility Intuitive business sense Hypothesis generation ⇒ use hypothesis to drive thinking and formulate questions Effective communicator Tolerance for ambiguity Mechanics - how you structure the case and go through the analysis. This is akin to creating an outline before writing a paper. Analysis - how you think and solve problems

4

What are consulting companies looking for in a case answer? 4.1

Ability to quickly build working relationships: 4.2.1 4.2.2

4.3

There are two parts to a case: 4.3.1

4.3.2 4.4 5 5.1 5.2

Both are important. Listen to introduction carefully Carefully think through the problem at hand

A good approach:

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5.3 5.4 5.5 5.6 5.7 6 Ask one or two clarifying questions, if necessary Structure the problem, possibly with a logic tree - enables one to organize the data presented Pick one branch to probe, develop hypotheses, ask for relevant facts, defend/refine hypotheses, probe further Pick the second branch ... Put it all together: try to answer the overall question

During the case, you want to communicate explicitly what you want to do with the case. Remember that you are trying to lead the interviewer through your problem solving approach. Writing a paper is a good analogy to solving a case. In a paper, you first order your thoughts in an outline, creating a framework to solve the case. Go over the framework at a high level with the interviewer and then plunge into one area at a time. Use interim conclusions to sum up a section of analysis before moving on to another area. Time management during the interview is the interviewee’s responsibility. Suggested time allocation for a 20-25 minute interview is as follows: 7.1 The time spent structuring the problem should average about five minutes, but will vary depending on the topic and your level of comfort with the issue. 7.1.1 Plan to spend at least three minutes thinking about the problem and framing the top-level issues/questions that will need to be answered during the course of the analysis. Do not be afraid to take your time and think about how you plan to attack the case. Successful interviewees have taken up to 10 minutes to think through the issues as hand. DO NOT BE AFRAID OF SILENCE! Plan to spend two minutes discussing the issues, prioritizing them and possibly eliminating some before you dive into the rest of your analysis. Remember that time is the most precious commodity that you have during the interview. Do not squander time be focusing on issues that will not highlight your abilities or will not lead to a viable solution.

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7.1.2

7.2

Analyze the case: 15 minutes, divide the time by the number of issues to be explored based on your perception of the importance of each section. Summing up: 5 minutes. In many ways, this can be almost as important as the time spent up front framing the analysis. This is where you can gather all of the information gathered during your analysis and present it in a logical and persuasive fashion. If not all areas were covered during your interview, you may also chose to spend a minute or two discussing further areas that you would have liked to explore and why.

7.3

1 8. . Try to state your assumptions up-front. The key to using 8 Assumptions enable one to close quickly an issue. The interviewer is not a mind reader. Try to state the assumptions in a non-offensive manner. assumptions are: 8. Delivery. both during the analysis and the conclusion. If the assumptions are invalid. the interviewer will state that they are not correct.31 7.2 Timing. always provide reasons for the conclusion you are presenting.4 Finally. You must lead him down the path that you are walking. Bad phraseology could lead the interviewer to think that you are arrogant.

2 Types • • • Why are manhole covers round? How many golf balls are there in this state? What do you think interest rates will do next year? Assess the comfort level with ambiguous problems Evaluate creativity Evaluate raw analytical horsepower Test poise under pressure Impact of a consolidating industry on a client company Should a company add capacity? How should a client react to a new competitor? Should a client enter/exit a new/old market? Assess broad functional skills Calibrate big picture perspective .32 4 Different Types of Cases 1 Classic Cases 1.2 Types • • • • 2 Special Cases 2.1 Purpose • • • • 2.1 Purpose • • 1.

Depreciation .for profitability cases you should explore cost and revenues 1.1 General Models 1 Financial Frameworks .33 5 Frameworks for Cases 5. Reserves .1 Income Statement Net Income .Sales General &Administrative (SG&A) Operating Profit .Interest Expense Earnings Before Taxes (EBT) -Taxes Net Income 1.Cost of Goods Sold (COGS) Labor Materials Overhead Delivery Gross Margin .2 Balance Sheet Assets Cash Investments Accounts Receivables Inventories Property. plant & equipment Intangibles Liabilities Accounts Payables Other Short Term Debt Long-term Debt Other Liabilities.

Top-level identifies the highest level issues that need to be answered to solve the problem.4 4 Issue Tree 4.1 3.3 3.2 3.1 4.2 Do not use this framework in an interview without practicing it a few times before hand. Porter’s Five Forces Suppliers Potential Entrants Buyers Substitutes Industry Competition Complements – the forgotten force Business System R&D Product Development Innovation Responsiveness Manufacturing Cost Quality Speed Supply Marketing Pricing Product Place Promotion Distribution Cost Channel Common Stock Retained Earnings . Use MECE (Mutually Exclusive and Collectively Exhaustive) to ensure that all issues are covered.34 Shareholders Equity 2 3 3.

) The Demand Curve .2 Additional Models 5.e.1 Supply & Demand The Supply Curve -The higher the price of a product or service.2 Economics Students should review the basics of economic theory. the lower the price of a product or service.1 Raw Materials Who makes the plastic needed for golf balls? Obtain an estimate of quantity of material supplied and work from there. The model is difficult to use with diversified companies and interests.35 4. competition. 5. cost and capabilities. Filling in these categories can be a first.1.2..The lower the price of a product or service. especially the strategic ones. it may help in defining a business by breaking it down into very basic components and looking for conflicting elements. have a strong backing in basic economics so knowing the fundamentals will give the student a strong base from which to work. Supply chain 5.3 4. all . (We live in a world with finite resources but infinite demand. the greater that demand for the quantity consumers will be willing to purchase (i.2 Break each level down into parts that are more manageable. Conversely. Demand side Who purchases golf balls? How many golf balls do they need each year? Framework for a Zinger case like “How many golf balls in Albuquerque?” 5.2. the supply of another product will decrease. cursory step in understanding a given company or industry.4 4. The model is more of a back-of-the envelope sketch than a detailed analysis. Supplier will be willing to make more available (i.e. demand).2. Some of the more relevant concepts include: 5. This model is intended to ask the critical questions in understanding the core business of an organization.1 5. supply). Many cases. An example of an issue tree is provided with the China Factory case. the smaller the quantity producers will be willing to make available.1 The Four C’s The four C’s stands for customer. the greater the quantity of the item that will be produced. Please remember that as the supply of one product increases. all other things being equal. Although this model is unlikely to produce revolutionary insights.5 5 5. Focus on most important branches or components first..2.

Price Value of Output Cost of Inputs Quantity 5.36 other things being equal.2. The concept of comparative advantage goes a step farther.2.2. contending that it may be to a country's advantage to import goods from other nations even though they may be able to produce the goods less expensively at home.2. .4 Comparative Advantage Comparative advantage states that it is in the best interest of a nation to import an item from another nation when it cannot produce the item as inexpensively. within a given time frame. Price Supply Demand Quantity 5. each additional unit contributes relatively less than the preceding unit to productivity.2. Conversely. 5. This is based upon the premise that not producing the item in favor of producing another item which offers better production efficiencies will ultimately benefit both countries (see also economies of scale). the higher the price of a product or service.2. the smaller the quantity of goods consumers will be willing to purchase.3 Law of Diminishing Returns This concept suggests that although additional units of labor may contribute to increased productivity in absolute numbers.2 Law of Diminishing Marginal Utility This concept or economic "law" states that the level of demand or "satisfaction" derived from a product or service diminishes with each additional unit consumed until no further benefit is perceived.

In this case. The minimum efficient scale (MES) is the minimum level on the average cost curve. 5.2. Marketing.7 Economies of Scope Economies of scope exist if the firm reduces total production costs by increasing the variety of activities it performs. Cross Elasticity: Percentage change in quantity demanded of one good in response to a 1 percent change in the price of a related good. For example. Whereas economies of scale are usually defined in terms of declining average cost functions. E QxPy = % Δ Qx %Δ P y = Δ Qx / Qx Δ Py / Py = P ΔQ Q ΔP y x x y EQxPy is positive EQxPy is negative if the two goods are substitutes if the two goods are complements Supplier Elasticity: Percentage change in the quantity supplied in response to a 1 percent change in price. E S = % Δ QS % ΔP = Δ QS / QS ΔP / P 5.2.37 5. and other functions can realize economies of scale. R&D.5 Elasticity of Demand The degree to which demand for a product or service can be altered by a change in price indicates the extent of the elasticity of such demand. The generally accepted explanation for this is that AC initially declines because fixed costs are being spread over increasing output and then eventually increase as variable costs increase (see law of diminishing marginal returns). Economies of scale are not limited to manufacturing. It is more customary to define economies of scope in terms of the relative total cost of producing a variety of goods together in . However.2. If AC declines as output increases. the demand is inelastic.2.2.) The relationship between AC and MC can be summarized as follows: MC<AC = Economies of scale MC=AC = Constant returns to scale MC>AC = Diseconomies of scale The shape of the cost curve is U shaped. over a range of output. there are circumstances where the level of demand is not altered by a change in price. a diabetic will probably be willing to pay as much money as he or she has to buy insulin.6 Economies of Scale Economies of scale exist when the average cost (AC) declines as output increases. the medication that would sustain that individual's life. a person who seeks to purchase a particular brand and model of automobile may decide to shop competitively from dealer to dealer for the lowest price. (Marginal cost is the cost of the last incremental unit of output. For example.2. so must the marginal cost (MC). This would characterize demand that is elastic in nature.

It stands for product.2. pp. 5. Dell Computer). distribution channels).g..2. placement (i. combining customer knowledge with operational flexibility to respond quickly to almost any need (e. Home Depot). 5. Inc. 5.. higher quality and more effective pricing and marketing. have developed a set of strategic foci called the value disciplines (Harvard Business Review. a doubling of cumulative output is associated with a 20% reduction in unit costs." The ratio is calculated as the unit cost after doubling cumulative production divided by the previous cost (C2/C1). and promotion. Product leadership . The disciplines are: Operational excellence . price. . thereby making rivals' goods obsolete (e.2.g.2.e. Companies which push the boundaries of one value discipline while meeting industry standards in the other two gain an advantage that other competitors find hard to match. For example. ease of making a profit).. Economies of scope may be achieved by "leveraging core competencies" across multiple business activities. The following is a brief discussion of the five components. as well as the strength and influence that each of the competitive pressures have on the firms participating in the industry. 84-93). This implies that for the typical firm.2. Nike).Provide customers with reliable products or services at competitive prices and delivered with minimal difficulty or inconvenience.Segment and target markets precisely and then tailor offerings to match exactly the demands of those niches.Offer customers leading-edge products and services that consistently enhance the customer's use or application of the product. 5. The results indicate the overall industry attractiveness (i. it may make economic sense for a manufacturer of tape to get into the business of manufacturing note pads with adhesive backings as there are commonalties in the two businesses at many points along the value chain.8 Learning Curve The learning curve refers to cost advantages that flow from accumulated experience through lower costs. JanuaryFebruary 1993.e. A ratio of less than one suggests that some cost savings due to learning is taking place. The median appears to be approximately . Customer intimacy ..4 Value Disciplines Fred Wiersema and Michael Tracy of CSC Index.38 one firm.3 4P's Kellogg’s Philip Kotler developed this model.80.g. The magnitude of learning benefits is expressed in terms of a "progress ratio. These are the four critical dimensions in marketing any product (or service)..5 Porter’s Five Forces Michael Porter's Five Forces model analyzes the various competitive pressures at work in a given industry. with the goal of leading the industry in price and convenience (e.

or other terms or conditions of sale. when a newcomer can expect to earn an attractive profit. This force is the opposite of the Threat of Substitutes.2.Suppliers to an industry are a strong competitive force whenever they have sufficient bargaining power to command a price premium for their materials or components. the barriers to entry are diminished. The intensity with which the competitors are jockeying for position and competitive advantages indicates the strength of the influence of this force. Threat of Substitutes . the most powerful of the five forces is the competitive battle among rival firms which are already present in the industry.39 Industry Competitors (Internal Rivalry) . Supplier Power.The competitive threat posed by substitute products is strong when policies of substitutes are attractive. and buyers believe substitutes have equal or better features. Potential Entrants – This force measures the ease with which new competitors may enter the market and disrupt the position of the other firms. Buyers gain strength through their sheer size and when the purchase is critical to the seller’s success.Often. Buyer Power . When the economics are promising for a complementary product. Benefit of Complements – This is considered a sixth force that is not directly captured in Porter’s model. service. quality.Buyers become a stronger competitive force the more they are able to exercise bargaining leverage over price. Five Forces Potential Entrants Complement Suppliers Industry Competitors Rivalry among existing firms Buyers Substitutes 5. buyers' switching costs are low. one should consider all seven components of the organizational unit. Strategy determines Structure and . In addition.6 "Star" Diagram/Organizational Analysis In doing an organizational analysis. Vision should define Strategy. Suppliers also have more power whenever they can affect the competitive well being of industry rivals by the reliability of their deliveries or by the quality and performance of the items they supply. The threat that outsiders will enter a market is stronger when the barriers to entry are low or when incumbents will not fight to prevent a newcomer from gaining a market foothold. there is a spillover effect on the primary product.

Corporate Culture must reinforce all seven components. it is most likely that the other components will have to be changed to be consistent with each other. maybe slow yet consistent growth isn't so bad. mother is concerned because her child is not growing as anticipated. 5. is expanding or contracting. Vision Strategy Decision Support Systems Human Resource Systems Structure Reward Systems Organization Culture Performance Problems arise when these seven components do not reinforce one another. all seven components must be considered. Problem Child (also called "Question Marks") — A product with low market share in a high-growth market. managers will have trouble if they are in a decentralized structure while information and planning systems are centralized.2. Another perspective is that the manager shouldn't be quite so concerned if the product has carved out a little niche that is impervious to the competition. Products or categories businesses are as follows: Star — A product with high market share in a high-growth market. The Reward Systems must reinforce what you are trying to accomplish strategically and the Human Resource Systems must select. For example.7 The BCG Growth-Share Matrix The BCG Growth-Share Matrix provides a valuable framework that enables us to identify and evaluate the company's products relative to market share and the extent to which the market. . recruit and develop the personnel the organization needs to accomplish its objectives. When considering change. each as independently held businesses. The model can also be utilized to analyze a portfolio of companies held by a single organization by classifying them within the matrix. every mother's prayer. If one component is changed. as a whole.40 Decision Support Systems that are required to make the organization function.

Value chain analysis is also helpful in determining which value activities are best outsourced and which are best developed internally. not the company as a whole. In this sense. and procurement.e. marketing and sales. "dog" is certainly not "man's best friend. Value chain analysis is useful in discerning possible synergies among various units of an organization (e. The categories are company infrastructure. unless there are some extremely important overriding issues that outweigh the products market performance. operations. the product life cycle. and provide after-sale support. it is analogous to a "bomb" (i.8 Value Chain A business manager must understand the internal relatedness of the many activities involved in the production of a product or service. Finally. Hi Low Hi Market Share Low Star Problem Child Cash Cow Dog Profitability 5.2. outbound logistics. information systems...” It is at this level. Michael Porter calls these activities “value activities. deliver it to the market. The categories of primary activities are inbound logistics. something that is defective or undesirable).e. something that fails miserably) or to a "lemon" (i. Since the cow is generating milk (i. Every business unit is a collection of discrete activities ranging from sales to accounting that allow it to compete. Therefore an astute business manager would want to drop a “dog” from the product line. as indicated in the exhibit below.41 Cash Cow — A product with high market share in a low-growth market. and service. Primary activities create the product or service. not coincidentally.. that the unit achieves competitive advantage. the marketer may elect to "milk the cow dry. Support activities provide the input and infrastructure that allow the primary activities to take place. accelerating cash flow and." Rather. create a demand for the product." so to speak. cash).. human resource management. Dog — A product with low market share in a low-growth market.e. The value activities are grouped into nine categories.g. value chain analysis provides a structure that provides great insight into the flow of activities that lead to the creation and distribution of a . shared procurement).

and remaining so in the long run. What value is added to the manufacture and sale of gasoline at each point in the value chain. Value Chain Company Infrasructure Human Resource Management Information Systems Procurement Support Activities Primary Activities Inbound Outbound Operations Logistics Logistics Marketing & Sales Services 5. manufacturing. According to Porter.g. for example) and hurt the film that rested its whole future on being the lowest cost producer. Differentiation: Here the business concentrates on achieving superior performance in an important customer benefit area valued by a large part of the market. The real key in this strategy is for the firm to achieve the lowest costs among those competitors adopting a similar differentiation or focus strategy.. put them together expertly. Annstrollv Rubber has specialized in making superior tires for farmequipment vehicles and recreational vehicles and keeps looking for new niches to serve. or focus. those firms pursuing the same strategy directed to the same market or market segment constitute a strategic group. Thus. Texas Instruments is an excellent implementer of this strategy. and so on. so that it can price its products lower than its competitors and win a large market share.9 Generic Strategies (Porter) Michael Porter suggests that business strategies can be classified as pursuing cost leadership. One example is if the company strives to be the service leader in its industry. Thus the firm seeking quality leadership must make or buy the best components. the highest quality producer. The firm gets to know the needs of these segments and pursues either cost leadership or a form of differentiation within the target segment. the lowest-cost firm among those . and physical distribution of the products. (e.2. differentiation. but it is hardly possible to be all of these things. This has been Canon's strategy in the copy-machine field. purchasing. the style leader. inspect them carefully. Each of these strategies is described as follows: Overall Cost Leadership: Here the business works hard to achieve the lowest production and distribution costs. The firm that carries off that strategy best will make the most profits. the technology leader. Firms pursuing this strategy must be good at engineering.42 particular product or service. Thus. and by whom?). The problem with this strategy is that other firms will usually emerge with still lower costs (from the Far East. The firm cultivates those strengths that will give it a competitive advantage in one or more benefits. Focus: Here the business focuses on one or more narrow market segments rather than going after a large market.

and the industry.43 pursuing a low-cost strategy will do the best. These firms are not necessarily innovators. reengineering refers to breaking down business processes and reinventing them to work more efficiently. quality.11 Other Key Concepts 5.11.2. a habit that prevents management from making frame breaking.2 Total Quality Management (TQM) TQM refers to the practice of placing an overriding management objective on improving quality. its long-term value is questionable. and speed.2. service.do the worst. This is a high-risk strategic avenue to follow. Reactor— Such companies are second-movers. Whereas TQM is more of a philosophy than a specific strategy. cohesive change. This strategy is akin to Porter's focused companies. Business processes are often replete with implicit rules that hamper the way in which work should truly be done. They are closely related to Porter's Low Cost Producers.2. Analyzer— Analyzers pick apart the market very carefully looking for niches and demand/supply gaps. 5. While this strategy may be profitable in the short run.“middle-of-the-roaders" -. changes. cutting out wasted steps and enhancing communication.” A higher level of quality is linked to increased customer satisfaction and thus leads to the ability to . Defender—Those firms that have a leadership share of the market will often concentrate on staving off the competition. but those who are successful can change the way the game is played and create very strong competitive advantages. Prospector— These firms are the first-movers and the innovators. letting others show them the way to success. They react to changes in the market and moves of their competitors and so must maintain flexibility. but it is common for a company to shift from one strategy to another as its situation. processes are often viewed as discrete tasks. 5." 5.1 Reengineering Popularized as Business Process Reengineering (BPR). leveraging their advanced position along the learning curve and their name recognition to maintain a superior market position. Further. moving to erect as many barriers to entry as possible.11. Porter suggests that firms that do not pursue a clear strategy .2. A firm can only pursue one of these strategies at a time. Reengineering is defined by Michael Hammer and James Champy in Reengineering the Corporation as "the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance such as cost.10 Strategic Types (Miles & Snow) Miles and Snow have divided strategic options into four categories (in contrast to Porter's three Generic Strategies). the stated objective is often "Zero Defects" or “Six Sigmas. but instead concentrate their efforts in very carefully and narrowly defined efforts.

management should ask: - Essential success factors are those factors that lead to the answers to the above questions. core competencies provide potential access to a wide variety of markets.4 Core Competencies A concept popularized by Professors Gary Hamel and C. Vertical integration makes the most sense when a company wants greater control of a channel that has major impact on its product cost or when the existing relationship involves a high level of asset specificity. TQM was initially limited to the manufacturing sector but has more recently been applied effectively to service businesses as well. 5.5 Vertical Integration In some industries companies find it advantageous to integrate backward (towards their suppliers) or forward (towards their customers).K.2.11.3 Key Success Factors Essential success factors are those factors that are most critical in determining a firm's ability to survive and prosper. Attributes of essential success factors are the following: - Management can influence them. for wood products.2.2. The classic example of a company that has effectively leveraged its core competencies is Honda. which has gained a competitive advantage in numerous product markets through its focus on leveraging its skill at making engines. A firm must supply what customers want and survive competition from other firms What do customers want? What does the firm need to do to survive competition? Therefore. make a significant contribution to the perceived customer benefits. essential success factors are owning large forests and maximizing the yield of those forests. and are difficult for competitors to imitate. .11. It is important to ensure that the added benefit from incrementally increasing quality outweighs the added cost associated with the quality improvement effort. For example.11. They impact the overall competitive position of the firm in the industry They are an interaction of characteristics of an industry and each firm's strategies. 5. 5. Prahalad.44 charge a higher price at what is often a lower cost.

8 Net Present Value (NPV) The NPV is a project's net contribution to wealth.. multiply the quantity sold times the contribution margin and subtract the total fixed cost.11. or hurdle rate. and the price of a product to determine the minimum units of sales necessary to break even or to pay the total costs involved.2. (Typically.. the firm should not invest in the project. In other words..) The NPV is calculated as follows: NPV = Co + Cl/(l+r) + C2/(l+r)2 + . The necessary sales are called the BEQ. Ct represents the cash flow at time t. variable costs.6 Just-in-Time (JIT) Very Important in reducing costs . The BEQ is calculated by dividing the fixed costs (FC) by the price minus the variable cost per unit (P-VC): BEQ = FC/(P-VC) The price minus the variable cost per unit is called the contribution margin. and adaptability to changes. Semi-variable Costs: The costs of production that vary with the quantity (Q) produced. Variable Costs Variable Costs (VC): The costs of production that vary directly with the quantity (Q) produced: these costs generally include direct materials and direct labor cost. In other words.FC 5. . The contribution margin represents the revenue left after the sale of each unit after paying the variable costs in that unit. + Ct/(l+r)t If the net present value of the project is greater than zero. productivity.45 5. This technique is also useful to make go/no-go decisions regarding the purchase of new equipment.11.11. as in the initial investment. The present value is calculated by discounting future cash flows by an appropriate rate (r). the materials arrive at the customer's factory exactly when needed. Net present value is the present value (PV) of all incremental future cash flow streams minus the initial incremental investment. Fixed Costs (FC): The costs of production that do not vary with the quantity (Q) produced: these costs generally include overhead costs. usually called the opportunity cost of capital.2.2. the firm should invest in the project. To determine profits. If the net present value is less than zero. these are discrete costs. Inventory costs tend to zero The goal of JIT production is a zero inventory with 100% quality. Effective implementation of JIT should result in reduced inventory and increased quality. (Ct can be negative. Profit = Q x (P-VC) .) Break-even Point: Break-even analysis is a managerial planning technique using fixed costs. JIT calls for synchronization between suppliers and customer production schedules so that inventory buffers become unnecessary. or break-even quantity. 5. such as the cost of adding new production capacity when Q reaches certain levels. Co.7 Fixed vs. but not directly. the amount that "contributes" to paying the fixed cost of production.

This phenomenon is typified by the "80/20 rule" which states that 80% of the output comes from 20% of the input. Typically. Alternatively. 80% of total downtime on a production line is attributed to two out of the ten manufacturing steps. 80% of a company's profits may be generated by 20% of its product lines. a Pareto analysis is conducted to determine the areas on which management should focus its efforts.2.46 5.9 Pareto Principle (80/20) The Pareto Principle refers to the situation in which a large amount of the total output comes from a small amount of the total input. For example.11. .

5 1. do not feel compelled to answer immediately.3 1. The interviewer will look to see if you build on the information provided. This will serve as the structure of your analysis.. do not error on the side of being silent either. the more confused you could become. do you believe this is worthwhile. Then. HAVE FUN WITH THE CASE! Engage yourself and get excited about the case. For example.7 1. one could say: “I intend to purse. Remember that some material may be extraneous.6 1. The interviewer is not clairvoyant. The interviewer has probably spent a few months working on the problem and consulting firms are looking for people who enjoy solving problems. Individual pieces of data can often be combined to draw a conclusion about part of a problem. The interviewer possesses tons of data or will make it up. Think then speak.” 1. Keep the interviewer informed of where you are going and check to see if you are on track. This is an area where one can demonstrate teamwork. Better to use the bull’s eye approach to data gathering. They also want consultants who are dedicated to their client and client’s problem.4 1. if need be. Ensure that you understand the problem at hand. ask for a few moments and think out your approach. He will not understand your thought process unless you explicitly state to the interviewer. the more you prompt for data without assimilating what you have already been presented with. as opposed to the shotgun approach... do not answer any question unless you have thought through your answers fully. Take your time. Do not lock yourself into your answers. brainstorm to get all your thoughts on paper. carefully assess them and order them into a logical format. Do not assume anything! Use questions to clarify issues and to gain a complete understanding of all the problems that need to be addressed.1 1.9 1. Once the problem or case is presented to you. During that time.8 1. interviewers will drop hints regarding the case throughout the interview process.2 The goal of the case interview is not to crack the case but to demonstrate “how you think. However.10 2 Top Ten Things not to say during an interview: . Do not ask for every piece of data.” Listen carefully to everything that is said during the interview. You can demonstrate this by being engaged. Rather. Practice phrasing statements clearly and succinctly. Thinking aloud leads to rambling.47 6 Dos and Don’ts 1 Helpful Hints: 1.

1 2. I do not believe you..48 2. This case sounds exactly like what we did in Managerial Accounting.6 2.7 2.5 2.3 2. I would like to concentrate totally on the political implications of this situation.10 3 3. DO NOT ANSWER RIGHT AWAY! Think about it and come up with five drivers.” I need a lot more data. Then say something like this: “Well I have thought of five significant drivers.1 Don’ts If the interviewer suddenly asks you to name the three critical drivers to the industry.. . Are your clients really that stupid? This case has no answer.8 2. What are you looking for? Is this a marketing case? I cannot believe this is a real case.9 2.4 2. you are trying to confuse me. I cannot solve this case because I have not had Corporate Strategy yet. then order them from the most significant to the least significant.2 2. There is obviously one answer to this case. the three most important are.

Helpful places to look for info: • • • Attend Presentations Quick database search to get any recent news on the company Use Wet Feet Press Guides Step 3 Practice the cases with a partner .49 7 How to Prepare for the Consulting Interviews? Step 1 Attend Case Interviewing Workshops by leading Consulting Firms Step 2 Research the firms and know their differences.

Give me an example of where you did something unpopular and had to stand up for yourself at work. 4. 11. Tell us about your resume. Why do you want to work for this firm? 3. 5. Give me an example of where “you dropped the ball. Describe a problem you encountered in a work environment and how you handled it. 7. 8. Tell us about your previous industries. Tell us about your weaknesses. 6. Why consulting? 2. If you do not get into consulting what will you do? 9. Where do you see yourself in five years? 12.50 8 General Interview Questions 1. . Describe a situation where you had to present orally to an important group of people. Tell us about your skills.” 10.

The major reason for the investment is that the new process will result in a better finish. materials are easy to obtain. he wants to know if he should approve a $200 million capital expenditure for new manufacturing facilities. Specifically. toilets and urinals. commercial)? Are there different price points by market or within markets? “Better answers” • “Minimum” . the largest producer has a 20 percent share.2 Possible Solutions Probable points of clarification: • Will the planned investment lower operating costs? (Yes. China products include tubs. The largest competitor has just announced plans for a major modern plant. • • • Prices for the client’s products have been flat in the recent past. our client is break-even.g. but not substantially. What issues must the client consider? 9.) Market size/growth: What has been the industry’s growth in units? Is the growth linked to housing starts? • Competitive Position: How much overcapacity exists in the industry today? What are the competitor’s relative cost positions? • Market segmentation: How is the market segmented (e.1 Issue The CEO of a large diversified building products company has asked us to help her examine the operations of her china products division. The company is one of seven producers in the United States. The two largest competitors appear to earn a small return.1 China Products Division 9..51 9 Sample Cases 9.1.level answers • .) Does the company rely on a limited source of raw materials? (No.1. residential vs. our client is number three with a 15% market share. industrial vs.

how expensive is entry/exit? Has there been a history of change in the industry players • Manufacturing: Do the plants produce other products that contribute to overhead? Are there ways in which costs can be substantially lowered? “Outstanding answers” • Marketing: How rational has pricing been in the industry? Have competitors ever announced capacity expansions before and then not implemented them? Are there opportunities to rationalize the product line in order to increase revenue? Does the new finish that will result from the investment “pay for itself” with higher prices? • Competitive Position: How important is the product line to each competitor? (i. profits or costs of other business units? Are there advantages to plants being located in specific places due to high transportation costs? If the competitor’s new plant is built. Sears)? • Barriers to entry/exit: What is the minimum-size for a new plant? Are most plants fully depreciated? Generally.52 • Customer-buying factors: Do customers demand a full-line supplier (e..g. will other manufacturers drop out of the market? • External environment: Is the regulation of the market significant? Are there changing demographics that will affect demand? Logic Tree Approach .. or with other products such as fittings)? Would exiting the business affect the sales. with other building products)? Is any significant portion of sales to centralized customers (e.g.e are other competitors thriving on good quality or high profit due to low costs?) Are the products sold in combination (with each other.

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Level One Question: Should I invest in $200 million plant? Level Two Questions: Is there a sizable profitable market? Is there a better use for funds other than the current proposed investment? Are there significant market threats? Do I have production advantages over competitors? Level Three Questions: Is there a sizable profitable market? Do I have good relationships with distributors? Does the market have enough unsatisfied demand for new capacity? Can I sell at the right price? Can the market be segmented?

9.2 Healthcare Company 9.2.1 Issue
A large healthcare company has decided it is interested in substantially increasing the size of its operations. Its goal is to double total sales and profits in less than two years. As a consultant brought in to assist them, what would you do?

9.2.2 Possible Solution:
What is the current scope of operations? In what areas of healthcare does the company deal? What is its current market share in these areas? What plans has the company already considered is currently considering? What is the competitive nature of the industry? What would be the effect on sales and profits of reducing prices/margins? What potential is therefor expansion by acquisition? Do they have the financial capability? Do potential targets exist? A suitable solution will depend upon the answers to the above questions. A business can increase profits by: - Increasing sales - Increasing prices - Cutting costs However, if the company's margins are found to be consistent with industry norms, it would seem unlikely that either increasing prices or cutting costs represent feasible methods by which to double sales & profits, particularly if the company operating in a moderately competitive environment.

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This leaves only sales increases, which could be achieved by: selling more of the current products to current customers selling new products to current customers selling current products to new customers selling new products to new customers The suitability of these options will again depend on the particular environment. In the particular example of this case, it turned out that only selling new product to new customers via some form of diversification could hope to achieve the company goals. You should then consider the potential for increasing sale by means of diversification through acquisition or joint venture. The relative benefits of each will depend on financial resources as well as the existence or otherwise of suitable targets.

9.3 Electronic Joint Venture 9.3.1 Issue
A large microelectronics manufacturing company is considering participation in a cooperative project which will receive 50% government funding. The company currently uses several hundred millions of dollars worth of microelectronics every year, the cost of which is growing steadily in many of the company's products. Although the company already has a subsidiary that does some microchip fabrication, the capacity of this subsidiary is small and its technology is relatively old. It is interested in developing application specific ICs (ASICs). The government project would more or less allow the company to define an individual project within the broad category of process technology, CAD tool and equipment development What are the important considerations to making this decision? What factors are important for success in the ASIC business? Should the company get involved? If so, with whom?

9.3.2 Possible Solutions:
What is an ASIC? When are they used for and for what reasons? (An ASIC combines the functions of many semiconductor components on one chip, decreasing size and weight and increasing speed and reliability. Assembly costs are reduced, but development costs are higher.) What is the market outlook for ASICs? (High growth. currently about 15% of all ICs are ASICS & this figure is expected to rise above 35% in the next 10-years. The IC market itself is expected to grow at over 10% per year too. Important demand segments are entertainment electronics and automotive applications.) How is the industry structured? How big and how competitive is the industry? Who are the important competitors? What are their main business lines? How vertically integrated are they? Are there already joint ventures and alliances? (There are about 150 firms producing ASICs, of which only a handful are of any size, although there are powerful commodity-chip manufacturers. In contrast to the

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commodity-chip manufacturers, most of the top ASIC producers are in fact American. There is currently only one producer of ASICS in a similar line of business to the company under discussion in this case but this competitor has much more sophisticated semiconductor production capabilities. Strong demand has meant that price erosion is not currently an issues in the ASIC industry However, some strong alliances already exist in the industry and the possibility of converting old DRAM production facilities into ASIC facilities may well lead to great overcapacity when the next generation of memory chips takes over.) Are there significant barriers to entry? What are the expected costs of entry? (A state-of-the-art production facility large enough to meet the company's needs would cost around $250 million. In addition, considerable effort would be required to find the staff with suitable expertise. Also, firms whose core business was semiconductors would have significant technology and R&D advantages.) How is the ASIC business different from that of standard ICs? Consider typical production volumes and hence the differences in fixed costs and design costs per unit produced. (Typical ASIC production volumes are much lower, therefore need to find some way to reduce some of these costs e.g. using CAD to shorten design cycles.) What are the client’s current purchasing habits? (Currently purchase nearly all microelectronics through one subcontractor, who delivers high value sub-assemblies.) Do potential joint venture partners exist?

9.4 Television Cable Company 9.4.1 Issue
Three years ago a venture capital company purchased a cable TV system that had access to 2MM households in the southwest. The VC firm was attracted by the extremely large subscriber potential (2MM households) and potential for considerable return. Despite their best efforts, they have failed to turn a profit in the past three years. You have been hired to determine if they can turn a profit or if they should sell.

9.4.2 Possible Solutions
- Analyze current revenue and cost structure - Analyze the market potential of the area - Analyze the competitive situation/ substitutes - Provide recommendations Cost Fixed costs associated with lying cable Revenue Subscribers monthly fees

56 Debt associated with fixed costs movie channels Maintenance of the cable system Information provided as soon as these cost/revenue drivers are uncovered: The fixed costs are extremely high due to the distance between cities in the system. Why? Moreover. Is the reception from these independent stations strong? A: Yes. there must be a strong competitor in the market. Does the cable system offer what they enjoy watching. If not. The debt and maintenance costs are also higher than systems in major metropolitan areas. Overall Assumptions: The low subscriber rate (revenues) cannot overcome the high fixed costs. The current systems is only at 43% capacity (# of subscribers) vs. Subscribers special services - . A: Yes. can it be fixed? Market Assumptions: Based on the low subscriber rate. Recommendations: Determine if there are consumer needs not being met by the independents that could be provided by our system and worth paying for. sell. The subscriber rate is low due to the high number of competitive stations available to our consumers (supply and demand problem). Competition: If consumers are watching television. but not our cable system. very. a 63% industry average. Are the stations offered free of charge? A: Yes. I would assume the population is less likely to watch television perhaps because of income or lifestyle issues. Assumptions: High fixed costs are overwhelming the current revenues The current subscriber rate is too low. there are eleven independent broadcast stations in the area. What options do our consumer have? A: In addition to the three network stations. A: Actually they watch more television than the average.

modem day folklore Assumption: Our current advertisers (for Time) would not be interested in this format. low quality editorial.5. Additional Information: There are currently two major Sunday Supplements: Parade and U. distribution Internal and external sales force . Displacing a competitive supplement would require costly incentives to the newspapers.5 Magazine Sunday Supplement 9. Weekly They are distributed in over 90% of the US’s newspapers (combined) A newspaper can only insert and distribute one Sunday Supplement They are offered to the newspapers free-of-charge 9.(gaining ad revenues and newspaper acceptance) Assumption: There are few publishing synergies with our current publications.90% penetration. printing/paper.S.2 Possible Solutions Can we turn a profit by publishing this supplement? How? -Revenue potential. Cost Assumptions: Fixed cost of supplement set-up Editorial. costs. A: True Competitive Assumptions: The competitors are deeply entrenched . light reading gossip. competitive response Does it fit with our current publishing strategy? Can we turn a profit? Revenue Potential (Assumptions): Major sources of revenue is the advertising revenue Question: Can we expect to gain revenues from our existing advertisers? A: You tell meCan you explain the format of the supplement? A: Typically cheap paper.57 9. .1 Issue A major magazine publisher (not unlike Time Warner) is thinking about publishing a "Sunday supplement" for insertion in and distribution through metropolitan newspapers.5. They have hired you to determine if they should proceed or not.

Key Issues: Based on these assumptions.58 Current newspapers use the supplements in order to publish low quality editorial without disparaging their product offering.Assumptions: $50 annual fee multiplied the number of members. They are considering dropping the $50 annual fee. Key issues: If the annual fee is dropped.6 American Express Charge Card 9. Strategic Fit Assumptions: The poor editorial content associated with these supplements may disparage the publisher’s current product offering. turning a profit would be difficult due to the large upstart costs and the strong competition for advertising revenues and newspaper acceptance. Evaluate the pros and cons of dropping the annual fee.2 Possible Solutions Determine how American Express makes money. What are the "economics" of such a decision and should they drop the fee or not? 9.1 Issue American Express has faced strong competition from new credit cards entering the market. Make a recommendation Revenue Drivers . . Receive 1 % of the transactions from retailers who honor the AMX card.6. they have to increase the revenues from consumer purchases (1% from the retailer) Is it likely that current cardholders will spend more per year if the annual fee is dropped? A: Not likely. 9. To overcome this loss. Recommendations: Based on this information and these assumptions.6. No additional revenue from consumers because they pay-off monthly. They would still have to pay off their balance every month. we would not recommend proceeding with the supplement until potential advertisers were committed and newspapers demonstrated an interest in accepting the supplement. we would recommend publishing under an alternate brand name). (Even then. AMX loses ($50 x # of members).

59 Therefore.250MM x 4% = 10MM current cardholders $50 x 10MM = Annual loss of $500MM by dropping the fee.why? . Do not drop the fee. population (Just a guess): . The population growth of the city is flat Overall.7.7 Department Store 9.2 Possible Solutions Revenues have decreased for a reason The streamlined costs may have caused revenue to falter The revenue per store may differ .) [10MM x (1000 x 1%)] = $100MM (Estimate of current percentage revenue) Key Question: Can we attract enough new members (without a fee) to offset a $500MM loss? Each new member contributes $10 (1% of $1000 annual purchase).S. the only way to increase revenues from consumer purchases is to increase the # of AMX cardholders Assumptions: Number of current cardholders = 4% of the U.7. store revenue has declined slightly They recently hired a consulting firm to streamline the back-room costs How can you help? 9. She needs to increase the store's earnings over the next year and has requested your help. (500MM/$10) = 50MM new members are needed 50MM new members is equivalent to 20% of the population (gut check) Assessment/ Recommendation: Based on these assumptions. May want to consider varying the fee (sensitivity vs. Current percentage revenue: 10MM members x $1000 annual purchase (avg. Relevant Information: 20 locations in the metropolitan and surrounding suburban areas (they are present in every shopping mall). new members) 9.1 Issue You have been hired by the CEO of a department store that has numerous locations in a major metropolitan area. increased membership equivalent to 20% of the population is probably not likely.

shoes. Do the higher performing stores have any common characteristics such as size. household items . Stereo. Yes. Jewelry . Questions: Are certain stores more profitable than others are? A. Assumptions The product mix may be more suitable and more profitable for suburban stores The competition may be lower in the suburban areas (turns out not to be true) The income level may be higher in the suburban areas Product Mix: What products are most profitable? A: Appliances.$$ Frequency Prices Others? You learn there is nothing drastically different (overall). TV. tools.big-ticket items. No.60 Increased competition? Different consumer buying trends? Start with Cost/Revenue Drivers: Costs: CGS Personnel/ OH/ SG&A Inventory holding costs. What products are less profitable? A: Clothing. consumer demographics? A: Yes. so you turn to the individual store level.low ticket items Store by Store Sales/Demo's: Do suburban Stores sell more big-ticket items? A: Yes What do the urban Stores sell? . product mix. suburban stores are more profitable than urban stores. the demos are different by store. levels Cost of debt Other? Revenues: # of people shopping Amount of purchase . the product mix is the same at all stores. Yes.

our client believes it can become more profitable. Potential Recommendations: Re-configure the product mix by store (no sense holding excess inventory) Assess the impact of the urban stores and determine the ramifications of closing them. SG&A. household items. higher income. Competition: .2 Possible Solutions Opportunity to decrease costs or increase revenues . minor appliances Are the demographics better suited for the mix in the suburbs? A. suburban stores are outperforming urban stores.1 Issue Our consulting firm has been retained by a major bank to help improve the profitability of their largest credit card offering. Personnel – Can not change Revenue Annual fee .8.61 A: Clothing.Yes.currently $50 (Could change) Annual percentage rate = 14% (Could change) Merchant fee = 1. etc. therefore have to increase revenues. Hence.analyze drivers Opportunity to vary the annual percentage rate or the annual fee Benchmark competition for opportunities Analyze cost and revenue drivers: Costs Marketing. Their card (in the same class as a Visa or MasterCard) provides average returns in comparison to the industry. . Only revenue variables available are changes to the annual fee and APR. 9.5% (Can not change) Bad credit. Assessment Due to the identical product mix at each store and the varied profitability by item. however. 9. the urban stores are hindering earnings. You need to analyze the situation and make recommendations. theft.Cannot change Other costs – Can not change Key Issues: Cannot affect the cost structure.8 Credit Card Division of Bank 9.8.

In the last two years. During the late '80's and early '90's this division had a great run -opening 4. One of their divisions is a leading home video retailer.80% of our revenue He/She then asks how you would tailor card services to each of these groups: Recommendations: Pay-Off Month in Full Each Hold Small Debt for Short Hold Heavy Debt Long Term Term Increase the APR slightly Waive the annual fee Increase their credit limits Cash back programs. both growth and profit have declined substantially. etc.000 stores and realizing considerable profits. . little Provide numerous services Decrease the annual fee These heavy debt card holders are the key to our profitability. Background: Our client's division is not unlike a chain of Blockbuster video stores."move on". it is imperative to get them to sign up for the card (no annual fee). point systems) and run up debt (automatic credit limit increases). use the card (cash back. Charge high monthly fee (detailed kudos) Key Issues: reports. how quickly balances are paid off and the "need" for the card. the focus of the case was shifted to customer segmentation and tailored services for each segment. You have been brought in by the CEO to assess the situation and provide recommendations. 9. Note to Case Interviewer As soon as the interviewee had identified the important drivers of revenue and cost.62 Interviewer tells you it is a very competitive environment .1 Issue Our client is a major entertainment company on the West Coast.9 Movie Rental Business 9. Hold heavy debt for long periods of time (basically pay-off the interest) . Assumption: Customers use the card differently. points Access to case advances. The majority of their business is in movie rental with a much smaller portion in sales. Pay-off in full every month 2.9. there may be different customer segments based on the balance held. Case Interviewer suggests there are three distinct categories: 1. Hold small debt for short periods of time 3.

kiosks. traffic Price of rental: (No change) Sale of rentals: (decreased) Accessories: (No change) (No real change) (Potential for future but no real current Sales of movies for home use and collection: (Sales have increased dramatically) [Once the important issues have been identified. they quite often rented an existing tape from the library (additional lost revenue) Based on this industry outlook. the studios have allowed new releases to be sold through warehouse stores (Wal-Mart) at the same time they are made available to the rental retailers.63 9.cable on demand: affect) (List potential causes of decreased # of rentals: (decreased.] I. when customers rented a new release. This is mainly due to the sale of these same releases through alternate channels. Later. Thus. they would send the excess copies to the new stores as part of their "library" of existing tapes. it could buy excess numbers of the new releases to satisfy customer demand. Competitive Assessment/ Substitutes: traffic) New movie stores: New In-home sources .9. How can we regain store traffic or offset the rental loses? Recommendations (these are just a few of the options considered): Develop new. Recently.how else are consumers getting movies? Costs: Revenues: Cost of the new movies: (Actually decreased) down) Overhead: (No change) SG&A: (No change) Leases. the interviewer describes the changing industry.2 Possible Solutions Start with a simple: (Profit = revenue .costs) structure Analyze the competitive situation Analyze the "substitution" factor . When division was growing. other: (No change) Key Learnings: Costs have actually decreased. but not enough to offset the decreased store traffic. this is no longer an option therefore fewer new releases have been ordered. more convenient locations . In addition. With fewer new stores opening. 2. pick-up/delivery Develop pricing/bundling formats combining new releases with existing movies . many of our customers are purchasing rather than renting. what would you recommend for the division? Provide a recap: It appears as though the major issue facing the division is a reduction in store traffic for new releases.

I would guess they have superior buying power over Autoland in the U. Since entering the U. in the U. A service center for fixing any automobile problem. Autoland has experienced $50MM in revenue with loses of $20MM.rent the first time.S.2 Possible Solutions Analyze the competitive situation Analyze the market potential/ customer segments Competitive Situation: What is the competitive situation in Canada? A: We are the major player (few local stores) Are we providing the same services in Canada as in the U. Key is to determine why they are outperforming Autoland. Focus business to sales rather than just rental. The stores offer two services: 1.10.S. The owner is considering pulling out of the United States.64 Offer "rent to buy" programs . However. They are very profitable in all cities including our U. Autoland Capabilities: Assumption: We actually have two businesses under one roof.1 Issue A successful chain of Canadian auto service stores (Autoland) has entered several markets in the United States in hopes of duplicating their success in America. we are profitable in retail sales and losing heavily on the service center.S. from an oil change to new transmission.10 Auto Service Stores 9.10.no. then have option to purchase. Is this true? A: No.S. Focus on better facilities than alternate channels of purchase. is one more profitable than the other? A: In Canada . They copied our Canadian format and have about 10 locations in every major city. Assumptions: Due to size. Start a home delivery scheme for both rental and sales. You have been hired to determine if they can improve their performance or if they should exit the market. we have the same cost structure due to our presence in Canada. Assumption: The market has potential due to the competitor's performance.S. markets.S? A: Yes. Retail sales of auto parts for customers who prefer to perform their own maintenance. 9. 2. Are the costs associated with each side of the business different? . 9.. a national chain of stores in the exact format as Autoland exists in the U.S? A: Yes Do we have strong competition in the U.

65 A: Yes. locate between the lower and upper income areas to attract both segments. but prohibits heavy use of the service center due the distribution of income between the inner city vs. we located in the inner cities to save money on leases. move. how would you help us determine if we are? Factors: Marketing. the suburbs.. the service center is much more expensive to operate. Pricing. In new markets. but losing in service. Location.Between the inner city and the suburbs (on . or drop the service business and retain the profitable retail portion A. we have to pay mechanics and have high fixed costs Assumption: We are profitable in retail. Market/ Customers: Autoland provides two services. are the customers for each service different? A: Yes. We attract the wrong consumer. The customers that shop for retails parts typically have lower to middle incomes and are trying to save a few dollars by performing their own maintenance. In existing markets. Are we doing this successfully? A: We are not sure. The customers who utilize the service center have higher incomes and no interest in fixing their own car. Assumption: We are attempting to attract two distinct customer segments. A: We do the same as the competition A: Identical to competition A: Different. Where is competition located? the border) Assumptions/ Recommendations: Our location is great for the retail sales business.

50 for baseball games.11. concessions and parking) for purposes of this analysis. After exploration of this issue.2 Possible Solution Everything cancels out except that baseball has more seats available. Neither franchise owns the stadium. Which team should she buy? Additional Facts 1. who is worth millions. regardless of the team she chooses. Research shows that Cleveland residents are indifferent. The purchase price is the same for both franchises. Possible sources of data historical sales patterns. 5. The interviewee must figure out a model to answer this question. The stadium capacity is 20. make the candidate probe for it. 8. information to be given credit. 7. 3. 12. The interviewee should explore other streams of revenue but are irrelevant (important streams are . 11. 9. She wants to own a sports team: however.11. 2. The Balance Sheets of both teams are the same in terms of liabilities and assets. It is important that interviewees recognize these as possible sources of value to the investment.1 Issue A wealthy woman. Wentworth. respectively. 9. Wentworth are the same. The number of basketball and baseball home games is 41 and 81. wants to invest in either the Cleveland Cavaliers (a basketball team) or the Cleveland Indians (a baseball team).11 Sports Franchise 9. Do not give this information away. Mrs. Examine if 100% utilization can be reached.000 for baseball games.66 9. 10. but would like to maximize the profit from the investment. Equation = # of seats * # of games * stadium capacity * utilization . the baseball investment has a potential for greater revenue. Utilization on average is 70% for both sporting events. Let us say that there is a $100 million price tag. Thus. 4. the interviewee must recognize that there are other investments that she should consider. Ticket Prices on average are $25 for basketball games and $6. it turns out that they cannot be raised. The interviewee must ask for this 6. She is indifferent between choosing between the two teams. The key is to figure out whether ticket prices can be raised.000 for basketball games and 54. comparable data for other franchises in other cities and overall market demand.licensing of apparel. The financing terms available to Mrs.

. but how would you measure that value? Study each subsidiary's functions and determine efficiencies to be realized. . • • • • • Accounting Order Processing Sales Management Finance 9.2 Possible Solutions Would it be more efficient to provide central functions from parent. Consumers buy primarily based on lowest cost product.12.67 9. Parent manufactures all equipment (parent’s manufacturing is not the scope of this case). we could determine the number of labor hours for a transaction for the sub and parent. Plot labor/units on vertical.12. Subsidiaries maintain all functions (were once bought by independent businesses. then diversified functional operations? Maybe. For example.1 SETUP A large durable goods manufacturer (i.e. the firm cannot create demand pull) Consumer purchase frequency is constant (i. buy one new every six years). units on horizontal. centralize the operations.e. If parent is higher. washing machines) • • Sells products directly to customers (80% of sales) Has six wholly owned subsidiaries that stock and sell products (20% of sales) Issues What changes would you make to the organization to increase its value? FACTS TO FIND • • • • • The market will not respond to advertising (i.12 Durable Goods Distribution Case 9. then bought by parent).e.

9. The firm has modern facilities and good cost controls already in place. East Coast. The firm uses JIT. PROFIT CENTERS: Manufacturing and sales are profit centers. but how would you measure this problem? Interview clients and determine the importance of flexibility and personalized sales. DISTRIBUTION: Extensive information system is in place. The largest player has 5%. MANUFACTURING: The firm is a “world class” manufacturer. warranty papers. West Coast & Texas).13. The system handles over 100 daily orders. The CEO has hired you to assess and make business recommendations. The sales division sets the prices to customer. multi-copy sales receipts. Issue • • . What will you ask? What do you need to know? What is important? Can you make recommendations? HELPFUL INFORMATION (not to be offered unless asked) • • MARKET: Market share in the Business Forms business is 4%.68 Problems with this approach? Eliminating sales function and order processing at sub may reduce flexibility and hurt customer service? Maybe. Custom orders shipped between one to three weeks depending on complexity and quantity of the order. The market is fragmented with many small local printers. Transfer prices negotiated between manufacturing and sales are in place. An internal study indicates that the firm is the low cost producer in the industry.1 OVERVIEW A manufacturer of business forms wants to increase profitability by using pricing as a competitive weapon. The company does not own delivery trucks. The company has four regional plants (Midwest.13 Business Forms Case 9. The product line includes credit card receipts. You have ten minutes to interview the CEO before she leaves for a meeting. The UPS delivers most orders within two days for standard items. invoice forms. etc. if possible. SPC and other cutting edge manufacturing techniques.

The market share in highend pots & pans is 35%. MARKETING: The firm only uses direct mail fliers and catalogs. A salesperson receives 25% of all revenue above a standard cost. The firms should constantly monitor standard costs because of volume fluctuations. However. 9. supplemented with occasional visits. Client survey reveals that the company is known for the “high quality. Contacts primarily via telephone. What will you ask? What do you need to know? What is important? Can you make recommendations? HELPFUL INFORMATION (not to be offered unless asked) • MARKET: Market share in overall market is 10%. COST STRUCTURE: Not important. a typical customer is a newly wed who places pots & pans on the registry at Hudson’s or Marshall Fields. the materials cost is less than the shipping cost or fees charged for customized work.69 • SALES FORCE: A two hundred person sales team is in place that focuses on important accounts. You have ten minutes to interview the CEO before she leaves for a meeting.14.” The firm is able to deliver larger orders faster than competition when asked for rush delivery. Use ABC inventory analysis to get a “better” standard cost and empower the sales force to maximize revenue. • • Possible Solution One possible solution is to use price as a competitive weapon. The sales force is paid on commissions. All sales are handled through the sales force..14 “High-End” Pots & Pans Company Case 9. but not necessarily to increase market share by lowering price. wide product range.1 OVERVIEW The CEO of a Pots & Pans manufacturer hired you to solve her problem: • • Foreign competitors are gaining market share Products are barely profitable at market prices (Only thing is … reduce on cost … see how . sold primarily in sets and is expensive. Use “Time Based Competition” to increase profitability. Materials or Labor or O/H or Shipping) Issue Pots & Pans is considered to be of premium quality. The firm should exploit rush order customers by raising prices on less price sensitive customers. excellent return policy and its ability to fulfill any order. According to the CEO. .

20% Labor . Repeat sales equal almost 100% of the business. The next thing you need to know is where the warehouses are located. The reason for the low inventory levels is that the product is bulky and expensive to store. since the closer they are to the stores the cheaper distribution costs will be. Your client has six warehouses . COST STRUCTURE: Materials . the cost of delivering products quickly decreased. MARKETING: The firm uses little advertising. Each store carries one set of each product line for display and one set for inventory purposes.20% • • • 9. The firm has a three person sales staff that works with department store buyers. O/H . you need to ask where the inventory is being held. Inventory and outdated inventory would also decrease. The company and not customer pay shipping costs. which turns out to be 10. Department store buyers know the company and its products well. No products are shipped directly from the factory. The higher the service level.2 Possible Solutions The six regional warehouses were setup in the 1950s when long distance delivery times were slow and costs were high. the only way they can do this is by shipping overnight at a premium rate. RETAIL OUTLETS: The product is carried in high-end department stores. since they sell so few of these pots and pans hold no inventory and thus require nextday replenishment after a sale.20% Var. When you divide this into the $1 million distribution cost you discover that they are pay $100 to deliver a pan to the store.30% Fixed O/H . Distribution is a trade-off between cost and service level. Therefore. Little discussion or negotiation required. It turns out that stores.two in Charleston. the lower the cost (more inventory pools.000 units.10% Shipping/Packaging . You can save them a bunch of money by closing down a few warehouses and shipping everything from the plant in Charleston by UPS (after negotiating a volume rate discount).70 • • MANUFACTURING: The firm has one plant in North Carolina DISTRIBUTION: Products are sent to local warehouses and then to six regional warehouses and than to the departmental stores. Beat this figure and you have earned your exorbitant fee. With the advent of FedEx. A quick way to solve this case is to realize that if stores require next day service from these six warehouses. warehouses and shipments). Eliminating warehouses leads to O/H savings that are far greater than the increased shipping costs. two in Philadelphia and two in LA from which he services the whole country.14. . Department stores demand quick replacement upon sale. This can be confirmed by asking for the annual sales.

71 9.15 Paper Products Manufacturer Case 9. How do you determine if the Brazilian company has a long term cost advantage over the US company? What would you need to know? Why would it be important? What must be considered? How would you find out what you need to know? HELPFUL INFORMATION (not to be offered unless asked) Possible Items you would need to know! • • • • • • • • • • • • • • Cost Structure Facility age. Due to recent developments. technology used. Indiana that has been producing paper for 60 years.35 a square yard compared with the $. notebooks. Your company values long-term supplier relationships. amount invested Level of integration (does the firm own its own forests?) Control over key suppliers (wood or chemical suppliers) Shipping/Distribution costs Quality of Brazilian paper over US paper Sales volume Company and Industry capacity Capacity Utilization Political stability in Brazil Exchange rate fluctuation and ability to hedge MANY MORE! Use Lexis/Nexis . instead. The Brazilian firm is offering to sell at $. You are the purchasing agent responsible for buying the white 20lb paper. Currently.1 OVERVIEW Your company makes legal pads.15.38 a square yard from the current supplier. you have a new option to buy from Brazil.000 tons of white 20lb paper to produce its product lines. ABI Inform Ask Brazilian and US company for information and study the annual reports Issue How to find out what you need to know! . The firm purchases 100. you buy from a US company in Oregon. and other standard paper products. The firm will consider switching if it can gain a long-term cost advantage. Your firm uses a sixty-year-old plant in Gary.

This fact can serve as your starting point for cracking this case. The firm stopped lower its price once it reached $. the right number is not necessarily the right answer for the interviewer. 9. methodology is key. 1. 2. maybe another customer.1 Issue This case is one of those “are you kidding. The case question is.25 a square yard.it was asked. certain “commonly known facts” should be in your hip pocket when going into case interviews. Split the population (~250 million) into households.72 • • • Ask important suppliers for information.16 Pianos 9. Why did the Brazilian company stop lowering its price? • • Realized that they were losing the price war Reached variable cost level (incremental business) Found more profitable use for capacity. 9.2 Possible Solutions Along with a basic framework methodology. Examine Brazil through Brazilian governmental reports Look for analyst reports on the industry BONUS QUESTION A price war continued until the Brazilian company stopped lowering the price. split the number of households into income quartiles. Make an assumption about the “average household.16. etc.) In this type of case. but -. Now. gasoline stations. why would you ever want to ask that in an interview” cases.16. Quartile # Households . and come up to about 84 million households.” say three. and similar cases always seem to pop up. One of these facts is the approximate population of the United States. “How many pianos do you estimate there are in the United States?” (Similar cases involve American Express cards. Like all cases.

Quartile Upper Mid-Upper Mid-Lower Lower # Households 21 million 21 million 21 million 21 million % With Piano 20% 10% 5% 0% # Pianos 4. how many piano tuners do you think there are in the United States?” The solution to this question can be structured very similar to the one above.1 million 1 million 0 Using this methodology. “given the number just calculated.7 million 0.2 million 2. Assume that the upper quartile tunes their piano once every year. Assume a piano tuner can tune four pianos a day for 250 day a year.3 million. the interviewer may choose to expand on the case. 1.Well then. music halls.1 million 0.. or 1000 pianos a year. the next quartile once every three years and the next quartile once every ten years. This will give you the following: Quartile Upper Mid-Upper Mid-Lower Lower # Households 21 million 21 million 21 million 21 million % With Piano # Pianos 20% 10% 5% 0% 4.0 million 2. .2 million 0. how would you come up with those numbers? Now.1 million 1 million 0 # Tunings 4. (The number itself does not matter so much as the approach. For a “better answer” to the question. Now that you have been able to calculate the number of pianos. Assign a “number of times tuned” to each of the income quartiles.2 million 2.73 Upper Mid-Upper Mid-Lower Lower 21 million 21 million 21 million 21 million 3.. stores need to be considered as well. the interviewer could very well say -. Assign a percentage to each quartile to calculate the number of households with a piano (assume households usually do not have more than one piano each). Better Answer: You have just estimated the number of pianos in homes in the United States. Be careful how you word this. This tells you that five million pianos need to be tuned each year. you should state that schools. the “answer” to the case would be 7.) For instance.

25 $. The interviewee is given a piece of paper with the following representation of CocaCola’s value chain.1 Issue There is very little set-up necessary for this case.05 Local DC $. R&D Manufacturing Syrup $. Does RC really do a lot of marketing by themselves or does it simply “ride the coattails” of Coca-Cola’s marketing? • • • .10 Distribution “Base” DC $. The case is used simply to test the interviewee’s “assumption” skills and reasonable hypotheses. the interviewee is expected to look at the percentage that Coca-Cola applies. the number of piano tuners that you come up with is about 5.17.20 $.10 Marketin g OHD Margin Price = $1. the interviewee is asked to formulate the value chain for a secondary manufacturer (use RC as an example).00 Given Coca-Cola’s value chain.15 Bottling $.17.2 Possible Solutions One approach to solve the problem would be to start at the end of the value chain with the price of RC.10 $. 9. Using this methodology. and make reasonable inferences as to how Coca-Cola differs from RC and what effect this will have on the weighting for RC’s value chain. the next step is to assign percentages of the price to each portion of the value chain.74 3.17 Coke vs.05 $. For this part.000. RC Value Chain 9. 9. The interviewer does not really need to provide a great deal of detail for this case to be used effectively. Reasonable assumptions might be made about the following issues: • Can RC afford to fund as much R&D (as a percentage of price) as CocaCola? Is RC a company which wants to be first in with a new product or a fast follower? Are in-house syrup production and bottling costs (%) really going to be different between companies? What type of distribution system would RC have compared to Coca-Cola? RC is a local brand so the assumption might be made that RC can deal only through the local DCs and do not have a large “base” DC. The interviewee may want to start here because this may be a “known” element (been shopping lately?). Now that the easy part is over.

The CEO resigned in shock and the new CEO has called you in to determine what they should do. Good luck! 9.75 • If RC has similar machinery requirements. The plant produced $2 billion of product revenue with $100 million in profits per year. Russia has been selling fertilizer at a very low price. The interviewer will just be looking for the reasonableness of your approach and assumptions. the final price charged to the farmers is very high compared to the industry . (The interviewer can then judge whether the assumptions are reasonable or whether the candidate sounds like he has never even seen a bottle of Coca-Cola before. this case. Customers say it is cheaper to buy their fertilizer in LA and ship it themselves. The firm’s plant in Louisiana blew up costing them $600 million in damages. In other words. HELPFUL INFORMATION (not to be offered unless asked) • • • • • • • Fertilizer uses a simple manufacturing process -. they could consider buying syrup from someone else and use an outside bottler. Then the interviewee can simply apply the percentages to each portion to arrive at a cost.) One possible answer to this (think back to Crown Cork & Seal) is for RC to start their value chain at a later stage in the process.18 Fertilizer Issue Your client is an agricultural chemical company. has no “right” answer. which is a cyclical industry that is currently in a downward cycle. They produce fertilizer. like most others. If the syrup production and bottling costs are too large of proportion of their costs. Lately. The interviewer can now ask if anything looks strange about the value chain or if you would suggest a different way for RC to be doing business.perfect commodity product Farmers are the primary customer of the product International markets are growing at a high rate relative to domestic demand The firm is the low cost producer in the industry They have a strong sales force in place Transportation costs are in line with the industry average. The candidate should follow this line of “assumption and inferences” until the percentages are in place. do they have to spread their OHD over fewer products / less volume? RC’s percentage could very well be higher than Coca-Cola. Again.

The sales force may not be adding the value that the company thought/needs in order to be successful.19 Airplane Manufacturer 9. what are the concerns your client might face? What additional information might you want to find out. The current competitor. Therefore. Leisure travel increases with growth of middle and upper classes. The answer would depend on the future of oil prices. you have gone from being number one in market share to number two. another company has announced that it will be entering the business and is presently tooling up its plant. Why the firm has lost market share and. you are concerned with three essential items: 1. The consultant should ask as a strategic question whether the firm is interested in the manufacture of more fuel-efficient planes.76 Possible Solution • Transfer pricing (from manufacturing/production to distribution to sales) is adding significant additional costs to the product. In the last couple of years.19. The condition of the airplane manufacturing industry. The consultant should also consider whether it might be better to try to compete on the basis of price. In addition. Long-term contracts are pre-emptive. safety and service. a comparison: It turns out that the competitor's planes are cheaper to operate because they are more fuel-efficient. The airplane industry's demand is a function of travel among two classes: business and leisure. on the part of purchasers for a proven safety record of accomplishment. 2. Business travel increases as a result of market globalization. . High concern. the product is becoming less competitive in the market. As a consultant. and what recommendations would you make? 9. How to prevent the new entrant from stealing market share.1 Issue You are consulting to a CEO of an airplane manufacturer. Although they are the low cost producers. Business travelers are primarily insensitive to price. they are being priced out of the market by this additional cost structure. 3.19.2 Possible Answers As a consultant. Prevention of a new competitor gaining share: Key: creation of barriers to entry. • • 9. leisure travelers are very price sensitive.

The firm historically targeted two consumer groups -. Assuming (1) that your client wants to be a provider of this new technology and (2) has the capacity to manage a primary supplier position in its traditional line of business -.) Your client’s historically flat market share suggests brand loyal customers. Information to be divulged gradually • • • • • • • • Mature market: 5-6 major players. They want you to determine the problem.perhaps less likely to switch to the new technology in the short run. .short-term. your older target market is loyal -. Your client is also using the most sophisticated and quality driven cassete manufacturing techniques. The firm should consider new sources and production necessary to exploit this new demand. and then provide a possible solution. (second largest in industry). The firm has been losing sales reps yet loyal reps claim that sales are at record high levels for the year. for example.20 Mysterious Audiocassette Market 9. The firm should also explore the opportunities and constraints of developing or acquiring the new technology. for the long-term. Moreover. However.77 9.older. The firm should target the older customers as well as other segments that are less likely to switch over to CD's.1 Issue Your client is the manufacturer of audiocassettes. middle income enthusiasts and high school rock 'n roll stereophiles. Your client offers a full range of audiocassettes -. Possible Solutions The combined market characteristics of sales decline and increased market share suggest that competitors are abandoning this market due to a new and better substitute technology (the compact laser disk. Recently your client has been losing younger target market customers. the firm has recently lost several major accounts due to its inability to move (the firm's) products. They have hired you to figure out why they have been experiencing an alarmingly poor sales year. Client used to have a steady 30% market share. Now the firm has a 44% share. The firm has traditionally managed its relationship with retailers well.20.from low bias to high bias/metal.

. To narrow it down. The windmill costs you $10. The Retail Lock Box Department consists of 100 clerks and eight managers and Supervisors. This could be an appropriate start. The bank has many other commercial accounts that use other companies for their item processing. Convert the windmill's output along these terms and assert a cost/benefit estimation of how much potential customers would be willing to pay for it. the Department generates $1. a medium-sized Midwestern bank.5 million of fee revenue processing retail credit card and mortgage payments ("items") for 15 commercial accounts. the largest item processor in the U. 9. maintenance. The $10m cost is irrelevant. Check is the Director of Retail Lock Box Services for the Bank of Luke. Other considerations upon which to discount the value might be reliability.000 to manufacture.2 Possible Solutions Porter's five forces dictate that industry rivalry.1 Issue You produce a windmill with an accompanying electric generator (generator harnesses the power produced by the windmill).S. Therefore. inquire how the electrical utilities measure and charge for the electricity they provide.21. How much are your customers willing to pay for it? 9. We must therefore examine other components. You have no idea what this product is worth to anyone.22. etc.78 9. Assessing the value of the benefits of the product is perhaps the next step. let us assume competition and demand/supply levels are far beyond your capacity. in addition to handling of retail lock box transactions. In fact.21 Windmill 9. the Bank recently lost the item processing business of one of its largest accounts to Vader Inc. and supplier/buyer power need to be assessed to determine the market price.22 Bank of Luke (LEFT) 9. The closest substitute to the windmill is probably utility produced electricity.1 Issue Mr.21. Each year. potential substitutes..

and it must price the service to be competitive with companies such as Vader.79 The item processing industry has undergone dramatic changes in recent years. Once in Mr. At banks. Each year Vader processes millions of airline tickets and retail payments for hundreds of companies. Check has asked you to visit his office to discuss the proposed engagement. Within five years.. The President of the Bank. the parent bank is beginning to profit from the float of checks processed. Check's officer. Vader has a significant cost advantage over smaller operations. Although industrywide. with limited use of modern. mortgage. Historically. because of the great economies of scale they gain from processing such volumes of items.g. the processing of payment items was done more as a service to bank customers rather than as a profit-making endeavor. After reviewing some background information with you. Kenobi.000 last year. the service lost $100. you note a picture showing the Department's staff in 1965. the largest such company is a subsidiary of a small bank in Georgia. filing. In the past. Types of items processed include credit card. Mr. you observe that the Bank's retail lock box operations remains primarily a manual system. the President has given Mr. Check believes that Vader quotes prices 20 cents per item to large prospective customers while the Bank of Luke processes items for 40 cents per item. It is expected that Vader and the other large processors will dominate this market. Vader. Processing time is rapid and processing costs are low. Companies specializing in item processing have emerged in the past ten years. and totaling the items was performed by only the largest banks which were highly automated. because of this speed advantage. a majority of the items are still processed by the issuing company or by small processors. it received little focus from management. Mr. has asked Mr. most of who are not customers of its parent bank. In fact. such as the Bank of Luke. Airline tickets have few peaks and valleys. Mr.. Check a budget to be used to hire a consulting firm. whereas mortgage payments always peak early in the month with very low volumes the rest of the month. airlines would process their own tickets) or by bank item processing departments like the Bank of Luke's. Check was a supervising clerk at that time. it is expected that most of the business will continue to migrate to Vader and other large processors. and coupons. and utility payments (checks). Mr. Check asks you the following questions: . Check to evaluate how the retail lock box service can be made profitable. While walking to his office. high-speed equipment and methods. Vader uses high-speed processing equipment and is highly automated. verifying the correctness of incoming paperwork and manually sorting. Mr. Inc. Mr. Check believes that the bank must offer retail lock box services. airline tickets. In addition. Recognizing that outside expertise is needed. Vader benefits from a more constant workload by processing both airline tickets and retail lock box receipts. these items were usually processed by the issuing company (e. Hence.

The candidates should challenge the general premise of the case. We purposely leave the case rather vague by not suggesting any particular actions and by not offering much data. and not simply believe that the business is necessary just because Mr. Check feel his unit should be generating? (After all. we want to test the candidate's ability to handle a case in which the events appear hopeless until the end of the interview when an apparently easy solution (automation) is made available.22.80 Question One What do you see as your (the consultant's) role at the Bank of Luke? Question Two What steps would you take and what information would you gather to diagnose the problems facing the Retail Lock Box Department and to develop solutions to those problems? Question Three From what you now know. The candidate should be given time to think about this case and propose solutions which are not readily apparent • • • • Why not sell the business of these customers? Why not offer increased services to justify higher fees? What is the strategic plan for the bank and how does this unit fit into those plans? What does Mr. We also want to test creativity with this case. Check says so. what are the problems facing the item processing service and what recommendations would have the greatest impact on the performance of the Bank of Luke and the item processing service? 9.000 per employee is pretty low!) • Has he considered acquiring other bank's customers to increase the economies of scale in his own operation? . $15.2 Possible Solutions In this case.

The firm has also expanded its sales through product line extensions.2 Possible Solution This is a revenue vs. The firm should consider reducing the number of product lines and introducing controlling/scheduling measures for packaging. Margins are shrinking. What can you recommend? 9. Management is concerned that sales are growing but profits are not increasing at the same rate. makes the problem worse). It originally started as a single product line. Again. Upon further examination.) Controlling schedules manufacturing which is rather efficient already but not packaging. 9. However. . cutting 25 percent of the staff is too obvious and too easy. we still need to consider whether the company's customers (i.23. high setup times)..1 Issue Your company is a rather successful producer of candy. Find the critical components of cost: raw material. The production process consists of two basic activities: manufacturing and packaging. labor and fixed cost.23.81 This case can also be used to discuss cost cutting. Labor and fixed capital has increased per unit over-proportionally compared with ten years ago. you will find out that the company's controlling system is still focusing on the manufacturing part of production and the cost explosion occurs in packaging. thus causing slack in labor and fixed capital (small batch sizes. cost exercise. retailers) are willing to accept the reduced product line. trade brands. Revenue killers: Concentration of retailers. retailers demanding large introductory discounts for new products and high failure rate of new products.e. (Candy is candy and the product line extension is primarily an issue of different packaging. Raw materials are commodities with cyclical prices that have fallen in recent years but are expected to swing up (as you have guessed.23 Candy Company 9. creativity and sensitivity to the real issues should be the goals of your probe.

So far.82 The firm should streamline product lines.1 Issue Your client is going to build a skyscraper. The costs of building and maintaining the structure (both fixed and incremental by story) needs to compared to the revenue generating capacity of the project. you have noticed an increasing number of your firm's proposals are rejected because of a lack of information technology expertise in your firm. Clearly. Nonetheless.25 Consulting Firm (I) (Good Case) 9. 9.25. your firm's growth has been strong enough that proposals lost have not hurt annual earnings. How should he decide how tall to make the building? 9.1 Issue Your are the managing director in a large international consulting firm. When marginal revenue equals marginal cost. The traditional strengths of your firm have been solving strategy and organizational issues. 9. but is not sure how tall it should be. The building will house tenants.24.24. Assuming your concern is valid. and reduce introduction rate for new products.24 Skyscraper 9. reduce low margin trade brand production. what reasons will you provide to the other partners about the need to acquire information technology skills? .2 Possible Solution This is an economic supply/demand mind teaser. you do not want to lose money on the deal. you are becoming increasingly concerned about the need to develop the firm’s capabilities in information technology. Recently. who will pay to reside there. the firm should stop adding stories to the building. emphasize pull marketing.

. Discussion topics should included the incremental costs of having clients talking with competitors about IT problems and the risk of losing new clients by not being able to solve a problem. Better answers will realize the importance of stimulating client demand as capacity builds through seminars. Discussion points should address the impact on firm's current culture. the cost to the firm and the time needed to build expertise. building capacity by training current consultants in IT practice skills and establishing a strategic alliance with a IT boutique firm. new practice cultures may be significantly different from current culture. The methods may include buying expertise by acquiring another firm. the importance of information systems for implementing new organizational structures and management control systems. Candidates should discuss the pros and cons of each method. articles.25. strategic studies in IT areas. These issues could be intensified if "external experts" are brought into the organization. rapid technological changes in the IT industry require significant ongoing training and development costs. Discussion topics should include the increasing importance of information in business. raiding IT practices of other firms for a few key consultants. Better answers will focus on the difficulty of implementation in IT.2 Possible Answers Good answers focus on the value of IT to clients.. what steps would you take to rapidly build IT capacity in this area? What are the major risks in executing an IT capacity-expansion? 9. Good answers depend on the expansion methods discussed. but an important issue is the loss of the firm’s focus on just strategy and organizational issues.. Good answers will focus on various methods to build expertise. strategic value of information and information loss. building capacity through recruitment of IT experts and training them to be consultants. Better answers focus on the costs of losing clients to competitors.83 Assuming you are able to convince other partners of the importance of IT expertise.

• A few big companies own several brands.No Separate the commodity aspect of the product from fragmenting aspect -. The CEO of Eurocos Inc. He asks you if this is a good idea and what he should do next. thinks he should change his strategy. The company's different brands are well established in the markets. tariffs.. 9.Yes Standardize market needs -.Yes . The company has been doing very well in the past.1 Issue Eurocos Inc. produces and sells various cosmetics products in several European countries..Highly fragmented industry with the • Low entry barriers (small setup costs. however profits have been shrinking in recent years. • High barriers. customs exist between geographical markets How can fragmentation be overcome and is the strategy feasible for Eurocos? Learning curves present -.26. • Diverse markets.). The various products are quite similar in terms of raw material and production.2 Possible Solutions What is the structure of the industry? following characteristics: -. customer needs (language.84 9. complexions). • Eurocos produces all products in all countries • Transportation costs are small (see operational part). Additional information: • The industry has many small to medium size companies.26 Cosmetic Company in Europe (LEFT) 9. • Many small to medium size brands. • High product differentiation (many ways of differentiation).26.

etc. What are some of the factors you will consider while looking at the economics of the industry and how might they impact the idea of shared research by U.85 Changing environment: reduced tariffs The firm should consider consolidating production while keeping the marketing and branding nationally decentralized.27.S. labor) Learning curve of running a more complex plant and logistics (see also Cons) Keep "fragmented" marketing required in the market Total inventory decreases (safety stock at original plant locations can be pooled centrally) Cons: • • • More complex central operation Increased logistic complexity Transportation costs increase 9. etc. trade restraints. accusations of "dumping” against the Japanese.27 Semiconductors (Good Case) 9. quality) Optimizes locations (interest rates. You are concerned that the public policy debate ignores basic issues regarding industry economics and whether the solutions being proposed will solve the problems faced by your clients. manufacturers? . You know that each generation of memory chips lasts only four to five years. and some of the public policy solutions being proposed are research consortium sponsored by the government. wages.1 Issue The domestic semiconductor industry is beleaguered .brutal price competition from the Japanese. longer runs. You are a consultant at a major firm. Domestic semiconductor manufacturers are clamoring for protection from Washington. Pros: • • • • • Lower costs in production (better sourcing.

This increases exponentially for each succeeding generation of memory chip. Semiconductor firms need access to huge amounts of capital on a continuous basis to survive for the long term. fixed costs are high. Raise pros/cons/issues of government participation in this issue.28. why is it that the higher-cost carriers were able to survive and the low-cost ones were not? 9.28 Airline Industry 9.28. the discounters have gone out of business. discount carriers like People Express sprang up.) The basic issue to be determined is that it costs huge amounts of money to be a player . The split between fixed and variable costs involved. Is government involvement even feasible? What will be the priorities for the scarce government resources? Will the relaxation of anti-trust laws help? The candidate will also need to consider foreigner's access to cheaper capital.g.roughly 250m in research and 600m for each plant.1 Issue Historically low returns and stiff competition characterize the airline industry. Finally.. Years later. Negligible variable costs.2 Possible Solutions What are the cost drivers in the industry? (e.86 9.27.marginal cost of an additional chip is minimal. Therefore. In the early years after deregulation. Higher fares but better coverage and service Hub systems Characteristics of major carriers: .2 Possible Solutions Characteristics of discounters: • • • • Low fares Limited service. In a price-competitive industry. what will shared research accomplish? 9. Cut-rate volume-oriented pricing .

only large and medium tankers are put into service.29. The larger airlines stole the discounters' market and forced them out of business.1 Issue You have been hired by a fertilizer manufacturer to help them out of a difficult situation.29 Oil Tanker 9. 9. This renders your late uncle's small tankers suitable only for scrap at the present time.2 Possible Solutions These are some of the basic issues to be flushed out: . and large) in the industry and the cost-related prices associated with employing each type. medium.30. In effect. 9.87 • Full service capabilities with larger volume base.29. The larger airlines priced every seat individually based on continuously monitoring of demand/supply. Competitive moves by major airlines included the innovative use of information technology for yield management and differential pricing.1 Issue Your rich uncle has just passed away and left you with three small oil tankers in the Persian Gulf. a stepfunction supply curve rsults for the industry with each step representing a different tanker type.30 Fertilizer 9. The nature of tanker supply will be revealed by defining the different tanker types (in layman’s terms: small.30. Their market share and profits are declining and they cannot figure out what is happening. What are you going to do? 9. How do you determine how much they are worth? 9.2 Possible Solutions This problem involves the interplay of supply and demand forces to determine the value of the tankers. They wooed leisure customers with fares lower than discounters and charged more from business travelers (indifferent to price but sensitive to service and frequency). Demand for the services of tankers is assumed inelastic due to refinery economics dominating the purchase decision. It will turn out (by carefully drafting the supply/demand curves) that at the given level of demand.

31. So. Are there economies of scale and where do you stack up on that dimension? It turns out that you are comparable on all dimensions except for a critical raw material (phosphate). assuming that a hotshot like you would by now be totally familiar with the status quo!) He has to attend a meeting of senior executives convened by the publisher where he will have to defend the advertising department's performance. He also wants to make a big splash by presenting a new "strategic pricing methodology" aimed at achieving "value-based differentiated pricing.2 Possible Solutions The interviewee must first find out the corporate profitability objectives. (The candidate will discover that revenues have gone up steadily over the past few years. Assess gap between actual departmental performance and assigned targets.31. A classic demand-curve scenario has led to greatly decreased cumulative ad volume with potentially serious long-term consequences.88 Fertilizer is a commodity and consequently the basis for competition in the industry is on a cost basis. you are probably doing fine!).31 Retail Advertising Pricing (LEFT) 9. Looks like you would try to explore the possibility of competing on a scale basis. What are your alternatives? (If you got this far. He sounded extremely worried about the retail advertising division's performance. Further. why worry?) Apparently. (Naturally. . You also do not have any scale advantages.1 Issue You are the new retail-advertising manager of a large daily newspaper. you will have to flush this out with your questions and approach. Who are the major players? What is their cost position vis-a-vis yours? It turns out that your client is the high-cost producer Why is your client the high-cost producer? Examine the inputs to the process and analyze each one vis-a-vis your competitors (a long drawn out process). corporate pressure to improve bottom-line results has led to steep advertising price increases. Examine both revenue and cost issues. Again. This morning you received a call from the advertising director (your boss). costs have not risen significantly." 9. What do you look at to analyze the issue? 9. Examine critical issues relating to your disadvantage in raw material supplies? Why is it that you are at a disadvantage? It turns out that you probably cannot overcome this disadvantage. he does not explain why.

)? .High general expenses (admin.Management accounts.. . etc. Discuss heterogeneity in advertising customers based on business size. discounting..).2 Possible Solutions Explore possible reasons for the under-performance . NONE OF THE ABOVE HELPS! Don't panic.32. etc. you know the solution of the problem has something to do with cost so. You have been asked to establish why your client has performed poorly relative to the competition. badges). the candidate should establish the sources of high costs relative to the (other auto makers.dissimilar products or production leading to the under-performance? .Published financial accounts. All three company’s current car models are "badged" Japanese designed cars (i.89 Examine competitor pricing and customer price sensitivity.High cost of production? Given that the reason for under-performance is the high cost of production.. they are products of joint ventures with one of the smaller Japanese automobile manufactures). Data from your American holding company.Poor sales/ distribution? . The candidate must understand advertising attributes of importance to different segments (e.e. The Japanese market is much bigger than the Australian market.e. color. the only difference being the place of manufacture and the model names (i. frequency. 9. using: . has over the last few years under-performed relative to its competitors as measured by profitability. marketing. 9.. determine what makes up the costs and their relative importance? . price-point. size. breadth of product line. Reverse engineering.Labor costs.Different market segments? .1 Issue Your client.. These cars are then sold in both Japan and Australia.32 Automobile Industry 9. etc. one of the big three automakers in Australia.g. .Interior product? . Use difference in needs of customers to implement prices based on appropriate advertising service needed.32.

the solution is at hand. .1 Issue A manufacturer of scientific instruments.33 Scientific Industry (Good Case) 9. A line in the description of the problem that mentioned that your client's partner is one of' the smaller auto manufacturers in the huge Japanese market. your client sells a similar product. .33. Given that design costs are by far the most important component of costs. 9.Design.2 Possible Solutions Here are some questions that may help isolate the important issues: l. Describe the instrument and what it does. Why? 9.Does our car cost more to design than our competitors? Although the answer to the last set of questions are negative. .Raw materials.90 . Your Japanese partner incurred similar design costs (in absolute costs). To recap.Manufacturing overhead. explore the relevance of the Japanese connection? Are the terms of our joint venture different from our competitors? .What are the terms of the joint venture? Share of design costs pro-rated between the parties based on number of cars sold respectively? .33.It turns out that the terms are all similar? . in similar amounts and to similar markets in Australia.is experiencing declining sales in its major product line. Thus the design costs defrayed by the Japanese partner's sales in Japan are relatively small and your client’s share is significantly larger than the Japanese counterpart. (Goal: gather background information on the product). The key lies in your discovery that design costs are pro-rated.

Does our product X compete with other manufacturers of X and particularly the manufacturer that was selling our Y? (Goal: understand reasons for our friendly X manufacturer stopping promotion of our product). . Can these instruments be used separately and are they ever sold separately? (Goal: understand the sales process and the potentially interactive role of the X and Y sales forces). call it Y. 1. but Y is essentially dependent on X for its operation. 2. What is the current percentage? (Goal: determine whether this could be a cause of the sales decline). X's sales force will frequently recommend that a buyer purchase a certain Y while buying an X. except for replacement sales. Two years ago. 2. Response: It is currently around 5%. What other products does our client manufacture? (Goal: gather background information on the client). In fact. which we will call X. Y is rarely sold individually. 4. 3. Y is an accessory for larger and much more expensive instrument that functions almost exactly like a microscope. is able to perform elemental mapping.91 Response: The instrument. that is. Consequently. Response: Our client's product is regarded as one of the best in the market. (You have discovered a significant portion of the sales decline). and they have begun producing an unrelated product. it is able to determine the specific composition of material placed in the chamber for observation. How does our product compare to other Y's? (Goal: determine whether others are beating us in technological or other product features). Response: They recently began manufacturing X. Response: Yes. over 30 percent of our clients sales were generated by a manufacturer of X. our X does compete directly with other Ys and our client introduced the product about one and a half years ago. Response: X can be used by itself.

.34. Because aluminum is a commodity.primarily semiconductor manufacturers. supplying six major geographic market segments. What we have noticed lately is that the specific users in each of these groups. who also happen to be the primary buyers have become relatively less sophisticated. shrinking or flat? (Goal: a shrinking market could be a good explanation for declining company sales). in research labs. we happened to do so at a time when relationships became even more important. relative cost position is the primary source of competitive advantage. Your model should be flexible enough to enable various future scenarios to be run. you have been asked to construct an industry cost curve (cost/kg of aluminum produces vs. Who uses X and Y? (Goal: determine market segments). Response: Both markets are flat. industry supply). In addition to ruining our relationship with a manufacturer of X by producing our own. These buyers have become even more dependent on the sales forces.34 Aluminum Industry (LEFT) 9. The buyers are relying more and more on the X sales force who is typically called well in advance of' the Y sales force. In other words. As part of a strategic review. There are five major players in the industry. 8. and academia. Is the market for X and Y growing. for various plant-to-market combinations.) This is the second part of the main reason for our clients declining sales. they are hired just to run the instruments and therefore know less about their technical qualities. 9. Response: There are two basic user groups: industry .1 Issue Your client is a leading manufacturer in the aluminum industry.92 5. (The interviewer will not likely give you all of this information at once -questions about the buying process and changing decision makers would have brought it out. What has happened is that our client alienated itself from other manufacturers of X at a time when a strong relationship was becoming even more important than it used to be.

2 Possible Solutions How to estimate competitors cost management? Financial accounts. which market segment is most likely to be affected? What will the equilibrium price be in the future? Back of the envelope approach.35. Over the last few periods. Perfect competition.34. profits have steadily declined despite the fact that sales are growing. 9. You have been hired to figure out why.35.93 9. Direct estimates by client management.2 Possible Solutions .1 Issue Your client. Indirect estimates by client management. 9. a US firm. Given perfect competition. (There are many combinations!) Linear programming approach. owns a meat packing plant in Spain.35 Meat Packing Industry 9. How to simulate the market mechanism? Determine what kind of market structure exists . how do you simulate demand? The use of linear programming allows considerable flexibility as well as provides insight into questions such as: Is the industry currently efficiently configured? If a new plant is added to the industry.perhaps an oligopoly.

the costs of your raw material cannot be the issue. By looking at the suppliers. The test is to see if you can come up with an answer based on information that you provide during the case using estimates. Therefore.1 Issue How many piano tuners are there in Chicago? Possible Solutions This is a brain teaser case. you can break the income of the households into four quarters (500. You will also discover that there has been no introduction of a substitute product. You need to start by asking questions about the critical factors.000 each). Since there are stable costs and strong sales. One way to solve it is to estimate the number of households in the Chicago area. Your margins are being squeezed due to the increasing concentration and buying power of your customers.000. the only other alternative is the price of your product. 9. You can then make an estimate of 20% of highest income quarter have pianos. Hence. Its purpose is to test your logical and quick mathematical thinking. and you will discover the buyer link. Thus: Income quarter 1st 20 2nd 10 Population % w/Pianos #of Pianos 500.94 Porter's five forces is a useful starting model in this case. There is no right answer. your production costs have remained stable.36. In analyzing the internal rivalry.36 Piano Tuners 9.000 500.000 . you will discover the market is regional.000 households. 5% of third. Investigate this avenue.000 100. The interviewer gave this piece of information at 2. In addition. transportation costs and competition have not changed dramatically. you will know that they are independent farmers with little power against your client.000 50. Next. and 0% of fourth. 10% of second quarter.

000 + 50. This gives you (100. the second quarter once every three years and third quarter once every 10 years. Would all the piano turners be in there? You could guess that at least half would be.000 pianos to tune. You can estimate that the top income cluster tunes their pianos once a year.000/10) = 119. By the way. . How could you check this? Look in the yellow pages. you can estimate how often these pianos are tuned.000.000 500.000 25.000 0 With 175. 250 days a year. there are 46 piano tuners listed in the Chicago Yellow pages. therefore: 120000/250=480 pianos a day to tune 4 = 120 pianos tuners needed.167 or approximately 120. We can estimate that a piano tuner can do four pianos a day.000/3 + 25.95 3rd 5 4th 0 500.

When information is not available.96 9. Firms act as competitive monopolists and differentiate themselves by specialty. As an interviewer. you begin to realize the enormous task to which you have committed yourself. This is also an interesting case since the salience is likely to be high. not necessarily the answer.37. As you leave the meeting. you volunteer to study the industry and propose a firm strategy for next millenium. How do you evaluate the consulting environment and determine likely future scenarios? What information do you use in this process? How will this information be obtained? What (to you believe is most likely to happen in the consulting industry given your present knowledge? How did you arrive at this conclusion? What strategy do you propose to the management committee? 9.2 Possible Solutions This is one of the most difficult types of cases because the answers are completely unknown and will vary substantially depending upon the interviewee's knowledge of the industry. Rivalry (low to moderate): The management consulting industry is fragmented. which limits competition and keeps prices high. ask the interviewee to develop his or her own hypotheses. Top tier firms in particular are able to have high price points.37 Consulting Firm Strategy (MOST DIFFICULT TYPE) 9. A good place to begin is to evaluate the industry from a competitive analysis perspective. you should feel free to add information on an as-needed basis. The following is an abbreviated analysis. which you will present to the committee at its next meeting. type of customer (Fortune 100 versus Fortune 1000 companies). What matters here is the thinking process. Many companies are relationship-driven with their customers.37. . such as Porter’s five forces. with many players each holding relatively small concentration of total market. and the resources they employ (no MBAs versus all MBAs).1 Issue You are the newest member on the management committee of a well-known top-tier strategy-consulting firm. Eager to be accepted by your more senior peers. reputation (McKinsey versus accounting firms).

Other interesting points might explore the critical success factors in the consulting industry. it is primarily the established firms that compete in the top tier of the industry..g. Information gathering is a critical reason companies use consultants. Firms must pay market price or risk losing suppliers. Substitutes (moderate): Companies can move the consulting process in-house by hiring ex-consultants and bright MBAs. which would reduce demand.) Will the consulting market continue to expand or suffer a cutback? Will certain geographical areas expand (Pacific Rim or Eastern Europe) faster than others will? Again.g.97 Potential Entry (moderate): There are no great barriers to entry into the consulting industry. However. it is appropriate to question the effect a recession might have on industry. give buyers more bargaining power. cost-cutting studies rather than market expansion studies. the consulting market supply generally following demand. Buyer Bargaining (moderate-high): In the last decade. and push prices lower. An interviewee should have an understanding of business information sources and how information is gathered. which lowers buyer power. What sets top tier firms apart from middle ones? Do any firms have specific sustainable competitive advantages? How does the marketing mix differ among firms? Does your firm have any specific core competencies or advantages that set it apart from other companies? Determining likely future scenarios is more ambiguous. There are several important points to consider: What affect will a recession have on consulting firms? Will top tier firms suffer differently from others? How will the mix of products demanded change over time? (e. the thought process is more important here than actual answers. Its possible demand may decrease as companies quit expanding. . however. experienced consultants who bring in sales and new consultants who provide analytic). Supplier Bargaining (low-moderate): Major suppliers are the intellectual capital employed by firm (e. Its possible new firms would enter if the industry were earning positive economic profits.

The company has four possible options: . focus groups. etc. Usually one begins with secondary material. Most answers will depend upon the material covered in the first two sections of the interview. how could you get a better handle on this issue? There is no right answer here. journal and newspaper articles. However. such as leveraging through technology? Given your firm's competitive strengths and core competencies.38.98 Information can be broken into two groups: secondary and primarily. investment bank research. a complete review of published literature (a "lit search") pertaining to the study (e. in-person interviews. major competitors.38 Corn Feed Company 9. government sources. Primary research is then used to focus in on the critical issues. you can provide some structure y using the following questions: What are the key success factors to succeeding in the industry? Is there any way to achieve a sustainable advantage that cannot be duplicated by your competitors? Can you use non-traditional methods to achieve competitive advantage. Specifically.g. Hypotheses are often created from the secondary information. etc.1 Issue (soch liya ☺) A corn feed company has eight manufacturing plants located in the Midwest. what is the best strategic route? 9.). associations. The interviewer should ask the following questions of the candidate: What are the likely trends? What is a positive scenario? A negative one? If you had any information at your disposal. laboratory experiments. etc.). books. mailed questionnaires. This research includes telephone interviews.g. Their plant in Ohio is in need of refurbishing. specialized studies. This often points towards other good sources (e. These plants service the entire United States. industry experts. so the interviewee may balk.

The raw material is perishable where as the corn feed can be stored for any length of time and is easier to transport. Size of Plant First. Pricing on the product is dependent on current corn prices as opposed to the manufacturing process. The current customers buy from all four manufacturers in order to guarantee supply. The transportation cost per ton of corn stock (raw material) is much higher than the cost of transporting the actual feed.1. Included in this analysis could be the rate of spoilage through longer transportation of corn stock. The plant size and the plant location should he considered separate.2.99 1. The corn is grown in the Ohio area and the feed is sold to the East Coast. Corn feed is a commodity product. All four competitors have similar manufacturing processes and similar cost structure. Build a larger plant at the current location 3. There are four main competitors in the industry . The proposed largest plant will not have economies of scales that are not already present in the existing plant.1 Location of Plant Transportation cost and perishability are the main issues with location. Currently demand is being met and there are no alternative uses for corn fed.our company is the second largest.2 Possible Solutions There are two issues to this decision. Refurbish the existing plant 2. Build a similar size plant at a new location 4. 9. The capacity utilization is 65%.38. Conclusion . Build a larger plant at a new location Which is the best option for this plant? 9. which is industry standard.1. Cost analysis of the transportation cost of feed versus raw material should be completed.1. consider the demand for the product.38.

9. Would you advise your client to take advantage of this new process and offer selective binding to its advertisers? 9.2 Possible Solutions This is a straightforward cost/benefit analysis. .000 and those who make over $50. an ad in Better Homes & Gardens for lawn chemical services could be placed in only in those issues going to subscribers who live in houses and not to those living in condominiums or apartments.1 Issue Your client is a major fashion magazine that has been offered by its printer a proprietary new process called selective binding which enables publishers to customize the pages included in readers magazines based on demographic data known about the reader.100 The current plant is located close to the cornfields and this is the best location for the plant from the cost/benefit analysis. In this way. the increased revenue from any premium must be able to offset revenue lost as advertisers stopped using mass advertising The interviewee could start the analysis by obtaining the following information from the interviewer.39 Selective Binding Case (very chapoo case .39. The only breakdown possible on your database is between subscribers who make under $50.. So far as refurbishing versus a new plant is considered see if refurbishing the same plant will be good or new plant can incorporate some technique to minimize the production line and hence the cost.000. What demographic breakdowns are possible to make in the magazine's database? A. Of course. Q. In case new plant reduces cost see in how much time we will be able to even the cost involved in setting up a new plant. advertisers can focus their communications on the demographic segment they are targeting. For example.39. The magazine would want to offer the service to its advertisers if it would be able to enhance its earnings by being able to charge its advertisers a premium for being able to target more exactly the demographic segment. LEFT) 9.

the proportion of readers who are subscribers (as opposed to newsstand buyers). The same mix applies to the newsstand buyers according to readership audits. What proportion of the client's advertisers target each demographic category of readers'? A. Q. Q. There are 1 million readers.101 Q. the 25% of advertisers targeting the lower income segment will choose to target only that 25% of subscribers. Therefore. Effectively. They charge $70 per thousand for their full one-page ads. Twenty-five percent of subscribers make under $50. instead of 100% of advertisers paying the full $50/thousand per page. The client charges $50 per thousand per full-page ad (selective binding can only be offered on full-page ads). revenue associated with a single inserted page (front and back) in an issue is 100 per thousand. What is the cost of the selective binding service and what does the magazine charge for its ads? A: The service is being offered to your client for free for three years since the printer wants to promote the services use by getting a major magazine to start using it. and the proportion of subscribers in each demographic category? A.000.000 and 75% make over $50. Q. The client's closest direct competitor has 500. 100. the client simply needs to evaluate cost on the basis of revenue per thousand gained or lost as their advertiser base uses the service to better target. 80% of who are subscribers. Presumably. What does the client's closest direct competitor charge for ads and what is their readership like? A. What is the total readership. Assume that all advertisers continue to advertise in 100% of the newsstand copies. Most advertisers are selling high-end fashion products.000 readers. The 75% of the advertisers targeting the high-income segment will advertise only to the high-income subscribers (75% of subscribers). all of their readers make over $50.000. so 75% of them are targeting the high-income group.000 of who are subscribers. Since the printing cost to the client of selective binding is zero. The revenue effect of this change can be calculated by looking at the impact the change would have on average ad rate per thousand on subscription readership: New add revenue per page = Old ad revenue per page X [(% low income subscribers X % low income target advertisers) + (% high income subscribers X % high income advertisers)] .

75 Since $43.75 is less than the $50 that advertisers are currently paying. To answer this question.000 = $66. the average revenue per thousand to the client would he: $70 X [(255 X 25%) + (75% X 75%)] = $43. the potential for and cost of expanding the advertising base using selective binding as a selling tool. the magazine should not often advertisers the selective binding service.000)/500. Of course. there are other issues which interviewees might want to mention such as the possibility of price discriminating between high . If you consider the advertisers targeting the highincome group. it is important at the end of the interview to have reached a recommendation regarding the initial question posed by the interviewer.and low-income advertisers.102 Thus.25 < $50 The next question is can ad rates per thousand on the selective binding portion of ads sold be increased sufficiently to increase average revenue per thousand over what it is today.000 = $70 Thus. New ad revenue per page = $50 X [(25% X 25%) + (75% X 75%)] at old rate = $31. Note that currently the client is a cheaper option for these high-income advertisers although they are paying to reach readers they do not want: ($50 X 1 million)/750. but it is also important not to get too far off track or to complicate the issue so much that a final recommendation is never reached. . Any higher cost and the advertisers would switch to their competitor. For example. $70 is the maximum price per thousand the client can charge its advertisers for selectively targeted ads. The cost per thousand high-income readers with the competitor magazine is: (Page rate X total readership)/ (portion of readers who are high income) = ($70 X 500.67 If the client charged $70/thousand for selectively bound ads. However. their alternative to advertising in your client's magazine is to put their ad dollars toward the 100% high-income readership competitor. To mention these other possibilities and areas for further investigation is certainly wise. our client's ad rates must be looked at from the perspective of their advertisers.

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9.40 Video Games

9.40.1

Issue

The CEO of a large, diversified entertainment corporation has asked a consulting team to examine the operations of a subsidiary of his corporation that manufactures video games. Specifically, he needs to know if he should approve a $200 million capital request for tripling the division's capacity. You are a member of the consulting team assigned to this project. Assume you and I are at the first team meeting. What are the critical issues we should plan to examine to determine if the industry is an attractive one for the CEO to continue to invest and why'?

9.40.2

Possible Solutions

The following information may be given if requested by the candidates though you should focus on having the candidate identifying issues and not simply obtain more information. Market Share: The division is the third largest manufacturer of hardware in the industry with 10 percent market share. The top two producers have 30 and 25 percent market share, respectively. The remainder is divided among small producers. The division sells to great range of consumers. Sales: The division sales have increased rapidly over last year from a relatively small base. Current estimated annual sales of 500,000 units. The current estimate of industry hardware sales is 5,000,000 units annually. Industry growth has been strong though over last few months sales growth has slowed. The division’s current sales price for the basic unit is $45 per unit. The division’s sales remain less than 20 percent of parent company sales. The top two competitors also develop, manufacture and sell software/games though our division sells only licensed software. Industry growth of software continues to increase. Costs: The division estimates current cost is $30 fully loaded. The requested expansion should reduce the cost by 5 to 7 percent and triple production capacity of

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the hardware units. Our competitors are estimated to have a 10 to 15 percent cost advantage currently. The main costs are assembly components and labor. Customers: The division estimates that much of the initial target market (young families) have now purchased video game hardware. No other large segments have been identified, yet. Distribution: The primarily outlets of distribution are top retailers and electronics stores. Profitability: The division currently exceeds corporate return requirements; however, margins have recently been falling. Product: the industry leaders have established hardware standards. Product features are constantly being developed (e.g.. new remote joystick) to appeal to market segments. The primary issue of the case is to determine if the industry is attractive and especially, if our client's position in that industry is sustainable. The candidate should identify issues that are necessary for assessing both the industry and our client's position, but should not be expected to solve the problem, per se. It the candidate begins to discuss too deeply a specific issue before having covered the key issues overall, bring them back to discuss the industry more broadly by asking "what other issues must be examined'?" If the candidate is discussing issues that seem irrelevant to the attractiveness of the industry, ask, "how will that analysis help to assess the attractiveness of the industry or our client's position?" Then ask the candidate to identity other issues that must be examined. The following issues would need to be covered for the candidate to have done an acceptable job: 1. What is the future market potential? The candidate needs to question the continuation of overall industry growth. She/he might ask about the saturation of markets, competitive products (home computers), and declining "per capita" usage.

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2. What is the competitive outlook? The candidate should at least recognize the need to examine the competitive dynamics. Issue areas might include: concentration of market shares; control of retail channels and R&D capabilities (rate of new product introductions, etc.). 3. What will be the price/volume relationship in the future? Issues of prices need to be considered. There are no bounds on creativity, but better answers would address: 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 shitting mix of product purchases. In this case, from hardware (player units) to software (videocassettes). Seek to look at buyer behavior in critical buyer segments. (i.e., "fad" potential of product.) Software Recognize industry leaders set technology standards. In this situation, the division as a secondary player and will have to follow these standards. Recognize that different distribution needs may exist for different products (in this case. hardware versus software).

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 the reason for poor profit performance of division.

9.41 Steam Boiler Hoses

At least two of the other companies in the industry are making moderate profits. MINIMUM REQUIREMENTS The candidate should avoid being bogged down in the following areas: 1.106 9.41. The client is third of eight industry participants. .41. Background information on the client and industry includes: Boiler hoses are sold both with original equipment and as replacements.2 Possible Solutions The following information is also available in response to questions asked by the candidate: Last year's P&L showed (as a percent of sales): Raw Material Labor Distributed overhead 10% SG&A Profit 15% (15%) 70% 20% The raw material is a commodity petrochemical. Drop the product line (apparently not possible because hoses are necessary for boiler sales). This steam hose division provides boiler hoses for both external customers and the client's boiler division.1 Issue The firm was asked by a diversified manufacturing client to help turn around the steam boiler hose division. There has been increasing price pressure in the industry. How would you structure an analysis aimed at restoring profitability? Where do you expect to be able to save in costs? 9.

requiring excess raw material. SG&A (standard industry fee paid for independent installers). 2.) 3. Production technology (client has a modern plant) 3. How is our product engineering operation wired into the marketplace? (There is little contact between the engineering and marketing/sales organizations.) 2.1 Issue One major chemical producer has retained the consulting firm to evaluate another major participant in the industry. Raw material purchasing practices (material are purchased through long term contracts with prices based on the spot market minus a discount). BETTER ANSWERS Better answers will move beyond the previous answers to consider: 1.42. Are there other areas in the company where similar problems exist? 9. The answer should address the following organizational implication: 1. OUTSTANDING ANSWERS The best answers follow a logical progression and should not stumble upon the actual answer: The product has been over-designed.42 Merger Candidate in Chemical Industry (Same as case 1) 9. Labor costs (wages rates and productivity are average for the industry) 4. Both companies are bulk commodity chemical .107 2. Raw material prices (they are the same as everyone else's) 3. What kind of comments are we receiving form our sales force? (Customers are delighted with our hoses but require all the product features. Scale economies (client is big enough to achieve scale production). Allocation of overhead (no cash savings and provides little savings potential) 4.

a bulk chemical used in the production of plastics. number two has 20 percent. age of plant. The target company has reasonably "good" position.) 2. How would you structure an analysis of the target company's future prospects in this product line? 9. Does the chemical have a major by-product or is it a by-product? (Not of significance in this case.) . What markets use this chemical and what has been the nature of the growth in these markets? (The end users of this product are largely automotive-related.) 2.42. exit cheap mostly because older plants are fully depreciated. •The two largest competitors earn a small return.) BETTER ANSWERS 1. Essential facts included: •Production of this chemical has slowly declined over the last five years.) 3. Are there niche or value-added uses for chemical? (Not really. What are relative cost positions of competitors? (Related to size/efficiency. We have been asked to begin our work by analyzing the future prospects of the target company's major product line. 4. •The largest competitor has just announced construction plans for a major new plant. The target company is probably at break-even and the rest are operating at break-even or loss.) 4.) 3. How rational is pricing in the market? (The industry is prone to self-destructive cuts to gain temporary share points. What has been the relative capacity utilization of competitors in the industry? (60 to 70 percent for last three years). How much overall capacity exists now? (Far too much. our target company has 15 percent and the rest is divided among the other competitors.2 Possible Solutions MINIMUM REOUIRENENTS 1. How often have companies entered/exited. •There are 7 to 8 major producers: the largest producer has a 30 percent share. •Prices have declined rapidly. and how expensive is entry/exit'' (Entrance is expensive.108 producers.

vapor.) 5. water.1 Issue A client produces a range of synthetic materials in varying widths and lengths. weight.2 Possible Solutions Market Share: The industry is highly fragmented.) OUTSTANDING ANSWERS 1.43 Machine-Loading Case TYPE PURPOSE Macroeconomic To determine whether the candidate can dissect a general economic problem 9.43. The client has asked us what combination of products he should ran to increase the profitability of the plant. Each material is used for packaging but differs in physical properties in terms of costs. What is nature of operational improvements that target company could make? (Lots) 4. Is there synergy between our client and target? (Not really.) 3. flexibility. and general performance. How is the product sold and distributed? (Economies of scale in marketing and transportation are critical. Our client estimates he has less .) 2. etc. Each machine is capable of running any one of the various materials and/or coating combinations. How would you go about determining the optimal mix of potential products? 9. Reasons for announced capacity expansion. light. The client does not wish to invest in additional equipment at this time. All of the machines on which these materials are made are housed in one enormous factory location.) 9. Is regulation important? (Yes: all competitors have installed pollution control equipment.109 5. How important is this product line to each of the competitors? (Most producers are fully diversified. Each material can be coated with any one of four or five types of chemicals which make the materials more or less impervious to heat. A variety of' small manufacturers supply similar products to a wide range of customers.43. (It is a bluff to try to encourage smaller competitors to shut down.

Is there flexibility in pricing of' these products? . These areas must be determined to understand the profitability of each product. do some coatings cost more than others do? Do some materials have inherent cost differences? 4. selling cost and prices. Suppliers: Our client uses primarily commodity products in the manufacturing process. Are there differences in costs in the manufacturing of these materials? For example. Customers: Our client's customers are primarily consumers or industrial product manufacturers who use the synthetic materials in packaging their own products. No competitor has more than three percent of the total market.110 than 1 percent of' the total market. Are there market limitations to the potential production of any one material'? 2. All products can be obtained from a number of sources. Is there competition for these products? 3. Products: Our client's machinery can produce hundreds of different products. Price: Each product has a different price dependent on both the client's cost to manufacture as well as the market for the product. Some are unique to meet specific customer requirements while others are used by a variety of customers. NOTE TO THE INTERVIEWER The primary issue of the case is to determine that the profits of the plant will be maximized when the most profitable product mix is produced and sold. Cost: Each product has a different cost to manufacture dependent on materials used and the manufacturing process. The interviewee should also address the market demand for each product (to ensure what is produced can be sold at an acceptable price). The candidate could cover differences for each product in the fixed and variable manufacturing. MINIMUM REQUIREMENTS 1.

Are there technological displacement or replacement products on the horizon? OUTSTANDIN'G ANSWERS The best candidates will formulate a profit maximization algorithm. The way to do this is to ask how many oil refineries there are. which supplies machinery to refineries (not owned by your company) around the world. An estimate of the market size is therefore needs to be done.44. the potential substantial differences in volume produced per product-hour and/or the price obtainable in the market demand and competitive actions. Do these materials move at different speeds through the machines? 3.operating status" . 1. Assume this is unknown.most likely in comparison two dissimilar pieces of information: 25% market share and $4M (but no idea what % of the market this represents). An outstanding answer must include recognition of the asset costs and capital implied in that as well as income or profit contribution. one can estimate what the industry spends per year on machinery can. 9. Is there unlimited market demand for these products? 5. how long they last (actual life.2 Possible Solutions Define "assess. The best algorithm is to maximize the profit contribution per machine hour.1 Issue Your company has 25% world-wide market share of the oil industry. Machine-hour capacity is a surrogate for fixed costs per unit of volume. How do you asses the current operating status of this division? 9. not dependent life) and what the machinery replacement costs are. Profit contribution is (unit volume) times (unit price minus variable cost). 2.111 BETTER AN'SWERS 1.44 Oil Refining Industry (NEW) 9.44. You generate $4M annually in revenues through the machinery division of the company. Divide the above mentioned $4M into this and the refining . In addition. From this. Are there differences in setup time and cost for various materials or coatings? 2.. 3. how much does each cost to build.. Fixed costs take into account depreciation and standby costs as well as those costs that are independent of the variable costs per pound or ton produced. The guide is to request what % of the market $4M represents. Are the machines truly interchangeable or are some better suited to one product or another? 4.

competitor #1: 30%. What is your client's market share relative to their competitors (your client has 40% of the market. This can be critical for some farmers because they cannot afford to have a piece of equipment break down at a critical time. they all have the same basic features.) Do all three competitors sell to the same customers? (Yes) How is your product priced relative to your competitors? (Your client’s product is priced higher than the others. Obviously. 10%. This % can then be compared to the 25% share of the parent.) What-are the market share trends in the industry? (Five years ago. your client has lost significant market share to its two competitors over the last few years. tractors are not commodity items and a few differences do exist.2 Possible Solutions It is unlikely that there are too many players in this market. Of course. 9. Suppose the answer is that there are two direct competitors.) What are the differences that allow you to charge a premium for your product? (Your client has a strong reputation/image of quality in the market and the market has always been willing to pay a premium for that reputation because it meant they would last longer and need less maintenance.) Has this always been the case? (Yes) Are the products the same? (Essentially yes. You might want to start off by asking how many competitors there are. competitor #l.112 division's market share can be assessed.) . is losing money.45. with the remaining 15% belonging to many small manufacturers.1 Issue Your client is a large agricultural equipment manufacturer. your client had 60% of the market. Their primary product line. and competitor #2. What questions would you ask of your client to help them solve their profitability problem? 9.45 Agricultural Equipment Manufacturer (GOOD CASE) 9. competitor #2: 15%. 15%. farming tractors.45.

.113 Are sales revenues down? Are sales quantities down? (Yes) Is the price down? All costs the same? (No.) Finished part prices have gone up? (Yes) Raw material prices for your suppliers? (I don't believe so) Have labor costs Increased for your supplier? (No) Have you changed suppliers? (No) Why are your suppliers charging you higher prices for the same products? (Well. and the client has no answer as to why material prices have gone up so staggeringly. Don't forget though.) Have fixed costs increased? (`No.) Are your customers willing to pay for these product improvements? (What do you mean. We've tightened tolerances and improved the durability of our component parts. they're not.) Do you manufacture your tractor or just assemble it? (Primarily an assembly operation. The client needs to incorporate a cost/benefit analysis procedure into its product improvement process.) It turns out that prices have been raised to cover the costs of these improvements. in fact both the price and costs are up. (variable costs. I guess we assume that they will.) Are your customers willing to pay a marginal price which will cover your cost of implementing these improvements? (I don't know. but customers do not value these improvements unless they are essentially free --so sales are down. the prices have increased as a result of our product improvement efforts.) have gone up out of sight. that you must consider the long-term effects of these decisions.. material costs.) Why do you make these improvements? (Because we strive to continue to sell the best tractors in the world. .

1 Issue (LEFT) Your client is the treasurer in a significantly privately held corporation.. How would you go about determining a fair price for company 456? 9. Short-term treasury bills are yielding 7 percent. the results achieved by the above mentioned composed system are examined. Recently. Having set up by definition.2 Possible Solutions This. They are not motivated to give consideration to the riskiness of the insured party.47.46. 9. The treasurer is contemplating the purchase of 5000 shares of company 456 and wants your help in determining a fair market price.46.2 $22 per share Solution . you must define what the "right way is". A more efficient compensation structure might pay the agent on a sliding scale. She is in charge of managing a portfolio of investments in addition to her treasury responsibilities. The treasurer's investment analyst predicts that the stock will pay a dividend of $1.47.47 Consulting Firm (2) 9. The absence of such a consideration (for example) would be detrimental to the company in the long run. The only factor determining how much the agents paid is their sales $.114 9. in case you have not already surmised. Assume some generic definition like "the manner by which agents are both motivated and equipped to accomplish there tasks in the interests of the organization. is an organizational behavior scenario. she has asked your advice about the purchase of a large position in company 456." is applicable. Company 456 is currently selling for $22 per share.1 Issue An insurance company pays its sales people a base salary of monthly wages and commission of 25% of new policy sales (2% of renewal). Again. they are motivated to issue a policy to anyone at as high a price as possible.25 for the foreseeable future. depending on how risky (costly) an insured party proves to be.. whose stock is listed on the NYSE.46 Insurance Company 9. In essence. and long-term t-bills are yielding 8 percent. Which is the right way to pay the sales agents? 9.

since they sell so few of these pots and pans. Multiply this number by the average weight per unit. The higher the service level. A quick way to solve this case is to realize that if stores require next day service from these three warehouses.48. in specialty and department stores. (No. Figures on garbage tonnage (denominator) are probably available in some obscure federal report. SC makes high quality pots and pans which are sold throughout the U. 9. hold no inventory and thus require next-day replenishment after a sale.).48. When you divide this into the $1 million distribution cost you discover that they are pay $100 to deliver a pan to the store.2 Possible Solutions Distribution is basically a trade-off between cost and service level. since the closer they are to the stores the cheaper the distribution costs. You are called in because they feel that the $ l million that they spent on distribution last year was way too high.49. the higher the cost (more inventory pools. wait until after the interview for that).from which they cover the whole country. So you need to ask where the inventory is being held.48 Pots & Pans (2) 9. yielding the estimate of total diaper weight (numerator).1 Issue You have been retained jointly by Pampers and a federal commission on waste management to estimate the volume percentage of disposable diapers in the total US household garbage. This is strictly a mathematical. How can you show your client money that he can save money. .115 9.2 Possible Solution Wet your pants/skirts. Beat this figure and you've earned your exorbitant fee. the only way they can do this is by shipping overnight at a premium rate (UPS .000 units. It turns out that stores. 9. one in Philadelphia and one in LA . The next thing you need to know is where the warehouses are located.49. You need a numerator (diapers) and a denominator (total US household garbage).1 Issue A manufacturing company based in Charleston.one in Charleston. You can save them a bunch of money by closing down Philadelphia and LA and shipping everything from the plant In Charleston by UPS (negotiate a volume rate).no wonder they're spending so much). warehouses and shipments). For diapers you could take the total $ sales of disposable diapers and divide by the average price per total unit (box: etc.S. Let's assume this will be done in pounds. 9. This can be confirmed by asking for the annual sales which turns out to be 10. Your client has three warehouses .49 Diapers (Estimation Case) 9. number crunching exercise.

due to the larger land area serviced. the management feels that th e Northeast is not the fastest growing area of the country. Arizona a little over a year ago. maitenence. There is only one real substitute good for cable television: satellite dishes. Operating costs are composed of variable items: sales staff.50. These rates have been steady over the past three years in the Northeast. The penetration rate in Tucson has only rised by 2% in the past three years in Tucson. How would you analyze this situation. free HBO for one month. the Tucson company’s sales have been stagnant.50 Cable Television Company (2) 9. television reception is far better in the desert Southwest than in Northeastern cities. CT. Per capita income is higher than in Philadelphia and the same as in Rochester and in Stamford. free hookup.1 Issue (DISCUSS) Q: Your client is a small holding company that owns three cable television companies in the Northeast: Rochester. NY. The Tucson company has attempted marketing efforts in the past. Each of these three companies is profitable. Only maintenance is higher that in the other markets. but larger than Rochester and Stamford.2 Solution The real error of management results from their failure to recognize another “substitute” good: no cable television at all. . The lower penetration rate is most likely a result of different climate conditions and lower interference in Arizona. etc.116 9. and the company has been losing money. These programs have been modeled after the other three markets. However. Tucson is also growing at 12% per year on average. acquired another cable television company in Tucson. 9. The penetration rate in Tucson is 20%. Philadelphia and Stamford. administration and marketing. They are also prohibitively expensive for most people. Cable penetration rates in the three Northeastern markets average 45%.50. and each has been experiencing steadily growing sales over the past few years. and. which is a function of physical area covered. such as free Disney programming for one month. and what could be the cause of the poor performance of the Tucson cable company? To be divulged gradually: The Tucson area is smaller than Philadelphia. Despite every effort of management. therefore. However. The cost of programming is based on number of subscribers and is equal across the nation. Fixed costs relate to the cable lines. many communities are enacting legislation that limits their usage in Tucson. Operating costs in Tucson are essentially the same as in the other markets.

chilled. 12%. the brand premium must be in line with other branded products. Pear and peach juice are about the same price as orange juice. The entire company has sales of over $20 billion. The market for chilled juices is essentially mothers with school age children. What would you advise that she do? To be divulged gradually: Chilled beverages is a $5 billion dollar industry nationwide. This is a highly price sensitive market that loves coupons. Brand name is important in this market. usually). The best available information indicates that the two market leaders are profitable. Your client’s market share. While juice boxes and frozen concentrate are profitable.1 Solution: There are three choices: . There are two large players that have 40% and 25% of the market. The two market leaders are able to fund more advertising and more promotion. etc. as mothers tend to prefer highly reliable products for their children. The chilled segment represents $120 million in sales per year. juice boxes and frozen. as in juice boxes and frozen concentrate. However. bananas. but the other flavorings cost about twice as much. and frozen concentrate.51. all marketed under the same name: chilled (found in the milk section of the supermarket. The market leaders produce pure orange juice and blends that are based on citrus juices. trade and couponing that your client. juice boxes. all branded juices tend to sell in the same price range. This division has sales of $600 million per year. usually with a base of pear or peach juice (95% of the inputs) and flavored with cranberries. One plant in California produces all of the product. (the other 5% of the inputs). makes her third in the industry. It would be difficult to find another use for the plant without a major conversion. promotions.51 Chilled Beverages You are consulting for the manager of a division of a large consumer products company. She has received a proposal from upper management to sell the chilled juices business.117 9. mangoes. Therefore. Your product uses more elaborate blends of juices. Her division produces fruit juices in three forms. 9. etc. respectively. chilled juices are only breaking even in good quarters and losing money in bad quarters.

52 Distilled Spirits 9. In 27 states. which is increasing distribution costs by requiring more frequent deliveries. affect the juice box and frozen concentrate businesses. This would. Overall sales are growing at about 3 to 5% per year. liquor is only sold through state regulated liquor stores. however. Over the past few years. the same as the idustry average for these product lines. This may be more feasible.52. but would not be too likely to turn the business around. Keep the chilled juice business and rework the ingredients and costs. shelf space is extremely expensive and trade promotions are critical. In the other 23 states. Their primary products are a line of mid-priced vodkas and two brands of mid-range rum. The selling price is likely to be low. The selling prices of the two lines are essentially the same. Advertising of alcohol is much more tightly regulated. as there are both advertising and manufacturing synergies.. advertising spending is lower. the business has become less and less profitable. What could be causing this: (if this is asked only answer this . and therefore. Distribution costs in these states is much lower. Such stores are also becoming less and less willing to hold inventory. This turns out to be the most feasible option. 9. . An analysis of the costs reveals the following: Production Costs have remained constant Advertising Costs have remained constant on average Distribution Costs have increased significantly The products are sold throughout the country. as there are far fewer outlets to service and central warehouses for the staterun stores. where alcohol is sold in privately managed supermarkets and liquor stores. as evidenced by the success of the competitors.1 Issue You are consulting for a major United States producer of distilled spirits. “open” states.118 Sell the chilled juice business. as the buyer could capture the synergies. don’t dwell into solutions of the situation) Other information: The split of product sold has consistently been 60% vodka / 40% run over the past few years. Sell all of the juice business.

more profitable.53 Chewing Gum Market (Estimation Case) 9. market segments that are neglected by Spizza.S. for annual sales of 4. and therefore. a reasonable figure. what information would you need and second. For the other users over age 20.2 A typical approach: Estimate the number of people who chew gum: of the 300 million population. including sales. and proportion of Paris that is currently served by Spizza. annual sales would be $2.52. (70% of the 300 million population.54. what do they charge for their product. Pizza Hut has asked your consulting firm to help it analyze issues that will determine its likelihood of success in the Parisian Pizza market. Other useful information: market segments targeted and served by Spizza. 9. You may also want to know the size of Spizza.4 billion. the fact that they represent a shrinking portion of the total has caused total profits to decline. for a total of 5. how would you analyze the pizza delivery market? 9. figure the dollar sales that these packs represent: at 25 cents per pack. 15% are between the ages of 10 and 20. Because the regulated states are less expensive to serve.250 packs per year.54 French Pizza Market Pizza Hut has recently entered the home pizza delivery business in Paris. To check for reasonableness.1 Issue How would you estimate the size of the annual U. the current competitor. 9. . First. The market for home delivery is currently dominated by Spizza Pizza. 9. or 210 million) estimate a usage rate of one half pack per week. number of stores.119 9. Sales in the regulated states are actually decreasing.53. This could be obtained by knowing the population of Paris (6 million) and making some educated guesses about factors that determine pizza market size.750 million. with sales in these states increasing at about 10% per year.1 Possible Information Needs: An estimate of the size of the Parisian home pizza delivery market. the heaviest users.2 Solution: A greater and greater share of the volume is being sold in the “open” states.53. what type of product do they offer. Total packs per year is 9. for a total of 45 million. Estimate that these people chew two packs per week. chewing gum market? Check your answer for reasonableness.500 million packs. what is the cost structure of their business and what products are most profitable.

Now. and what factors drive demand. Your plane lands in fifteen minutes. and requires two balls per time. or 200 million) and estimate what proportion of these people ever learn to play golf (guess 1/4) which reduces the pool to 50 million.56. Which of these two strategies would prove the most suitable would depend on the availability of funds and uponthe nature of the companies operation in the region. 9. 9. How should it go about doing this? What factors are critical for its success? 9. estimate the frequentcy of purchase. that’s forty balls per person. . Having had no time to do background research. resulting in a 2 billion ball market.54.56. The number of end users: take the population of 300 million. Also. try to understand the likely competitive response of Spizza to your client’s entry. If the average golfer plays twenty times per year. regional market. Determine what are the needs of any neglected market.2 Method of analysis: The best method of analysis would start by determining if any part of the market is not well served currently by Spizza.3 Possible Solution Diversification could be effected through joint ventures or through acquisition.55 Golfball Market Entry 9.1 Issue An overseas construction firm wants to expand by establishing a presence in a growing U. assume that people between 20 and 70 play golf (about 2/3 of the population.S. and understand if your client could profitably serve this market.2 Typical solution: Golfball sales are driven by end-users.56.56 Overseas Construction 9. How will you defend your position if Spizza decides to fight for market share.S.120 9. How do you go about answering these questions? 9.2 Suggested framework What are the diversifying firm’s distinct competitive advantages? What is its capacity for funding an acquisition? What is the competitive environment like in the proposed region? How does this environment differ from the current markets of the diversifying firm? 9. you sit on the plane wondering what is the annual market size for golfballs inthe U.55.55. Multipy that times the 50 million.1 Issue You are visiting a client who sells golfballs in the United States.

This factory has purchased technology from a German company. labor and energy costs 10% distribution and storage. perhaps by updating their own technology. and has asked your firm to assess the strategic outlook for this company. Other critical factors would include: The existence of a distinct sustainable competitive advantage. a plastic chemical. nearly all customers prefer this product to your client’s. and they should be advised to respond to the competitive threat. The factory is thriry years old.121 However. They have also been undercutting your client on price. The client had 100% of the market until two years ago. the future is extremely bleak for your client. but it appears that their factory is extremely efficient. 35% conversion costs. and what type of recommendations could you make? Information to be divulged gradually: Costs for the product are broken down as follows: 20% for polyethylene. including allocated fixed costs. Therefore. Profit margins are 20%. for example. How would you begin to assess the future for this client. and the technology used is the same as when the factory opened. the company has 80% of the market. Your client does not have much information about this competitor. As evidenced in the Philadelphia / New Jersey market.57 Packaging Material Manufacturer (assessing future) Your client is the largest North American producer of a certain kind of bubble-pack packaging material. Solution: The competitor has used their new technology to produce a lower price product. 15% marketing and overhead. 9. the success of the venture would depend not only upon the means of entry. Currently. For example: Non-unionized labor might help support a low cost production strategy (but for how long?) Proprietary technology not available to other companies in the region Special expertise in a growth area (such as. a localized upstart company has appeared in the Philadelphia / New Jersey market and has captured nearly all of that market. Since that time. hazardous waste) Access to distribution channels 9.58 Airline Expansion (Very interesting case) . Poyethylene is a commodity chemical.

9. Simply determine if revenue less costs equals a positive profit. incremental costs for landing rights. Interviewer Notes: .S. the competitive invironment and the extent to which our client could win over passengers from competitor routes. analyze the factors that go into revenue and the factors that comprise cost to come to a conclusion.122 A major airline is considering acquiring an existing route from Tokyo to New York. rather than a whole industry. that may play role. Operating costs will depend on expected fuel costs. also. while in his office. one could look at this problem by analyzing (1) how much it costs per kidney dialysis and (2) how many kidney dialyses occur in the U. such as corruption or government regulation. LA-New York routes. How can it determine if the route is a good idea? Suggested frameworks: Profitability analysis looks like the best approach. last but not least. you discover that kidney dialysis is a major portion of public health care expenditures. It is also very important to estimate the cost of cannibalization on existing Tokyo-LA. it is important to note that losing passengers to cannibalization is better than losing them to competitors. the sum of which is measured by cost per unit x # of units. etc. Then. What analytical techniques do you use to determine if this cost can be reduced? Suggested frameworks: You can start this case by looking at the cost half of profitability analysis (Costs Fixed + Variable). And. Interviewer Notes: Revenues will be determined by occupancy rates and expected prices. Don’t forget the external factors. Since this is a procedure. Both of these will be determined by expected demand. it is mostly a variable costs. Thus.59 Health Care Costs (Unusual case) Bill Clinton has just fired Hillary Clinton as Chief of Health Reforms and has appointed you to fill the position.

income levels.S. share. build a model (regression. Perhaps those who are typically covered by public funds (the poor. Is there room for any type of preventative program for these groups? 9. Interviewer Notes: The demographics of the area surrounding the prospective branch should be examined. Population. high growth or high profitability.) The client will have to match competitors’ incentives to customers and should estimate the cost of doing so. such as the 4 P’s. is ours higher? If so. the elderly) have a higher incidence of kidney problems. business concentration. etc. etc. Compare the indicence of kidney disorder in the country with other countries. can public policy of efforts to increase awareness help reduce it? If incidence is indeed higher for the U.60 Local Banking Demand How would you determine whether a location in New York City holds enough banking demand to warrant opening a branch? Suggested framework: Because this is a demand-oriented question. one should consider a marketing framework. . Competitor reactions could easily make this venture unprofitable.123 Analyze the proportion of public versus private health expenditures that are applied to kidney treatment to determine if this expensive treatment is being pushed onto the public leath budget by unscrupulous practitioners. The client must examine if the new branch would complement their existing competence and strategy (retail or commercial. should be compared with those of historically successful branches. so it is essential to anticipate them. These will depend on the importance of the area to competitiors (in terms of profit. perhaps) that will somehow determine the factors that are most related to kidney treatment.

Your client’s catalog printing and postage costs have just increased to thirty-two cents per catalog. How can your client decide if the new price is acceptable? Information to be divulged gradually: The average response rate for catalogs mailed is 2. The selling price per pint is the same for frozen yogurt and ice cream.62 Direct Mail Retailer (very interesting case) (Simple investment. and currently represents 55% of product sold.return analysis) You are consulting for a direct mail retailer that sells ladies clothing. vanilla and coffee. pineapple and raspberries. (Ice cream and similar products). They have asked you to help them identify the problem. regional maker of high quality premium priced frozen desserts. the business is barely making a profit and the management is unsure that they will able to pay their usual dividend this year. each 100 catalogs mailed results in 2.) and what purpose it would serve. or possibly even negative. In addition. The ingredients are different. %. In other words. Ice cream uses locally available milk and cream. maybe a cash machine would suffice.61 Frozen Desserts You are consulting for a small. In recent years. All other costs are equal for the two lines. If the need focuses on deposits and withdrawls only. however. Solution: Margins on frozen yogurt products must be lower than for ice cream. Therefore. 25% of customers who order product can be expected to reorder within six . Additional information: The client sells a complete line of product (ice cream and frozen yogurt) in major supermarket chains in the Northeast. pecans. and flavorings such as chocolate. as Americans jump on the fitness bandwagon. 9. the shift of sales from ice cream into frozen yogurt is causing the company as a whole to be less profitable. kiwis. The average order size is $80. due to the higher ingredient costs. The premium frozen yogurts use more exotic flavorings such as mangoes.124 etc. frozen yogurt has begun to outsell ice cream. 9. Though sales have been increasing.5 orders place.

The brand name of the product has slowly become a common household word.5 orders will result in 2. . Information to be divulged gradually: This is the only product of its kind. for a total of 2. printing and postage costs are $32. You have been asked to predict what might happen to the profitability of this product when the product comes off patent. or . in terms of taste and safety (lack of harmful health effects) as proven in lab tests. the cost of the chemical sweetener represents 1.63 Chemical Sweetener Manufacturer Your client manufactures a chemical sweetener used in beverages and other food products. Currently.125 months. or $200 in sales. The companies feature the brand name of your client’s chemical on their product.5 orders placed per 100 catalogs mailed. The costs to manufacture the product are extremely low (about 20% of the price of the product). In addition. At a profit margin of fifteen percent. The $30 profit is not sufficient to cover the printing and mailing costs of $32. Therefore.5 x 80. 9. (100 x 32 cents). the margins on this chemical are almost 40%. the client should reject the printing arrangement at 32 cents per copy. The largest two customers (75% of your sales) are two worldwide beverage companies. Solution: For each 100 catalogs mailed. and consider it a sign of quality.5 additional reorders. The fully allocated profit margin (excluding mailing costs) on catalog orders is 15%. these sales will return a total profit of $30. 2. plus 2 x 25%. Each 100 catalogs will result in 2 orders. The chemical will come off patent in one year.5% of their total costs.

then. determine if the core competencies of the Baby Bell are likely to match the demands of the home security markets. Interviewer Notes: The company is a holding company. The top five players in the industry generate less than 4% of the total industry revenues. regional companies. Therefore. While most products that come off patent quickly drop in price (e. the outlook for the product is good even after the patent expires. The economics are: Item Equipment and Installation Retail Price Cost / Margin $500 . They have previously made unsuccessful forays into software and into real estate. such as Porter’s Five Forces. they can be expected to be willing to continue to pay the premium into the future. Would you recommend that they do so? Suggested frameworks: Use an industry attractiveness framework. use the value chain to look at where value is added in the home security business. This implies that the industry largely consists of small. The home security business is highly fragmented. and because the chemical represents such a small portion of their total costs. or at least to determine what kind of returns you can expect to achieve. 10% of all residences currently own an electronic security systems. finally. Because the major two customers feature the chemical name on their product.64 Telecommunications Diversification A Baby Bell company is interested in diversifying into other areas besides telecommunications.$1.500 0-10% margin .g. This is is some sense a razor and razor blade sort of business. this product will be able to retain some of its premium due to the strong brand name. 9. once you feel you understand the market. They are considering entering the market for electronic home security systems.126 Solution: This is a classic customer analysis problem. to determine whether this is a business you want to be in. pharmaceuticals).

As a result. transmission system (phone lines) It turns out that the “expensive home” segment of this market is saturated. steel cans. Steel cans are used by customers who do not want to pay the premium for aluminum cans. Price sensitivity is unknown in “moderate-priced home” segment. Also. The number two player in the market has about 30% of the market and the rest is shared by many small competitors.79 cents. operator services. How can the manufacturer best exploit this cost advantage? Suggested frameworks: Remember basic economics. which have inferior printing and stamping characteristics. Aluminum cans have a lower priced substitute.65 Aluminium Can Manufacturer An aluminum can manufacturer has discovered a way to improve its manufacturing process. 9. the client should either drop price or reap additional profits. Growth has been slow in recent years.89 to $0. its manufacturing cost has been reduced from $0. . don’t forget to think about any substitutes for aluminum cans. but that more market research needs to be done to assess the growth and profit potential of each segment of the market. Consider the impact of either strategy on the company and its competitors.127 Monthly Service $20 / month $5 / month What strengths / competencies of the Baby Bell company are useful in this market? Consider: Installation expertise. The conclusion is that this business is a reasonably good fit for the company. The firm can either use a penetration strategy or price skimming strategy. It turns out that the client is the leader in its market with a 40% share and supplies directly to major beverage manufacturers. Interviewer Notes: Clearly.

What factors should be considered? After considering these factors. Major discout stores sell the service. so profits are easier with high volume. 9. What would your approach be? Suggested frameworks: This is and industry entry question. At the same time. He needs your advice on how to go about evaluation this idea. The cost advantage may help another day during a price war. other competitors will have to follow since this is a commodity market and not following would mean a quick demise. This makes the business tough to enter. Then. The lowering of prices might increase the client’s market share marginally. Finally. This is a scale economy business in the back-office.67 Concrete Manufacturer Your client. but some smaller competitors will have to start exiting the industry and larger competitors will have to start investing to discover the client’s cost advantage. thus hurting manufacturers in that market. would you recommend the acquisition? . steel can users will start switching to aluminum cans. In conclusion. Interviewer Notes: Distribution channels are the key factor in this business. these new entrants could pose a future threat to our client. look at industry attractiveness with Porter’s five forces analysis. analyze competitive response.128 If the client drops prices. think about what part of the marketing mix (4 P’s) would be best for film developing. 9. it is best to retain prices and generate extra profits for now.66 Film Processing (Discuss) The CEO of the largest domestic manufacturer of photo film want to enter the film developing business. The resulting growth in the aluminum can market will attract steel can manufacturers to enter it. a concrete manufacturer is considering acquiring a small local firm. Since some steel can manufacturers have deep pockets and a strong backing. This company ended up establishing a “store within a store” concept with Wal-Mart.

which could raise the profit level of the target firm.) However.68 Shipping Container Manufacturer Your client is a manufacturer of large steel shipping containers that are designed to hold up to several tons of material for shipping on ocean liners. but could obtain bank financing at a rate of 10%. ignores the tax shields.) Additional research shows that the smaller customers for concrete are growing. With profit margins of only 5%. Your client’s customers are large construction firms and contractors generally in the office and commercial building construction business. (Swimming pool installation firms. Your client’s margin is 15%.129 Additional Information to be divulged gradually: The target firm is currently profitable. The containers are leased by the company to . The smaller firm sells mainly to other small businesses and contractors. the income generated by the smaller firm will not cover the capital charges (interest due to the bank) on the acquisition price. (Acquisition price = 3 x sales. and is often the preferred supplier due to their customer responsiveness. Similar acquisitions generally are made for two to three times current sales of the target firm. the acquisition is not attractive if there are no synergies between the firms. etc. the Southeastern U. if your client were able to use some of its competitive advantages to improve the financial outlook of the target firm. while the major office building construction market is stagnant. It is reasonable to expect that synergies would arise from economies of scale in trucking and mixing. Both companies compete in the geographical market. The container consists of a steel frame. Interest on this amount will be 10% x 3 x sales. The smaller firm has strong contacts with many local customers. Your client is not able to fund the acquisition internally. patio builders. Solution: From a financial point of view. the acquisition would be advisable. or 30% of annual sales. Your client attributes its higher profit margin to economies of scale in trucking and mixing. with margins of 5%. and make the acquisition more attractive. of course. a steel shell and an insulation and waterproofing material that uses a hazardous chemical.S. This analysis. 9. and a stable labor force. Profits are only 5% of sales.

As a consultant brought in to assis them. new technology in shipping containers. What issues might you examine? Suggessted Issues: Sales and cost issues: The growth of the shipping container market. Its goal is to double total sales and profits in less than two years. customer power. steel prices. growth of the largest customer industries. Market issues: changes in the worldwide shipping market (e. what would you do? What issues would you consider? What are some likely alternatives for the company? Possible issues to consider: What is the current scope of operations? In what areas of healthcare does the company deal? What is its current market share in these areas? What plans has the company already considered? What is the competitive nature of the industry? What would be the effect on sales and profits of reducing prices and margins? What potential is there for expansion by acquisition? Do they have the financial capability? do potential acquisition targets exist? Will the market for acquisitions be competitive? Possible recommendations: .130 worldwide shipping companies. Shippers can lease the containers one-way or roundtrip.69 Healthcare Company Growth A large healthcare company has decided it is interested in substantially increasing the size of its operations. trends in the leasing terms in the industry. customs and trade agreement trends. your client’s share in that market. does the growth of an area like Southeast Asia imply many more one-way contracts than round-trip?). manufacturing costs.g. The client has asked you to do an assessment of their strategy. 9. costs of handling the chemicals. Environmental Issues: Production and disposal of the insulation chemicals.

A business can increase profits by: Increasing sales Increasing prices Decreasing costs However. which could be achieved by: Selling more of the current products to current customers Selling new products to current customers Selling current products to new customers Selling new products to new customers The suitability of these options will again depend on the particular environment. You should then consider the potential for increasing sales by means of diversification through acquisition or joint venture. if the company’s margins are found to be consistent with industry norms. 9. i. The relative benefits of each will depend on financial resources as well as the existence of.131 Naturally. The president of the chain is wondering whether it would be better if they established a centralized warehouse through which all supplies would be delivered and then disbursed by company trucks.70 Regional Grocery Store Chain A regional chain of grocery stores currently receives its stock on a decentralized basis. it would seem unlikely that either increasing prices or cutting costs represent feasible methods by which to double sales & profits.e. This leaves only sales increases. In the particular example of this case. it turned out that only selling new products to new customers via some form of diversification could hope to achieve the company goals. particularly if the company is operating in a moderately competitive environment. What are the key consideration to making this decision? Issues to consider: Would the savings from bulk purhcasing more than compensate for the cost of: . and competition for suitable targets. each store deals directly with the vairous suppliers. a suitable solution will depend upon the answers to the above questions.

She has massive amounts of historical data for sales volumes through these outlets and a well constructed internal accounting system. the flexibility of delivery times and quantities. The marginal revenue for a magazine would be its cover price times the probability that it will be sold. could be established in some manner from the historical data. . do purchasing synergies actually exist?) Will delivery frequency to the stores by better or worse? Consider the costs of stockout and the need for fresh produce. with an appropriate confidence interval. but also that all the affected players can be persuaded to buy into it. Possible solution: The proposed solution would depend upon your interpretation of the trade-offs both financially and organizationally for the two methods of delivery. For you to propose going with the new method.132 Building and maintaining the warehouse Employing additional personnel and trucks Opportunity cost of capital tied up in inventory for additional periods Do the stores buy similar products? (i. The probability of sale. How should she go about computing an appropriate number? Possible solution: The best way to tackle this one (without going into a huge Economic Order Quantity qunatitative analysis) is not so much to start asking questions as to set out and outline analysis and fill in as you go.71 Magazine Distribution (Discuss) A magazine publisher is trying to decide how many magazines she should deliver to each individual distribution outlet in order to maximize profits. Will the stores prefer delivery direct from the supplier or from the warehouse? Consider the time tied up in order processing. marginal revenues should be set equal to marginal costs. The marginal costs could be obtained from the internal accounting data.e. It should be observed immediately that to maximize profits. 9. you need to establish not only that it will cost less.

72 Knitting Machine Demand (Estimation case) How would you asses the world demand for knitting machines? Possible Solution: The world demand for knitting machines basically depends on the world demand for cloth. In order to refine our appraisal. in Southern Portugal. Additional information to be divulged gradually: The cost structure for cement production is as follows: Raw materials 28% 16% Labor and allocated fixed costs . you may need to consider other factors: The current level of the ratio: amount of cloth manufactured per working year / number of machines The expected usable life of an average machine The existence of substitues for knitting machines and the consequences of this on our expected demand 9. Furthermore. In order to evaluate the world demand for cloth. but is running at 100% capacity of their one plant. The CEO has asked you to help him decide if they should build another plant or expand the current plant. we need to know how much cloth (measured in square meters. and feel it could have more. located near Lisbon. Note that this may not be a linear relationship. we may segment the inhabitants of our planet per level of personal wealth. for instance) is being purchased per unit time per inhabitant of the world. This company currently has 45% of the market.133 A detailed discussion of the application of these concepts from basic microeconomics and statistics may be necessary.73 Cement Manufacturer Capacity Addition You are consulting for the number-one producer of cement in Portugal. 9.

Raw materials are purchased from a government-owned company. about 200 miles to the north. Land is available to expand the current factory. Customers pay for trucking by the mile. it makes sense to minimize distribution costs in choosing the site of the next facility. Profits as a percent of sales. 9. The trucks are owned by the company. from a high of 20% to the current level of 18%. Approximately 80% of the customers are within 100 miles of the current plant. and transport all product directly to the customers throughout the country. and prices are set by a yearly contract with the government.74 Snack Food Company ( DONE !!! ☺ ) A large salted snack food company has steadily been losing market share over that past two years. and extra shifts are not possible. Therefore. The plant is unionized. The fixed cost of plant additions is roughly the same as the cost of a new plant of the same capacity. but not kept pace with the market. Solution: As distribution is the second-largest cost item. there is also a suitable site near Porto.134 Distribution Sales and overhead Pre-tax profit 26% 18% 12% The company’s selling prices are set by prevailing market prices in Portugal. The costs for the client have changed over this period: ( % of selling price) Current Raw Ingredients: 28% Two years ago 26% . location of the plant in the north may increase sales in the north by reducing delivery costs to these customers. The product line of the client has not changed over this period. however. What could be causing this? Additional Information to be divulged gradually: The size of the total salted snack food market has grown from $15 billion to $17 billion during these two years. the interviewee’s conclusion should be that the client’s total dollar sales have actually grown. have been growing. it is safe to assume customers that are further away are less inclined to buy due to the increased trucking costs. From the data.

Also. It turns out that the company went on a cost-cutting spree over the past two years. Most of the reduction came from trade promotions. though the same number of outlets are still covered by this sales force. Together.135 Conversion costs: Distribution: Marketing: Sales force: Pre-tax profit: 24% 8% 16% 7% 17% 24% 9% 18% 9% 14% The total sales force was cut to reduce costs. Solution: The data show that the greatest change is in the sales force numbers. The largest competitors are two multinational consumer products companies that feature complete lines of snack foods. these two companies have 55% of the market. In addition. The sales force was drastically cut and the commission scheme was reworked. The product is sold through the same channels as previously: large grocery chains and convenience stores. Lastly. Their cost structures are vastly different. which has directly led to the decrease in market share. however. Their sales forces are regarded as the best in the industry. 9. but may not be sustainable.75 Beverage Company Cost Structure RC Cola and Coca Cola both compete in the same industry. The sales force generally visits each customer at least once per quarter. The changes in the marketing budget come from reduced trade promotions. The products are mostly sold through large grocery store chains and convenience stores. indicating a missed opportunity for new products in the market. The marketing expenditure was also decreased. estimate the likely cost . the market has been growing. The reduction in trade promotions brought about a loss of shelf space. the product line has not changed in the past two years in a product category where new products and line extensions are routine. Grocery stores and convenience stores require some type of promotion to grant valuable end of aisle displays or advertising space. the increase in profitability has resulted from the lower costs. These channels are traditionally driven by periodic trade promotions. Using Coca Cola as a benchmark. Promotions usually occur at the end of each quarter.

What will be the effect on the light bulb industry? Additional Information: The light bulb industry is dominated by two multinational producers.136 structure for RC Cola. for which costs would RC Cola be higher. RC is not distributed in as many outlets as Coca Cola. as there are fewer. Sales Costs: could be lower for RC. but more loyal customers. There are a several small local players in various regions of . In the case of Coca Cola. meaning that more stops would have to be made. Marketing: is lower for RC Cola as they are not a frequent advertiser like Coca Cola. the typical order size for RC Cola would be smaller. Therefore. Distribution: would be higher for RC Cola for two reasons. with this filament. the light bulb will never burn out. for which would they be lower. line item by line item: Cost of goods sold: RC Cola would be higher due to their lesser power in negotiating price breaks from suppliers. The lab is ready to licence this product to a light bulb manufacturer. A possible analysis. Administration / Overhead: lower for RC Cola as they are more of a “one-product” company than is Coca Cola.76 Permanent Light Bulbs A small R&D lab in the Swiss Alps has developed a super-durable filament for light bulbs. the average truck driver will be driving more miles and spending more time to deliver a truckload of RC that the Coca Cola driver. Also. In other words. it is conceivable that one truckload may be deliver to just one customer. and why? Possible solution: This is a twist on the standard price/cost case that also questions the interviewee’s understanding of the cost items. 9. who will have several stops within an immediate area. The two companies sell their products side by side for essentially the same price in similar outlets internationally.

all customers will eventually switch over to the permanent light bulb. The bank is one of the top 10 largest retail banks in the country. Another solution is that all of the players obtain some version of this technology. the new age of electronic banking and commerce is changing all of that. The new Centers would offer virtually all of the services currently offered through local branches plus some additional things. what kinds of things would you investigate? and what hypothesis would you form? . Over time.1 Issue You have a have recently been assigned to a project with one of the nation’s super regional banks. this player may enjoy an advantage for a limited time. however. Typically. Possible solutions: One outcome is that one of the two major players purchases the technology. making the industry more competitive and wiping out industry profits. If that were to happen.77 Super Regional Bank 9. thereby drying up the industry. If the technology is patented and exclusively licenced.137 the world who produce local brands and some private store brand light bulbs. Like most banks in its class it has branches in 8 geographically contiguous states. and customers would shift to the permanent light bulb. Calling Centers offer both live and phone automated services that may be accessed by phone. They are considering replacing many branches with Calling Centers.77. all bulbs would be permanent and the industry volume would greatly decrease. this bank has canvassed its territory with small freestanding branches. putting the competitor out of business and greatly reducing their own business. 9. There have been no technological innovations in light bulbs for many years. If the producer makes enough bulbs at a low enough cost. the price for this product would decline to the normal industry profit level. Your client has recently concluded that the old “local branch” way of business is no longer viable. The question to you is: how would you go about setting up the engagement to determine the viability of this new concept? Specifically.

Cost Savings: How much would it cost to establish a Calling Center and what are the risks involved? Do we have the expertise in-house to do this? How many branches could we close? Can we cut down on traffic to existing branches .thus requiring less tellers? Summary: It probably is best setup as a cost benefit analysis.78 Cigar Bar (DISCUSS) I was sitting in one of Chicago’s new specialty “Cigar Bars” around the end of August with a friend. On the back of an envelope.77. however this type of case occurs frequently. how profitable are they? How profitable are the people who are turned off by this service? (Hypothesis: older people have more money and thus are more profitable) Revenue: What types of new services could be added to increase revenues? Automatic bill payment. . There certainly is no right answer. etc. It was a Saturday night and the weather was fair.138 9. By 11pm the place had at least 70 customers. The number of new customers times the expected revenue from them plus the additional revenue generated by potential new services plus the cost savings must outweigh the forgone revenue generated by the customers you end up driving away. While enjoying one of the bar’s finest stogies and sipping a cognac. how would you go about determining the value of this bar? Issues to consider We arrived at the bar around 8:30pm. There appeared to be 30 customers already there. 9. I asked my friend how much he thought the bar was worth. I would estimate the maximum capacity to be close to 100. Fund transfer. The following is a guideline of some things you should probably consider: Market analysis: What kinds of customers would be attracted to this no service? What kinds of customers would be turned off? (Hypothesis: younger people would be heavier users and more attracted than older) Of the people attracted to this new service.2 Possible Solution: This is a very open broad-brushed case.

The only real variable cost is the cost of goods sold. management. The bar is located on one of Chicago’s trendier streets with a lot of foot traffic. The bar is open Tuesday thru Sunday from 5 pm until 2 am. Valuation: Subtract the costs from the revenues and adjust for taxes. This gives you a value of: Value = CF1/1.2 + CF2/(1. and possibly employees. All three were there the entire evening. Perhaps 20%. The discount rate should be a rate representative of WACC’s of similar businesses with the same risk. How long do you anticipate this bar being around? Cigar bars are a trend. The average cost of a cigar is $8 and the average cost of a drink is $7. Costs: There are two components to costs: fixed costs and variable costs. liquor license. Revenues: One way to project revenues is to estimate the number of customers per day or per week and multiply that by the average expenditure of each customer. a waiter and a waitresses. insurance.2)n . Possible Solution: This is a straight forward valuation... Under fixed costs you might consider: rent. Keep in mind that Friday’s and Saturday’s are typically busier than other days and that people tend to be out more during the Summer than in the Winter. To perform a valuation you must estimate the cash flows from the business and discount them back using an appropriate weighted average cost of capital (WACC). In any case pick some number for the expected life (4-5 years). general maintenance.2)2 + .139 The bar sells two things: liquor and cigars. There was one bar tender. You now have the annual cash flows generated from the bar. + Cfn/(1.

this is a monthly magazine. Lets say $3/magazine at the news stand and $2/magazine for a subscription.000) and 50% buy at the news stand (120. . Based on a normal distribution with the average life span of 80 years. GQ Magazine) His stated goal is to generate circulation revenues of $10 million in the first year. lets say 50% subsrcibe (120. In this case given the CEO’s stated goal of $10 million in circulation revenues. He want’s to start a third monthly magazine in the US targeted at 30-50 year old men (eg.000 X 12 or $7. Approximately 1/2 are male or 80 million.000 + $240. Given the wide range of magazines on the market assume that only 10% of magazine readers would want to read a men’s journal or 4 million target customers.000. Finally. Both businesses are profitable but are not growing quickly. the specific anwser is not important as long as you are making reasonable assumptions. The key here is to clearly define your assumptions. Revenues Based on what other magazines sell for ($2.000 or $600. Possible Solution: This is an estimation case.50-$5.000).79 New Magazine (Very good estimation case) Your client is the CEO of a publishing company that produces a line of educational magazines as well as a line of women’s magazines. Share As a new magazine assume that you can generate a 5% share of the men’s magazine market in year one or 240.00) assume a cover price. Of the 80 million 30-50 year old men in the country. He has hired you to figure out whether this is possible. This would generate total revenues of $600. approximately 2/3 of the population falls between 30-50 or about 160 million people. assume that at least 1/2 would read a magazine or 40 million. it would not make sense to launch the magazine.2 million. This comes out to $360. Now make some assumptions on how many customers will buy on the news stand versus subscription. For simplicity assume that all target customers buy a magazine every month. For example Target Customers The total US population is approximately 240 million.140 9.000 customers.

Breaking out each division as a separate profit center shows that revenues are up 10% for both mop bucket and chair divisions but down 10% for the hospital bed division. Case Type: Industry Analysis. Over the past two years the company’s profits have declined by 20% while revenues have been relatively flat. Information to be divulged slowly: The company operates in three divisions: 50% of sales are to hospital bed manufacturers. The hospital bed and mop bucket divisions are located in the West German manufacturing operation. Profitability Analysis . We have already been told that revenues are flat which should be a clue to explore the cost side of the income statement.80. 9. the hospital bed division is located in the East German manufacturing operation.80 Castor Manufacturer 9.1 Issue Your client manufactures castors (the wheels found on the bottom of office chairs) out of a plant in West Germany and One in East Germany. profits are down 10% for both the mop bucket and chair divisions but are down 30% for the hospital bed division. Similarly. Sometimes the interviewer will provide you with an income statement that will break out the major cost components by percentage. wages in the formerly state regulated East Germany have skyrocketed. In this case it helps to work logically through both the fixed and variable costs to see if there are any major items. You have been asked to find out what is happening and suggest a course of action to reverse these trends. This is what is driving most of the increased costs. Similarly. In the past two years. 25% are to mop bucket manufacturers. Further investigation shows that labor is the major component of cost in manufacturing castors. and 25% are to chair manufacturers.2 Possible Solution This is a typical revenue/cost case. the demand for hospital beds (and thus castors) in East Germany has declined as they have become more efficient at managing their health care system.80.141 9.

81 Logging Company Background: You are hired by a Canadian logging company to analyze its current operations and provide advice on future operations. all tracts of land have the same lease price per acre. Leases: The government leases tracts of land at a annual price that is set to allow for a 12% profit margin for the entire logging industry. There is no significant difference between the distribution costs among the industry firms.Non-land cost per ft^3 . Healthier trees are straighter and easier to cut. This leads to a revenue advantage because more 2”x8” board-feet can be produced per acre of land. more skilled laborers) but instead exists because of the exceptional quality of the trees on the particular piece of land that the company leases. Lumber is a commodity product and as such the company is a price-taker in the market. The mineral content of the land leads to faster growth of healthier trees which improves both yield and turnover. Production Process: The cost advantage is not generated by a better logging process (i. The leases last for 99 years and the original lessee has the right of first renewal on the lease. The company is making a lot of money and is unsure why. • • Key Points • The company leases land with a significantly higher quality of trees. These healthier. straighter trees yield more 2”x8” board-feet than is typical and leads to the advantaged product mix. .Lease Cost per ft^3 Revenues: There is a revenue advantage for the company due to its product mix. taller. thus reducing costs in each phase of the logging process. Additionally. The logging industry in Canada is regulated by the government. • • Profit Structure: The profit equation for the lumber industry can be written as: Profit per ft^3 = Revenue per ft^3 . You have been asked to determine: (1) Why they are making money? (2) Is it sustainable? (3) Is it replicable? Additional Details: • Products: The company produces lumber boards of two sizes 2”x4” and 2”x8”.142 9. Land is leased to individual companies by the government. There are no significant economies of scale to the process. Margins are higher on 2”x8” boards than on 2”x4” boards. better equipment. The company’s product mix is made up of a greater percentage of 2”x8” boards than the “typical” logging company percentage. Thus.e. Non-land Costs: The company has a 5% cost advantage in its ”tree-to-dock” production process. there is a cost advantage because the higher quality inputs make the logging process easier and increase yields and turnover.

Ease of Use Price. and (3) where it should focus its resources.143 • • Since the leases are for 99 years and renewable. The client’s product is considered to have the highest quality of article search. Libraries are interested in matching the article search to hardboard volumes available within the library. 9. Competitive Features • Type of Library Academic • • Research Other Content. The company wants to understand (1) why they have so small a market share. • . (2) what could be done to improve the situation. Number of Libraries 5000 500 4500 10000 20000 Client Market Share 20% 80% 13% 10% ~0% Major Competitor Market Share 60% 10% 66% 40% 10% Search Content Quality. The product allows users in a library to locate articles by keyword search. The company currently has a weak market share of only 10% of all installed units. Pricing: The client sells its product at a 25% discount to the major competitor and has the lowest prices in the industry. the current situation seems sustainable. and the remainder is divided among many competitors. Since it is unlikely that another piece of land similar to this one exists or that another firm will give up advantaged land. Each version is marketed to a specific library segment. Market Segmentation: The following table outlines many of the details of the market segmentation and client product data.82 Information Services Company Background: You are hired by a library information services company that provides a computerized article search product on CD-ROM. The client and two other competitors each have 10%. The pricing and profit schedule for each version are shown below. Ease of Use Public Secondary Schools • Product: The client sells a CD-ROM based product which is used on a dedicated PC in a library. Ease of Use Content. The product has different versions that are upgraded each year. the situation is not replicable. Additional Details: • Competition: There is a single major competitor which has 50% market share.

There is a trade-off between ease of use and search quality.0M. and (4) Price. A better search requires a more skilled approach to keyword usage and often makes the search more difficult.25M ( minimum since profit in academic segment is > $500 per unit). Production: the product is created by programmers who seek to match the product to library volumes. • The most profitable segment can be identified by using current client prices which should allow it to gain market share (due to the 25% discount to the major competitor) and calculating the maximum market profit. the type of CDROM created can be altered relatively easily.5M. Secondary = 20000 x 100 = $2. There is currently 20. (3) Ease of Use. Public = 10000 x 500 = $5. Academic = 5000 x 500= $2. The client’s product is considered to have the highest quality search among the competitors.000 miles of pipeline throughout the U. What information would you want to know about the pipeline industry that could help you plot a strategy for a pipeline company? . Since the principal input is labor.products that emphasize content and ease of use over search quality. The pipeline industry sprang up as transportation costs for mineral extraction companies began to escalate.e. if we realign our product to emphasize ease of use and content.0M. • Key Points • The client’s product does not match the needs of the large segments of the market (i. Therefore.144 Library Academic Public Secondary School • Client Price $2000 $1500 $1000 Client Profit per Unit >$500 $500 $100 Major Competitor Price $2667 $2000 $1333 Competitive Features: Competition within the industry focuses on four dimensions: (1) Search Quality.83 Pipeline Company Case Type: Industry Analysis Background: You are hired by a large pipeline company to evaluate the current and future potential of the pipeline industry. the potential profit is 4500 x 500 + 10000 x 500 = 7. the client’s high quality of search only appeals to a small segment of the total market) ==> weak market share The client should reallocate its resources to create products in the larger market segments -. The table above indicates the relative preference for these features for each market segment.S. (2) Content. 9.

145

Additional Details: • Industry Structure: There are many pipeline competitors. Pipeline can be characterized as either common carrier pipelines (~70% of all pipeline miles) which are regulated by the government and proprietary pipelines (~30% of all pipeline miles) which are wholly located on the private property of a firm (e.g. a pipeline from a port station to a near-shore refinery). There are many suppliers of common carrier pipelines. The second group (proprietary) is not regulated by the government. Products: The pipelines carry liquid and gaseous materials -- crude oil, natural gas, methane gas, liquid nitrogen, refined oil products (gasoline), and chemicals. Cost Structure: There are exceptionally high fixed costs involved in a pipeline. The variable costs are primarily the electricity to power pumping stations along the pipeline. There are different cost structures depending on the type of product being moved. Pumping crude oil along the pipeline can cost as much as $2M/month in electricity for a station. Gaseous products require considerably less energy to move. Market Conditions: U.S. proven reserves are diminishing and foreign imports are increasing. It is expected that for the next 5-10 years demand will be steady.

• •

Key Points: (classic Porter analysis could be used -- This is rarely the case!!!) •
Threat of Entry is low because ...

- there are high fixed costs (high initial investment) - pipeline services are essentially a commodity product (commodity markets are slow growth and unattractive) •
Industry Rivalry is strong because ...

- there are many competitors and switching costs are low - industry growth is expected to be slow (i.e. market share is important) - many competitors use pipeline for in-house uses and only carry other products if capacity is underutilized - there are very high exit barriers (i.e. there is a strategic relationship between refining and piping) •
Substitute Products are many as witnessed ...

- by proliferation of tanker cars and tractor trailer rigs for liquid and gaseous materials • • •
Power of Suppliers is not a significant factor. Power of Buyers is not a significant factor because many pipelines are regulated and there are many buyers

Other considerations:

146
- Product Mix: The margins on gaseous products is higher than heavy unrefined products. - Government Regulation: Margins are greatly affected by common carrier status. Any future environmental regulations will cut even deeper into margins. - Pipeline as a storage medium: For many firms the product in a pipeline can be a significant portion of its inventory and the volume in line must be considered in production. The classic question: Is it better to make product and sell it now at low prices or wait for prices to increase (e.g. crude oil prices)? A large pipeline could be a temporary storage facility. - Operations: Maximizing profit means understanding the parameters of pumping -costs of pumping at less than full capacity; layout of pipeline and pumping stations; products which can share the same pipeline; construction of parallel pipelines. Market Differences: The market for crude oil is very different than the market for specialty chemicals or natural gas. the pipeline manager must aware of these rapidly changing commodity markets to maximize his profit.

9.84 Auto Manufacturer
Background: Your team is hired by a large U.S. automobile manufacturer (GM). They are interested in your evaluation of their $10B after-market parts business. This business can be segmented into two sets of buyers: dealers authorized to sell GM parts ($8B) and non-dealer merchandisers ($2B). This second group can be subdivided into mass merchandisers and “service” providers. Mass merchandisers are of two types -those which specialize in auto parts (e.g. Auto Zone) and those which sell diverse products including auto parts (e.g. Sears). “Service” providers include Goodyear or Western Auto. GM would like for you to answer two questions: (1) Is there an opportunity to expand this part of the business? (2) How would they go about doing it if they chose to expand? Additional Details: • Company Economics: There are tremendous fixed costs in the auto business (including labor). All of GM’s parts manufacturing facilities are fully depreciated and they currently have excess capacity. Competitors: While Ford and Chrysler make parts for their own cars, they are not nearly as integrated as GM and tend to focus in specific parts categories. There are hundreds of small parts manufacturers which tend to focus on commodity-like auto parts (e.g. oil filters).

147
• Products: GM produces a full spectrum of parts classified as either platformspecific or universal. Platform-specific Parts Types of Parts Market Characteristics Body panels, brakes, transmissions, engines Sold through dealers under warranty; high margins/low volume Universal Parts Spark plugs, filters, hoses, batteries Sold through many outlets; high turnover; strong competition; slim margins/very high volume $2B

GM Sales •

$8B

Growth Rates: The table below provides the basic facts about each market segment’s growth rate. Market Segment Dealer-authorized Non-dealer • • Mass merchandisers Service providers +65% per annum +15% per annum $70B $30B Overall Market Growth Rate -35% per annum Total Market Size $40B

Key Points: (Porter Five Forces analysis) • Threat of Entry is minimal for a broad category because the fixed costs are very high. However, a manufacturer could go after a niche play if it were to develop an advantaged cost structure or superior product. Switching costs among consumers is very low. Industry Rivalry is important for the mass merchandiser category because margins are slim (meaning price wars are more prevalent). Brand names (e.g. Fram, AC Delco, AutoLite) are important to many consumers. Substitute Products are relevant only in the sense that there are many competing products and future technologies such as electric cars could eliminate the need for many types of parts. Power of Suppliers is not a significant factor because inputs are commodity raw metal and rubber. Power of Buyers is important since there are few mass merchandisers such as Sears or Kmart and they demand full range of products and tremendous volume discounts.

• •

GM’s Position: GM may have a cost advantage due to its fully depreciated plants and excess capacity in a fixed-cost environment. Thus its variable costs must be

Product: The firm produces plastic-wrapped packages of sliced deli meats at all price points (generic. The client would like an action plan for resolving the cause of this decrease. a survey of the customers indicated a variability in the quality of product produced by the client. the client has 40% of the market share. Each of these competitors has about 20% of the market share. The Customer: Although the customer buying premium deli meats has changed. midrange and premium) is growing. These advantages combined with the high growth rates for the non-dealer merchandisers should motivate GM to expand it business in this segment. Although price decreases will garner market share. sometimes not. and premium). The competition uses the same channels to sell its products. . its brand names are respected and are valuable to merchandisers in maintaining margins. and full range of products to go after the most lucrative market -. Details: • The Company: .148 below sales revenue. . Sometimes the product was better than competition.Price: Products in the premium category carry a higher price and have slightly higher margins. Also.Promotion: Advertising and marketing efforts have been steady during this period of decline and there has been no noticeable change in the competition’s efforts. This was causing customers to change to competition. the competitors have maintained prices during the recent loss in market share. The market share loss is primarily in the premium category.the mass merchandisers. • The Competition: There are three other competitors in the deli meat industry. GM’s ability to produce a full-range of products is also an advantage.. brand names. 9. not the the the • Solution: . The deli meats carry a well-known brand label.85 Deli Meat Producer Background: You have been hired by a producer of deli meats to investigate the cause of its recent decline in market share. Overall the market (generic. Company investigation has shown that grocers have maintained the same amount of shelf facings and space for your product (so the decrease in share was not caused by changes in display or incentives provided to the grocers by competitors). -Place (Distribution): The product is sold in grocery stores and delis. GM should use its cost advantage. midrange.

The impact of the first proposal will depend on the relationship with the supplier.149 • Production Process: The client receives chunk meat in bins which meet a certain average quality measurement. That is. 70. The variability in the quality of the premium product is being driven by the variability within a 90rated bin.? The second option will add cost to the production process and reduce margins. the client could (1) negotiate with the supplier to narrow the range within a bin or (2) sort the meat within the 90-rated bin at his own facility. Individual chunks within a bin may vary from this average. The premium deli meats are made from a mix of the three bins with the majority coming from the 90-rated bin. Meat in the 90-rated bin ranges from 80-95 while meat in the 70-rated bin ranges from 55-80. To reduce the variability. • . Meat is rated on a scale of 1 to 100 (100 being best). The client is in a long-term contract with a supplier for bins at three quality ratings: 40. how much longer is the contract set to run. is the client a major buyer. and 90.

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