Case Study Interview: Profitability

Question Framework
By: Ronald Mitchell Super Mentor (5742 points)
Updated: 10/06/2009
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Tags: case study, interview, Consulting, strategy, problem

solving

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Profitability case study question may come in many forms. Here is an

example:

XYZ Company’s CEO has asked us to identify the reasons for her company’s
declining profits and develop suggestions for how to reverse this trend.

Profitability is driven by only two factors: revenue and

expenses. Subsequently, every profitability question should start
there. Revenue is equally simplistic in its composition. Revenue is driven by
price and volume. Expenses are somewhat more complex. Expenses are
composed of input, operational, accounting and financing costs. Now that we
know the two (2) drivers of revenue and the four (4) drivers of expenses, we
aggregate them to come up with the six (6) factors of profitability. Therefore,
EVERY issue of profitability will be driven by one of these six factors.

Below, I have outlined the six factors and provided a few initial questions that
you should ask during the interview to determine how critical each factor is to
the central issue of the case. Once you determine which factor is central, you
can focus your remaining questions and analysis on that issue and crack the
case.

SIX FACTORS OF PROFITABILITY

1) PRICE
What do the historical PRICING TRENDS look like for this product?
What is the BRAND POSITIONING of the product in the marketplace (i.e.
luxury, discount, etc.)?
Has the company seen it’s COSTS increase to develop this product?
Has the company entered any NEW MARKETS for with this product?

Have there been any NEW ENTRANTS in the market? At which price point?
Has there been any additional REGULATION in the markets?
Have the CHANNELS of distribution changed?

2) VOLUME
Has the company LOST EXISTING CUSTOMERS?
Have the DEMOGRAPHICS / HABITS of the customers changed?
Have new or existing competitors taken additional MARKET SHARE?
Are there new products that are SUBSTITUTES for this product?
How has the company managed it production CAPACITY?

3) INPUTS
Have costs along the SUPPLY CHAIN changed?

4) OPERATIONS
Have OVERHEAD expenses (i.e. salary, administration, finance, etc.)
changed?
Have MARKETING expenses increased?
Have the costs associated with closing a SALE increased?
Have PRODUCTION costs increased?
Have DISTRIBUTION costs increased?

5) ACCOUNTING
Has the company had any NON-RECURRING / EXTRAORDINARY
CHARGES?
Have there been any changes to ACCOUNTING RULES by either the
company or FASB

6) FINANCING
How has the company’s FINANCING COSTS (e.g. interest expense)
changed?

When answering profitability-related case study interview question, it is

extremely helpful to have a background in financial statement analysis. I
began my professional career as an investment banking analyst in the
corporate finance department of Morgan Stanley. Consequently, I was
extremely comfortable with financial statements and understood how they
work. Even though the framework above is an excellent guide, I would also
suggest that you either take a financial statement analysis class or pick up a
book on financial statement analysis to learn about key financial ratios as well
as how the financial statements are interconnected.

Case Study Interview: Efficiency

Question Framework
By: Ronald Mitchell Super Mentor (5742 points)
Updated: 10/06/2009
Rating:

Tags: interview, case study, strategy, Consulting, problem

solving

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A common type of case study interview question is the EFFICIENCY

question. Here is an example of an efficiency case study question:

XYZ Company has had significant difficulties increasing production in a

large plant they just acquired. Their rationale for the acquisition was the
expectation that they could integrate their production process into this
new plant and increase production by 20%. They have hired us to help
them diagnose the issue.

Efficiency questions typically deal with a deterioration or stagnation of

production or service delivery. In these types of cases the focus is
typically on internal metrics (i.e. absolute measures of performance) as
opposed to external metrics (i.e. relative metrics vis-à-vis the broader
market). There are three primary factors that influence efficiency:
people, process and technology.

Below, I have outlined the three factors and provided a few initial questions
that you should ask during the interview to determine how critical each factor
is to the central issue of the case. Once you determine which factor is central,
you can focus your remaining questions and analysis on that issue and crack
the case.

1) PEOPLE
Have there been in changes in LEADERSHIP / MANAGEMENT?
Does the project team have the necessary SKILL SET?
How are DECISIONS made within the organization / project team?
How does the team COMMUNICATE with each other?

2) PROCESS
What are the major STEPS within the production / service delivery process?
Where are the BOTTLENECKS in the process?
What is the CAPACITY of the process?
What are the major COSTS within the process?
What does the QUALITY CONTROL process look like?
What does the NEW PRODUCT DEVELOPMENT process look like?

3) TECHNOLOGY
Has there been any recent INNOVATION in the process?
How have recent innovations been INTEGRATED into the process?
What TRAINING systems are in place?

For more tips on how to crack the case study interview, check out these
additional posts:
Market Strategy

Case study interview questions that deal with MARKET STRATEGY issues
are quite common. These questions typically deal with how a company
positions and manages its products and services in a competitive
marketplace. Below is a sample question:

XYZ Company has historically boasted double-digit growth, but despite a

good profit margin and stable cost structure, its sales have slowed and begun
to flatten at $120MM. Its CEO has hired us to determine the factors behind
this slowdown and identify sales growth opportunities.

Market Strategy questions are extremely large in scope. The universe of

issues is huge. It is therefore even more important to have a strong
framework. Often these questions require you to integrate certain elements of
PROFITABILITY and EFFICIENCY frameworks. However, in most case study
interviews, there is not enough time to address every issue. I suggest that you
use the framework outlined below to address these types of questions.

I have used a combination of two common frameworks to address Market

Strategy case study questions: Porter’s Five Forces and the 4 Ps. These
frameworks may seem like they are overused, but there is a reason they are
so popular. Quite simply, they work.

I typically start with the 4Ps, which primarily reflect the INTERNAL
strategic decision making of the company around a specific product or
service. The 4 P’s include:

1) PRODUCT
What is the FEATURE SET of the product / service?
How is the product DIFFERENTIATED from other competitive products in the
marketplace?

2) PRICE
What is the PRICE POINT of the product?
What is the PRICE ELASTICITY?
What are the FIXED AND VARIABLE COSTS associated with the production
of the product?
3) PROMOTION
How is the product POSITIONED in the market (i.e. luxury, discount, etc.)?
What advertising / marketing CHANNELS are used?
What are the DEMOGRAPHICS & PSYCHOGRAPHICS of the consumer
base?

4) PLACE
Where is the product / service DISTRIBUTED?

Once you have a handle on the internal factors, utilize Porter’s Five
Forces to evaluate the external factors that influence a company’s
market strategy. Porter’s Five Forces include:

1) POWER OF CUSTOMERS
Do customers buy in large VOLUMES?
Is the product of strategic IMPORTANCE to the customer?
How much INFORMATION does the customer have about pricing?
What is the likelihood BACKWARDS INTEGRATION?

2) POWER OF SUPPLIERS
What is the CONCENTRATION of suppliers in the market?
Are there SUBSTITUTES for key inputs?
Are SWITCHING COSTS between suppliers high?
Is there a threat of FORWARD INTEGRATION?

3) THREATS OF NEW ENTRANTS

Are there ECONOMIES OF SCALE?
What is the INITIAL FIXED COST investment (i.e. financial, regulatory,
intellectual property)?
Are customers BRAND LOYAL?
Is there SCARCITY of important resources?
Do existing players control DISTRIBUTION CHANNELS?

4) THREAT OF SUBSTITUTES
Does INNOVATION pose a significant threat?
Are market issues moving the market in a different direction (i.e. regulation,
social movement, globalization)?

5) EXISTING COMPETITORS
What is the market concentration?
Is there significant DIFFERENTIATION between competitive products
/services?
Is there significant MARKET GROWTH? Who is capturing it?
How well CAPITALIZED is the competition?
Case Study Interview: Market Strategy
Question Framework