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Management Consulting Business Case Frameworks

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Management Consulting Business Case Frameworks

Prepare for The Six Success Factors in Management Consulting

Your Consulting
Structured thinking

The Six Success


The ability to think in a clear and organized way. This is useful for problem solving
and analysis. Math skills also fall in this category and are often used to exemplify
structured thinking skills.

Career
Business judgment

Factors
Have a good judgment of business and strategic issues. This is important for case
solving a key management consulting discipline. A good way of practicing this is
by reading business media and trying to understand the underlying issues behind
different news stories and the underlying strategic choices.

04
Communication

08
Both written and oral communication skills are important in management consult
ing. During a business case interview, you should focus on your verbal communica
tion skills. You need to convince the interviewer that they can send you in front of
clients from day 1.

Business
Prepare for
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Business Case
Methodology
Interviews
12 16

Business
Structure

Market

Types of
Market
Case
Company

Business Cases
Analyze

Company
Frameworks
22
Product

Product

24
Advise

3
Management Consulting Business Case Frameworks

Prepare for Your


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Management Consulting Business Case Frameworks

Month 1 Month 2 Month 3

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Management Consulting Business Case Frameworks

Failing to plan is planning to fail

Test Similar to a GMAT

Business Case Interviews

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Management Consulting Business Case Frameworks

The Six Success Factors in Management Consulting

Structured thinking
The ability to think in a clear and organized way. This is useful for problem solving
and analysis. Math skills also fall in this category and are often used to exemplify
structured thinking skills.

Business judgment
Have a good judgment of business and strategic issues. This is important for case
solving a key management consulting discipline. A good way of practicing this is
by reading business media and trying to understand the underlying issues behind
different news stories and the underlying strategic choices.

Communication
Both written and oral communication skills are important in management consult-
ing. During a business case interview, you should focus on your verbal communica-
tion skills. You need to convince the interviewer that they can send you in front of
clients from day 1.

Personal impact
Personal impact is hard to define, but think about it sometimes you are around
people who are good at influencing others. As management consulting firms look
for future leaders, they will look for that leadership talent in you.

Team skills
Cooperation with other people is essential as a management consultant you work
in project teams and are surrounded by both clients and coworkers. Team skills
must be demonstrated while you are presenting during an interview, whether they
are explained or shown through actions.

Drive and motivation


Know what you like and go for it. People should have a feel that you are moti-
vated for a career filled with challenging assignments and long hours, and that you
can maintain drive even when the things get tough.

The Six Success Factors


Management Consulting Business Case Frameworks

The Six Success


Factors
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Management Consulting Business Case Frameworks

The Six Success Factors in Management Consulting

Structured thinking
The ability to think in a clear and organized way. This is useful for problem solving
and analysis. Math skills also fall in this category and are often used to exemplify
structured thinking skills.

Business judgment
Have a good judgment of business and strategic issues. This is important for case
solving a key management consulting discipline. A good way of practicing this is
by reading business media and trying to understand the underlying issues behind
different news stories and the underlying strategic choices.

Communication
Both written and oral communication skills are important in management consult-
ing. During a business case interview, you should focus on your verbal communica-
tion skills. You need to convince the interviewer that they can send you in front of
clients from day 1.

Personal impact
Personal impact is hard to define, but think about it sometimes you are around
people who are good at influencing others. As management consulting firms look
for future leaders, they will look for that leadership talent in you.

Team skills
Cooperation with other people is essential as a management consultant you work
in project teams and are surrounded by both clients and coworkers. Team skills
must be demonstrated while you are presenting during an interview, whether they
are explained or shown through actions.

Drive and motivation


Know what you like and go for it. People should have a feel that you are moti-
vated for a career filled with challenging assignments and long hours, and that you
can maintain drive even when the things get tough.

9
Prepare for a
Business Case
Management Consulting Business Case Frameworks

Prepare for a
Business Case
Interview

Learn the Business Case


frameworks

11
Management Consulting Business Case Frameworks

Mental math

12
Management Consulting Business Case Frameworks

Practice Business Case Solving

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Improve Your Communication


skills

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Business Case
Solving Methodology
Management Consulting Business Case Frameworks

Business
Case Solving
Methodology

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Management Consulting Business Case Frameworks

1 2 3 4
Clarify Structure Analyze Advise

guide the case


discussion
Steps

issues

seconds to collect

Know the case

analysis and
Results

conclusion as you
case conclusion and
analysis

Step 1: Clarify
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Step 2: Structure

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Step 3: Analyze
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What could be an answer to the -


case question? -
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Step 4: Advise

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Market

Market

Company

Company

Product

Product

Types of Business Cases


Management Consulting Business Case Frameworks

Types of Business Cases


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Market

Market

Company

Company

Product

Product

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Structure

Market

Market
Analyze

Yes
Advise

Other
facility facility

Business Case
Frameworks
Management Consulting Business Case Frameworks

Market: Market Situation


-
Structure

Suppliers

Suppliers

Suppliers
Advise

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Management Consulting Business Case Frameworks

Structure
-

Analyze

Performance Competition

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Suppliers Customers

Advise

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Management Consulting Business Case Frameworks

Market: Segmentation
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r cal
Structure

r cal

Py r cal

a ral
Analyze

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Management Consulting Business Case Frameworks

Structure

Analyze

Geography Demography

Psychography Behavioral
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Segment attractiveness

Advise
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Management Consulting Business Case Frameworks

Market: New Market Entry


Structure

Enter new market


Analyze

Dont enter Enter - how?


Strategic
Advise

alliance Joint venture

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Management Consulting Business Case Frameworks

Structure

Analyze

Potential

Company fit

Competition

Advise
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Management Consulting Business Case Frameworks

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Management Consulting Business Case Frameworks

Market: Competitor Response

Product
Structure
Analyze
Advise

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Management Consulting Business Case Frameworks

Structure

Analyze

Advise

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Management Consulting Business Case Frameworks

Company: Evaluation of M&A Target

Target company
Structure

Market performance
Acquire target?

Deal economics

Target company Market Deal economics


performance
Analyze

No Yes
Advise

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Management Consulting Business Case Frameworks

Structure

Analyze

Target company Market performance

Strategic fit Deal economics

Advise

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Management Consulting Business Case Frameworks

Company: Company: Capacity Expansion


Structure

Market

Market
Analyze

Yes
Advise

Other
facility facility

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Management Consulting Business Case Frameworks

Structure

Analyze

Rationale

Options

Market Alternatives

35
Management Consulting Business Case Frameworks

Advise

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Management Consulting Business Case Frameworks

Company: Profit Hunt


Structure
Analyze
Advise

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Management Consulting Business Case Frameworks

Structure

Analyze
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Price Volume

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Fixed cost Variable cost

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Advise

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Management Consulting Business Case Frameworks

Product: Product Strategy


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Structure
Analyze
Advise

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Management Consulting Business Case Frameworks

Structure

Analyze

Product Pricing
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Promotion Distribution

Advise
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Management Consulting Business Case Frameworks

Product: New Product Development

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Structure
Analyze
Advise

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Management Consulting Business Case Frameworks

Structure

Analyze

Demand Supply
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Product strategy Business case

Demand

Advise

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Management Consulting Business Case Frameworks

Product: Pricing
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Structure

Demand Financials
Analyze
Advise

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Management Consulting Business Case Frameworks

Structure

Analyze

Substitutes Demand

Financials

Advise

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Case 1: Private Equity Acquisition
FRAMEWORK 1: MARKET SITUATION

Greystone Partners, a North American-based private equity firm, is considering the acquisition of
Deluxe Cane, the leading manufacturer of walking canes for the elderly in the US. Greystone
Partners has engaged your team to help determine whether to proceed with the investment.

Here is the data we have.

See case questions on the next page.


1. Estimate the market size for walking canes in the US? Is the market attractive?
2. How is the financial performance of Deluxe Cane?
3. You have just run additional competitive analysis and found that Deluxe Canes two
largest competitors operate as part of larger organizations that sell related mobility
devices. Using all the information you have collected thus far, do you believe Deluxe
Cane competitively positioned?
4. What other issues would you want to analyze before making an investment decision?
5. Should Greystone Partners invest in DC?
Case Solutions

Question 1: Estimate the market size for walking canes in the US? Is the market
attractive?

Firstly, you need to establish the structure you will use for estimating market size:

Lifetime
Percent of amount of
Share of >70 years
Total population cane
population olds needing
over 70 years purchases per
a cane
customer

Secondly, you will make the estimations. You can either make your own assumptions or ask for
inputs.

US Population: 300 million


Population over 70 years: 15%
Percent of >70 population needing a cane: 40%
Average life of cane: 5 years

Now you can make the actual calculations. The population over 70 years is 45 million and 40% of
these need a cane. That is 18 million. Assuming that the average life of a cane is 5 years, one
fifth of these 18 million buys one cane every year. That is 3.6 million canes annually.

The second part of the question is to discuss whether the market is attractive. When looking at
market attractiveness, remember to use the framework. According to this framework, market
performance, competition, suppliers and customers drive market attractiveness. You dont have
any information about suppliers and customers so you would make your analysis based on the
remainder two drivers.

Market performance: you already know the size of the market, and you can see that at least
Competitor 1 and Competitor 2 have solid operating margins. You should also make a comment
about market growth, which is typically population-driven at about 3% per year. Aging
populations will likely cause the market growth to increase.

Competition: the competition is limited with 3 large players with about 1/3 market share for
each. It would be hard for customers to find substituting products, and the fact that there are
only 3 players indicates that the market is difficult to enter for new players. This is a good
competition situation.
Based on this analysis, the market seems attractive. You would want to comment that an
analysis of suppliers and customers also is necessary to make a sound recommendation.

Question 2: How is the financial performance of Deluxe Cane?

Discuss that revenues are larger than the share of volume. The prices of Deluxe Canes canes are
higher than the prices charged by the competition. Does this matter? Yes, walking canes are
largely a commodity product and the elderly, living on fixed-incomes are price sensitive.

You should also comment that the gross margin is significantly lower for Deluxe Cane than for its
competitors. This means that Deluxe Cane has much higher production costs. Dont be tricked by
the fact that they are able to charge slightly larger prices.

The financial performance is quite bad compared to the competition.

Question 3: You have just run additional competitive analysis and found that
Deluxe Canes two largest competitors operate as part of larger organizations that
sell related mobility devices. Using all the information you have collected thus far,
do you believe Deluxe Cane competitively positioned?

Knowing that Deluxe Canes competitors are a part of larger organizations selling mobility
devices should worry you. Both competitors will be able to benefit from economies of scale, and
they have already priced their walking canes lower. This allows them to win market share.
Deluxe Cane has lost 9 percentage points market share in the last 5 years to these competitors.
As discussed earlier, Deluxe Canes cost structure is high relative to its peers and Deluxe Cane
has significant materials procurement disadvantage.

The conclusion is that Deluxe Cane is not competitively positioned although being on an
attractive market.

Question 4: What other issues would you want to analyze before making an
investment decision?

This is an easy question if you look at the Framework 5: M&A Target. You need to analyze the
target company, market performance, strategic fit and deal economics. A private equity fund
does not need to have a strategic fit (as it is not a market player), but needs an exit strategy.
You have already discussed market performance and also done some analysis on Deluxe Cane. So
the two major issues left that you want to analyze are the deal economics and exit strategy.
Here are some questions that you want to analyze before making an investment decision:

What is the likely pricing?


Will Greystone be able to meet its return hurdles (about 20% IRR)?
Does Greystone have related portfolio companies that might allow for procurement
synergies along the lines of what the competition is able to achieve?
Can the transaction be financed?
What is the exit strategy?

Question 5: Should Greystone Partners invest in Deluxe Cane?

This should be a pretty easy conclusion to make.

No, Greystone Partners should not invest in Deluxe Cane primarily due to a difficult competitive
position. Deluxe Cane is losing share to two competitors who are lower-priced and have
significant built-in cost advantages.
Case 2: Online Auction Investment
FRAMEWORK 1: MARKET SITUATION

Your client is looking at investing capital in creating an online auction company that facilitates
fine collectables sales from dealers to large customers. They will only invest if they can make $8
million in profit in 5 years, and have enlisted your help in determining the go / no go decision.

Find all data below.

1. How would you approach analyzing how attractive this market is?
2. Use 2016 numbers to show the 5-year expected profitability for the online auction
3. What could you suggest the client do to achieve the $8 million level?
4. If launched, how would you market this service?
Case Solution

Question 1: How would you approach analyzing how attractive this market is?

Purpose of this question is to hear your approach and whether you use the appropriate
framework. You are not supposed to actually answer whether the market is attractive, but
rather describe how you would do this task.

You should outline the key parts of this framework. Try not to make it sound like a textbook
framework, but instead formulate some clear questions that you would seek answers to in your
analysis:

How is the market development for collectables sales and what are the key trends for
online sales of collectables? (Market Performance)
Who are the key players on both offline and online collectables sales markets and do we
know how easy it is to get established on this market? (Market Competition)
Who are the dealers selling collectables to the resellers and how much negotiating power
do they have? (Market Suppliers)
What is the buying behavior of customers and how are the customer relationships
established and maintained on this market? (Market Customers)

Having answers for each of these questions would give you a good picture of how attractive the
online collectables sales market is.

Question 2: Use 2016 numbers to show the 5-year expected profitability for the
online auction

This is a pure-play calculation exercise. You need to calculate clients profit in 2016.

The market in 2016 is $405 million, and you know that 49% of that market is auctioned. 56% of
collectables customers are expected to be online in 2016. Walk the interviewer through this
calculation where you estimate the online collectables auction market in 2016:

$405 million * 49% auctioned * 56% online collectors = $111 million

Assuming that the client can keep a 20% market share, this gives revenue of $22 million.
However, dont fall into the trap of answering that the profit in 2016 is $22 million. This would
be a classic mistake. You havent received any profit margins or numbers and that is probably by
purpose.

You ask the interviewer what the profit margin is, and he/she tells you that this is 30%. He asks
you to calculate the profit: $22 million * 30% = $6.6 million.
Question 3: What could we do to achieve the $8 million level if we are to stay in
the same market?

The interviewer wants you to be creative here, and also to test your business judgment. You
should provide some very actionable ideas and still structured. For this task you could use
Framework 7: Profit Hunt and discuss both the cost and revenue part, and how you could
improve the overall profitability.

You could also assume that you need to work on the product offering and use Framework 8:
Product Strategy. This framework will make it easier for you to provide more actionable advice.
Provide a couple of ideas for each part of this framework:

Product: differentiate auction to different collectables segments, make partnerships with


key sellers and provide superior services, increase value proposition with new services as
secure shipping, develop new services for mobile and tablet market
Pricing: use price discrimination based on buying preferences, provide new pricing
mechanisms with flat fees which in total provide higher payoff
Promotion: use offline channels as exhibitions to reach out to more traditional
sellers/buyers, run aggressive new business promotion campaigns
Distribution: create offline display stores with key auction items and on-site auction
signup, use 3rd party affiliates to sell products

As you see, there are many ideas here. Some more realistic than others. As long as you have
some good arguments for your idea, you should be good to go. Remember that you have very
limited information in this case, so it makes it easier for you just to shoot out your ideas. Just
expect some follow-up questions.
Case 3: Washing Machines in Kenya
FRAMEWORK 2: MARKET SEGMENTATION

Its Wednesday afternoon. Youve just accepted an offer to join one of our consulting firms
European offices as a Business Analyst. As you sign the last document from HR, your director
walks into the office and asks for your immediate support on an important project. The CEO of a
washing machine manufacturer recently returned from a business trip in Nairobi. He has engaged
your firm to help him assess whether the company should enter the Kenyan market. Your
director has tasked you with leading a workshop to assess whether the client should enter this
market.

You have received this slide in your email inbox:

See case questions on the next page.


Assess the attractiveness of the washing machine market in Kenya
How would you segment the market?
You discover that there is a sizable, wealthy ex-pat community flooding into Nairobi.
There are currently 600,000 ex pats in Nairobi. Is this an attractive segment to target?
What are the risks of targeting this segment?
Case Solution

Question 1: Assess the attractiveness of the washing machine market in Kenya

You should firstly run through the questions in Framework 1: Market Situation and make sure
that you use all the information from the slide.

They key here is that while the market size is large (3 million people live in the densely
populated Nairobi) and growing fast, average incomes are low enough to not support the
purchase of a washing machine. At present the vast majority of the population washes their
clothes in the sink. The growth in average income has been very low in the past five years.

This should lead to the overall conclusion that the overall market does not seem attractive but
there might be some attractive segments within the market.

Question 2: How would you segment the market?

Looking at the framework, you can see the four main ways to segment a market:

Geographic
Demographic
Psychographic
Behavioral

In your answer you should briefly go through these four types of segments and discuss why each
of them would be useful or not. Before deep-diving, you should notice that there is probably a
large, low income population that prefer the cheaper option of washing clothes in their sink and
live in houses too small to fit a washing machine.

There are many options to choose the right segment, but as we have discussed in answer to
question 1, the average income is so low that it doesnt support washing machine purchases. So
we want to find a segment with higher income.

You could be even more specific, and try to discuss different types of segments that you assume
have high income. That could be geographic areas with high-income population, ex-pats, people
of certain age, etc.
Question 3: You discover that there is a sizable, wealthy ex-pat community
flooding into Nairobi. There are currently 600,000 ex pats in Nairobi. Is this an
attractive segment to target?

Now you need to use the Segment Attractiveness part of the framework. The three key
questions from this framework that you need to answer are:

What is the size of the segment?


What is the profitability of the segment?
What are the growth trends for the segment?

You already know the size, so lets look at the other two.

Profitability
When looking at profitability, you need to take into account lot of things, which might be hard
to put into a framework. So use all information from the slide and remember to match this
segment all the time with the product you are offering.

Firstly, you can assume that ex-pacts typically have high incomes. You can ask the interviewer
whether there are other washing machine companies targeting this segments, and if he/she
knows anything about their EBIT-margin. This one is important (and can easily be a trick
question) as you cannot conclude that one segment is profitable just because they have high
income. The advertising and distribution costs might be so large that this pushes down your
clients margins.

You know that there are 600,000 expats in Nairobi, but only 360,000 have washing machines.
This is a penetration of 12% out of the whole population in Nairobi. Why arent more ex-pats
using washing machines? It could be because of the cheap labor. Everyone has a housekeeper
who will hand wash and hang clothes to dry. This could be a show-stopper or it could mean that
your sales costs might drive out the profitability of this segment. Add to this that ex-pat
population is more transient. Many are there on contract and only stay a few years. Might not
invest in large appliances.

If you deep-dive into this segment you could also comment that they are familiar with using
washing machines in home country. Most expats also have families, therefore generate a lot of
laundry.

Growth trends
The last part to discuss is the growth trends. You can assume that you would expect the number
of expats to grow in the future, as the Kenyan economy improves and foreign trade increases.

Conclusion is that this segment seems large and they have income that allows for purchase of
this product. But a large part of this segment does not have washing machines and seems to use
cheap labor for hand washing instead. They might only stay there for a limited time. This makes
it harder to assess the profitability of this segment and you will have to analyze this further.