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Initiiert durch das WHU 2000 Career-Management-Team
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
.........................................................................................76 9..........................................26 COSMETIC COMPANY IN EUROPE (LEFT)...........81 9.................73 9................................................................................................................................................................52 9...........15 PAPER PRODUCTS MANUFACTURER CASE......................28 AIRLINE INDUSTRY...............................9 2...................................................3 ELECTRONIC JOINT VENTURE...................................................2 Inhaltsverzeichnis 1 OVERVIEW OF THE CONSULTING INDUSTRY..........................................................25 CONSULTING FIRM (I) (GOOD CASE).....43 7 HOW TO PREPARE FOR THE CONSULTING INTERVIEWS?...16 PIANOS..............................................................................................................1 CHINA PRODUCTS DIVISION...............................................29 5 FRAMEWORKS FOR CASES..........................................9 2...78 9..........30 FERTILIZER...................................................50 9.............................................................................59 9..........................................................................................................................24 SKYSCRAPER..............................................................21 WINDMILL......13 2.................................27 SEMICONDUCTORS (GOOD CASE)................................20 MYSTERIOUS AUDIOCASSETTE MARKET.....................64 9.......................71 9......................................................................................32 AUTOMOBILE INDUSTRY..................6 AMERICAN EXPRESS CHARGE CARD.....................21 3 OVERVIEW OF CASES............4 1..............................................................................26 4 DIFFERENT TYPES OF CASES...............................67 9...5 MAGAZINE SUNDAY SUPPLEMENT.................................................77 9..83 9..3 IS CONSULTING THE RIGHT FIELD FOR YOU?.........22 BANK OF LUKE (LEFT).................................................81 9............................................8 CREDIT CARD DIVISION OF BANK.................12 DURABLE GOODS DISTRIBUTION CASE...................................................................................................72 9..........................................72 9................................................77 9.....................................................................................................................................................45 8 GENERAL INTERVIEW QUESTIONS............................58 9.....................................................................14 “HIGH-END” POTS & PANS COMPANY CASE...........................................................................................................................................61 9..............................................................................................................................................54 9..........................................................................................................................................69 9...........................................................................1 WHAT IS CONSULTING?........................30 5..........................83 9.................51 9.........23 CANDY COMPANY...............................................................................32 6 DOS AND DON’TS......................................................................2 REFLECTIONS ON FIRST-YEAR RECRUITING.......18 FERTILIZER....4 TELEVISION CABLE COMPANY................11 SPORTS FRANCHISE................82 9.................................................................................................................................29 OIL TANKER...................46 9 SAMPLE CASES..........................17 COKE VS...............................4 2 CONSULTING ARTICLES.....................2 ADDITIONAL MODELS...........................................................................................................................................................................................................................................85 ............................1 THE MANAGEMENT CONSULTING INDUSTRY......................................................................................................................................................................................................................49 9..............................................................7 DEPARTMENT STORE..............................................................33 SCIENTIFIC INDUSTRY (GOOD CASE)............................................................................................................................................................................................................63 9......................................................................56 9.....................................................................................................................47 9............19 AIRPLANE MANUFACTURER..........................55 9.............66 9........9 MOVIE RENTAL BUSINESS.....................................................................................................................2 HEALTHCARE COMPANY........................................80 9..........................................................................................................................................................................31 RETAIL ADVERTISING PRICING (LEFT)...........30 5.............................................1 GENERAL MODELS. RC VALUE CHAIN...................................................................................................................................................................................10 AUTO SERVICE STORES..............62 9..................................................................................................................47 9................................................................................13 BUSINESS FORMS CASE.....................................................................70 9.....
...............................................................................................81 LOGGING COMPANY.......................37 CONSULTING FIRM STRATEGY (MOST DIFFICULT TYPE)..........................................................................................................................................................................84 AUTO MANUFACTURER.....................123 9....................................................................................................87 9....................................................................................85 DELI MEAT PRODUCER......................88 9......135 9...............................................................................63 CHEMICAL SWEETENER MANUFACTURER............................................................................105 9......................................................................116 9...122 9....................................................130 9.......................................52 DISTILLED SPIRITS.................................................................................................................................34 ALUMINUM INDUSTRY (LEFT)......................39 SELECTIVE BINDING CASE (VERY CHAPOO CASE .............120 9.........49 DIAPERS (ESTIMATION CASE).............................................133 9........................94 9.....50 CABLE TELEVISION COMPANY (2) (DISCUSS)........................................................99 9..3 9........................125 9....................................................................................79 NEW MAGAZINE (VERY GOOD ESTIMATION CASE)..............108 9........................................................................................................92 9..............................................................................................................................................101 9.................................................................53 CHEWING GUM MARKET (ESTIMATION CASE)..........124 9.........................40 VIDEO GAMES.......................................................................110 9.......44 OIL REFINING INDUSTRY (NEW).....................................................121 9.............59 HEALTH CARE COSTS (UNUSUAL CASE)........................................119 9.......54 FRENCH PIZZA MARKET....................77 SUPER REGIONAL BANK.............113 9........................................41 STEAM BOILER HOSES..................................... LEFT)....................109 9........................126 9....................72 KNITTING MACHINE DEMAND (ESTIMATION CASE)...............38 CORN FEED COMPANY..113 9.............................................................................................RETURN ANALYSIS)........................................103 9......................140 .....68 SHIPPING CONTAINER MANUFACTURER................................................64 TELECOMMUNICATIONS DIVERSIFICATION.............................................66 FILM PROCESSING (DISCUSS)........51 CHILLED BEVERAGES...............................................................................83 PIPELINE COMPANY.............................................................................................................................96 9..78 CIGAR BAR (DISCUSS)................................................................................................................................75 BEVERAGE COMPANY COST STRUCTURE.........................................62 DIRECT MAIL RETAILER (VERY INTERESTING CASE) (SIMPLE INVESTMENT...................................................45 AGRICULTURAL EQUIPMENT MANUFACTURER (GOOD CASE)...........................90 9........................................................111 9...............................................................47 CONSULTING FIRM (2) (LEFT).......................................................................................................................................................................................................114 9.....................................................................................................60 LOCAL BANKING DEMAND.........................................108 9.......55 GOLFBALL MARKET ENTRY...61 FROZEN DESSERTS..............................................................117 9..............128 9..........46 INSURANCE COMPANY..................................................48 POTS & PANS (2)......107 9....................73 CEMENT MANUFACTURER CAPACITY ADDITION................................................................................................................114 9...........57 PACKAGING MATERIAL MANUFACTURER (ASSESSING FUTURE)........65 ALUMINIUM CAN MANUFACTURER.......................................42 MERGER CANDIDATE IN CHEMICAL INDUSTRY (SAME AS CASE 1)..................................................................................................................................................43 MACHINE-LOADING CASE.............................................................................112 9...............136 9..118 9..............................70 REGIONAL GROCERY STORE CHAIN......................................56 OVERSEAS CONSTRUCTION.........69 HEALTHCARE COMPANY GROWTH.....................116 9.............................................35 MEAT PACKING INDUSTRY.......129 9...132 9.................................................125 9.......127 9.................................................................121 9............................................................115 9...........82 INFORMATION SERVICES COMPANY...............................................76 PERMANENT LIGHT BULBS.........................88 9...............................................................134 9...........................105 9.....................107 9.............................................................138 9...............112 9.............................................58 AIRLINE EXPANSION (VERY INTERESTING CASE)..............................36 PIANO TUNERS......129 9.......67 CONCRETE MANUFACTURER...........................................................................................................................................................71 MAGAZINE DISTRIBUTION (DISCUSS).................................74 SNACK FOOD COMPANY ( DONE !!! ) ............................80 CASTOR MANUFACTURER.................................................................................................
provided that you come with specific questions you would like answered. 2. consulting firms classify their services into of three categories: Strategy. 4. This perspective can be important for motivating employees to change. Often.1. consultants may offer labor power to coordinate and execute an implementation. Business Process Reengineering (or simply "Reengineering") and Specific Services.2 Consulting Project Types Generally. so the consulting firm delivers what is perceived as an objective analysis. Consultants are relatively unaffected by a company's politics or the way in which business was conducted in the past. 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. 1. In effect. 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. For example. projects. the types of consulting. Further. To obtain information about where the company stands in an industry. 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. we will provide an overview of the profession. Understanding each firm's approach to consulting services is extremely important to landing a job – that is why corporate presentations can be so valuable. To utilize the specific expertise of the consulting firm. To provide resources to address a specific problem. 3. 1 This article was obtained from the 1997-1998 Resource Guide prepared by the Management Consulting Group of the University of Chicago.1 What is Consulting? By the University of Chicago Graduate School of Business Management Consulting Group:1 In this section.1 Why Do Companies Hire Consultants? There are several reasons that firms hire consultants: 1. the consulting firm may offer an industry authority to which the client would like access. but keep in mind that it is impossible to describe the full spectrum of consulting services in this Guide. We will try to explain each of these types in some detail.4 1 Overview of the Consulting Industry 1. To obtain an objective viewpoint regarding a given business problem or issue. Consulting firms can avoid the day-to-day distractions that the clients' managers cannot. . and how consulting firms are structured. there are as many different types of consulting projects as there are business problems. 1. Additionally. clients simply do not have enough time or resources to devise solutions to certain problems.1.
For example.3 Specific Services Another component of the consulting industry concerns itself with specific tasks and expertise needed by clients.5 Regardless of project type. For example.2. 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. client involvement is extremely important to the eventual success of any project. Implementation is a major issue among consultants today. Generally.1. 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. determining if the client should expand its product line or focus on existing products. such as financial analysis or engineering problems. the project would either conclude or lead to an implementation phase. because it means different things to different firms. or deciding what services the company should provide ten years from now are examples of strategic projects. client personnel become an integral part of the consulting project. A consultant would then analyze the individual steps of the order fulfillment process and determine ways to cut time. a firm may decide that it takes too long to fill customers' orders.1 Strategy Consulting Strategy is the most difficult type of project to explain.1. etc. more often than ever. 1. Firms follow very different approaches to involving client personnel.2 Business Process Reengineering The term reengineering has been popular since Hammer and Champy's book Reengineering the Corporation became a best seller. other consultants argue that. 1. Others require only sporadic assistance for portions of the project.2. Some recent literature suggests that reengineering is losing favor and that certain firms are distancing themselves from the term. enhance customer satisfaction.1. increase quality. since responsibility for the direction of the company lies there. if not the practice. On the other hand. a strategy project involves a "life cycle crossroads" for the client. Reengineering engagements more often include an implementation phase in a project than do strategy engagements. consultants are being judged by clients on their ability to implement change. This would include a detailed financial projection of the different scenarios. There is a definite trend in the consulting industry toward having consultants assist in implementation. For example. A strategy consulting engagement will typically involve the highest levels of the client's organization. A revised process is determined and then proposed to the client. a few specific areas are currently prominent: . through benchmarking against similar companies. After recommending a given strategy. 1. There is nothing mystical about the term . they ought to assist the client in implementing the solution. some firms require a certain amount of full-time client resources dedicated to the project. Although the various issues relevant to this type of consulting are innumerable. because their firm was instrumental in developing the solution.it simply means taking an objective look at the way in which a business is run.2. In fact. In extreme cases.
7 Financial Consulting Finance consultants provide guidance to corporations and money managers in the areas of securities pricing. but the responsibilities are generally similar.5 Human Resources Consulting Human resources (HR) consultants help firms make compensation decisions and offer insights on benefit packages. Decreasing Growth of Strategy Consulting – After the restructuring.1. the introduction of client-server computing.6 1. 1.Many firms have moved toward offering a broader range of services (e. but rather by the most capable individuals right out of top undergraduate programs.2.Much of the growth in the consulting industry has been international.Specific Services Many niche firms fall into this category. The financial backers of the new hospital would rely on the consultant's findings before proceeding with construction. 1.3 Trends Growth .1. consultants are often asked to justify the need to build a new hospital (a "feasibility study"). Titles vary by firm. and reengineering phase of the 80's and early 90's. 184.108.40.206. Executive compensation is a hot topic in HR consulting.1. 1. and software and hardware purchases. workplace diversity. The business analyst position is typically . and develop courtroom tactics and/or evidentiary presentations. 1. strategy through implementation). strategic projects have developed around continued growth and expansion overseas.1 Business Analyst I Analyst These positions are not held by MBAs..2. Range of Services .1.1.4 The Structure of Consulting Firms Most firms will have very few job classifications. Overseas Expansion . Mergers and expansions are fueling this trend. with firms competing to build a client base in various countries. The following are the basic classifications and job descriptions: 1. For example.4 Technology and Systems Consulting Systems consulting is chiefly concerned with giving clients advice about the ideal configuration of their information systems.Major consulting firms have been boasting double-digit rates of growth.4. provide economic analysis.g.2. and employee development. pension funding.6 Litigation Consulting These consultants work with law firms to plan case strategies.8 Other Industry.1. downsizing. 1. economic forecasts. and strategies for creating shareholder value.1. in the healthcare consulting field.
1.4 Principal /Associate Partner / Senior Manager Those at the principal level are required either to manage several projects simultaneously or one large project full-time. The principal is responsible for setting the direction for a project. consultants.5 Compensation The median salary for full-time consulting positions was $85.3 Senior Associate / Engagement Manager The senior associate or manager classification implies day-to-day supervisory responsibility on engagements.7 held for 1-3 years between undergraduate and graduate school. the principal also begins to take on administrative duties within the firm. Frequent contact helps to ensure additional projects in the future.4. 1. The senior associate will manage client team members (if applicable).4. The ultimate responsibility for a project's success falls on the partner's shoulders.1. that first-year total compensation is usually much higher.1.000 in the most recent recruiting year. most firms offer a signing bonus of $10. Keep in mind. the partner may only periodically visit each client site.2 Associate / Senior Consultant Entry-level for MBAs. some firms will pay for the second year of business school (and . The associate is typically given very broad directions and is expected to be creative and thorough in collecting relevant information.4. A partner's travel schedule is generally more hectic than that of the more junior consultants. 1. 1. and business analysts on the project. however. partners are often the hardest-working consultants in the office.1.5 Partner/ Director/ Vice President Partners are responsible both for negotiating engagements and for reviewing the work generated by those engagements. the project budget becomes a concern. Also. In many cases.4. With several projects to oversee at once in addition to their marketing duties. As the partner juggles several projects at one time. The partner attends important meetings with senior client managers. At the senior associate level. The analyst's responsibilities range from research and data gathering to functioning on a level equal to post-MBA consultants. but particularly in this case because the principal typically has the most frequent contact with upper level management. 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. In projects where there is a client team. The associate is usually given the role of information gatherer.1.000 to $25. 1. For internships. and analyzing the information to draw conclusions. the associate may manage a subgroup of client team members. For example. with approval from the managing partner on the engagement. This will typically involve research. 1. Client relationships are critical at all job classification levels. These conclusions must usually be presented to the rest of the project team in the format of a presentation. obtaining information from clients via interviews and/or financial data.000. consulting firms usually pay the monthly equivalent of their full-time salaries.
Contrary to popular belief. A new employee is sometimes eligible for a performance bonus after the first year.6 Lifestyle So far. it may not be possible to “have it all. Lately.to four-year mark. firms have implemented programs designed to lessen the burden on consultants and. To address concerns about raising a family. Second. In short. Most of these programs only require three days of work per week. since consultants are in such high profile positions. This does not leave much time for a personal life. compensation is outstanding compared to what most of us were being paid before business school.” The greatest amount of attrition occurs around the three. being in a position of responsibility usually translates into long hours in the office and frequent travel. what happens to the other 99 percent? There are two main reasons for the attrition. prevent valued employees from wanting to look elsewhere. it is very hard to be rejected because of one's performance at a reception.1. 1. It is also possible to ask lifestyle questions of recent alumni or second-years that interned at the firm in question. Since only about one percent of consultants go on to become partners. In addition. if a spouse or children are in the picture. These people are known as partners. This limits their being away from family and friends only three nights per week. the best time to ask these questions of firms is during the recruiting receptions. opportunity to make a difference. These receptions are extremely low-risk. so do not be shy about asking tough questions concerning the amount and frequency of travel and other lifestyle concerns. . Other firms have a more office-intensive style that involves going to the client site only when necessary. If you have lifestyle concerns. First. Given the high investment made by consulting firms in developing personnel. For some people it is. To reduce the out-of-town burden. they typically receive job offers from clients and frequent contacts from corporate recruiters. reducing attrition can save a lot of money. many firms have institutionalized Fridays in the office or allow consultants to work from home on Fridays.8 recently. theoretically. 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. consulting looks like the ideal job: immediate responsibility. some firms have recently instituted part-time programs. one firm offered to pay for both years of business school as part of their full-time offers to summer interns). excellent pay. etc.
000 people worldwide work full-time in the management consulting industry. and. dynamic industry is by no means homogeneous. another quarter come from Europe. usually affiliated with a planning department. While the industry definition. since they lack both the breadth of clients and depth of support of the big firms. 2. February 13. 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.000 in annual billings.3 Just over half of these consultants come from the United States. only I in 1000 consultants makes a direct transfer to a top executive position in a client organization and only then after many years in the consulting firm. 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. and probably most significant. but most of the 20% annual rate of turnover among consultants is not due to consultants being hired by clients. however." and many former executives do just that. and outsourcing have created both the supply and the demand for independent consultants.1 Segmentation The first. and one-third employ fewer than four people. Collis David J. 7. often serving a single client. 1988.2 generating about $25 billion in annual revenues. many of these small shops exist. If the typical consulting firm is small. Corporate policies of early retirement. . covers only outside consultants. while an estimated three-quarters of all consultants work in firms employing more than 100 professionals. operations: half of all consulting firms generate less than $500. p. Such a large. however. Transfers at junior levels are common.9 2 Consulting Articles 2. This skewed size distribution reflects the low barriers to entry to this industry: anyone can hang out a shingle bearing the title "Consultant. downsizing. Collis is an assistant professor of business administration at the Harvard Business School and faculty adviser to the Management Consulting Club. While management consulting fluctuates with the business cycle. Whether these firms are attractive starting points for new consultants is debatable. 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. way to segment the consulting industry is to compare large and small firms.1 The Management Consulting Industry By David J. veteran consultants often end their careers in their own consulting firms. while enjoying a more direct career path into line management. Most consulting firms are small. For those who are not convinced that consulting is 2 3 Economist survey. Data estimates are from Consultants News. many large corporations have their own internal consulting arms. Professor Collis has extensive experience with consulting firms. strictly speaking. Contrary to the prevailing belief. Approximately 100. June 1992. and various earlier issues. However. A second and often overlooked distinction in consulting is between in-house and external consultants. often one-person.1.
. firm did 94%. Of these specializations. Booz Allen. Among the world's top twenty consultants. and differences between them are now of degree. All firms in all categories of consulting recognize that their role must involve effecting change in the client organization. and ensuring that it matches your interests. for example.10 a lifetime career but who want a variety of experiences and exposure to senior management problems at an early stage in their careers. even those firms with extensive overseas networks tend to have independent offices. but the extent of non-domestic business varies substantially. 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. these reputations are usually more a reflection of marketing than of a fundamentally different approach to consulting. is therefore a vital first step in considering which firms to approach for a position. for example. The third important basis for segmentation in the consulting industry is degree of specialization. so they can be responsive to local needs. A last distinction among consulting firms is their degree of internationalization. In third place as a specialization is management/strategy consulting. one firm. or government. like time-based competition for strategy. The other functional or industry specialists in consulting tend to be small. for the most part. the strategy consultants. such as BCG and Bain. However. management information systems (MIS). but even they would like to be involved in developing the direction of change. does only 7% of its work outside the United States. This implies that working for an international consulting firm will not necessarily allow you to work overseas. The second largest specialization is compensation and benefits consulting. although some firms may be known for a particular technique tool.K. Summer 1984. Four of the top twelve U. which is. these firms generate over $3 billion in billings annually. financial services. 3. While all firms provide a variety of services. or management education . the generalist consultants concentrate on higher value-added consulting for senior management. Vol.4 Internal consulting can be an attractive option. reflecting their origins as one-person shops run by an executive with a particular skill or industry knowledge.and customer group or industry. and their newer first cousins. organization design. In the United States alone. compared with McKinsey's 60% and the U. Hewitt Associates.5 billion. You usually have to 4 Journal of Management Consulting. logistics. it is usually not representative of a profound difference in the type of work the firm undertakes. Some specialists in "change management" exist. not of substance. the largest is MIS consulting. most consulting firms generate the majority of their revenue from one type of work. such as BCG and the experience curve in the 1970s. The two main dimensions of specialization are function-for example. health care.S. with annual billings exceeding $1. When the publicity for a firm surrounds a particular solution to a general problem. albeit in a more limited number of settings-there are five times as many external consultants as internal consultants. The consulting industry no longer draws a distinction between formulation and implementation. Although these firms are ostensibly full-line consultants. Similarly. This area includes the generalist management consultants. clients often find their cost structure uneconomic for consulting on functional activities such as logistics. such as McKinsey. Most firms now have offices or affiliations outside their home country. Instead. Understanding how each consulting firm specializes. consulting firms fall into this category.
particularly in marketing. diversified client base. cover more tasks in the future as firms reconsider the costs of all their internal functions. 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). under which single ownership provides a variety of consulting specialties. As a result. usually not the purchaser of strategy consulting. and the accounting firms are still struggling to establish a relationship with their consulting arms that peaceably compensates consultants more than auditors. Citibank tried and exited consulting. 2. have yet to demonstrate the value of broad scope. and broader geographic base. increasingly. the success of broad scope consulting firms and of outside ownership remains doubtful. if anything. for example.the CFO or controller . this expense could be substantially reduced. about 20% of a consulting firm's costs lie in acquiring clients. 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.is. maintains a wall between consulting and auditing. The issue really relates to the clients' decision-making process. predicting which corporate activities will be outsourced could give you a head start in identifying the next growth specialty in consulting. 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 even those companies like Mercer.11 ask explicitly for an overseas assignment and often have to recruit with the overseas office in addition to the domestic office. or if a strategy consulting report can recommend hiring the sister benefits consulting firm for the follow-on organization study. The purchaser of the audit . which are still operating successfully. Other industry trends are the acquisitions by outsiders of consulting firms and the move toward broad scope consulting firms. The industry will also continue to move to an hourglass shape: increasingly. nor is the ease of buying a range of consulting services from a single . It has been estimated that only a third of a consultant's business comes from repeat clients. is won in competitive bids against comparable consulting firms. In fact. 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 an accounting firm can leverage its audit relationship into MIS consulting. but still faster than GNP. Unfortunately. while new business. and yet leverages the audit relationship into consulting work. The rationale for these acquisitions lies in the economies of scope that a broad line competitor can exploit. more cyclically than in the past.1. and only I% of consulting firms are more than fifty years old. and from the competitive advantages of larger firms-reputation. 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.2 Trends Management consulting will continue to grow. For the potential consultant. "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. The rationale for hiring consultants-to access the specific expertise needed to quickly solve a current problem-will remain and will.
Instead. will be relatively limited. However. Twenty years from now there will be far more interaction among geographic markets and. global competition is likely to increase. This network can be created by establishing alliances with overseas affiliates but is now more often achieved by setting up foreign offices. Today. and more versed in people skills than the functional expert of the past. for example. As future management consultants. their impact on your daily activities. These senior consultants will be supported by junior "para-consultants" who can perform the mechanistic. repetitive . Although this prescription is true for all executives. it is likely that the employee profile of consulting firms will alter somewhat. One reason is the difficulty inherent in merging cultures. partly because the problems resulting from merging cultures cause the firms' major asset-people-to leave. however one industry trend that will affect you: globalization. Although it is true that these acquisitions are occurring. who must be leaders in the development of skills if they are to continue to provide value to clients. European firms the European market. In considering a career in consulting. would not be dissimilar to working at Monitor or at Braxton when each was independent. 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. any large consulting firm today needs a global network of offices.S. I suspect. most of the broad scope firms are essentially umbrella-holding companies for a set of independent specialists having little interaction with one another. market. There have been. Most foreign offices are currently operated with a great deal of autonomy. 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. To serve the increasing global needs of clients effectively.12 source of much value to a client when compared to the ability to choose the best specialist for a given type of work. more capable of understanding the manager's role. To meet these sort of demands. it is doubly true for management consultants. consulting firms are themselves likely to further integrate their worldwide operations. Working at Braxton (now owned by Deloitte & Touche). U. and Asia is undeveloped both as a market for and a source of consultants. not simply from their possession of a particular technology. for example. 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. As a result. There is. consulting firms will work more closely with client management in defining and analyzing problems and in formulating and implementing solutions. particularly in the junior positions. No longer will a 24-year-old MBA be able to add value simply by applying a concept the client has not seen before. a larger Asian presence.S. I would therefore suggest that the ultimate ownership of the firm you might work for is not of great importance. In practical terms this will mean that consultants will have to be less formulaic than in the past. As consulting firms increase their geographic scope. This will require a more experienced consultant. The value provided by consulting firms will have to come from their ability to apply concepts and to customize them for particular client needs. few acquisitions of one strategy consulting firm by another. to match the globalization of clients in the future. both to serve your clients effectively and to learn from best practice in other countries. you must be prepared to learn a foreign language and to travel overseas. firms dominate the U.
As competitiveness for summer positions in consulting has intensified. As a result.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. 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. 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. While preparing materials and attending recruiting briefings and career fairs will be helpful. 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.2 Reflections on First-Year Recruiting By Phil Collins Class of 1993. Otherwise. Finally. one partner supports eleven consultants-as the number of very senior and very junior employee swells. and effective recruiting will by necessity require significant focus. you should also take advantage of any opportunity to learn about the firms from the consultants themselves.2. based on your interests and long-term career plans. Thus the pyramid structure inside consulting firms will change-on average in the large firms. Your time and energy will be limited. and it will be crucial in preparing for interviews. who will give you a more detailed and realistic understanding of the firms' focuses and values. your focus will shift to the most critical step: getting an offer.2. which will be useful in two ways: this information will assist you in determining which firms you would be interested in working for. Harvard Business School If investment banking was the career of choice in the 1980s. firms differ along a few important dimensions. Generally. one could argue that management consulting has replaced it as the most sought-after business profession in the 1990s. and ultimately rewarding career than ever before.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. and it is important to understand how each firm differentiates itself Consider the following issues: . the good news is that to truly meet client demands for value for money. 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. Once you decide that pursuing a job in the consulting field is a productive way for you to spend your recruiting effort. An effective job search will require you to assemble a considerable amount of information about each for the firms. 2. 2.13 tasks more cost effectively. consulting will have to become an even more exciting. obtaining summer positions in the consulting industry has become increasingly competitive. each with its own selection criteria. challenging. 2.
4. most firms are looking for the same kind of people: smart. 3. and that you have demonstrated leadership abilities. and will therefore be ready to begin pursuing a summer position in earnest.2. or does it attempt to be strong across a number of areas? What kinds of problems has the firm worked on before. Provide concrete examples from your previous experience which demonstrate that you have been a creative problem solver.2. 2. but a major career change may require some explanation. 5. other than knowing why you.1 Getting an offer Once you have a good understanding of the various consulting firms. is not in the best interest . and how does it support the professional development of its consultants? • • • 2. Frame your skills and experience in terms of how you can add value to the firm and its clients.14 • Type of work: Does the firm specialize along functional. While understanding the characteristics of each firm will be helpful. Understand clearly why you want a job in consulting. Given the nature of the work. Be yourself and be honest. consulting firms are also looking for people who are energetic and have an appetite for new challenges. you should be able to identify those in which you have a sincere interest. successful candidates must communicate their unique strengths clearly and convincingly. What are the one or two questions that you hope they will not ask? They will. that you are successful working in teams. traits often demonstrated by a record of past achievement. or where you would not enjoy the type of work being done. Getting a job at a firm full of people with whom you would not get along. Identify your weaknesses. want it and being able to clearly communicate your conviction. Given that most students at top business schools possess all of these requirements to some degree. Understand what consulting firms are looking for. 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. it is also important to be honest and to be yourself. There are no experience prerequisites for getting a summer job in consulting. 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. Look carefully at your resume and identify your weak spots. While it is important to be at your best in framing and communicating your skills. and do these engagements sound interesting? Focus on implementation: After developing a set of recommendations. Here are some tips: 1. Consulting firms hire people from a wide variety of backgrounds. creative problem solvers whose interpersonal skills will allow them to work well in a team environment. so prepare clear and convincing answers.
7. If you make assumptions. Identify the most important issues in the case up front. so feel free to take notes during the case portion of the interview. Try to determine what is critical. Take notes. I suggest keeping the following points in mind: 1. Ask insightful questions. While they are clearly a crucial element in evaluating prospective employees. Firms will inevitably ask you at the end of the interview if you have any questions. Break the problem down into its constituent parts. but instead are trying to understand how you think and how you approach problems. Ask questions.15 of either you or the firm. they are not nearly as frightening as one might expect. A good case interview is no more than a discussion about an interesting and challenging business problem. Stay calm.2. Develop a framework for approaching the problem. You should have. and you should schedule your interviews accordingly. state them clearly. and move on with enthusiasm to the next interview. Give the interviewer a road map of where you are going to take the discussion: the framework is a key to understanding how you 2. This is an important distinction with implications for how you should respond to case situations. and approach them in a logical way rather than generating random thoughts. This often helps you to concentrate on the problem-solving aspect of the case. There is a learning curve in this process. . 5. 3. 6.3 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. For most firms. Good questions are firm-specific and thoughtful. as opposed to what is merely interesting. the interviewer will often interrupt you and provide additional data. interviews and cases will make or break your candidacy. Viewed in this way. Experience will allow you to become more relaxed. and develop hypotheses to explain what is driving the important issues. Be grateful that you figured this out early. the case interview can become considerably less daunting. This is especially important because it is difficult to recover from a hasty start. Save the best interview for last. and provides an opportunity to showcase your knowledge and skills. 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. 4. The last thing you should have to worry about is remembering case facts and numbers. If you are on the wrong track. 2. 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. Firms use cases to evaluate your analytic abilities and problem-solving skills. Listen carefully and take time to think clearly about the problem before formulating a response. 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. confident and convincing. Keep in mind that they are not looking for a "correct" answer.
What are the underlying causes of the case situation. so don't bother. Some cases are long and complex. While a consulting job search will require a great deal of time and effort. what opportunities does the client have to take actions that will improve their performance? 7. Think causally and logically. For many. and even fun experience. it can also be a challenging. Drive to action. while others may be much shorter or less quantitative. whether you are successful or unsuccessful. while other firms will deliberately ask you about industries with which you are unfamiliar. encompassing a number of issues and presenting a lot of data. rewarding. Most often. and you will gain a broader understanding of the different firms and of consulting as a career. Don't try to force every problem to conform to a generic. Be flexible. 2. Each problem is unique and will require a unique approach. the cases will require integration of knowledge of a number of subjects and functional areas. One good way to do this is to practice a few mock cases with another student. We extend more offers for permanent positions. causes. the recruiters speak the truth. head-spinning whirlwind of back-to-back meetings. prefabricated and inflexible analytical framework. 6. The resounding line eloquently uttered by every recruiter that becomes particularly meaningful as the second-year process draws near is." Fortunately. so your chances of receiving an offer second year increase. Harvard Business School First-year interviewing for summer jobs in management consulting can be characterized as an exciting. Given an understanding of the key issues. the interviewing process for second-year candidates is refreshingly slower paced and more manageable than the . The bottom line is that case interviews have been designed so that you cannot study for them. You will meet a wide variety of intelligent and interesting people. and what impact have they had? Develop a clear and logical chain of reasoning and understand the linkages between key elements of the problem. Adapt your analysis to the problem. or you may have a situation described to you in a qualitative way. Review the major frameworks developed in first-year courses. and then concentrate on ways of enhancing and demonstrating your problem solving skills. 8. Some firms may ask you to analyze an industry you have worked in. and linkages. you will be challenged to think on your feet to work through complex business problems. while others may rely on knowledge of first-year marketing. the process consists of five or so days crammed with as many as 20 interviews. Some cases might require microeconomic analysis. and develop a framework that is appropriate.2.16 think and approach problems and illustrates your ability to think about problems in a systematic way. You may be handed pages of data and asked for your impressions. brush up on your microeconomics. Keep in mind that each firm approaches cases in a different way. "Don't be discouraged if things don't work out for the summer. In addition.4 Second-Year Recruiting: Looking for the Long-Term By Jim McManus: Class of 1990.
Though every firm will highlight the collaborative nature of its client relationships. Speak to as many people as possible about their summer job experiences. and company-specific literature that enable us to build a knowledge base on potential employers in a matter of days. Given the variables of personality. lifestyle preference. office location. School career centers/placement offices offer a variety of tools. the second-year recruit's most important resource. by far. Though the information available through formal school channels provides valuable background on particular consulting firms. In terms of their consulting work. When interviewing with consulting firms for summer positions. the primary goal of most first-years is simply to land a job at the firm of choice. recruiting.to 10-week summer will become critical second year. and the nature of the projects worked on. which will help you to differentiate between the many opportunities you are likely to have. 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. one of the most critical attributes to consider is the culture of the firm. seek the perspectives of many people who have experience at that firm. lifestyle and culture. Can you see yourself . The "details" that you were willing to live without for an 8. these discussions will provide you with the most pertinent. nitty-gritty details of what life is really like at Firm X or Y. In assessing the characteristics of each firm. 2. you are sure to pick up important new insights with each informal conversation with classmates. You may find it helpful to evaluate consulting firms on three broad criteria: 1) the nature of the work they do. are classmates and friends.2. interview skills and resume workshops.generation or cost focus. If you are particularly attracted to a certain firm. revenue. as reflected by its employees. industry focus. and 3) the nature of the career opportunities offered. Overall. This is also important when looking into various office alternatives within a firm. strategy. the process of pursuing a permanent position can be broken down into three broad components: investigating consulting firms. 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. 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.17 first-year cyclone. firms (and even different offices within the same firm) differ markedly in their degree of emphasis on the following dimensions: implementation vs. with less emphasis placed on such "details" as location. including career counseling services. 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. Spend some time early in the process getting familiar with the workings of your career center.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.year recruiting is for the longer term. and functional specializations. The focus of your information search will also differ in the second year. and decision making. Second. When you are planning your post-graduation career. 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.
it is a pretty good idea to review the . you should get a feel for other important attributes of each firm. Again. the best advice here is to know the policies of recruiters and of your school and to work within those policies.6 The Recruiting Process Management consulting firms do not wait long after the beginning of the school year before kicking off their recruiting campaigns. Besides understanding the firm's personality and values. the second-year process takes place over a period of several weeks rather than several days. you may need to send a cover letter requesting an interview. and how well positioned is it to achieve that strategy? As a prospective candidate.2. the use of cases varies widely from firm to firm and even from interviewer to interviewer within the same firm. In general. You certainly have nothing to lose! Arrangements for interviews differ by school and by firm. 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. and assistance in outplacement. including the availability of international opportunities and the number (and size) of offices. compensation should be just one of many criteria you use in deciding which firms to pursue. you should consider the size and stability of the firm's client base and its vulnerability to a downturn. while others are more relaxed. Although the high starting salaries in consulting are undoubtedly attractive. (As a practical matter. the second-year interviewing normally consists of three or four rounds of interviews. What is the firm's long-term strategy. and an otherwise great project can quickly become a negative experience if you do not get along well with the other team members. take the initiative to call one of their recruiting coordinators to express an interest in attending. These "informal" get-togethers give students the opportunity to evaluate firms before getting into the more time-intensive interview process. Though the interview season does not officially begin until later in the school year. compensation. with the final rounds taking place at the firms' offices. many firms invite students to information sessions and dinners throughout the fall to introduce prospective candidates to the firms' people and practices. 2. Depending on the firm. so it is a good idea to understanding detail your school's policies at the start of the second year. Unlike the first-year schedule. both in the office and traveling. and weigh these factors against your particular preferences. performance evaluations. Since many consulting companies give strategy cases. many consulting firms have "open schedules" that allow you to arrange an on-campus interview directly through your school's career services office. 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.) If you are particularly attracted to a certain firm but have not been invited to attend their fall functions. promotion. especially given our high debt levels. However.18 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. In addition. Some schools have very strict schedules. Although a case should be expected in most interviews. Like the first-year process. however. dress codes tend to be casual for on-campus presentations and professional for off-campus events.
various strategy frameworks before beginning the interview season. When going through case interviews, remember one important word of advice-relax!
2.2.7 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, but the real fun begins if you have the good fortune of having to decide between two or more firms of similar caliber. If you do receive offers from more than one firm, refer to the selection criteria you established at the outset of the entire recruiting process, taking into account differences between the work the firms do, the characteristics of the firms, and the long-term career opportunities. If other variables are relatively equal, the issue that should weigh most heavily in the decision should be the people with whom you will be working. Make sure that you have met and are comfortable with enough people at all tenure levels of the organization, paying particularly close attention to what the junior people are saying. Professor Collis's article provides more detailed advice about how to make choices between firms. 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. Receipt of an offer does not allow you to extend your job search indefinitely; after all, recruiters are under pressure to firm the size of the incoming class in a reasonable period of time. Furthermore, being considerate throughout the recruiting process can only enhance your image in the eyes of the recruiting firm, and such consideration is not likely to be forgotten by employees. These firms recognize that 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. However, you should be aware that in almost any consulting firm, 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, and if you happen to have plans that evening, you are going to find it very hard to avoid canceling your plans and going to Timbuktu! My advice about lifestyle is, then, 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.
2.2.8 Career Paths
Career paths in consulting and industry differ considerably. In industry, a traditional career path might be to start fairly low down in the organization and to work one's way up the corporate ladder, step by step. Though increasingly, there are firms that have job rotation schemes and fast tracks to allow them to identify and promote their best people quickly, it is still true that, in industry generally, the commitment to the firm and time scale of your progress is still fairly long term. In consulting, the time frame can often be shorter. Promotion decisions tend to be made in the two- to three-year time frame, and many companies employ so-called "up-or-out" policies. These policies require that you develop certain skills within a defined time frame in order to be allowed to continue with the organization. If you are unable to develop these skills, 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, in practice it is not always so. From the firm's point of view, such a policy makes a lot of sense, as it allows fresh ideas to be constantly brought into the firm by new recruits. The survival of a professional service firm is quite dependent on its ability to remain at the forefront of its field, and an up-or-out is one way in which a firm ensures its ability to regenerate itself. From the employee's point of view, the policy ensures that the environment will be dynamic and that the organization will provide a constant stream of new and challenging opportunities. In most firms that have such a policy, the policy is very sensitively administered, and employees very rarely get kicked out unexpectedly. Rather, frequent feedback allows employees to judge their own position within the firm accurately. Many firms have excellent out-placement services, usually administered unofficially through contacts with alumni, and moving out is not considered failure by any stretch of the imagination. In practice, the number of people who want to continue in consulting, who feel they are at the right firm, and who are not able to do so because of the up-or-out policy is actually quite small. Most people who leave consulting firms do so of their own will, either because they decide consulting is not for them or because another tremendously exciting opportunity presents itself to them. As a potential employee, you should inquire about the consulting firm's promotion policies. This can often be a difficult subject to raise, 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.
Until relatively recently, consulting firms were very much the leaders in MBA remuneration. While it is still true that on average most larger firms in industry pay less than most consulting firms, the number of exceptions to this particular rule is increasing every year. Small, high technology companies are increasingly recognizing the value that MBA students can add within their firms. Even some large traditional Midwest manufacturing corporations are responding to increasing competitive pressures by becoming more aggressive in recruiting bright young management talent. In this process, some industry salaries are rapidly approaching those offered by consulting firms. Certainly, even if your objective is to pay back your MBA debt in as few years as possible, you should not rule out a career in industry. However, if you really do want to work in industry, and if remuneration is particularly important to you (and there is every reason that it should be, given that in the words of a classmate of mine, we are all "mini-LBOs" by the time we finish our MBAs), you will have to spend more time and effort searching out the best opportunities. Another classmate of mine, who was being recruited by a major manufacturing firm, found that when she asked about the possibility of a signing bonus, she received a blank look and the reply, "What's that?" It is by no means all industrial firms that are approaching remuneration parity with consulting firms! Moreover, consulting companies tend on the whole to have very well-oiled, effective recruiting machines, so getting a high-paying job tends to be less work for the recruit. These, then, are some of the issues involved in making the consulting versus industry decision. It is a tough choice, and in each individual situation there will be many other personal factors involved, too. Whatever decision you come to, you can be assured of an exciting, challenging experience. Good luck, and have fun!
21 2.3 Is Consulting the Right Field for You?
By Tim Opler Consulting is hot! Salaries are up. And more MBA students have entered the field within the last few years than any other area. These placement numbers have caught many business schools by surprise and, today, deans and administrators are scrambling to ensure that their MBA programs offer the right type of courses for prospective consultants. At the same time, many of you are giving management consulting a hard look. I understand why! Work in consulting is stimulating and the pay can be excellent. Salary offers at top MBA schools in 1996 for consultants averaged $80,000 per year, often with significant signing bonuses or tuition relief. As of December 1996, offers have been continuing to increase (several firms are offering packages well into six figure territory after a few investment banks upped their ante). But is consulting really the right field for you? And, if so, how should you conduct your job search? A careful examination of your own skills, values and interests is an excellent idea, particularly given the wide range of available career options. I recommend that you commit to an ongoing and serious process of introspection and skill inventorying before marching into your next job interview. The more convincingly and honestly you can answer questions about why you are across the table from the interviewer, the better you will do. To say nothing of long-term personal happiness. After all, making a difference in a career that you enjoy is an important part of life. 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. It's very easy to see the time you're planning to spend exploring careers get taken up with other more immediate priorities. It's absolutely vital that you not let this happen.
2.3.1 The Options
There are basically two career options in consulting. Generalist or specialist. Not surprisingly, specialists apply specialized process and functional knowledge to real organizations with real problems. It's great work that offers clear value to many organizations. Without doubt, the hottest area in consulting today is informational technology. This is technical stuff that offers strong productivity improvements to countless businesses in areas like client/server, sales force automation, CICS/VBASIC/UNIX. And, its why the big IT consulting shops, like Andersen Consulting, will continue to experience meteoric growth. More people work for Andersen today than do for the top five generalist firms combined. Speaking of generalist, the other option available is to work for a firm which provides a wide variety of advice designed to make enterprises run faster, better, cheaper, meaner and more efficiently. Generalist firms include well-known names such as Bain & Company, BCG, Booz Alien & Hamilton, McKinsey, Mercer and Monitor plus a growing list of mid-sized consultancies and smaller boutiques. At the same time, some of the Big Six accounting firms have made tremendous inroads into the strategy consulting business. Coopers and Lybrand, for example, 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. In all, over 300,000 people work full-time in the management consulting industry, generating more than $30 billion in annual revenues. Just over half of these consultants come from the United States; another quarter come from Europe. The
. medicine). it is well-worth asking where you might fit into the industry. After all is said and done. For that matter. The product is an idea. A number of firms are hiring persons with other degree backgrounds (e. A good consultant has to be a great thinker with a passion for ideas. public administration. You can't eat what a consulting firm makes. With all of the money being thrown around by the consulting firms these days. You can't smell it. It is vitally important that you make every effort to understand what these skills are before you step into the interview room. PhDs and the like. consulting firms are nothing more than repositories of pure human capital. As a consultant you will always be working to help others.2 The Skills in Demand Consulting firm interviews typically involve a combination of general background questions. problem-framing and problem-solving. the MBA degree itself need not be necessary. Pedigree can neither guarantee one success nor condemn one to failure.. Firms may hire you opportunistically.g. of course. Hence the frenzy to hire the best and the brightest of America's business schools.g. many undergraduate students enter consulting. a suggestion. You need to enjoy problem -diagnosis. I guess sheepskin is sheepskin. Given the scope and size of this career opportunity.22 most rapid growth is currently being seen in developing economies such as Brazil and Indonesia. You may very well get a job offer anyway. but excelling along other dimensions (e. getting stuck on cases. knowing that they you can generate more value for them than you are being paid. engineering. 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. has recently been aggressive in its pursuit of attorneys. Your ability to serve . If you find yourself struggling with the academic-side of business school. for that matter. in particular. many different approaches to interviewing and. There are. consulting is a service profession and most firms screen carefully for commitment to others and ability to excel in meeting client needs. But advancing and leading may be a different matter altogether. You can't drive it. of course. This intellectual focus of consulting is clearly important in deciding whether you would do well in the field. And.3. disliking writing. to being interviewed. whether you want to fit in. I would add that firms aren't nearly as pedigree-sensitive as some seem to think. McKinsey. 2. Common skills on interviewer check lists include. a case question and questions about your past behavior (the much dreaded behavioral interview approach). Let's start by asking what skills are in demand among consulting organizations. Skill #2: A Passion for Client Service. And. a way of thinking.. You need to be the type that does well in school and likes it. of course. Ultimately. This means that their most important asset has to be the ability to generate relevant ideas through rigorous thinking and careful research. But the bottom line is that firms are screening for skills that match their needs.. law. 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. often in two or three year programs which are expected to be followed by a stint at business school. human interaction or entrepreneurialism) you probably should not be a consultant. it can be easy to get into the profession for the wrong reason. Skill #1: A Passion for Ideas. an insight.
stressful travel and corporate frustrations encountered by consultants worthwhile. 2.3 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. It's only human. at any point in time. Those who demonstrate superior skills gain personal control early in their careers. whether it be by charm. 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. understand and communicate with clients. hustling and working hard in the job search process. the ability to work quickly in spreadsheets. humor. The screening process. However you accomplish this. These individuals are in such demand that. a tolerance for ambiguity. the individual needs to excel and generate his or her own marketability. You pick them and they pick you. but you do have to connect. not the rule. at the University of Virginia's Darden School argues that the most important aspects of conducting a consulting firm career . So. not the reverse. listening or hard-work. This isn't to say that you must be the ultimate extrovert. Over the years. it's vital that you enjoy. of course. What then is your next step? This all depends on where you are going to school. Not because he didn't cherish his spouse and family. the partners and their teammates. logical thinking skills. Most students who land positions in the consulting profession do so by scrambling. likable people who are good at helping others. writing skills. The result is that the institution needs the individual. tolerance for absolutely abusive hours. Not necessarily a natural combination of abilities you might say. a seasoned ex-McKinsey consultant put it this way: "It is only through personal excellence that this profession becomes truly enjoyable. lasting partnerships with a number of clients through repeated contact and hard work. While intangible. personal appearance. These relationships are what can make the long hours. it's an odd admixture in demand at the consulting firms. and tend to set the pace for their teams. Other characteristics in demand including understanding of specific business issues. Those who achieve excellence feel great about themselves and are more likely to find the consulting experience a path to fulfillment. A consultant once told me that some of the most fulfilling relationships of his life were with clients." Skill #3: A Passion for People. can vary widely and many firms are looking for a unique traits.3. willingness to travel and facility with languages.23 clients will determine your success and the prospects of your employer. The financial rewards become window dressing and the high of the experience becomes the drug of first choice. Smart. But this practice is the exception. In a recent letter published by Mitchell Madison Group. At some institutions. but instead because he had built life-long. let's assume that you don't yet have offers from the three firms that you truly want to work for. a personal commitment to excel in meeting the needs of your clients is vital to enjoying the profession. they have numerous options to choose from. superb IT skills. Moreover. Head of MBA Career Services. Through their intellectual leadership they gain respect from the clients. all the big firms show up and will talk to you. I have observed that unfriendly clients become attentive when listening to people of excellence because their contribution is unique. They typically become engagement managers sooner. Anne Harris. In a business world where institutional loyalty is rare.
there is no good substitute for meeting someone. you might ask for help with an upcoming interview." More likely. you will need to strike out on your own. engineering or finance) and a track record of successful experience. ask for a meeting. Better yet. Face Time: Ultimately. keep trying. 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. You want to call a consultant and let them know that you are a student with a specific interest in their work or firm. be direct and ask for help with your job search. One of the most helpful things you can do is to get personally acquainted with consultants at firms that interest you. even if only for ten minutes or so. 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.g. but it's almost always worth it. This is a great opportunity to get a conversation started. Instead of being pushy or hanging up. If you are on the job market now. If you indicate in an interview that you already know someone at a firm your chances of landing a position will go up dramatically. 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. is to call the office in the evening. Consulting firms are looking for organized resumes that convey the skills they are looking for." Unfortunately. but effective trick. This may be costly. If you don't hear back. you will need to visit people at the firms . You can overcome the "intimidation factor" by practicing this technique with a colleague or your friendly career services director. networking in the profession and getting "face time". "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. 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. "I'll be in New York (or wherever) next week and would love to ask you a few questions over breakfast. 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. It's not particularly important to worry about font choice and paragraph formatting. the work and the life. It's important to be sincere. Now. Making The Phone Call: The networking phone call is the single most valuable weapon in your job search arsenal. Or. Not bad since a consultant has to be a natural networker. It really helps to have others batting for you and educating you about the profession. some relevant functional expertise (e. many networking phone calls end up with one of two negative outcomes: (1) "the person is not available". ask for voice mail and leave a voice mail introducing yourself and explaining why you are calling. Networking: The key to landing a consulting position is to network. If you go to school outside of a major metropolitan area. The best way to get acquainted is over the telephone." If your contact is not available. The Resume: The resume is a necessary evil in your job search. A dirty. The firms are typically tolerant of "career changers" but will be looking for you to provide a coherent story about why you are changing. friendly and very interested in the person you are calling on.24 search involve preparing the right resume. A good interviewer is looking for experience. polite. It's not as hard as many seem to think. enthusiasm and skill. alternatively. solid schooling. or (2) "sorry but we are not looking. Most people will be willing to help you if you give them the chance. There are lots of good ways to network.
H. Detroit. Available from Harvard Business School Publishing.3. It's human nature to favor those whom we know and like in the hiring process. Finding the Right Job and Landing It! Convergence Multimedia and Harvard Business School Publishing. 03447. On a more practical level. Kennedy Publications. 603 585-9555. From Wet Feet Press at 1-800-926-4JOB (349 Liberty Street. Available from the Consultants Bookstore at 1-800-531-0007 or fax. Harvard Business School Career Guide: Management Consulting 1997. Ace Your Case! The Essential Management Consulting Case Workbook. CA 94114-2953). Cost $39. 1997. Available from the Consultants Bookstore at 1-800-531-0007 or 1-603-585-2200. hbsp. (800) 877-GALE Consultants News. Try their web site at http. Fitzwilliam. N.com. Templeton Road. Also try their web site at http://www. H. San Francisco. Consultants and Consulting Organizations Directory. . 1996. Directory of Management Consultants. Templeton Road. the values that they hold and the practices they are in. MI. Fitzwilliam.4 Recommended Resources A big part of getting started on a consulting career is to survey the profession. San Francisco. I have listed a number of resources that might be helpful in this regard. Management Consulting: Exploring the Field.//www.weffeet. it's vital to have access to current contact information and to be able to locate the firms. N. 2. So You Want to be a Management Consultant. Below. edu. On CD-ROM. harvard. Gale Research. 03447. From Wet Feet Press at 1-800-926-4JOB or 1-415-826-1750 (349 Liberty Street. CA 94114-2953).25 that interest you. Kennedy Publications.95. It is very helpful to know the histories of the various firms.
1. probing mind ⇒ candidate to engage in solving the problem 4.3.1 Effective communicator 4.3 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.2 Curious.2 1.4 Problem solving skills Personal impact Leadership Drive / Aspirations Ability to think through problems: 4.4 Both are important. This is akin to creating an outline before writing a paper.4 Basic numerical agility 4.26 3 Overview of Cases 1 A case is: 1.how you structure the case and go through the analysis.how you think and solve problems 4.6 Hypothesis generation ⇒ use hypothesis to drive thinking and formulate questions 4.5 Intuitive business sense 4.1 3.1 Mechanics .2.2 Analysis . What are consulting companies looking for in a candidate? 3.3 Ability to synthesize 4.3 There are two parts to a case: 4.2 Tolerance for ambiguity 4.1.1 5.1 5 A good approach: 5.3. if necessary 4 What are consulting companies looking for in a case answer? 4.1 Clear.2 3.2 5. logical reasoning 4.1.3 3.2 Ability to quickly build working relationships: 4.1. Listen to introduction carefully Carefully think through the problem at hand Ask one or two clarifying questions.1.2.3 .1 1. 4. the basis of consulting.1.
The interviewer is not a mind reader.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. both during the analysis and the conclusion.1. This is where you can gather all of the information gathered during your analysis and present it in a logical and persuasive fashion.1 The time spent structuring the problem should average about five minutes. ask for relevant facts.5 5. prioritizing them and possibly eliminating some before you dive into the rest of your analysis. Use interim conclusions to sum up a section of analysis before moving on to another area. Do not be afraid to take your time and think about how you plan to attack the case.enables one to organize the data presented Pick one branch to probe. You must lead him down the path that you are walking. Writing a paper is a good analogy to solving a case. but will vary depending on the topic and your level of comfort with the issue. Successful interviewees have taken up to 10 minutes to think through the issues as hand. possibly with a logic tree . divide the time by the number of issues to be explored based on your perception of the importance of each section. Remember that you are trying to lead the interviewer through your problem solving approach. Time management during the interview is the interviewee’s responsibility.2 Plan to spend two minutes discussing the issues.2 Analyze the case: 15 minutes. If not all areas were covered during your interview.27 5. probe further Pick the second branch .4 ..6 5.. 7. Finally. this can be almost as important as the time spent up front framing the analysis. DO NOT BE AFRAID OF SILENCE! 7. In a paper. Summing up: 5 minutes. you first order your thoughts in an outline. develop hypotheses.7 6 Structure the problem. Do not squander time be focusing on issues that will not highlight your abilities or will not lead to a viable solution. Suggested time allocation for a 20-25 minute interview is as follows: 7. creating a framework to solve the case. In many ways. 7 7.3 7. 7. Go over the framework at a high level with the interviewer and then plunge into one area at a time. defend/refine hypotheses.4 5. always provide reasons for the conclusion you are presenting. you may also chose to spend a minute or two discussing further areas that you would have liked to explore and why. you want to communicate explicitly what you want to do with the case. Put it all together: try to answer the overall question During the case.1. Remember that time is the most precious commodity that you have during the interview.
the interviewer will state that they are not correct.28 8 Assumptions enable one to close quickly an issue. .1 8. Bad phraseology could lead the interviewer to think that you are arrogant. Try to state your assumptions up-front. assumptions are: 8. If the assumptions are invalid. Try to state the assumptions in a non-offensive manner.2 The key to using Timing. Delivery.
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 .1 Purpose • • 1.2 Types • • • • 2 Special Cases 2.29 4 Different Types of Cases 1 Classic Cases 1.1 Purpose • • • • 2.
1 General Models 1 Financial Frameworks .for profitability cases you should explore cost and revenues 1.2 Balance Sheet Assets Cash Investments Accounts Receivables Inventories Property.1 Income Statement Net Income .Interest Expense Earnings Before Taxes (EBT) -Taxes Net Income 1. Reserves Shareholders Equity Common Stock .30 5 Frameworks for Cases 5.Cost of Goods Sold (COGS) Labor Materials Overhead Delivery Gross Margin . plant & equipment Intangibles Liabilities Accounts Payables Other Short Term Debt Long-term Debt Other Liabilities.Sales General &Administrative (SG&A) Operating Profit .Depreciation .
An example of an issue tree is provided with the China Factory case. 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 Retained Earnings 4.4 4 Issue Tree 4.1 4.2 3. Use MECE (Mutually Exclusive and Collectively Exhaustive) to ensure that all issues are covered. Break each level down into parts that are more manageable.4 4.3 3. Top-level identifies the highest level issues that need to be answered to solve the problem.3 4. Focus on most important branches or components first.2 Do not use this framework in an interview without practicing it a few times before hand.31 2 3 3.1 3.5 5 Framework for a Zinger case like “How many golf balls in Albuquerque?” .
demand). especially the strategic ones. the lower the price of a product or service. Conversely. the smaller the quantity of goods consumers will be willing to purchase. cursory step in understanding a given company or industry.2.. it may help in defining a business by breaking it down into very basic components and looking for conflicting elements.2.2 Additional Models 5. supply). The model is more of a back-of-the envelope sketch than a detailed analysis. the greater that demand for the quantity consumers will be willing to purchase (i. Some of the more relevant concepts include: 5. Demand side Who purchases golf balls? How many golf balls do they need each year? 5. competition. Please remember that as the supply of one product increases. Supplier will be willing to make more available (i.1 The Four C’s The four C’s stands for customer..2 Supply chain 5.2. The model is difficult to use with diversified companies and interests.2.) The Demand Curve . all other things being equal. cost and capabilities. Many cases.The lower the price of a product or service. all other things being equal. the supply of another product will decrease. the smaller the quantity producers will be willing to make available. (We live in a world with finite resources but infinite demand.32 5. have a strong backing in basic economics so knowing the fundamentals will give the student a strong base from which to work. .1 Supply & Demand The Supply Curve -The higher the price of a product or service.1 5. Conversely. the higher 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.1. the greater the quantity of the item that will be produced.e. Although this model is unlikely to produce revolutionary insights. 5.e. Filling in these categories can be a first. This model is intended to ask the critical questions in understanding the core business of an organization.2 Economics Students should review the basics of economic theory.
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. The concept of comparative advantage goes a step farther. Price Value of Output Cost of Inputs Quantity 5. 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.33 Price Supply Demand Quantity 5.2 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. within a given time frame. each additional unit contributes relatively less than the preceding unit to productivity.2. For example.3 Law of Diminishing Returns This concept suggests that although additional units of labor may contribute to increased productivity in absolute numbers.2. This would characterize . 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).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.2.5 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. 220.127.116.11. 5.
7 Economies of Scope Economies of scope exist if the firm reduces total production costs by increasing the variety of activities it performs. 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). Whereas economies of scale are usually defined in terms of declining average cost functions. over a range of output. However. (Marginal cost is the cost of the last incremental unit of output. In this case. E QxPy = % ∆ Qx %∆ P y = ∆ Qx / Qx ∆ Py / Py = P ∆Q Q ∆P 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. and other functions can realize economies of scale.2. R&D. Marketing. For example. . Economies of scope may be achieved by "leveraging core competencies" across multiple business activities. so must the marginal cost (MC). the medication that would sustain that individual's life. a diabetic will probably be willing to pay as much money as he or she has to buy insulin. 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.2. The minimum efficient scale (MES) is the minimum level on the average cost curve. 5. Cross Elasticity: Percentage change in quantity demanded of one good in response to a 1 percent change in the price of a related good. If AC declines as output increases.6 Economies of Scale Economies of scale exist when the average cost (AC) declines as output increases.2. there are circumstances where the level of demand is not altered by a change in price. the demand is inelastic. ES = % ∆ QS % ∆P = ∆ QS / QS ∆P / P 5. Economies of scale are not limited to manufacturing.2.34 demand that is elastic in nature. It is more customary to define economies of scope in terms of the relative total cost of producing a variety of goods together in one firm. For example.) 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.
18.104.22.168 Learning Curve The learning curve refers to cost advantages that flow from accumulated experience through lower costs, higher quality and more effective pricing and marketing. The magnitude of learning benefits is expressed in terms of a "progress ratio." The ratio is calculated as the unit cost after doubling cumulative production divided by the previous cost (C2/C1). A ratio of less than one suggests that some cost savings due to learning is taking place. The median appears to be approximately .80. This implies that for the typical firm, a doubling of cumulative output is associated with a 20% reduction in unit costs.
Kellogg’s Philip Kotler developed this model. It stands for product, price, placement (i.e., distribution channels), and promotion. These are the four critical dimensions in marketing any product (or service).
5.2.4 Value Disciplines
Fred Wiersema and Michael Tracy of CSC Index, Inc. have developed a set of strategic foci called the value disciplines (Harvard Business Review, January-February 1993, pp. 84-93). The disciplines are: Operational excellence - Provide customers with reliable products or services at competitive prices and delivered with minimal difficulty or inconvenience, with the goal of leading the industry in price and convenience (e.g., Dell Computer). Customer intimacy - Segment and target markets precisely and then tailor offerings to match exactly the demands of those niches, combining customer knowledge with operational flexibility to respond quickly to almost any need (e.g., Home Depot). Product leadership - Offer customers leading-edge products and services that consistently enhance the customer's use or application of the product, thereby making rivals' goods obsolete (e.g., Nike). 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.
5.2.5 Porter’s Five Forces
Michael Porter's Five Forces model analyzes the various competitive pressures at work in a given industry. The results indicate the overall industry attractiveness (i.e.. ease of making a profit), as well as the strength and influence that each of the competitive pressures have on the firms participating in the industry. The following is a brief discussion of the five components. Industry Competitors (Internal Rivalry) - Often, the most powerful of the five forces is the competitive battle among rival firms which are already present in the industry. The intensity with which the competitors are jockeying for position and competitive advantages indicates the strength of the influence of this force. Potential Entrants – This force measures the ease with which new competitors may enter the market and disrupt the position of the other firms. 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. In addition, when a newcomer can expect to earn an attractive profit, the barriers to entry are diminished. Threat of Substitutes - The competitive threat posed by substitute products is strong when policies of substitutes are attractive, buyers' switching costs are low, and buyers believe substitutes have equal or better features. Supplier Power- 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. 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. Buyer Power - Buyers become a stronger competitive force the more they are able to exercise bargaining leverage over price, quality, service, or other terms or conditions of sale. Buyers gain strength through their sheer size and when the purchase is critical to the seller’s success. Benefit of Complements – This is considered a sixth force that is not directly captured in Porter’s model. This force is the opposite of the Threat of Substitutes. When the economics are promising for a complementary product, there is a spillover effect on the primary product.
Five Forces Potential Entrants Complement
Rivalry among existing firms
5.2.6 "Star" Diagram/Organizational Analysis
In doing an organizational analysis, one should consider all seven components of the organizational unit. Vision should define Strategy. Strategy determines Structure and Decision Support Systems that are required to make the organization function. The Reward Systems must reinforce what you are trying to accomplish strategically and the Human Resource Systems must select, recruit and develop the personnel the organization needs to accomplish its objectives. Corporate Culture must reinforce all seven components.
Strategy Decision Support Systems Human Resource Systems
Organization Culture Performance
Problems arise when these seven components do not reinforce one another. For example, managers will have trouble if they are in a decentralized structure while information and planning systems are centralized. When considering change, all seven components must be considered. If one component is changed, it is most likely that the other components will have to be changed to be consistent with each other.
5.2.7 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, as a whole, is expanding or contracting. The model can also be utilized to analyze a portfolio of companies held by a single organization by classifying them within the matrix; each as independently held businesses. Products or categories businesses are as follows: Star — A product with high market share in a high-growth market; every mother's prayer. Problem Child (also called "Question Marks") — A product with low market share in a high-growth market; mother is concerned because her child is not growing as anticipated. 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; maybe slow yet consistent growth isn't so bad. Cash Cow — A product with high market share in a low-growth market. Since the cow is generating milk (i.e., cash), the marketer may elect to "milk the cow dry," so to speak, accelerating cash flow and, not coincidentally, the product life cycle. Dog — A product with low market share in a low-growth market. In this sense, "dog" is certainly not "man's best friend." Rather, it is analogous to a "bomb" (i.e., something that fails miserably) or to a "lemon" (i.e., something that is defective or undesirable). Therefore an astute business manager would want to drop a “dog” from
and by whom?). as indicated in the exhibit below. Support activities provide the input and infrastructure that allow the primary activities to take place. Value chain analysis is useful in discerning possible synergies among various units of an organization (e. information systems. Every business unit is a collection of discrete activities ranging from sales to accounting that allow it to compete. The value activities are grouped into nine categories. and service. marketing and sales. and procurement. Finally. outbound logistics. The categories are company infrastructure.” It is at this level. human resource management. Primary activities create the product or service.38 the product line. value chain analysis provides a structure that provides great insight into the flow of activities that lead to the creation and distribution of a particular product or service.8 Value Chain A business manager must understand the internal relatedness of the many activities involved in the production of a product or service. The categories of primary activities are inbound logistics. that the unit achieves competitive advantage. operations.g. What value is added to the manufacture and sale of gasoline at each point in the value chain.2. deliver it to the market. and provide after-sale support.. Value chain analysis is also helpful in determining which value activities are best outsourced and which are best developed internally. Michael Porter calls these activities “value activities. Hi Low Hi Market Share Low Star Problem Child Cash Cow Dog Profitability 5.. create a demand for the product. unless there are some extremely important overriding issues that outweigh the products market performance. shared procurement). .g. (e. not the company as a whole.
so that it can price its products lower than its competitors and win a large market share. the highest quality producer. Differentiation: Here the business concentrates on achieving superior performance in an important customer benefit area valued by a large part of the market.9 Generic Strategies (Porter) Michael Porter suggests that business strategies can be classified as pursuing cost leadership. and remaining so in the long run.39 Value Chain Support Activities Company Infrasructure Human Resource Management Information Systems Procurement Primary Activities Inbound Outbound Operations Logistics Logistics Marketing & Sales Services 5. for example) and hurt the film that rested its whole future on being the lowest cost producer. The problem with this strategy is that other firms will usually emerge with still lower costs (from the Far East. Thus. but it is hardly possible to be all of these things. Each of these strategies is described as follows: Overall Cost Leadership: Here the business works hard to achieve the lowest production and distribution costs. differentiation. The firm cultivates those strengths that will give it a competitive advantage in one or more benefits. the lowest-cost firm among those pursuing a low-cost strategy will do the best.2. or focus. Focus: Here the business focuses on one or more narrow market segments rather than going after a large market. those firms pursuing the same strategy directed to the same market or market segment constitute a strategic group. and so on. Thus the firm seeking quality leadership must make or buy the best components. put them together expertly. the style leader. 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.do the worst. Porter suggests that firms that do not pursue a clear strategy . Annstrollv Rubber has specialized in making superior tires for farmequipment vehicles and recreational vehicles and keeps looking for new niches to serve. Texas Instruments is an excellent implementer of this strategy. The firm that carries off that strategy best will make the most profits. the technology leader. . The firm gets to know the needs of these segments and pursues either cost leadership or a form of differentiation within the target segment. This has been Canon's strategy in the copy-machine field. inspect them carefully. Firms pursuing this strategy must be good at engineering. and physical distribution of the products. purchasing. According to Porter. manufacturing. Thus. One example is if the company strives to be the service leader in its industry.“middle-of-the-roaders" -.
changes. a habit that prevents management from making frame breaking.2Total Quality Management (TQM) TQM refers to the practice of placing an overriding management objective on improving quality. cutting out wasted steps and enhancing communication. its long-term value is questionable. They react to changes in the market and moves of their competitors and so must maintain flexibility. They are closely related to Porter's Low Cost Producers. Further. TQM was initially limited to the manufacturing sector but has more recently been applied effectively to service businesses as well. A firm can only pursue one of these strategies at a time.40 5. Defender—Those firms that have a leadership share of the market will often concentrate on staving off the competition.” A higher level of quality is linked to increased customer satisfaction and thus leads to the ability to charge a higher price at what is often a lower cost. Prospector— These firms are the first-movers and the innovators. Business processes are often replete with implicit rules that hamper the way in which work should truly be done.11Other Key Concepts 5. quality. reengineering refers to breaking down business processes and reinventing them to work more efficiently. moving to erect as many barriers to entry as possible. cohesive change. This is a high-risk strategic avenue to follow. processes are often viewed as discrete tasks. Whereas TQM is more of a philosophy than a specific strategy. While this strategy may be profitable in the short run. leveraging their advanced position along the learning curve and their name recognition to maintain a superior market position.11. and the industry. 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.2. but instead concentrate their efforts in very carefully and narrowly defined efforts. the stated objective is often "Zero Defects" or “Six Sigmas. but it is common for a company to shift from one strategy to another as its situation." 5. This strategy is akin to Porter's focused companies. Reactor— Such companies are second-movers. letting others show them the way to success. and speed.2. but those who are successful can change the way the game is played and create very strong competitive advantages. It is important to ensure that the added benefit from incrementally increasing quality outweighs the added cost associated with the quality improvement effort.10Strategic Types (Miles & Snow) Miles and Snow have divided strategic options into four categories (in contrast to Porter's three Generic Strategies). .2.1Reengineering Popularized as Business Process Reengineering (BPR). service. 5.2. These firms are not necessarily innovators.11. Analyzer— Analyzers pick apart the market very carefully looking for niches and demand/supply gaps.
4 Core Competencies A concept popularized by Professors Gary Hamel and C.2.K.2. Attributes of essential success factors are the following: Management can influence them.11. for wood products.2. For example. The classic example of a company that has effectively leveraged its core competencies is Honda. productivity.11. the materials arrive at the customer's factory exactly when needed. 5. 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. Effective implementation of JIT should result in reduced inventory and increased quality.7 Fixed vs.3 Key Success Factors Essential success factors are those factors that are most critical in determining a firm's ability to survive and prosper. In other words.11.. and are difficult for competitors to imitate. Prahalad. core competencies provide potential access to a wide variety of markets. Inventory costs tend to zero The goal of JIT production is a zero inventory with 100% quality.5 Vertical Integration In some industries companies find it advantageous to integrate backward (towards their suppliers) or forward (towards their customers). essential success factors are owning large forests and maximizing the yield of those forests. and adaptability to changes. make a significant contribution to the perceived customer benefits.2. 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.41 5. which has gained a competitive advantage in numerous product markets through its focus on leveraging its skill at making engines. 5. 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. . JIT calls for synchronization between suppliers and customer production schedules so that inventory buffers become unnecessary.6 Just-in-Time (JIT) Very Important in reducing costs .2.11. 5.11. management should ask: - Essential success factors are those factors that lead to the answers to the above questions. 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. 5.
11. 80% of a company's profits may be generated by 20% of its product lines.8 Net Present Value (NPV) The NPV is a project's net contribution to wealth.42 Fixed Costs (FC): The costs of production that do not vary with the quantity (Q) produced: these costs generally include overhead costs. the amount that "contributes" to paying the fixed cost of production. the firm should invest in the project..FC 5. To determine profits. and the price of a product to determine the minimum units of sales necessary to break even or to pay the total costs involved. The present value is calculated by discounting future cash flows by an appropriate rate (r). variable costs. multiply the quantity sold times the contribution margin and subtract the total fixed cost.2. usually called the opportunity cost of capital. This phenomenon is typified by the "80/20 rule" which states that 80% of the output comes from 20% of the input. a Pareto analysis is conducted to determine the areas on which management should focus its efforts. Alternatively. (Ct can be negative. such as the cost of adding new production capacity when Q reaches certain levels. 80% of total downtime on a production line is attributed to two out of the ten manufacturing steps.) Break-even Point: Break-even analysis is a managerial planning technique using fixed costs. If the net present value is less than zero. C t represents the cash flow at time t. The contribution margin represents the revenue left after the sale of each unit after paying the variable costs in that unit. these are discrete costs. Typically. Net present value is the present value (PV) of all incremental future cash flow streams minus the initial incremental investment.) The NPV is calculated as follows: NPV = Co + Cl/(l+r) + C2/(l+r)2 + . but not directly. In other words. This technique is also useful to make go/no-go decisions regarding the purchase of new equipment. 5. Semi-variable Costs: The costs of production that vary with the quantity (Q) produced.2. Co. 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. For example. the firm should not invest in the project. . or break-even quantity. The necessary sales are called the BEQ.11. as in the initial investment.. Profit = Q x (P-VC) . or hurdle rate.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. + Ct/(l+r)t If the net present value of the project is greater than zero. (Typically.
the more confused you could become. During that time.9 1.8 1. Take your time. They also want consultants who are dedicated to their client and client’s problem. Ensure that you understand the problem at hand. Do not assume anything! Use questions to clarify issues and to gain a complete understanding of all the problems that need to be addressed.” Listen carefully to everything that is said during the interview. For example. Better to use the bull’s eye approach to data gathering. Practice phrasing statements clearly and succinctly. You can demonstrate this by being engaged. He will not understand your thought process unless you explicitly state to the interviewer.4 1. Think then speak.6 1. Then. brainstorm to get all your thoughts on paper. The interviewer has probably spent a few months working on the problem and consulting firms are looking for people who enjoy solving problems. Once the problem or case is presented to you. do not error on the side of being silent either. The interviewer is not clairvoyant. do not answer any question unless you have thought through your answers fully. do you believe this is worthwhile. Do not ask for every piece of data.7 1. However. ask for a few moments and think out your approach.10 2 Top Ten Things not to say during an interview: 2.” I need a lot more data. The interviewer will look to see if you build on the information provided.. interviewers will drop hints regarding the case throughout the interview process.1 .2 The goal of the case interview is not to crack the case but to demonstrate “how you think..1 1. Keep the interviewer informed of where you are going and check to see if you are on track.3 1. This will serve as the structure of your analysis. HAVE FUN WITH THE CASE! Engage yourself and get excited about the case. Individual pieces of data can often be combined to draw a conclusion about part of a problem. Rather. as opposed to the shotgun approach. 1. carefully assess them and order them into a logical format. if need be. This is an area where one can demonstrate teamwork. Remember that some material may be extraneous. do not feel compelled to answer immediately. the more you prompt for data without assimilating what you have already been presented with.. Thinking aloud leads to rambling. The interviewer possesses tons of data or will make it up.5 1.43 6 Dos and Don’ts 1 Helpful Hints: 1. Do not lock yourself into your answers. one could say: “I intend to purse.
2 2. I cannot solve this case because I have not had Corporate Strategy yet. the three most important are.1 Don’ts If the interviewer suddenly asks you to name the three critical drivers to the industry.5 2. This case sounds exactly like what we did in Managerial Accounting. then order them from the most significant to the least significant. There is obviously one answer to this case.44 2. Are your clients really that stupid? This case has no answer. DO NOT ANSWER RIGHT AWAY! Think about it and come up with five drivers.10 3 3.3 2.8 2. .7 2. I do not believe you...” What are you looking for? Is this a marketing case? I cannot believe this is a real case. Then say something like this: “Well I have thought of five significant drivers. I would like to concentrate totally on the political implications of this situation.6 2.9 2.4 2. you are trying to confuse me.
45 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. 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 .
7. Give me an example of where “you dropped the ball. 8. Tell us about your weaknesses.46 8 General Interview Questions 1. Tell us about your skills. 11. Why consulting? 2.” 10. 5. Tell us about your resume. 4. Why do you want to work for this firm? 3. Describe a situation where you had to present orally to an important group of people. If you do not get into consulting what will you do? 9. Tell us about your previous industries. Where do you see yourself in five years? 12. 6. Give me an example of where you did something unpopular and had to stand up for yourself at work. . Describe a problem you encountered in a work environment and how you handled it.
residential vs. materials are easy to obtain. our client is break-even.. industrial vs. • • • Prices for the client’s products have been flat in the recent past. the largest producer has a 20 percent share.1 China Products Division 9. toilets and urinals. What issues must the client consider? 9. but not substantially.g. The two largest competitors appear to earn a small return. The company is one of seven producers in the United States.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.2 Possible Solutions Probable points of clarification: • Will the planned investment lower operating costs? (Yes.level answers • . The major reason for the investment is that the new process will result in a better finish. Specifically. commercial)? Are there different price points by market or within markets? “Better answers” • Customer-buying factors: • “Minimum” . he wants to know if he should approve a $200 million capital expenditure for new manufacturing facilities.1.1.) Does the company rely on a limited source of raw materials? (No.) 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. The largest competitor has just announced plans for a major modern plant.47 9 Sample Cases 9. our client is number three with a 15% market share. China products include tubs.
48 Do customers demand a full-line supplier (e..g. with other building products)? Is any significant portion of sales to centralized customers (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 Level One Question: Should I invest in $200 million plant? Level Two Questions: Is there a sizable profitable market? .e are other competitors thriving on good quality or high profit due to low costs?) Are the products sold in combination (with each other. Sears)? • Barriers to entry/exit: What is the minimum-size for a new plant? Are most plants fully depreciated? Generally. 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. 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. or with other products such as fittings)? Would exiting the business affect the sales.
49 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. what would you do? 9.1 Issue A large healthcare company has decided it is interested in substantially increasing the size of its operations.Increasing sales . it would seem unlikely that either increasing prices or cutting costs represent feasible methods by which to double sales & profits.2. A business can increase profits by: .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. Its goal is to double total sales and profits in less than two years. particularly if the company operating in a moderately competitive environment. if the company's margins are found to be consistent with industry norms. In the . 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. This leaves only sales increases.2 Healthcare Company 9.Cutting costs However. As a consultant brought in to assist them.2.Increasing prices .
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.) 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. The IC market itself is expected to grow at over 10% per year too.3 Electronic Joint Venture 9. of which only a handful are of any size.) What is the market outlook for ASICs? (High growth. Although the company already has a subsidiary that does some microchip fabrication. 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.3. In contrast to the commodity-chip manufacturers. it turned out that only selling new product to new customers via some form of diversification could hope to achieve the company goals. The government project would more or less allow the company to define an individual project within the broad category of process technology. Important demand segments are entertainment electronics and automotive applications. Strong demand has meant that price erosion is not currently an issues in the ASIC industry However. currently about 15% of all ICs are ASICS & this figure is expected to rise above 35% in the next 10-years.1 Issue A large microelectronics manufacturing company is considering participation in a cooperative project which will receive 50% government funding. although there are powerful commodity-chip manufacturers. You should then consider the potential for increasing sale by means of diversification through acquisition or joint venture. The company currently uses several hundred millions of dollars worth of microelectronics every year. most of the top ASIC producers are in fact American. 9. 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.50 particular example of this case. but development costs are higher. The relative benefits of each will depend on financial resources as well as the existence or otherwise of suitable targets. the capacity of this subsidiary is small and its technology is relatively old. with whom? 9.3. Assembly costs are reduced. decreasing size and weight and increasing speed and reliability. It is interested in developing application specific ICs (ASICs). the cost of which is growing steadily in many of the company's products. some strong alliances already exist in the industry and the possibility of converting old DRAM .
9. considerable effort would be required to find the staff with suitable expertise. You have been hired to determine if they can turn a profit or if they should sell.4.4 Television Cable Company 9.Analyze the market potential of the area .Analyze the competitive situation/ substitutes . The VC firm was attracted by the extremely large subscriber potential (2MM households) and potential for considerable return. they have failed to turn a profit in the past three years.Provide recommendations Cost Fixed costs associated with lying cable 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. who delivers high value sub-assemblies. therefore need to find some way to reduce some of these costs e.4. The current systems is only at 43% capacity (# of subscribers) vs. In addition. firms whose core business was semiconductors would have significant technology and R&D advantages.g. using CAD to shorten design cycles. Revenue Subscribers monthly fees Subscribers special services - .) 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.Analyze current revenue and cost structure .) Do potential joint venture partners exist? 9.) What are the client’s current purchasing habits? (Currently purchase nearly all microelectronics through one subcontractor.) 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. Also. Despite their best efforts.1 Issue Three years ago a venture capital company purchased a cable TV system that had access to 2MM households in the southwest. (Typical ASIC production volumes are much lower. a 63% industry average. The debt and maintenance costs are also higher than systems in major metropolitan areas.2 Possible Solutions .51 production facilities into ASIC facilities may well lead to great overcapacity when the next generation of memory chips takes over.
What options do our consumer have? A: In addition to the three network stations. If not. there are eleven independent broadcast stations in the area. there must be a strong competitor in the market. can it be fixed? Market Assumptions: Based on the low subscriber rate. Is the reception from these independent stations strong? A: Yes.52 Assumptions: High fixed costs are overwhelming the current revenues The current subscriber rate is too low. Overall Assumptions: The low subscriber rate (revenues) cannot overcome the high fixed costs. Are the stations offered free of charge? A: Yes. Competition: If consumers are watching television. sell. They have hired you to determine if they should proceed or not. 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 . very. but not our cable system. Does the cable system offer what they enjoy watching. The subscriber rate is low due to the high number of competitive stations available to our consumers (supply and demand problem).5 Magazine Sunday Supplement 9.S. Additional Information: There are currently two major Sunday Supplements: Parade and U. Why? Moreover.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. A: Actually they watch more television than the average. I would assume the population is less likely to watch television perhaps because of income or lifestyle issues.5. 9. Recommendations: Determine if there are consumer needs not being met by the independents that could be provided by our system and worth paying for. A: Yes.
A: True Competitive Assumptions: The competitors are deeply entrenched . modem day folklore Assumption: Our current advertisers (for Time) would not be interested in this format. 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. distribution Internal and external sales force .53 9.2 Possible Solutions Can we turn a profit by publishing this supplement? How? -Revenue potential. . we would not recommend proceeding with the supplement until potential advertisers were committed and newspapers demonstrated an interest in accepting the supplement.5. Key Issues: Based on these assumptions.90% penetration. Displacing a competitive supplement would require costly incentives to the newspapers. Cost Assumptions: Fixed cost of supplement set-up Editorial. light reading gossip. costs.(gaining ad revenues and newspaper acceptance) Assumption: There are few publishing synergies with our current publications. (Even then. Current newspapers use the supplements in order to publish low quality editorial without disparaging their product offering. turning a profit would be difficult due to the large upstart costs and the strong competition for advertising revenues and newspaper acceptance. Recommendations: Based on this information and these assumptions. we would recommend publishing under an alternate brand name). printing/paper. Strategic Fit Assumptions: The poor editorial content associated with these supplements may disparage the publisher’s current product offering. low quality editorial.
54 9. Current percentage revenue: 10MM members x $1000 annual purchase (avg. What are the "economics" of such a decision and should they drop the fee or not? 9. Receive 1 % of the transactions from retailers who honor the AMX card.2 Possible Solutions Determine how American Express makes money. They are considering dropping the $50 annual fee.6 American Express Charge Card 9.Assumptions: $50 annual fee multiplied the number of members.) [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).250MM x 4% = 10MM current cardholders $50 x 10MM = Annual loss of $500MM by dropping the fee. No additional revenue from consumers because they pay-off monthly.6. Evaluate the pros and cons of dropping the annual fee. To overcome this loss. AMX loses ($50 x # of members). Therefore. They would still have to pay off their balance every month. population (Just a guess): . (500MM/$10) = 50MM new members are needed 50MM new members is equivalent to 20% of the population (gut check) Assessment/ Recommendation: . Key issues: If the annual fee is dropped. 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.S.1 Issue American Express has faced strong competition from new credit cards entering the market.6. Make a recommendation Revenue Drivers . 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.
May want to consider varying the fee (sensitivity vs. Do not drop the fee.$$ Frequency Prices Others? You learn there is nothing drastically different (overall).7. increased membership equivalent to 20% of the population is probably not likely. Questions: . The population growth of the city is flat Overall. so you turn to the individual store level. Relevant Information: 20 locations in the metropolitan and surrounding suburban areas (they are present in every shopping mall).7.55 Based on these assumptions.7 Department Store 9. store revenue has declined slightly They recently hired a consulting firm to streamline the back-room costs How can you help? 9.1 Issue You have been hired by the CEO of a department store that has numerous locations in a major metropolitan area. new members) 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 . She needs to increase the store's earnings over the next year and has requested your help. levels Cost of debt Other? Revenues: # of people shopping Amount of purchase .why? Increased competition? Different consumer buying trends? Start with Cost/Revenue Drivers: Costs: CGS Personnel/ OH/ SG&A Inventory holding costs.
big-ticket items. higher income. Do the higher performing stores have any common characteristics such as size. our . consumer demographics? A: Yes.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? A: Clothing. household items .56 Are certain stores more profitable than others are? A.8. the product mix is the same at all stores. 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. TV. Yes. 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. product mix. No. Jewelry . shoes. tools. What products are less profitable? A: Clothing. suburban stores are more profitable than urban stores. the urban stores are hindering earnings. 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. minor appliances Are the demographics better suited for the mix in the suburbs? A. 9. Hence.Yes.8 Credit Card Division of Bank 9. the demos are different by store. household items. Yes. Their card (in the same class as a Visa or MasterCard) provides average returns in comparison to the industry. however. Stereo. Assessment Due to the identical product mix at each store and the varied profitability by item.
little . 9. Case Interviewer suggests there are three distinct categories: 1.8. ."move on". Pay-off in full every month 2. Hold heavy debt for long periods of time (basically pay-off the interest) .currently $50 (Could change) Annual percentage rate = 14% (Could change) Merchant fee = 1. Only revenue variables available are changes to the annual fee and APR. etc. Competition: Interviewer tells you it is a very competitive environment . SG&A.analyze drivers Opportunity to vary the annual percentage rate or the annual fee Benchmark competition for opportunities Analyze cost and revenue drivers: Costs Marketing.2 Possible Solutions Opportunity to decrease costs or increase revenues . Assumption: Customers use the card differently. there may be different customer segments based on the balance held. points Access to case advances. therefore have to increase revenues. Charge high monthly fee Provide numerous services (detailed kudos) reports.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 Decrease the annual fee Waive the annual fee Increase their credit limits Cash back programs. Hold small debt for short periods of time 3. Personnel – Can not change Revenue Annual fee . how quickly balances are paid off and the "need" for the card.5% (Can not change) Bad credit.Cannot change Other costs – Can not change Key Issues: Cannot affect the cost structure. theft.57 client believes it can become more profitable. You need to analyze the situation and make recommendations.
Background: Our client's division is not unlike a chain of Blockbuster video stores. 9.000 stores and realizing considerable profits. In the last two years.9. it is imperative to get them to sign up for the card (no annual fee).costs) structure Analyze the competitive situation Analyze the "substitution" factor . both growth and profit have declined substantially. the focus of the case was shifted to customer segmentation and tailored services for each segment. 9. You have been brought in by the CEO to assess the situation and provide recommendations. One of their divisions is a leading home video retailer. Note to Case Interviewer As soon as the interviewee had identified the important drivers of revenue and cost. but not enough to offset the decreased store traffic. use the card (cash back. During the late '80's and early '90's this division had a great run -opening 4. Key Issues: These heavy debt card holders are the key to our profitability. other: (No change) Key Learnings: Costs have actually decreased.2 Possible Solutions Start with a simple: (Profit = revenue .cable on demand: affect) (List potential causes of decreased (No real change) (Potential for future but no real current # of rentals: (decreased. The majority of their business is in movie rental with a much smaller portion in sales.58 etc.9. Competitive Assessment/ Substitutes: traffic) New movie stores: New In-home sources .9 Movie Rental Business 9.1 Issue Our client is a major entertainment company on the West Coast. point systems) and run up debt (automatic credit limit increases). traffic Price of rental: (No change) Sale of rentals: (decreased) Accessories: (No change) Sales of movies for home use and collection: (Sales have increased dramatically) .how else are consumers getting movies? Costs: Revenues: Cost of the new movies: (Actually decreased) down) Overhead: (No change) SG&A: (No change) Leases.
How can we regain store traffic or offset the rental loses? Recommendations (these are just a few of the options considered): Develop new. they quite often rented an existing tape from the library (additional lost revenue) Based on this industry outlook.S. A service center for fixing any automobile problem. This is mainly due to the sale of these same releases through alternate channels. When division was growing..1Issue 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. In addition.59 [Once the important issues have been identified. Retail sales of auto parts for customers who prefer to perform their own maintenance. 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.10. Recently. it could buy excess numbers of the new releases to satisfy customer demand. pick-up/delivery Develop pricing/bundling formats combining new releases with existing movies Offer "rent to buy" programs . the interviewer describes the changing industry. when customers rented a new release.10 Auto Service Stores 9.rent the first time.] I. from an oil change to new transmission. 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. many of our customers are purchasing rather than renting.kiosks. You have been hired to determine if they can improve their performance or if they should exit the market. more convenient locations . Start a home delivery scheme for both rental and sales. The stores offer two services: 1.10. Thus. 2. Autoland has experienced $50MM in revenue with loses of $20MM. Focus on better facilities than alternate channels of purchase. Since entering the U. The owner is considering pulling out of the United States. 2. Focus business to sales rather than just rental. With fewer new stores opening. then have option to purchase. 9.2Possible Solutions Analyze the competitive situation Analyze the market potential/ customer segments Competitive Situation: . they would send the excess copies to the new stores as part of their "library" of existing tapes. this is no longer an option therefore fewer new releases have been ordered. Later. 9.
60 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. the service center is much more expensive to operate. Assumption: The market has potential due to the competitor's performance. They copied our Canadian format and have about 10 locations in every major city.S.S.no.S. I would guess they have superior buying power over Autoland in the U. However. is one more profitable than the other? A: In Canada . Where is competition located? the border) A. but losing in service. A: We do the same as the competition A: Identical to competition A: Different. how would you help us determine if we are? Factors: Marketing. Market/ Customers: Autoland provides two services. Key is to determine why they are outperforming Autoland. in the U. Are the costs associated with each side of the business different? A: Yes. we located in the inner cities to save money on leases. Assumptions: Due to size.S? A: Yes Do we have strong competition in the U.Between the inner city and the suburbs (on . we have to pay mechanics and have high fixed costs Assumption: We are profitable in retail. Pricing. We attract the wrong consumer. Autoland Capabilities: Assumption: We actually have two businesses under one roof. The customers who utilize the service center have higher incomes and no interest in fixing their own car..S? A: Yes. Assumption: We are attempting to attract two distinct customer segments. we have the same cost structure due to our presence in Canada. a national chain of stores in the exact format as Autoland exists in the U. Are we doing this successfully? A: We are not sure. 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.S. we are profitable in retail sales and losing heavily on the service center. Is this true? A: No. Location. markets. are the customers for each service different? A: Yes. They are very profitable in all cities including our U.
50 for baseball games. but would like to maximize the profit from the investment. She wants to own a sports team: however. The purchase price is the same for both franchises. Neither franchise owns the stadium. or drop the service business and retain the profitable retail portion 9. Wentworth are the same.licensing of apparel. Ticket Prices on average are $25 for basketball games and $6. The key is to figure out whether ticket prices can be raised.000 for baseball games. Utilization on average is 70% for both sporting events. She is indifferent between choosing between the two teams. 7. respectively. move. the interviewee must recognize that there are other investments that she should consider. Which team should she buy? Additional Facts 1. The financing terms available to Mrs.1Issue A wealthy woman. comparable data for other franchises in other cities and overall . 10. but prohibits heavy use of the service center due the distribution of income between the inner city vs.61 Assumptions/ Recommendations: Our location is great for the retail sales business. The interviewee must ask for this 6. information to be given credit. Let us say that there is a $100 million price tag. In new markets.11 Sports Franchise 9. The stadium capacity is 20. Mrs. 11. Wentworth. 9.historical sales patterns. It is important that interviewees recognize these as possible sources of value to the investment. concessions and parking) for purposes of this analysis. The number of basketball and baseball home games is 41 and 81. Possible sources of data . 4. The interviewee should explore other streams of revenue but are irrelevant (important streams are . The interviewee must figure out a model to answer this question.000 for basketball games and 54. In existing markets. locate between the lower and upper income areas to attract both segments. 8.11. 3. The Balance Sheets of both teams are the same in terms of liabilities and assets. 5. wants to invest in either the Cleveland Cavaliers (a basketball team) or the Cleveland Indians (a baseball team). 2. the suburbs. regardless of the team she chooses. who is worth millions.
it turns out that they cannot be raised.e. 12.. • • • • • Accounting Order Processing Sales Management Finance . then bought by parent).e. the baseball investment has a potential for greater revenue. buy one new every six years). washing machines) • • Sells products directly to customers (80% of sales) Has six wholly owned subsidiaries that stock and sell products (20% of sales) What changes would you make to the organization to increase its value? FACTS TO FIND • • • • • The market will not respond to advertising (i. the firm cannot create demand pull) Consumer purchase frequency is constant (i.12 Durable Goods Distribution Case 9.e.1Issues SETUP A large durable goods manufacturer (i.12. Do not give this information away. After exploration of this issue. Equation = # of seats * # of games * stadium capacity * utilization 9. Research shows that Cleveland residents are indifferent. Parent manufactures all equipment (parent’s manufacturing is not the scope of this case).2Possible Solution Everything cancels out except that baseball has more seats available. Thus. 9.62 market demand. Consumers buy primarily based on lowest cost product. Examine if 100% utilization can be reached.11. Subsidiaries maintain all functions (were once bought by independent businesses. make the candidate probe for it.
For example. The CEO has hired you to assess and make business recommendations. Problems with this approach? Eliminating sales function and order processing at sub may reduce flexibility and hurt customer service? Maybe. The largest player has 5%. SPC . The firm has modern facilities and good cost controls already in place. multi-copy sales receipts. The company has four regional plants (Midwest.13 Business Forms Case 9. 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%.1Issue OVERVIEW A manufacturer of business forms wants to increase profitability by using pricing as a competitive weapon. centralize the operations. MANUFACTURING: The firm is a “world class” manufacturer. we could determine the number of labor hours for a transaction for the sub and parent. units on horizontal. The market is fragmented with many small local printers. East Coast. You have ten minutes to interview the CEO before she leaves for a meeting. then diversified functional operations? Maybe. etc.12. If parent is higher. warranty papers.2 Possible Solutions Would it be more efficient to provide central functions from parent.63 9.13. 9. if possible. invoice forms. Plot labor/units on vertical. but how would you measure this problem? Interview clients and determine the importance of flexibility and personalized sales. The product line includes credit card receipts. The firm uses JIT. West Coast & Texas). but how would you measure that value? Study each subsidiary's functions and determine efficiencies to be realized.
The company does not own delivery trucks. wide product range. • PROFIT CENTERS: Manufacturing and sales are profit centers. the materials cost is less than the shipping cost or fees charged for customized work. 9.14 “High-End” Pots & Pans Company Case 9.. Contacts primarily via telephone.1Issue 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 . The sales force is paid on commissions. DISTRIBUTION: Extensive information system is in place. The sales division sets the prices to customer. Custom orders shipped between one to three weeks depending on complexity and quantity of the order. MARKETING: The firm only uses direct mail fliers and catalogs. Materials or Labor or O/H or Shipping) Pots & Pans is considered to be of premium quality. Use ABC inventory analysis to get a “better” standard cost and empower the sales force to maximize revenue. a typical customer is a newly wed who places pots & pans on the registry at Hudson’s or Marshall Fields. but not necessarily to increase market share by lowering price. All sales are handled through the sales force.” The firm is able to deliver larger orders faster than competition when asked for rush delivery. • • • • Possible Solution One possible solution is to use price as a competitive weapon. . According to the CEO. A salesperson receives 25% of all revenue above a standard cost. Use “Time Based Competition” to increase profitability.64 and other cutting edge manufacturing techniques. Transfer prices negotiated between manufacturing and sales are in place. The UPS delivers most orders within two days for standard items. supplemented with occasional visits. However.14. 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. The system handles over 100 daily orders. The firms should constantly monitor standard costs because of volume fluctuations. An internal study indicates that the firm is the low cost producer in the industry. COST STRUCTURE: Not important. SALES FORCE: A two hundred person sales team is in place that focuses on important accounts. sold primarily in sets and is expensive. Client survey reveals that the company is known for the “high quality.
20% Labor . This can be confirmed by asking for the annual sales. the cost of delivering products quickly decreased. MARKETING: The firm uses little advertising. you need to ask where the inventory is being held. Your client has six warehouses . RETAIL OUTLETS: The product is carried in high-end department stores. the only way they can do this is by shipping overnight at a premium rate. the lower the cost (more inventory pools. No products are shipped directly from the factory. since they sell so few of these pots and pans hold no inventory and thus require next-day replenishment after a sale. since the closer they are to the stores the cheaper distribution costs will be.10% Shipping/Packaging . warehouses and shipments). 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%. two in Philadelphia and two in LA from which he services the whole country. Department store buyers know the company and its products well. Repeat sales equal almost 100% of the business. The firm has a three person sales staff that works with department store buyers.20% • • • 9. Department stores demand quick replacement upon sale. O/H . Distribution is a trade-off between cost and service level. COST STRUCTURE: Materials . A quick way to solve this case is to realize that if stores require next day service from these six warehouses. With the advent of FedEx. Little discussion or negotiation required.30% Fixed O/H . When you divide this into the $1 million . Each store carries one set of each product line for display and one set for inventory purposes. which turns out to be 10. Eliminating warehouses leads to O/H savings that are far greater than the increased shipping costs. The next thing you need to know is where the warehouses are located. The market share in high-end pots & pans is 35%.000 units. 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). The higher the service level.14. It turns out that stores. 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.2 Possible Solutions The six regional warehouses were setup in the 1950s when long distance delivery times were slow and costs were high. Inventory and outdated inventory would also decrease.65 You have ten minutes to interview the CEO before she leaves for a meeting. The reason for the low inventory levels is that the product is bulky and expensive to store.two in Charleston. The company and not customer pay shipping costs. Therefore.20% Var.
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! How to find out what you need to know! . 9. you buy from a US company in Oregon. Indiana that has been producing paper for 60 years. Your company values long-term supplier relationships.000 tons of white 20lb paper to produce its product lines. The Brazilian firm is offering to sell at $. technology used. you have a new option to buy from Brazil. 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.66 distribution cost you discover that they are pay $100 to deliver a pan to the store. The firm purchases 100. notebooks.38 a square yard from the current supplier. Currently. Due to recent developments.1Issue OVERVIEW Your company makes legal pads.35 a square yard compared with the $. and other standard paper products. Beat this figure and you have earned your exorbitant fee. instead. The firm will consider switching if it can gain a long-term cost advantage.15 Paper Products Manufacturer Case 9.15. You are the purchasing agent responsible for buying the white 20lb paper. Your firm uses a sixty-year-old plant in Gary.
methodology is key. certain “commonly known facts” should be in your hip pocket when going into case interviews. etc. Like all cases. One of these facts is the approximate population of the United States. The case question is. . This fact can serve as your starting point for cracking this case. Now. 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.16.25 a square yard. “How many pianos do you estimate there are in the United States?” (Similar cases involve American Express cards. 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. gasoline stations. why would you ever want to ask that in an interview” cases.16 Pianos 9. The firm stopped lower its price once it reached $. 9.2Possible Solutions Along with a basic framework methodology. the right number is not necessarily the right answer for the interviewer. 1.67 • • • • • Use Lexis/Nexis . Split the population (~250 million) into households. Make an assumption about the “average household. split the number of households into income quartiles.16. ABI Inform Ask Brazilian and US company for information and study the annual reports Ask important suppliers for information. but -.it was asked. maybe another customer. 2.1Issue This case is one of those “are you kidding. 9. and come up to about 84 million households.” say three.) In this type of case. and similar cases always seem to pop up.
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 # Tunings 4. the “answer” to the case would be 7.1 million 0. how would you come up with those numbers? Now. Assign a “number of times tuned” to each of the income quartiles.. “given the number just calculated.3 million. This will give you the following: Quartile Upper Mid-Upper Mid-Lower Lower # Households 21 million 21 million 21 million 21 million % With Piano 20% 10% 5% 0% # Pianos 4.Well then. 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).1 million 1 million 0 Using this methodology. the next quartile once every three years and the next quartile once every ten years. stores need to be considered as well. Better Answer: You have just estimated the number of pianos in homes in the United States.2 million 0. Be careful how you word this. Assume a piano tuner can tune four pianos a day for 250 day a year.2 million 2.2 million 2. the interviewer could very well say -. you should state that schools.) For instance. This tells you that five million pianos need to be tuned each year.68 Quartile Upper Mid-Upper Mid-Lower Lower # Households 21 million 21 million 21 million 21 million 3. Assume that the upper quartile tunes their piano once every year. For a “better answer” to the question.. 1. the interviewer may choose to expand on the case. (The number itself does not matter so much as the approach.0 million 2. music halls. Now that you have been able to calculate the number of pianos.7 million 0. or 1000 pianos a year. Quartile Upper Mid-Upper Mid-Lower Lower # Households 21 million 21 million 21 million 21 million % With Piano 20% 10% 5% 0% # Pianos 4.
the number of piano tuners that you come up with is about 5. Reasonable assumptions might be made about the following issues: • Can RC afford to fund as much R&D (as a percentage of price) as Coca-Cola? 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.10 Marketin g OHD Margin Price = $1.25 $.17 Coke vs.1Issue There is very little set-up necessary for this case.2Possible Solutions One approach to solve the problem would be to start at the end of the value chain with the price of RC. Does RC really do a lot of marketing by themselves or does it simply “ride the coattails” of Coca-Cola’s marketing? • • • . the next step is to assign percentages of the price to each portion of the value chain. 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 interviewee is given a piece of paper with the following representation of CocaCola’s value chain. 9.05 $.10 $. Using this methodology.000. For this part.17. R&D Manufacturing Syrup $. the interviewee is expected to look at the percentage that Coca-Cola applies.20 $.00 Given Coca-Cola’s value chain. RC Value Chain 9. the interviewee is asked to formulate the value chain for a secondary manufacturer (use RC as an example). The interviewee may want to start here because this may be a “known” element (been shopping lately?).69 3. The case is used simply to test the interviewee’s “assumption” skills and reasonable hypotheses.17. Now that the easy part is over. The interviewer does not really need to provide a great deal of detail for this case to be used effectively.05 Local DC $.15 Bottling $.10 Distribution “Base” DC $. 9.
The plant produced $2 billion of product revenue with $100 million in profits per year. Customers say it is cheaper to buy their fertilizer in LA and ship it themselves. this case. which is a cyclical industry that is currently in a downward cycle. If the syrup production and bottling costs are too large of proportion of their costs.70 • If RC has similar machinery requirements.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. like most others. HELPFUL INFORMATION (not to be offered unless asked) • • • • • • • Fertilizer uses a simple manufacturing process -. Russia has been selling fertilizer at a very low price.18 Fertilizer Issue Your client is an agricultural chemical company. (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. Lately.) 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. Then the interviewee can simply apply the percentages to each portion to arrive at a cost. 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. The interviewer will just be looking for the reasonableness of your approach and assumptions. The CEO resigned in shock and the new CEO has called you in to determine what they should do. Good luck! 9. The candidate should follow this line of “assumption and inferences” until the percentages are in place. has no “right” answer. they could consider buying syrup from someone else and use an outside bottler. do they have to spread their OHD over fewer products / less volume? RC’s percentage could very well be higher than Coca-Cola. They produce fertilizer. In other words. The firm’s plant in Louisiana blew up costing them $600 million in damages. the final price charged to the farmers is very high compared to the industry . Again.
safety and service. • • 9. 2. High concern. what are the concerns your client might face? What additional information might you want to find out.19. The condition of the airplane manufacturing industry. Business travel increases as a result of market globalization. The consultant should ask as a strategic question whether the firm is interested in the manufacture of more fuel-efficient planes. How to prevent the new entrant from stealing market share. Although they are the low cost producers. Therefore. The current competitor. In addition. In the last couple of years. a comparison: It turns out that the competitor's planes are cheaper to operate because they are more fuel-efficient.2 Possible Answers As a consultant. As a consultant. and what recommendations would you make? 9. on the part of purchasers for a proven safety record of accomplishment. Leisure travel increases with growth of middle and upper classes. The sales force may not be adding the value that the company thought/needs in order to be successful. . Prevention of a new competitor gaining share: Key: creation of barriers to entry.19 Airplane Manufacturer 9.71 Possible Solution • Transfer pricing (from manufacturing/production to distribution to sales) is adding significant additional costs to the product. Business travelers are primarily insensitive to price. Long-term contracts are pre-emptive. The airplane industry's demand is a function of travel among two classes: business and leisure. leisure travelers are very price sensitive. they are being priced out of the market by this additional cost structure. you have gone from being number one in market share to number two. The answer would depend on the future of oil prices.1 Issue You are consulting to a CEO of an airplane manufacturer. Why the firm has lost market share and. 3. the product is becoming less competitive in the market. another company has announced that it will be entering the business and is presently tooling up its plant. The consultant should also consider whether it might be better to try to compete on the basis of price. you are concerned with three essential items: 1.19.
for the long-term. Now the firm has a 44% share. Your client is also using the most sophisticated and quality driven cassete manufacturing techniques. 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. the firm has recently lost several major accounts due to its inability to move (the firm's) products.short-term. Recently your client has been losing younger target market customers.from low bias to high bias/metal.21 Windmill 9. The firm should also explore the opportunities and constraints of developing or acquiring the new technology.20 Mysterious Audiocassette Market 9. and then provide a possible solution. 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 -. middle income enthusiasts and high school rock 'n roll stereophiles.20. 9. The firm should consider new sources and production necessary to exploit this new demand.) Your client’s historically flat market share suggests brand loyal customers. your older target market is loyal -. Client used to have a steady 30% market share.72 9. for example. They have hired you to figure out why they have been experiencing an alarmingly poor sales year. They want you to determine the problem. The firm historically targeted two consumer groups -. Moreover. (second largest in industry).1Issue Your client is the manufacturer of audiocassettes. The firm should target the older customers as well as other segments that are less likely to switch over to CD's. Your client offers a full range of audiocassettes -. Information to be divulged gradually • • • • • • • • Mature market: 5-6 major players. The firm has traditionally managed its relationship with retailers well. However. The firm has been losing sales reps yet loyal reps claim that sales are at record high levels for the year.perhaps less likely to switch to the new technology in the short run.older.1Issue .21.
and supplier/buyer power need to be assessed to determine the market price. The Retail Lock Box Department consists of 100 clerks and eight managers and Supervisors. Each year. Check is the Director of Retail Lock Box Services for the Bank of Luke. the processing of payment items was done more as a service to bank customers rather than as a profit-making endeavor. potential substitutes.S. 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.22 Bank of Luke (LEFT) 9.73 You produce a windmill with an accompanying electric generator (generator harnesses the power produced by the windmill). At banks. let us assume competition and demand/supply levels are far beyond your capacity. 9. airline tickets.5 million of fee revenue processing retail credit card and mortgage payments ("items") for 15 commercial accounts. it received little focus from management. mortgage. To narrow it down. Hence.1Issue Mr.g. and coupons.000 to manufacture. Types of items processed include credit card. This could be an appropriate start. The bank has many other commercial accounts that use other companies for their item processing. and utility payments (checks). You have no idea what this product is worth to anyone. Assessing the value of the benefits of the product is perhaps the next step. Therefore. In the past..22. airlines would process their own tickets) or by bank item processing departments like the Bank of Luke's. a medium-sized Midwestern bank. the largest item processor in the U. verifying the . The item processing industry has undergone dramatic changes in recent years.21.2Possible Solutions Porter's five forces dictate that industry rivalry. The $10m cost is irrelevant. In fact.. etc. We must therefore examine other components. The closest substitute to the windmill is probably utility produced electricity. the Bank recently lost the item processing business of one of its largest accounts to Vader Inc. inquire how the electrical utilities measure and charge for the electricity they provide. the Department generates $1. these items were usually processed by the issuing company (e. The windmill costs you $10. Historically. Other considerations upon which to discount the value might be reliability. in addition to handling of retail lock box transactions. maintenance. How much are your customers willing to pay for it? 9.
Check has asked you to visit his office to discuss the proposed engagement. While walking to his office. In fact. Once in Mr. high-speed equipment and methods. Vader uses high-speed processing equipment and is highly automated. because of the great economies of scale they gain from processing such volumes of items. and it must price the service to be competitive with companies such as Vader. Mr. because of this speed advantage. Within five years. Kenobi. 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. Mr. the President has given Mr. Vader benefits from a more constant workload by processing both airline tickets and retail lock box receipts. In addition. Processing time is rapid and processing costs are low. whereas mortgage payments always peak early in the month with very low volumes the rest of the month. with limited use of modern. the parent bank is beginning to profit from the float of checks processed. and totaling the items was performed by only the largest banks which were highly automated. Check a budget to be used to hire a consulting firm. most of who are not customers of its parent bank.74 correctness of incoming paperwork and manually sorting. Inc.000 last year.. the service lost $100. Check believes that the bank must offer retail lock box services. a majority of the items are still processed by the issuing company or by small processors. Companies specializing in item processing have emerged in the past ten years. Mr. Mr. the largest such company is a subsidiary of a small bank in Georgia. Check was a supervising clerk at that time. filing. has asked Mr. you note a picture showing the Department's staff in 1965. Check to evaluate how the retail lock box service can be made profitable. Each year Vader processes millions of airline tickets and retail payments for hundreds of companies. Although industry-wide. Vader. it is expected that most of the business will continue to migrate to Vader and other large processors. Check's officer. Check asks you the following questions: Question One What do you see as your (the consultant's) role at the Bank of Luke? . you observe that the Bank's retail lock box operations remains primarily a manual system. The President of the Bank. After reviewing some background information with you. Vader has a significant cost advantage over smaller operations. Recognizing that outside expertise is needed. Mr. It is expected that Vader and the other large processors will dominate this market. Airline tickets have few peaks and valleys. Mr. such as the Bank of Luke.
Check says so. We also want to test creativity with this case.75 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. 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. 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. 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.22. and not simply believe that the business is necessary just because Mr. cutting 25 percent of the staff is too obvious and too easy.000 per employee is pretty low!) • Has he considered acquiring other bank's customers to increase the economies of scale in his own operation? This case can also be used to discuss cost cutting. Check feel his unit should be generating? (After all. Again. 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. creativity and sensitivity to the real issues should be the goals of your probe.2Possible Solutions In this case. . $15.
23. . cost exercise.23 Candy Company 9. It originally started as a single product line. trade brands. The production process consists of two basic activities: manufacturing and packaging. Upon further examination. makes the problem worse). and reduce introduction rate for new products. The firm has also expanded its sales through product line extensions. thus causing slack in labor and fixed capital (small batch sizes. Management is concerned that sales are growing but profits are not increasing at the same rate.e. Find the critical components of cost: raw material. reduce low margin trade brand production. What can you recommend? 9. retailers demanding large introductory discounts for new products and high failure rate of new products. labor and fixed cost. high setup times).2Possible Solution This is a revenue vs. we still need to consider whether the company's customers (i. Labor and fixed capital has increased per unit over-proportionally compared with ten years ago. However. The firm should streamline product lines.) Controlling schedules manufacturing which is rather efficient already but not packaging. Margins are shrinking. retailers) are willing to accept the reduced product line. 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.76 9. Raw materials are commodities with cyclical prices that have fallen in recent years but are expected to swing up (as you have guessed. (Candy is candy and the product line extension is primarily an issue of different packaging.1Issue Your company is a rather successful producer of candy. Revenue killers: Concentration of retailers. emphasize pull marketing. The firm should consider reducing the number of product lines and introducing controlling/scheduling measures for packaging.23..
The traditional strengths of your firm have been solving strategy and organizational issues. So far. 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. The building will house tenants.1Issue Your client is going to build a skyscraper.25.77 9. you have noticed an increasing number of your firm's proposals are rejected because of a lack of information technology expertise in your firm.2Possible Solution This is an economic supply/demand mind teaser.24. How should he decide how tall to make the building? 9.1Issue Your are the managing director in a large international consulting firm.24.24 Skyscraper 9. Assuming your concern is valid. Nonetheless. you are becoming increasingly concerned about the need to develop the firm’s capabilities in information technology. 9. the firm should stop adding stories to the building. When marginal revenue equals marginal cost. what steps would you take to rapidly build IT capacity in this area? What are the major risks in executing an IT capacity-expansion? . your firm's growth has been strong enough that proposals lost have not hurt annual earnings. you do not want to lose money on the deal.25 Consulting Firm (I) (Good Case) 9. who will pay to reside there. Clearly. what reasons will you provide to the other partners about the need to acquire information technology skills? Assuming you are able to convince other partners of the importance of IT expertise. Recently. but is not sure how tall it should be.
but an important issue is the loss of the firm’s focus on just strategy and organizational issues.26 Cosmetic Company in Europe (LEFT) 9. the cost to the firm and the time needed to build expertise.2Possible Answers Good answers focus on the value of IT to clients. strategic value of information and information loss. building capacity through recruitment of IT experts and training them to be consultants. Candidates should discuss the pros and cons of each method.78 9. 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. the importance of information systems for implementing new organizational structures and management control systems. The methods may include buying expertise by acquiring another firm. Discussion points should address the impact on firm's current culture.. articles. new practice cultures may be significantly different from current culture.25. Good answers will focus on various methods to build expertise.1Issue Eurocos Inc. The various products are quite similar in terms of raw material and production.. Better answers will focus on the difficulty of implementation in IT. Better answers focus on the costs of losing clients to competitors. Discussion topics should include the increasing importance of information in business. produces and sells various cosmetics products in several European countries. These issues could be intensified if "external experts" are brought into the organization.26. rapid technological changes in the IT industry require significant ongoing training and development costs. The company's different brands are well established in the markets. Good answers depend on the expansion methods discussed. raiding IT practices of other firms for a few key consultants. 9. Better answers will realize the importance of stimulating client demand as capacity builds through seminars. . strategic studies in IT areas. building capacity by training current consultants in IT practice skills and establishing a strategic alliance with a IT boutique firm.
complexions). 9.No Separate the commodity aspect of the product from fragmenting aspect -. however profits have been shrinking in recent years.Yes Changing environment: reduced tariffs The firm should consider consolidating production while keeping the marketing and branding nationally decentralized. • A few big companies own several brands. • High product differentiation (many ways of differentiation).. customs exist between geographical markets How can fragmentation be overcome and is the strategy feasible for Eurocos? Learning curves present -. • Many small to medium size brands.Highly fragmented industry with the • Low entry barriers (small setup costs. The CEO of Eurocos Inc.). quality) Optimizes locations (interest rates. • High barriers. • Diverse markets.79 The company has been doing very well in the past.. wages.Yes Standardize market needs -.2 Possible Solutions What is the structure of the industry? following characteristics: -.26. thinks he should change his strategy. customer needs (language. He asks you if this is a good idea and what he should do next. longer runs. labor) Learning curve of running a more complex plant and logistics (see also Cons) . Pros: • • • Lower costs in production (better sourcing. • Eurocos produces all products in all countries • Transportation costs are small (see operational part). tariffs. Additional information: • The industry has many small to medium size companies.
• • 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
9.27 Semiconductors (Good Case)
The domestic semiconductor industry is beleaguered - brutal price competition from the Japanese, accusations of "dumping” against the Japanese, etc. Domestic semiconductor manufacturers are clamoring for protection from Washington, and some of the public policy solutions being proposed are research consortium sponsored by the government, trade restraints, etc. You are a consultant at a major firm. 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. You know that each generation of memory chips lasts only four to five years. 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.S. manufacturers?
What are the cost drivers in the industry? (e.g., The split between fixed and variable costs involved.) The basic issue to be determined is that it costs huge amounts of money to be a player - roughly 250m in research and 600m for each plant. This increases exponentially for each succeeding generation of memory chip. Therefore, fixed costs are high. Negligible variable costs. Cut-rate volume-oriented pricing - marginal cost of an additional chip is minimal. Semiconductor firms need access to huge amounts of capital on a continuous basis to survive for the long term.
Raise pros/cons/issues of government participation in this issue. 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. Finally, what will shared research accomplish?
9.28 Airline Industry
Historically low returns and stiff competition characterize the airline industry. In the early years after deregulation, discount carriers like People Express sprang up. Years later, the discounters have gone out of business. In a price-competitive industry, why is it that the higher-cost carriers were able to survive and the low-cost ones were not?
Characteristics of discounters: • • • • • Low fares Limited service. Higher fares but better coverage and service Hub systems Full service capabilities with larger volume base.
Characteristics of major carriers:
Competitive moves by major airlines included the innovative use of information technology for yield management and differential pricing. The larger airlines priced every seat individually based on continuously monitoring of demand/supply. They wooed leisure customers with fares lower than discounters and charged more from business travelers (indifferent to price but sensitive to service and frequency). The larger airlines stole the discounters' market and forced them out of business.
9.29 Oil Tanker 9.29.1Issue
Your rich uncle has just passed away and left you with three small oil tankers in the Persian Gulf. How do you determine how much they are worth?
82 9.29.2Possible Solutions
This problem involves the interplay of supply and demand forces to determine the value of the tankers. The nature of tanker supply will be revealed by defining the different tanker types (in layman’s terms: small. medium, and large) in the industry and the cost-related prices associated with employing each type. In effect, a step-function supply curve rsults for the industry with each step representing a different tanker type. 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, only large and medium tankers are put into service. This renders your late uncle's small tankers suitable only for scrap at the present time.
9.30 Fertilizer 9.30.1Issue
You have been hired by a fertilizer manufacturer to help them out of a difficult situation. Their market share and profits are declining and they cannot figure out what is happening. What are you going to do?
These are some of the basic issues to be flushed out: Fertilizer is a commodity and consequently the basis for competition in the industry is on a cost basis. 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). 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). You also do not have any scale advantages. Again, you will have to flush this out with your questions and approach. 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. What are your alternatives? (If you got this far, you are probably doing fine!). Looks like you would try to explore the possibility of competing on a scale basis. What do you look at to analyze the issue?
The Japanese market is much bigger than the Australian market. The candidate must understand advertising attributes of importance to different segments (e.. He also wants to make a big splash by presenting a new "strategic pricing methodology" aimed at achieving "value-based differentiated pricing.. Discuss heterogeneity in advertising customers based on business size. . frequency.e. You have been asked to establish why your client has performed poorly relative to the competition. price-point. costs have not risen significantly. the only difference being the place of manufacture and the model names (i. he does not explain why. (Naturally. badges). has over the last few years under-performed relative to its competitors as measured by profitability.32.31. Assess gap between actual departmental performance and assigned targets.31. This morning you received a call from the advertising director (your boss). He sounded extremely worried about the retail advertising division's performance.31 Retail Advertising Pricing (LEFT) 9.2Possible Solutions The interviewee must first find out the corporate profitability objectives. size.g. they are products of joint ventures with one of the smaller Japanese automobile manufactures).e. Further. These cars are then sold in both Japan and Australia. etc.1Issue You are the new retail-advertising manager of a large daily newspaper.1Issue Your client.32 Automobile Industry 9. Examine competitor pricing and customer price sensitivity.). corporate pressure to improve bottom-line results has led to steep advertising price increases. etc. 9. one of the big three automakers in Australia. Use difference in needs of customers to implement prices based on appropriate advertising service needed. why worry?) Apparently.. (The candidate will discover that revenues have gone up steadily over the past few years. A classic demand-curve scenario has led to greatly decreased cumulative ad volume with potentially serious long-term consequences. Examine both revenue and cost issues." 9. discounting.83 9. breadth of product line. 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. color. So. All three company’s current car models are "badged" Japanese designed cars (i.
Design.It turns out that the terms are all similar? . in similar amounts and to similar markets in Australia.Management accounts. . marketing.Interior product? .32. . NONE OF THE ABOVE HELPS! Don't panic.Does our car cost more to design than our competitors? Although the answer to the last set of questions are negative. you know the solution of the problem has something to do with cost so. 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. .. The key lies in your discovery that design costs are pro-rated.Published financial accounts. the candidate should establish the sources of high costs relative to the (other auto makers.Manufacturing overhead.Different market segments? . etc. To recap. Data from your American holding company. Your Japanese partner incurred similar design costs (in absolute costs).dissimilar products or production leading to the under-performance? ..What are the terms of the joint venture? Share of design costs pro-rated between the parties based on number of cars sold respectively? .Raw materials. Reverse engineering. .Labor costs.Poor sales/ distribution? .2Possible Solutions Explore possible reasons for the under-performance . determine what makes up the costs and their relative importance? . explore the relevance of the Japanese connection? - Are the terms of our joint venture different from our competitors? . Given that design costs are by far the most important component of costs. Thus the design costs defrayed by the .High cost of production? Given that the reason for under-performance is the high cost of production.High general expenses (admin.84 9. the solution is at hand.)? . your client sells a similar product. using: .
2Possible Solutions Here are some questions that may help isolate the important issues: l. Response: They recently began manufacturing X. X's sales force will frequently recommend that a buyer purchase a certain Y while buying an X. Why? 9. call it Y.33 Scientific Industry (Good Case) 9. 2. Consequently. it is able to determine the specific composition of material placed in the chamber for observation.33.1Issue A manufacturer of scientific instruments.33. Response: X can be used by itself. 1. and they have begun producing an unrelated product.is experiencing declining sales in its major product line. In fact. 9. Response: The instrument. but Y is essentially dependent on X for its operation. which we will call X. except for replacement sales. . (Goal: gather background information on the product). Y is rarely sold individually. Y is an accessory for larger and much more expensive instrument that functions almost exactly like a microscope. is able to perform elemental mapping. that is. Describe the instrument and what it does. What other products does our client manufacture? (Goal: gather background information on the client). 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). over 30 percent of our clients sales were generated by a manufacturer of X. Two years ago.85 Japanese partner's sales in Japan are relatively small and your client’s share is significantly larger than the Japanese counterpart.
86 2. Response: Both markets are flat. who also happen to be the primary buyers have become relatively less sophisticated. 3. Response: It is currently around 5%. 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). 5. Response: Our client's product is regarded as one of the best in the market.) . The buyers are relying more and more on the X sales force who is typically called well in advance of' the Y sales force. 8. Response: There are two basic user groups: industry . These buyers have become even more dependent on the sales forces.primarily semiconductor manufacturers. they are hired just to run the instruments and therefore know less about their technical qualities. What we have noticed lately is that the specific users in each of these groups. 4. (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. Is the market for X and Y growing. in research labs. shrinking or flat? (Goal: a shrinking market could be a good explanation for declining company sales). and academia. Who uses X and Y? (Goal: determine market segments). 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. our X does compete directly with other Ys and our client introduced the product about one and a half years ago. In other words. What is the current percentage? (Goal: determine whether this could be a cause of the sales decline). Response: Yes. How does our product compare to other Y's? (Goal: determine whether others are beating us in technological or other product features). (You have discovered a significant portion of the sales decline).
perhaps an oligopoly. Because aluminum is a commodity.2 Possible Solutions How to estimate competitors cost management? Financial accounts. As part of a strategic review.34. Indirect estimates by client management. 9. There are five major players in the industry. Given perfect competition. which market segment is most likely to be affected? Back of the envelope approach. In addition to ruining our relationship with a manufacturer of X by producing our own. for various plant-to-market combinations. relative cost position is the primary source of competitive advantage. you have been asked to construct an industry cost curve (cost/kg of aluminum produces vs. . 9. Your model should be flexible enough to enable various future scenarios to be run. we happened to do so at a time when relationships became even more important.34 Aluminum Industry (LEFT) 9.34. Perfect competition. (There are many combinations!) Linear programming approach.1Issue Your client is a leading manufacturer in the aluminum industry. industry supply). How to simulate the market mechanism? Determine what kind of market structure exists .87 This is the second part of the main reason for our clients declining sales. supplying six major geographic market segments. 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. Direct estimates by client management.
and you will discover the buyer link. In addition. you will discover the market is regional. The test is to see if you can come up with an answer based on information that you provide during the case using estimates. 9.36. By looking at the suppliers. you will know that they are independent farmers with little power against your client.1Issue How many piano tuners are there in Chicago? Possible Solutions This is a brain teaser case. transportation costs and competition have not changed dramatically. In analyzing the internal rivalry.35 Meat Packing Industry 9. owns a meat packing plant in Spain.2Possible Solutions Porter's five forces is a useful starting model in this case. Since there are stable costs and strong sales. Hence. a US firm. Investigate this avenue.35. There is no right answer. profits have steadily declined despite the fact that sales are growing. the only other alternative is the price of your product. the costs of your raw material cannot be the issue. Its purpose is to test your logical and quick mathematical thinking. Therefore. You will also discover that there has been no introduction of a substitute product. Your margins are being squeezed due to the increasing concentration and buying power of your customers. You have been hired to figure out why.88 What will the equilibrium price be in the future? 9. 9. . Over the last few periods.35. your production costs have remained stable.1Issue Your client.36 Piano Tuners 9.
5% of third. there are 46 piano tuners listed in the Chicago Yellow pages. . Next. The interviewer gave this piece of information at 2.000 50.000/3 + 25.89 You need to start by asking questions about the critical factors.000 + 50.000 25.000/10) = 119. This gives you (100. You can then make an estimate of 20% of highest income quarter have pianos. and 0% of fourth.000 100.000 each). Thus: Income quarter 1st 20 2nd 10 3rd 5 4th 0 Population % w/Pianos #of Pianos 500. How could you check this? Look in the yellow pages. You can estimate that the top income cluster tunes their pianos once a year.000. By the way.000 500. you can break the income of the households into four quarters (500. 250 days a year.000 pianos to tune.000 households.000 500. Would all the piano turners be in there? You could guess that at least half would be. We can estimate that a piano tuner can do four pianos a day.000 0 With 175. therefore: 120000/250=480 pianos a day to tune 4 = 120 pianos tuners needed. the second quarter once every three years and third quarter once every 10 years.000 500. One way to solve it is to estimate the number of households in the Chicago area.000.167 or approximately 120. you can estimate how often these pianos are tuned. 10% of second quarter.
What matters here is the thinking process.37 Consulting Firm Strategy (MOST DIFFICULT TYPE) 9. you volunteer to study the industry and propose a firm strategy for next millenium. type of customer (Fortune 100 versus Fortune 1000 companies). A good place to begin is to evaluate the industry from a competitive analysis perspective. not necessarily the answer. and the resources they employ (no MBAs versus all MBAs).90 9. When information is not available. This is also an interesting case since the salience is likely to be high. The following is an abbreviated analysis. such as Porter’s five forces. Firms act as competitive monopolists and differentiate themselves by specialty. with many players each holding relatively small concentration of total market. 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? 9.37. .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. you begin to realize the enormous task to which you have committed yourself.1Issue You are the newest member on the management committee of a well-known top-tier strategy-consulting firm. reputation (McKinsey versus accounting firms). ask the interviewee to develop his or her own hypotheses. which limits competition and keeps prices high. Eager to be accepted by your more senior peers. As an interviewer. As you leave the meeting. Top tier firms in particular are able to have high price points.37. you should feel free to add information on an as-needed basis. Rivalry (low to moderate): The management consulting industry is fragmented. which you will present to the committee at its next meeting. Many companies are relationshipdriven with their customers.
which lowers buyer power. however. which would reduce demand.g. the thought process is more important here than actual answers. the consulting market supply generally following demand. and push prices lower. it is primarily the established firms that compete in the top tier of the industry. Firms must pay market price or risk losing suppliers. it is appropriate to question the effect a recession might have on industry.) 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. However.g.91 Potential Entry (moderate): There are no great barriers to entry into the consulting industry. An interviewee should have an understanding of business information sources and how information is gathered. Its possible new firms would enter if the industry were earning positive economic profits. Buyer Bargaining (moderate-high): In the last decade. Information gathering is a critical reason companies use consultants. cost-cutting studies rather than market expansion studies. . give buyers more bargaining power. 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. experienced consultants who bring in sales and new consultants who provide analytic). Substitutes (moderate): Companies can move the consulting process in-house by hiring ex-consultants and bright MBAs. 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.. Supplier Bargaining (low-moderate): Major suppliers are the intellectual capital employed by firm (e. Other interesting points might explore the critical success factors in the consulting industry. Its possible demand may decrease as companies quit expanding.
mailed questionnaires. industry experts. Specifically. Their plant in Ohio is in need of refurbishing. investment bank research. what is the best strategic route? 9.1Issue (soch liya ) A corn feed company has eight manufacturing plants located in the Midwest. in-person interviews. associations. journal and newspaper articles. a complete review of published literature (a "lit search") pertaining to the study (e. government sources.). such as leveraging through technology? Given your firm's competitive strengths and core competencies. books. Most answers will depend upon the material covered in the first two sections of the interview. etc. The company has four possible options: 1.g. Refurbish the existing plant . 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.38. This research includes telephone interviews.g. These plants service the entire United States. This often points towards other good sources (e.). focus groups. Primary research is then used to focus in on the critical issues. how could you get a better handle on this issue? There is no right answer here.92 Information can be broken into two groups: secondary and primarily. 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. Usually one begins with secondary material.38 Corn Feed Company 9. major competitors. etc. specialized studies. However. Hypotheses are often created from the secondary information. laboratory experiments. etc. so the interviewee may balk.
2. Size of Plant First.93 2.1Location of Plant Transportation cost and perishability are the main issues with location. The plant size and the plant location should he considered separate. The transportation cost per ton of corn stock (raw material) is much higher than the cost of transporting the actual feed. which is industry standard. In .our company is the second largest.1. Build a similar size plant at a new location 4. Included in this analysis could be the rate of spoilage through longer transportation of corn stock. The corn is grown in the Ohio area and the feed is sold to the East Coast.1. Build a larger plant at a new location Which is the best option for this plant? 9. Conclusion The current plant is located close to the cornfields and this is the best location for the plant from the cost/benefit analysis. Build a larger plant at the current location 3. The capacity utilization is 65%.1. The current customers buy from all four manufacturers in order to guarantee supply. The proposed largest plant will not have economies of scales that are not already present in the existing plant. Currently demand is being met and there are no alternative uses for corn fed.38. All four competitors have similar manufacturing processes and similar cost structure.38. Pricing on the product is dependent on current corn prices as opposed to the manufacturing process. There are four main competitors in the industry . consider the demand for the product. 9. 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. Cost analysis of the transportation cost of feed versus raw material should be completed. The raw material is perishable where as the corn feed can be stored for any length of time and is easier to transport.2Possible Solutions There are two issues to this decision. Corn feed is a commodity product.
39. Would you advise your client to take advantage of this new process and offer selective binding to its advertisers? 9. 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. The same mix applies to the newsstand buyers according to readership audits. Q. 80% of who are subscribers.000.1Issue 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. 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. For example. 9.. and the proportion of subscribers in each demographic category? A. There are 1 million readers. What demographic breakdowns are possible to make in the magazine's database? A. advertisers can focus their communications on the demographic segment they are targeting. Q. 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. LEFT) 9. Of course. Twenty-five percent of subscribers make under $50.000. . the proportion of readers who are subscribers (as opposed to newsstand buyers). In this way.000 and those who make over $50.94 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. The only breakdown possible on your database is between subscribers who make under $50.2Possible Solutions This is a straightforward cost/benefit analysis. What is the total readership.39 Selective Binding Case (very chapoo case .000 and 75% make over $50.39.
so 75% of them are targeting the high-income group.000. 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. Q. Assume that all advertisers continue to advertise in 100% of the newsstand copies.95 Q. Since the printing cost to the client of selective binding is zero.000 readers. all of their readers make over $50. Most advertisers are selling high-end fashion products. Presumably. 100. The client's closest direct competitor has 500.000 of who are subscribers. The 75% of the advertisers targeting the high-income segment will advertise only to the high-income subscribers (75% of subscribers). New ad revenue per page = $50 X [(25% X 25%) + (75% X 75%)] at old rate = $31. revenue associated with a single inserted page (front and back) in an issue is 100 per thousand. the 25% of advertisers targeting the lower income segment will choose to target only that 25% of subscribers. What does the client's closest direct competitor charge for ads and what is their readership like? A.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 . They charge $70 per thousand for their full one-page ads. 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. Therefore. Effectively. The client charges $50 per thousand per full-page ad (selective binding can only be offered on full-page ads). 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)] Thus. What proportion of the client's advertisers target each demographic category of readers'? A. Q. instead of 100% of advertisers paying the full $50/thousand per page.
000 = $70 Thus.40. there are other issues which interviewees might want to mention such as the possibility of price discriminating between high . Any higher cost and the advertisers would switch to their competitor. it is important at the end of the interview to have reached a recommendation regarding the initial question posed by the interviewer. diversified entertainment corporation has asked a consulting team to examine the operations of a subsidiary of his corporation that manufactures .67 If the client charged $70/thousand for selectively bound ads. To mention these other possibilities and areas for further investigation is certainly wise. If you consider the advertisers targeting the highincome group. 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 500.40 Video Games 9. $70 is the maximum price per thousand the client can charge its advertisers for selectively targeted ads. the average revenue per thousand to the client would he: $70 X [(255 X 25%) + (75% X 75%)] = $43. their alternative to advertising in your client's magazine is to put their ad dollars toward the 100% high-income readership competitor.and low-income advertisers. For example. However.000)/500. 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. the magazine should not often advertisers the selective binding service. 9. To answer this question. 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. Of course.1Issue The CEO of a large.96 today.000 = $66.75 Since $43.75 is less than the $50 that advertisers are currently paying. our client's ad rates must be looked at from the perspective of their advertisers. the potential for and cost of expanding the advertising base using selective binding as a selling tool.
Assume you and I are at the first team meeting. Our competitors are estimated to have a 10 to 15 percent cost advantage currently. The requested expansion should reduce the cost by 5 to 7 percent and triple production capacity of the hardware units. You are a member of the consulting team assigned to this project. . Current estimated annual sales of 500. 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. The division’s current sales price for the basic unit is $45 per unit.000 units. The division’s sales remain less than 20 percent of parent company sales. he needs to know if he should approve a $200 million capital request for tripling the division's capacity.2Possible 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. The main costs are assembly components and labor. The remainder is divided among small producers. Industry growth of software continues to increase. Costs: The division estimates current cost is $30 fully loaded. yet.97 video games. The current estimate of industry hardware sales is 5. Market Share: The division is the third largest manufacturer of hardware in the industry with 10 percent market share. Sales: The division sales have increased rapidly over last year from a relatively small base. Distribution: The primarily outlets of distribution are top retailers and electronics stores.000 units annually. No other large segments have been identified.000. The division sells to great range of consumers. The top two competitors also develop. Industry growth has been strong though over last few months sales growth has slowed. The top two producers have 30 and 25 percent market share. Specifically. Customers: The division estimates that much of the initial target market (young families) have now purchased video game hardware.40. manufacture and sell software/games though our division sells only licensed software. respectively.
Product features are constantly being developed (e. however. if our client's position in that industry is sustainable. There are no bounds on creativity. The primary issue of the case is to determine if the industry is attractive and especially..). but better answers would address: Market Potential . 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. new remote joystick) to appeal to market segments. What will be the price/volume relationship in the future? Issues of prices need to be considered. The candidate should identify issues that are necessary for assessing both the industry and our client's position. What is the future market potential? The candidate needs to question the continuation of overall industry growth. Product: the industry leaders have established hardware standards. etc. The following issues would need to be covered for the candidate to have done an acceptable job: 1. but should not be expected to solve the problem. margins have recently been falling. competitive products (home computers).98 Profitability: The division currently exceeds corporate return requirements. What is the competitive outlook? The candidate should at least recognize the need to examine the competitive dynamics. per se. Issue areas might include: concentration of market shares. control of retail channels and R&D capabilities (rate of new product introductions. ask. 3. She/he might ask about the saturation of markets. 2.g. "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. and declining "per capita" usage. It the candidate begins to discuss too deeply a specific issue before having covered the key issues overall.
41.41 Steam Boiler Hoses 9.1Issue The firm was asked by a diversified manufacturing client to help turn around the steam boiler hose division. How would you structure an analysis aimed at restoring profitability? Where do you expect to be able to save in costs? . Address the shitting mix of product purchases. when combined. yields an industry volume estimate.) Software Recognize industry leaders set technology standards. 9. This steam hose division provides boiler hoses for both external customers and the client's boiler division. from hardware (player units) to software (videocassettes). Seek to look at buyer behavior in critical buyer segments.99 Recognize that there is a relationship between market penetration and growth in new users which. The client is third of eight industry participants.. In this situation. Explore the cost position of the client division relative to that of other competitors. hardware versus software). There has been increasing price pressure in the industry. -Seek to understand the reason for poor profit performance of division. Company ability to Compete Should ask what the capacity expansion is designed to do. Recognize that different distribution needs may exist for different products (in this case.e. In this case. Background information on the client and industry includes: Boiler hoses are sold both with original equipment and as replacements. the division as a secondary player and will have to follow these standards. "fad" potential of product. (i.
41. Scale economies (client is big enough to achieve scale production). MINIMUM REQUIREMENTS The candidate should avoid being bogged down in the following areas: 1. 2. Production technology (client has a modern plant) Labor costs (wages rates and productivity are average for the industry) . Allocation of overhead (no cash savings and provides little savings potential) 4. 3. Raw material prices (they are the same as everyone else's) 3.2Possible 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. At least two of the other companies in the industry are making moderate profits.100 9. Drop the product line (apparently not possible because hoses are necessary for boiler sales). 2. SG&A (standard industry fee paid for independent installers). BETTER ANSWERS Better answers will move beyond the previous answers to consider: 1.
•There are 7 to 8 major producers: the largest producer has a 30 percent share. •Prices have declined rapidly. requiring excess raw material.) 3. The target company is probably at break-even and the rest are operating at break-even or loss. Raw material purchasing practices (material are purchased through long term contracts with prices based on the spot market minus a discount). What kind of comments are we receiving form our sales force? (Customers are delighted with our hoses but require all the product features. We have been asked to begin our work by analyzing the future prospects of the target company's major product line. Essential facts included: •Production of this chemical has slowly declined over the last five years. . How is our product engineering operation wired into the marketplace? (There is little contact between the engineering and marketing/sales organizations.101 4. a bulk chemical used in the production of plastics.) 2. Both companies are bulk commodity chemical producers.42 Merger Candidate in Chemical Industry (Same as case 1) 9.42.1Issue One major chemical producer has retained the consulting firm to evaluate another major participant in the industry. OUTSTANDING ANSWERS The best answers follow a logical progression and should not stumble upon the actual answer: The product has been over-designed. our target company has 15 percent and the rest is divided among the other competitors. •The largest competitor has just announced construction plans for a major new plant. •The two largest competitors earn a small return. The answer should address the following organizational implication: 1. Are there other areas in the company where similar problems exist? 9. number two has 20 percent.
exit cheap mostly because older plants are fully depreciated.) 2. How rational is pricing in the market? (The industry is prone to self-destructive cuts to gain temporary share points. age of plant.) 2.) 2. Is regulation important? (Yes: all competitors have installed pollution control equipment.102 How would you structure an analysis of the target company's future prospects in this product line? 9. Reasons for announced capacity expansion.) 4.) 3. How often have companies entered/exited.) 5. Does the chemical have a major by-product or is it a by-product? (Not of significance in this case.) 5. The target company has reasonably "good" position. What has been the relative capacity utilization of competitors in the industry? (60 to 70 percent for last three years).42. How is the product sold and distributed? (Economies of scale in marketing and transportation are critical.2Possible Solutions MINIMUM REOUIRENENTS 1. How much overall capacity exists now? (Far too much. 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. How important is this product line to each of the competitors? (Most producers are fully diversified. (It is a bluff to try to encourage smaller competitors to shut down. and how expensive is entry/exit'' (Entrance is expensive. What are relative cost positions of competitors? (Related to size/efficiency. Is there synergy between our client and target? (Not really. Are there niche or value-added uses for chemical? (Not really.) BETTER ANSWERS 1.) .) OUTSTANDING ANSWERS 1.) 3. What is nature of operational improvements that target company could make? (Lots) 4. 4.) 3.
Customers: Our client's customers are primarily consumers or industrial product manufacturers who use the synthetic materials in packaging their own products. All of the machines on which these materials are made are housed in one enormous factory location. A variety of' small manufacturers supply similar products to a wide range of customers. etc. 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. Products: Our client's machinery can produce hundreds of different products. How would you go about determining the optimal mix of potential products? 9. flexibility.43.1Issue A client produces a range of synthetic materials in varying widths and lengths. Suppliers: Our client uses primarily commodity products in the manufacturing process. Each material is used for packaging but differs in physical properties in terms of costs. Some are unique to meet specific customer requirements while others are used by a variety of customers. Cost: Each product has a different cost to manufacture dependent on materials used and the manufacturing process. . Our client estimates he has less than 1 percent of' the total market. The client has asked us what combination of products he should ran to increase the profitability of the plant. All products can be obtained from a number of sources. light. Each machine is capable of running any one of the various materials and/or coating combinations. vapor.43 Machine-Loading Case TYPE PURPOSE Macroeconomic To determine whether the candidate can dissect a general economic problem 9.103 9. The client does not wish to invest in additional equipment at this time. water.2Possible Solutions Market Share: The industry is highly fragmented. Price: Each product has a different price dependent on both the client's cost to manufacture as well as the market for the product. and general performance.43. No competitor has more than three percent of the total market. weight.
1.104 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. 2. The interviewee should also address the market demand for each product (to ensure what is produced can be sold at an acceptable price). selling cost and prices. Are there market limitations to the potential production of any one material'? 2. Profit contribution is (unit volume) times (unit price minus variable cost). Is there unlimited market demand for these products? 5. 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. Is there flexibility in pricing of' these products? BETTER AN'SWERS 1. Machine-hour capacity is a surrogate for fixed costs per unit of volume. Are there differences in costs in the manufacturing of these materials? For example. These areas must be determined to understand the profitability of each product. The best algorithm is to maximize the profit contribution per machine hour. Are there technological displacement or replacement products on the horizon? OUTSTANDIN'G ANSWERS The best candidates will formulate a profit maximization algorithm. do some coatings cost more than others do? Do some materials have inherent cost differences? 4. MINIMUM REQUIREMENTS 1. Are the machines truly interchangeable or are some better suited to one product or another? 4. Are there differences in setup time and cost for various materials or coatings? 2. . Is there competition for these products? 3. Do these materials move at different speeds through the machines? 3. The candidate could cover differences for each product in the fixed and variable manufacturing.
45 Agricultural Equipment Manufacturer (GOOD CASE) 9. is losing money.1Issue Your company has 25% world-wide market share of the oil industry. How do you asses the current operating status of this division? 9. how much does each cost to build. What is your client's market share relative to their competitors (your client has 40% of the market.operating status" . What questions would you ask of your client to help them solve their profitability problem? 9. An estimate of the market size is therefore needs to be done. You might want to start off by asking how many competitors there are. In addition. with the remaining 15% belonging to many small manufacturers.2Possible Solutions Define "assess..2 Possible Solutions It is unlikely that there are too many players in this market.most likely in comparison two dissimilar pieces of information: 25% market share and $4M (but no idea what % of the market this represents). This % can then be compared to the 25% share of the parent. Divide the above mentioned $4M into this and the refining division's market share can be assessed. An outstanding answer must include recognition of the asset costs and capital implied in that as well as income or profit contribution. 9. and competitor #2. one can estimate what the industry spends per year on machinery can.45.1 Issue Your client is a large agricultural equipment manufacturer. farming tractors. 9.. which supplies machinery to refineries (not owned by your company) around the world. The guide is to request what % of the market $4M represents. the potential substantial differences in volume produced per product-hour and/or the price obtainable in the market demand and competitive actions.44 Oil Refining Industry (NEW) 9.44. your client has lost significant market share to its two competitors over the last few years. competitor #2: 15%.105 3. You generate $4M annually in revenues through the machinery division of the company. competitor #l. Suppose the answer is that there are two direct competitors.) . 15%. The way to do this is to ask how many oil refineries there are. Their primary product line.) What-are the market share trends in the industry? (Five years ago.44. From this. Assume this is unknown. competitor #1: 30%. Obviously. your client had 60% of the market. 10%. not dependent life) and what the machinery replacement costs are.45. how long they last (actual life.
) Do you manufacture your tractor or just assemble it? (Primarily an assembly operation.) Has this always been the case? (Yes) Are the products the same? (Essentially yes. tractors are not commodity items and a few differences do exist.) have gone up out of sight.106 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.) Why do you make these improvements? (Because we strive to continue to sell the best tractors in the world.) 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. This can be critical for some farmers because they cannot afford to have a piece of equipment break down at a critical time. material costs.) . they all have the same basic features.) Are sales revenues down? Are sales quantities down? (Yes) Is the price down? All costs the same? (No.) Have fixed costs increased? (`No. the prices have increased as a result of our product improvement efforts. in fact both the price and costs are up.) 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. they're not. We've tightened tolerances and improved the durability of our component parts. Of course. (variable costs. and the client has no answer as to why material prices have gone up so staggeringly.
Recently. and long-term t-bills are yielding 8 . Company 456 is currently selling for $22 per share. A more efficient compensation structure might pay the agent on a sliding scale. Short-term treasury bills are yielding 7 percent. but customers do not value these improvements unless they are essentially free --so sales are down.2Possible Solutions This.) Are your customers willing to pay a marginal price which will cover your cost of implementing these improvements? (I don't know. she has asked your advice about the purchase of a large position in company 456. whose stock is listed on the NYSE.46. 9.. they are motivated to issue a policy to anyone at as high a price as possible.107 Are your customers willing to pay for these product improvements? (What do you mean. is an organizational behavior scenario. They are not motivated to give consideration to the riskiness of the insured party.25 for the foreseeable future. I guess we assume that they will. The treasurer's investment analyst predicts that the stock will pay a dividend of $1.. the results achieved by the above mentioned composed system are examined. 9.46.47. 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.) It turns out that prices have been raised to cover the costs of these improvements.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). that you must consider the long-term effects of these decisions." is applicable.. In essence.47 Consulting Firm (2) 9. The absence of such a consideration (for example) would be detrimental to the company in the long run. you must define what the "right way is". The only factor determining how much the agents paid is their sales $. Which is the right way to pay the sales agents? 9.1 Issue (LEFT) Your client is the treasurer in a significantly privately held corporation.46 Insurance Company 9. depending on how risky (costly) an insured party proves to be. in case you have not already surmised. The client needs to incorporate a cost/benefit analysis procedure into its product improvement process. Again. Having set up by definition. Don't forget though. She is in charge of managing a portfolio of investments in addition to her treasury responsibilities..
1 Issue A manufacturing company based in Charleston. You are called in because they feel that the $ l million that they spent on distribution last year was way too high.one in Charleston. in specialty and department stores. Beat this figure and you've earned your exorbitant fee.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. the only way they can do this is by shipping overnight at a premium rate (UPS . This is strictly a mathematical. the higher the cost (more inventory pools.S. one in Philadelphia and one in LA . Your client has three warehouses . wait until after the interview for that). The next thing you need to know is where the warehouses are located. 9.2 Possible Solution Wet your pants/skirts. How would you go about determining a fair price for company 456? 9.from which they cover the whole country. 9. The higher the service level.48.48 Pots & Pans (2) 9. SC makes high quality pots and pans which are sold throughout the U. 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). A quick way to solve this case is to realize that if stores require next day service from these three warehouses. hold no inventory and thus require next-day replenishment after a sale. How can you show your client money that he can save money.47. since they sell so few of these pots and pans. number crunching exercise. The treasurer is contemplating the purchase of 5000 shares of company 456 and wants your help in determining a fair market price.108 percent. You need a numerator (diapers) and a .48.49. When you divide this into the $1 million distribution cost you discover that they are pay $100 to deliver a pan to the store. warehouses and shipments). since the closer they are to the stores the cheaper the distribution costs.no wonder they're spending so much). 9. (No.49.49 Diapers (Estimation Case) 9. This can be confirmed by asking for the annual sales which turns out to be 10. It turns out that stores.000 units.2 Possible Solutions Distribution is basically a trade-off between cost and service level.2 Solution $22 per share 9. So you need to ask where the inventory is being held.
Operating costs are composed of variable items: sales staff. and. many communities are enacting legislation that limits their usage in Tucson. Cable penetration rates in the three Northeastern markets average 45%.50. due to the larger land area serviced. Despite every effort of management. How would you analyze this situation. maitenence. However.50 Cable Television Company (2) 9.109 denominator (total US household garbage). These rates have been steady over the past three years in the Northeast. Per capita income is higher than in Philadelphia and the same as in Rochester and in Stamford. Philadelphia and Stamford. The Tucson company has attempted marketing efforts in the past. The lower penetration rate is most likely a result of different climate conditions and lower interference in Arizona. 9. The penetration rate in Tucson has only rised by 2% in the past three years in Tucson. etc. yielding the estimate of total diaper weight (numerator). therefore. which is a function of physical area covered. Multiply this number by the average weight per unit. television reception is far better in the desert Southwest than in Northeastern cities. and the company has been losing money. Each of these three companies is profitable. These programs have been modeled after the other three markets.2 Solution The real error of management results from their failure to recognize another “substitute” good: no cable television at all. the Tucson company’s sales have been stagnant. Operating costs in Tucson are essentially the same as in the other markets. free hookup. The penetration rate in Tucson is 20%. However. Figures on garbage tonnage (denominator) are probably available in some obscure federal report. Let's assume this will be done in pounds. 9.). the management feels that th e Northeast is not the fastest growing area of the country.1 Issue (DISCUSS) Q: Your client is a small holding company that owns three cable television companies in the Northeast: Rochester. Tucson is also growing at 12% per year on average. For diapers you could take the total $ sales of disposable diapers and divide by the average price per total unit (box: etc.50. 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. and each has been experiencing steadily growing sales over the past few years. Arizona a little over a year ago. They are also prohibitively expensive for most people. Only maintenance is higher that in the other markets. such as free Disney programming for one month. but larger than Rochester and Stamford. NY. administration and marketing. free HBO for one month. Fixed costs relate to the cable lines. acquired another cable television company in Tucson. . There is only one real substitute good for cable television: satellite dishes. CT. The cost of programming is based on number of subscribers and is equal across the nation.
makes her third in the industry. The chilled segment represents $120 million in sales per year. Your client’s market share.51.51 Chilled Beverages You are consulting for the manager of a division of a large consumer products company. but the other flavorings cost about twice as much. There are two large players that have 40% and 25% of the market. mangoes. The two market leaders are able to fund more advertising and more promotion. bananas. etc. respectively. and frozen concentrate. trade and couponing that your client. Therefore.110 9. as in juice boxes and frozen concentrate. However. One plant in California produces all of the product. 12%. Pear and peach juice are about the same price as orange juice. chilled. The market leaders produce pure orange juice and blends that are based on citrus juices. While juice boxes and frozen concentrate are profitable. The market for chilled juices is essentially mothers with school age children. It would be difficult to find another use for the plant without a major conversion. promotions. Her division produces fruit juices in three forms. The best available information indicates that the two market leaders are profitable. The entire company has sales of over $20 billion. juice boxes and frozen. What would you advise that she do? To be divulged gradually: Chilled beverages is a $5 billion dollar industry nationwide. juice boxes. all marketed under the same name: chilled (found in the milk section of the supermarket. (the other 5% of the inputs). Brand name is important in this market. the brand premium must be in line with other branded products. usually with a base of pear or peach juice (95% of the inputs) and flavored with cranberries. She has received a proposal from upper management to sell the chilled juices business. 9.1 Solution: . Your product uses more elaborate blends of juices. chilled juices are only breaking even in good quarters and losing money in bad quarters. This is a highly price sensitive market that loves coupons. etc. This division has sales of $600 million per year. all branded juices tend to sell in the same price range. usually). as mothers tend to prefer highly reliable products for their children.
This would. In 27 states. shelf space is extremely expensive and trade promotions are critical. the same as the idustry average for these product lines. as evidenced by the success of the competitors. Advertising of alcohol is much more tightly regulated. Such stores are also becoming less and less willing to hold inventory. 9. Their primary products are a line of mid-priced vodkas and two brands of mid-range rum. 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. This may be more feasible. as there are far fewer outlets to service and central warehouses for the state-run stores.. as there are both advertising and manufacturing synergies. Distribution costs in these states is much lower. . and therefore. Over the past few years. “open” states.1 Issue You are consulting for a major United States producer of distilled spirits. 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. advertising spending is lower. Sell all of the juice business. the business has become less and less profitable. The selling price is likely to be low. This turns out to be the most feasible option. but would not be too likely to turn the business around.111 There are three choices: Sell the chilled juice business. liquor is only sold through state regulated liquor stores. What could be causing this: (if this is asked only answer this .52. where alcohol is sold in privately managed supermarkets and liquor stores. The selling prices of the two lines are essentially the same. Keep the chilled juice business and rework the ingredients and costs.52 Distilled Spirits 9. In the other 23 states. affect the juice box and frozen concentrate businesses. however. as the buyer could capture the synergies. which is increasing distribution costs by requiring more frequent deliveries. Overall sales are growing at about 3 to 5% per year.
This could be obtained by knowing the population of Paris (6 million) and making some educated guesses about factors that determine pizza market size. 15% are between the ages of 10 and 20.1Possible Information Needs: An estimate of the size of the Parisian home pizza delivery market. number of stores. Estimate that these people chew two packs per week.54 French Pizza Market Pizza Hut has recently entered the home pizza delivery business in Paris. Total packs per year is 9. for annual sales of 4.500 million packs. (70% of the 300 million population. annual sales would be $2. more profitable. what do they charge for their product. 9.53. for a total of 45 million. what type of product do they offer. with sales in these states increasing at about 10% per year. the current competitor.52. the heaviest users. chewing gum market? Check your answer for reasonableness. Pizza Hut has asked your consulting firm to help it analyze issues that will determine its likelihood of success in the Parisian Pizza market. the fact that they represent a shrinking portion of the total has caused total profits to decline.54.2A typical approach: Estimate the number of people who chew gum: of the 300 million population. 9. or 210 million) estimate a usage rate of one half pack per week.750 million.53 Chewing Gum Market (Estimation Case) 9.53. 9. for a total of 5. figure the dollar sales that these packs represent: at 25 cents per pack. Because the regulated states are less expensive to serve.4 billion. Other useful information: market segments targeted and served by Spizza. You may also want to know the size of Spizza. The market for home delivery is currently dominated by Spizza Pizza. what is the cost structure of their business and what products are most profitable. .2 Solution: A greater and greater share of the volume is being sold in the “open” states. including sales. Sales in the regulated states are actually decreasing. and therefore.250 packs per year. To check for reasonableness. market segments that are neglected by Spizza. a reasonable figure.112 9.1 Issue How would you estimate the size of the annual U. and proportion of Paris that is currently served by Spizza. First.S. how would you analyze the pizza delivery market? 9. what information would you need and second. For the other users over age 20.
1 Issue An overseas construction firm wants to expand by establishing a presence in a growing U. Multipy that times the 50 million.2Method of analysis: The best method of analysis would start by determining if any part of the market is not well served currently by Spizza.2 Typical solution: Golfball sales are driven by end-users.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. resulting in a 2 billion ball market.113 9. 9. try to understand the likely competitive response of Spizza to your client’s entry. assume that people between 20 and 70 play golf (about 2/3 of the population. and requires two balls per time. How should it go about doing this? What factors are critical for its success? 9. that’s forty balls per person.S. Determine what are the needs of any neglected market.3 Possible Solution Diversification could be effected through joint ventures or through acquisition. estimate the frequentcy of purchase. The number of end users: take the population of 300 million.56. How will you defend your position if Spizza decides to fight for market share.54. the success of the venture would depend not only upon the means of entry. 9. 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.55 Golfball Market Entry 9.1 Issue You are visiting a client who sells golfballs in the United States. regional market.55. and understand if your client could profitably serve this market.55. However. 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. Your plane lands in fifteen minutes.56.56 Overseas Construction 9. If the average golfer plays twenty times per year. Other critical factors would include: . Also.S. Now. Having had no time to do background research.56. you sit on the plane wondering what is the annual market size for golfballs inthe U. and what factors drive demand. How do you go about answering these questions? 9.
58 Airline Expansion (Very interesting case) A major airline is considering acquiring an existing route from Tokyo to New York. labor and energy costs 10% distribution and storage. 9. Solution: The competitor has used their new technology to produce a lower price product. How would you begin to assess the future for this client. the company has 80% of the market. Currently. a localized upstart company has appeared in the Philadelphia / New Jersey market and has captured nearly all of that market. 35% conversion costs. the future is extremely bleak for your client. Your client does not have much information about this competitor. nearly all customers prefer this product to your client’s. and they should be advised to respond to the competitive threat.57 Packaging Material Manufacturer (assessing future) Your client is the largest North American producer of a certain kind of bubble-pack packaging material. The client had 100% of the market until two years ago. They have also been undercutting your client on price. The factory is thriry years old. a plastic chemical. Therefore. Poyethylene is a commodity chemical.114 The existence of a distinct sustainable competitive advantage. and has asked your firm to assess the strategic outlook for this company. 15% marketing and overhead. This factory has purchased technology from a German company. How can it determine if the route is a good idea? Suggested frameworks: . 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. Profit margins are 20%. including allocated fixed costs. hazardous waste) Access to distribution channels 9. Since that time. perhaps by updating their own technology. for example. As evidenced in the Philadelphia / New Jersey market. and the technology used is the same as when the factory opened. 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. but it appears that their factory is extremely efficient.
also. is ours higher? If so. the competitive invironment and the extent to which our client could win over passengers from competitor routes. can public policy of efforts to increase awareness help reduce it? . Compare the indicence of kidney disorder in the country with other countries.115 Profitability analysis looks like the best approach. it is mostly a variable costs. it is important to note that losing passengers to cannibalization is better than losing them to competitors. such as corruption or government regulation. 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). Operating costs will depend on expected fuel costs. while in his office. Interviewer Notes: 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. etc. that may play role. Don’t forget the external factors. It is also very important to estimate the cost of cannibalization on existing Tokyo-LA. And. 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. 9. Since this is a procedure. Thus. last but not least. incremental costs for landing rights. the sum of which is measured by cost per unit x # of units. Then. you discover that kidney dialysis is a major portion of public health care expenditures.S. Simply determine if revenue less costs equals a positive profit. analyze the factors that go into revenue and the factors that comprise cost to come to a conclusion.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. LA-New York routes. Both of these will be determined by expected demand. rather than a whole industry. Interviewer Notes: Revenues will be determined by occupancy rates and expected prices.
build a model (regression. (Ice cream and similar products). regional maker of high quality premium priced frozen desserts. such as the 4 P’s. Though sales have been increasing. so it is essential to anticipate them. etc. the elderly) have a higher incidence of kidney problems.S. high growth or high profitability. Perhaps those who are typically covered by public funds (the poor. These will depend on the importance of the area to competitiors (in terms of profit. 9. etc.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. share. If the need focuses on deposits and withdrawls only. perhaps) that will somehow determine the factors that are most related to kidney treatment. should be compared with those of historically successful branches. income levels. business concentration.) and what purpose it would serve.) The client will have to match competitors’ incentives to customers and should estimate the cost of doing so. Population. the business is barely making a profit and the management is unsure that they will able to . Is there room for any type of preventative program for these groups? 9.116 If incidence is indeed higher for the U. The client must examine if the new branch would complement their existing competence and strategy (retail or commercial. maybe a cash machine would suffice.61 Frozen Desserts You are consulting for a small. etc. Competitor reactions could easily make this venture unprofitable. one should consider a marketing framework. Interviewer Notes: The demographics of the area surrounding the prospective branch should be examined.
due to the higher ingredient costs. plus 2 x 25%.5 additional reorders. and currently represents 55% of product sold. vanilla and coffee. 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. pineapple and raspberries. kiwis. The fully allocated profit margin (excluding mailing costs) on catalog orders is 15%. Your client’s catalog printing and postage costs have just increased to thirty-two cents per catalog. frozen yogurt has begun to outsell ice cream. In recent years. Solution: Margins on frozen yogurt products must be lower than for ice cream. %.return analysis) You are consulting for a direct mail retailer that sells ladies clothing. each 100 catalogs mailed results in 2. 9. All other costs are equal for the two lines. however. for a total of 2. or possibly even negative. pecans. They have asked you to help them identify the problem. In other words.62 Direct Mail Retailer (very interesting case) (Simple investment. Each 100 catalogs will result in 2 orders. The average order size is $80. or . Ice cream uses locally available milk and cream. . printing and postage costs are $32. The selling price per pint is the same for frozen yogurt and ice cream. Solution: For each 100 catalogs mailed.5 orders place. and flavorings such as chocolate.117 pay their usual dividend this year.5 orders placed per 100 catalogs mailed. (100 x 32 cents). as Americans jump on the fitness bandwagon. the shift of sales from ice cream into frozen yogurt is causing the company as a whole to be less profitable. The premium frozen yogurts use more exotic flavorings such as mangoes. Additional information: The client sells a complete line of product (ice cream and frozen yogurt) in major supermarket chains in the Northeast. Therefore. 25% of customers who order product can be expected to reorder within six months. The ingredients are different. In addition.
g. While most products that come off patent quickly drop in price (e. . the cost of the chemical sweetener represents 1. Information to be divulged gradually: This is the only product of its kind.63 Chemical Sweetener Manufacturer Your client manufactures a chemical sweetener used in beverages and other food products. pharmaceuticals). Therefore.5 orders will result in 2. these sales will return a total profit of $30. the margins on this chemical are almost 40%. Because the major two customers feature the chemical name on their product.5% of their total costs. and consider it a sign of quality.118 2. in terms of taste and safety (lack of harmful health effects) as proven in lab tests. You have been asked to predict what might happen to the profitability of this product when the product comes off patent. The largest two customers (75% of your sales) are two worldwide beverage companies. they can be expected to be willing to continue to pay the premium into the future. At a profit margin of fifteen percent. 9. The companies feature the brand name of your client’s chemical on their product. The $30 profit is not sufficient to cover the printing and mailing costs of $32. and because the chemical represents such a small portion of their total costs.5 x 80. the outlook for the product is good even after the patent expires. Solution: This is a classic customer analysis problem. this product will be able to retain some of its premium due to the strong brand name. The brand name of the product has slowly become a common household word. or $200 in sales. The costs to manufacture the product are extremely low (about 20% of the price of the product). Currently. The chemical will come off patent in one year. the client should reject the printing arrangement at 32 cents per copy. Therefore. In addition.
such as Porter’s Five Forces. once you feel you understand the market. 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.64 Telecommunications Diversification A Baby Bell company is interested in diversifying into other areas besides telecommunications. The top five players in the industry generate less than 4% of the total industry revenues. The economics are: Item Equipment and Installation Monthly Service Retail Price Cost / Margin $500 . They have previously made unsuccessful forays into software and into real estate. transmission system (phone lines) It turns out that the “expensive home” segment of this market is saturated. Would you recommend that they do so? Suggested frameworks: Use an industry attractiveness framework. The home security business is highly fragmented. Growth has been slow in recent years. They are considering entering the market for electronic home security systems.500 0-10% margin $20 / month $5 / month What strengths / competencies of the Baby Bell company are useful in this market? Consider: Installation expertise. to determine whether this is a business you want to be in.$1. . This is is some sense a razor and razor blade sort of business. or at least to determine what kind of returns you can expect to achieve. finally. Price sensitivity is unknown in “moderate-priced home” segment. use the value chain to look at where value is added in the home security business. then. operator services. regional companies. 10% of all residences currently own an electronic security systems.119 9. This implies that the industry largely consists of small.
thus hurting manufacturers in that market. Also. It turns out that the client is the leader in its market with a 40% share and supplies directly to major beverage manufacturers. .120 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. don’t forget to think about any substitutes for aluminum cans. The cost advantage may help another day during a price war. The number two player in the market has about 30% of the market and the rest is shared by many small competitors. Consider the impact of either strategy on the company and its competitors. The lowering of prices might increase the client’s market share marginally. 9.79 cents. steel cans. Since some steel can manufacturers have deep pockets and a strong backing. As a result. Aluminum cans have a lower priced substitute. How can the manufacturer best exploit this cost advantage? Suggested frameworks: Remember basic economics. it is best to retain prices and generate extra profits for now. the client should either drop price or reap additional profits.65 Aluminium Can Manufacturer An aluminum can manufacturer has discovered a way to improve its manufacturing process. but that more market research needs to be done to assess the growth and profit potential of each segment of the market. In conclusion. its manufacturing cost has been reduced from $0. If the client drops prices. The resulting growth in the aluminum can market will attract steel can manufacturers to enter it. Steel cans are used by customers who do not want to pay the premium for aluminum cans. At the same time. steel can users will start switching to aluminum cans. these new entrants could pose a future threat to our client. Interviewer Notes: Clearly. 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.89 to $0. other competitors will have to follow since this is a commodity market and not following would mean a quick demise. which have inferior printing and stamping characteristics.
9.121 9. He needs your advice on how to go about evaluation this idea. What factors should be considered? After considering these factors.67 Concrete Manufacturer Your client. This makes the business tough to enter. etc. look at industry attractiveness with Porter’s five forces analysis. would you recommend the acquisition? Additional Information to be divulged gradually: The target firm is currently profitable. Major discout stores sell the service.66 Film Processing (Discuss) The CEO of the largest domestic manufacturer of photo film want to enter the film developing business. patio builders. so profits are easier with high volume. The smaller firm sells mainly to other small businesses and contractors.) . analyze competitive response. This company ended up establishing a “store within a store” concept with Wal-Mart. What would your approach be? Suggested frameworks: This is and industry entry question. think about what part of the marketing mix (4 P’s) would be best for film developing. Then. and a stable labor force. with margins of 5%. the Southeastern U. Interviewer Notes: Distribution channels are the key factor in this business. Finally. Your client attributes its higher profit margin to economies of scale in trucking and mixing.S. Your client’s customers are large construction firms and contractors generally in the office and commercial building construction business. This is a scale economy business in the back-office. Both companies compete in the geographical market. Your client’s margin is 15%. (Swimming pool installation firms. a concrete manufacturer is considering acquiring a small local firm.
a steel shell and an insulation and waterproofing material that uses a hazardous chemical.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. Your client is not able to fund the acquisition internally. ignores the tax shields. while the major office building construction market is stagnant.122 Additional research shows that the smaller customers for concrete are growing. Profits are only 5% of sales. of course. What issues might you examine? Suggessted Issues: Sales and cost issues: The growth of the shipping container market. steel prices. the acquisition is not attractive if there are no synergies between the firms. The container consists of a steel frame. With profit margins of only 5%. growth of the largest customer industries. (Acquisition price = 3 x sales. which could raise the profit level of the target firm. Market issues: changes in the worldwide shipping market (e. Shippers can lease the containers one-way or roundtrip. manufacturing costs. It is reasonable to expect that synergies would arise from economies of scale in trucking and mixing. The containers are leased by the company to worldwide shipping companies. . your client’s share in that market. and make the acquisition more attractive. The smaller firm has strong contacts with many local customers. 9. the acquisition would be advisable. but could obtain bank financing at a rate of 10%. Similar acquisitions generally are made for two to three times current sales of the target firm. if your client were able to use some of its competitive advantages to improve the financial outlook of the target firm. Solution: From a financial point of view. Interest on this amount will be 10% x 3 x sales. trends in the leasing terms in the industry. the income generated by the smaller firm will not cover the capital charges (interest due to the bank) on the acquisition price. and is often the preferred supplier due to their customer responsiveness. This analysis. customs and trade agreement trends.g. The client has asked you to do an assessment of their strategy. does the growth of an area like Southeast Asia imply many more one-way contracts than round-trip?). customer power. or 30% of annual sales.) However. new technology in shipping containers.
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: Naturally. 9. if the company’s margins are found to be consistent with industry norms. Its goal is to double total sales and profits in less than two years. A business can increase profits by: Increasing sales Increasing prices Decreasing costs However. particularly if the company is operating in a moderately competitive environment. it would seem unlikely that either increasing prices or cutting costs represent feasible methods by which to double sales & profits. This leaves only sales increases. a suitable solution will depend upon the answers to the above questions.69 Healthcare Company Growth A large healthcare company has decided it is interested in substantially increasing the size of its operations. which could be achieved by: Selling more of the current products to current customers .123 Environmental Issues: Production and disposal of the insulation chemicals. As a consultant brought in to assis them. costs of handling the chemicals.
and competition for suitable targets. each store deals directly with the vairous suppliers.124 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. 9. Possible solution: The proposed solution would depend upon your interpretation of the trade-offs both financially and organizationally for the two methods of delivery.e. The relative benefits of each will depend on financial resources as well as the existence of.70 Regional Grocery Store Chain A regional chain of grocery stores currently receives its stock on a decentralized basis. the flexibility of delivery times and quantities. it turned out that only selling new products to new customers via some form of diversification could hope to achieve the company goals.e. For you to propose . i. In the particular example of this case. 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. 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. Will the stores prefer delivery direct from the supplier or from the warehouse? Consider the time tied up in order processing. 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: 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.
you need to establish not only that it will cost less. Furthermore. It should be observed immediately that to maximize profits. but also that all the affected players can be persuaded to buy into it. with an appropriate confidence interval. marginal revenues should be set equal to marginal costs. we need to know how much cloth (measured in square meters. we may segment the inhabitants of our planet per level of personal wealth. Note that this may not be a linear relationship.125 going with the new method.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. In order to evaluate the world demand for cloth. The probability of sale. She has massive amounts of historical data for sales volumes through these outlets and a well constructed internal accounting system. for instance) is being purchased per unit time per inhabitant of the world. The marginal revenue for a magazine would be its cover price times the probability that it will be sold. In order to refine our appraisal. 9. you may need to consider other factors: . A detailed discussion of the application of these concepts from basic microeconomics and statistics may be necessary. 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. The marginal costs could be obtained from the internal accounting data. 9.72 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. could be established in some manner from the historical data.
Raw materials are purchased from a government-owned company. From the data. and extra shifts are not possible. This company currently has 45% of the market.73 Cement Manufacturer Capacity Addition You are consulting for the number-one producer of cement in Portugal. Solution: As distribution is the second-largest cost item.126 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. about 200 miles to the north. . and prices are set by a yearly contract with the government. located near Lisbon. The fixed cost of plant additions is roughly the same as the cost of a new plant of the same capacity. Additional information to be divulged gradually: The cost structure for cement production is as follows: Raw materials Distribution Sales and overhead Pre-tax profit 28% 16% 26% 18% 12% Labor and allocated fixed costs The company’s selling prices are set by prevailing market prices in Portugal. The trucks are owned by the company. The CEO has asked you to help him decide if they should build another plant or expand the current plant. The plant is unionized. location of the plant in the north may increase sales in the north by reducing delivery costs to these customers. it makes sense to minimize distribution costs in choosing the site of the next facility. Land is available to expand the current factory. there is also a suitable site near Porto. in Southern Portugal. Approximately 80% of the customers are within 100 miles of the current plant. it is safe to assume customers that are further away are less inclined to buy due to the increased trucking costs. and transport all product directly to the customers throughout the country. and feel it could have more. but is running at 100% capacity of their one plant. Therefore. Customers pay for trucking by the mile.
these two companies have 55% of the market. The sales force generally visits each customer at least once per quarter. Together. The product line of the client has not changed over this period. have been growing. Promotions usually occur at the end of each quarter.74 Snack Food Company ( DONE !!! ) A large salted snack food company has steadily been losing market share over that past two years. however. Grocery stores and convenience stores require some type of promotion to grant valuable end of aisle displays or advertising space. though the same number of outlets are still covered by this sales force. Their sales forces are regarded as the best in the industry. The changes in the marketing budget come from reduced trade promotions. 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.127 9. Profits as a percent of sales. the interviewee’s conclusion should be that the client’s total dollar sales have actually grown. Solution: . from a high of 20% to the current level of 18%. The costs for the client have changed over this period: ( % of selling price) Current Raw Ingredients: Conversion costs: Distribution: Marketing: Sales force: Pre-tax profit: 28% 24% 8% 16% 7% 17% Two years ago 26% 24% 9% 18% 9% 14% The total sales force was cut to reduce costs. but not kept pace with the market. The products are mostly sold through large grocery store chains and convenience stores. The largest competitors are two multinational consumer products companies that feature complete lines of snack foods.
for which costs would RC Cola be higher. . Sales Costs: could be lower for RC. The marketing expenditure was also decreased. 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. Most of the reduction came from trade promotions. but more loyal customers. however.75 Beverage Company Cost Structure RC Cola and Coca Cola both compete in the same industry. Also.128 The data show that the greatest change is in the sales force numbers. indicating a missed opportunity for new products in the market. as there are fewer. for which would they be lower. Administration / Overhead: lower for RC Cola as they are more of a “one-product” company than is Coca Cola. Also. In other words. it is conceivable that one truckload may be deliver to just one customer. the market has been growing. A possible analysis. meaning that more stops would have to be made. the typical order size for RC Cola would be smaller. In addition. It turns out that the company went on a cost-cutting spree over the past two years. Lastly. the product line has not changed in the past two years in a product category where new products and line extensions are routine. the average truck driver will be driving more miles and spending more time to deliver a truckload of RC that the Coca Cola driver. but may not be sustainable. Their cost structures are vastly different. Therefore. Distribution: would be higher for RC Cola for two reasons. 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 increase in profitability has resulted from the lower costs. estimate the likely cost structure for RC Cola. Using Coca Cola as a benchmark. In the case of Coca Cola. The product is sold through the same channels as previously: large grocery chains and convenience stores. 9. which has directly led to the decrease in market share. RC is not distributed in as many outlets as Coca Cola. The sales force was drastically cut and the commission scheme was reworked. who will have several stops within an immediate area. These channels are traditionally driven by periodic trade promotions. Marketing: is lower for RC Cola as they are not a frequent advertiser like Coca Cola. The reduction in trade promotions brought about a loss of shelf space.
The lab is ready to licence this product to a light bulb manufacturer.1Issue You have a have recently been assigned to a project with one of the nation’s super regional banks. Another solution is that all of the players obtain some version of this technology. Possible solutions: One outcome is that one of the two major players purchases the technology. There are a several small local players in various regions of the world who produce local brands and some private store brand light bulbs. this bank has canvassed its territory with small free-standing branches. with this filament. If that were to happen. the price for this product would decline to the normal industry profit level. all bulbs would be permanent and the industry volume would greatly decrease. all customers will eventually switch over to the permanent light bulb. and customers would shift to the permanent light bulb. putting the competitor out of business and greatly reducing their own business. The two companies sell their products side by side for essentially the same price in similar outlets internationally. If the producer makes enough bulbs at a low enough cost. the light bulb will never burn out. Your client has recently concluded that the old “local branch” way of business is no longer viable. Like most banks in its class it has branches in 8 geographically contiguous states.129 9.76 Permanent Light Bulbs A small R&D lab in the Swiss Alps has developed a super-durable filament for light bulbs. however. What will be the effect on the light bulb industry? Additional Information: The light bulb industry is dominated by two multinational producers. . There have been no technological innovations in light bulbs for many years. 9. The bank is one of the top 10 largest retail banks in the country. thereby drying up the industry.77 Super Regional Bank 9. Typically. Over time. this player may enjoy an advantage for a limited time. making the industry more competitive and wiping out industry profits. If the technology is patented and exclusively licenced.77. the new age of electronic banking and commerce is changing all of that.
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. 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 . It was a Saturday night and the weather was fair. 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? 9. There certainly is no right answer.thus requiring less tellers? Summary: It probably is best setup as a cost benefit analysis. While enjoying one .78 Cigar Bar (DISCUSS) I was sitting in one of Chicago’s new specialty “Cigar Bars” around the end of August with a friend.130 They are considering replacing many branches with Calling Centers. The question to you is: how would you go about setting up the engagement to determine the viability of this new concept? Specifically. 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. however this type of case occurs frequently.77. 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. Fund transfer. 9. Calling Centers offer both live and phone automated services that may be accessed by phone. etc.
liquor license. I asked my friend how much he thought the bar was worth.131 of the bar’s finest stogies and sipping a cognac. In any case pick some number for the expected . 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. The only real variable cost is the cost of goods sold. 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. Possible Solution: This is a straight forward valuation. The bar is open Tuesday thru Sunday from 5 pm until 2 am. management. and possibly employees. How long do you anticipate this bar being around? Cigar bars are a trend. Valuation: Subtract the costs from the revenues and adjust for taxes. how would you go about determining the value of this bar? Issues to consider We arrived at the bar around 8:30pm. general maintenance. There was one bar tender. The bar is located on one of Chicago’s trendier streets with a lot of foot traffic. The bar sells two things: liquor and cigars. There appeared to be 30 customers already there. 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). a waiter and a waitresses. Under fixed costs you might consider: rent. All three were there the entire evening. On the back of an envelope. By 11pm the place had at least 70 customers. insurance. You now have the annual cash flows generated from the bar. I would estimate the maximum capacity to be close to 100. 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.
This comes out to $360. The discount rate should be a rate representative of WACC’s of similar businesses with the same risk.000) and 50% buy at the news stand (120. 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 customers. Based on a normal distribution with the average life span of 80 years. He has hired you to figure out whether this is possible. Now make some assumptions on how many customers will buy on the news stand versus subscription. + Cfn/(1. assume that at least 1/2 would read a magazine or 40 million. Of the 80 million 30-50 year old men in the country. the specific anwser is not important as long as you are making reasonable assumptions. The key here is to clearly define your assumptions. this is a monthly magazine. This gives you a value of: Value = CF1/1.00) assume a cover price. Revenues Based on what other magazines sell for ($2. Approximately 1/2 are male or 80 million. Share As a new magazine assume that you can generate a 5% share of the men’s magazine market in year one or 240.132 life (4-5 years). lets say 50% subsrcibe (120. Possible Solution: This is an estimation case.000.. Finally.000 or $600.2)n 9..50-$5. . Perhaps 20%. Both businesses are profitable but are not growing quickly.000 + $240. GQ Magazine) His stated goal is to generate circulation revenues of $10 million in the first year. He want’s to start a third monthly magazine in the US targeted at 30-50 year old men (eg.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.2)2 + . Lets say $3/magazine at the news stand and $2/magazine for a subscription. For example Target Customers The total US population is approximately 240 million. approximately 2/3 of the population falls between 30-50 or about 160 million people.2 + CF2/(1.
it would not make sense to launch the magazine. wages in the formerly state regulated East Germany have skyrocketed.133 For simplicity assume that all target customers buy a magazine every month.000 X 12 or $7. You have been asked to find out what is happening and suggest a course of action to reverse these trends. Information to be divulged slowly: The company operates in three divisions: 50% of sales are to hospital bed manufacturers. and 25% are to chair manufacturers. We have already been told that revenues are flat which should be a clue to explore the cost side of the income statement. 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.80. Similarly.1Issue 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. the hospital bed division is located in the East German manufacturing operation. Further investigation shows that labor is the major component of cost in manufacturing castors. Similarly. 9.80 Castor Manufacturer 9. 9. This would generate total revenues of $600. This is what is driving most of the increased costs. . Sometimes the interviewer will provide you with an income statement that will break out the major cost components by percentage.2 million. In this case it helps to work logically through both the fixed and variable costs to see if there are any major items. 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. In the past two years. profits are down 10% for both the mop bucket and chair divisions but are down 30% for the hospital bed division.80. The hospital bed and mop bucket divisions are located in the West German manufacturing operation. In this case given the CEO’s stated goal of $10 million in circulation revenues. 25% are to mop bucket manufacturers.2Possible Solution This is a typical revenue/cost case. Over the past two years the company’s profits have declined by 20% while revenues have been relatively flat.
Land is leased to individual companies by the government. The logging industry in Canada is regulated by the government. Thus. all tracts of land have the same lease price per acre. • • Key Points • The company leases land with a significantly higher quality of trees.e. There is no significant difference between the distribution costs among the industry firms. 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”. Healthier trees are straighter and easier to cut. These healthier. The mineral content of the land leads to faster growth of healthier trees which improves both yield and turnover. better equipment.Lease Cost per ft^3 Revenues: There is a revenue advantage for the company due to its product mix. Profitability Analysis 9. thus reducing costs in each phase of the logging process. Production Process: The cost advantage is not generated by a better logging process (i. The company’s product mix is made up of a greater percentage of 2”x8” boards than the “typical” logging company percentage.134 Case Type: Industry Analysis. 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. • • Profit Structure: The profit equation for the lumber industry can be written as: Profit per ft^3 = Revenue per ft^3 . taller.81 Logging Company Background: You are hired by a Canadian logging company to analyze its current operations and provide advice on future operations. Margins are higher on 2”x8” boards than on 2”x4” boards. There are no significant economies of scale to the process. straighter trees yield more 2”x8” board-feet than is typical and leads to the advantaged product mix.Non-land cost per ft^3 . Lumber is a commodity product and as such the company is a price-taker in the market. more skilled laborers) but instead exists because of the exceptional quality of the trees on the particular piece of land that the company leases. The leases last for 99 years and the original lessee has the right of first renewal on the lease. This leads to a revenue advantage because more 2”x8” board-feet can be produced per acre of . The company is making a lot of money and is unsure why. Non-land Costs: The company has a 5% cost advantage in its ”tree-to-dock” production process.
Each version is marketed to a specific library segment. and the remainder is divided among many competitors. 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. The client and two other competitors each have 10%. Additional Details: • Competition: There is a single major competitor which has 50% market share. the current situation seems sustainable. Additionally. 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. 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. Market Segmentation: The following table outlines many of the details of the market segmentation and client product data. The client’s product is considered to have the highest quality of article search.135 land. The company wants to understand (1) why they have so small a market share. • • Since the leases are for 99 years and renewable. .82 Information Services Company Background: You are hired by a library information services company that provides a computerized article search product on CD-ROM. and (3) where it should focus its resources. there is a cost advantage because the higher quality inputs make the logging process easier and increase yields and turnover. Since it is unlikely that another piece of land similar to this one exists or that another firm will give up advantaged land. The product has different versions that are upgraded each year. the situation is not replicable. Ease of Use Price. (2) what could be done to improve the situation. Ease of Use Content. The company currently has a weak market share of only 10% of all installed units.
products that emphasize content and ease of use over 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.25M ( minimum since profit in academic segment is > $500 per unit).5M.e. The client’s product is considered to have the highest quality search among the competitors. Academic = 5000 x 500= $2. the potential profit is 4500 x 500 + 10000 x 500 = 7. Secondary = 20000 x 100 = $2. and (4) Price.0M. Public = 10000 x 500 = $5. 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. Therefore. Production: the product is created by programmers who seek to match the product to library volumes.S.0M. There is currently 20. • Key Points • The client’s product does not match the needs of the large segments of the market (i. (3) Ease of Use. 9. (2) Content.000 miles of pipeline throughout the U.136 • Pricing: The client sells its product at a 25% discount to the major competitor and has the lowest prices in the industry. The pricing and profit schedule for each version are shown below. The pipeline industry sprang up as transportation costs for mineral extraction companies began to escalate. the type of CDROM created can be altered relatively easily. What information would you want to know about the pipeline industry that could help you plot a strategy for a pipeline company? . The table above indicates the relative preference for these features for each market segment. if we realign our product to emphasize ease of use and content. A better search requires a more skilled approach to keyword usage and often makes the search more difficult. There is a trade-off between ease of use and search quality. Since the principal input is labor. • 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 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 -.
• • • Key Points: (classic Porter analysis could be used -. refined oil products (gasoline).many competitors use pipeline for in-house uses and only carry other products if capacity is underutilized ..e.crude oil. Gaseous products require considerably less energy to move.industry growth is expected to be slow (i. Pumping crude oil along the pipeline can cost as much as $2M/month in electricity for a station.by proliferation of tanker cars and tractor trailer rigs for liquid and gaseous materials . Market Conditions: U. The second group (proprietary) is not regulated by the government. natural gas.there are many competitors and switching costs are low .S. liquid nitrogen. a pipeline from a port station to a near-shore refinery).g. .This is rarely the case!!!) • Threat of Entry is low because .e.. The variable costs are primarily the electricity to power pumping stations along the pipeline. Cost Structure: There are exceptionally high fixed costs involved in a pipeline.137 Additional Details: • Industry Structure: There are many pipeline competitors.there are very high exit barriers (i.pipeline services are essentially a commodity product (commodity markets are slow growth and unattractive) • Industry Rivalry is strong because . There are different cost structures depending on the type of product being moved.. methane gas. It is expected that for the next 5-10 years demand will be steady. proven reserves are diminishing and foreign imports are increasing. Products: The pipelines carry liquid and gaseous materials -.. 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. There are many suppliers of common carrier pipelines. Power of Buyers is not a significant factor because many pipelines are regulated and there are many buyers Other considerations: .. there is a strategic relationship between refining and piping) • • • • Substitute Products are many as witnessed .. . and chemicals.there are high fixed costs (high initial investment) . market share is important) . Power of Suppliers is not a significant factor.
Auto Zone) and those which sell diverse products including auto parts (e. They are interested in your evaluation of their $10B after-market parts business.138 .g. layout of pipeline and pumping stations.those which specialize in auto parts (e. • • . 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).g.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.S. Mass merchandisers are of two types -. Any future environmental regulations will cut even deeper into margins. This business can be segmented into two sets of buyers: dealers authorized to sell GM parts ($8B) and non-dealer merchandisers ($2B). oil filters). . 9. Products: GM produces a full spectrum of parts classified as either platformspecific or universal.g. “Service” providers include Goodyear or Western Auto. All of GM’s parts manufacturing facilities are fully depreciated and they currently have excess capacity. the pipeline manager must aware of these rapidly changing commodity markets to maximize his profit.Product Mix: The margins on gaseous products is higher than heavy unrefined products. There are hundreds of small parts manufacturers which tend to focus on commodity-like auto parts (e.g. Sears).Operations: Maximizing profit means understanding the parameters of pumping -costs of pumping at less than full 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.84 Auto Manufacturer Background: Your team is hired by a large U. products which can share the same pipeline. This second group can be subdivided into mass merchandisers and “service” providers. . The classic question: Is it better to make product and sell it now at low prices or wait for prices to increase (e. crude oil prices)? A large pipeline could be a temporary storage facility. . automobile manufacturer (GM). construction of parallel pipelines. Market Differences: The market for crude oil is very different than the market for specialty chemicals or natural gas.Government Regulation: Margins are greatly affected by common carrier status.
Also. AutoLite) are important to many consumers.. AC Delco. GM’s ability to produce a full-range of products is also an advantage. its brand names are respected and are valuable to merchandisers in maintaining margins. 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. high margins/low volume Universal Parts Spark plugs. Brand names (e. However. 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. 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. brakes. batteries Sold through many outlets. hoses. filters. Power of Suppliers is not a significant factor because inputs are commodity raw metal and rubber. Fram. These advantages combined with the high growth rates for the non-dealer merchandisers should motivate GM to expand it business in this segment.g. GM should . engines Sold through dealers under warranty. Switching costs among consumers is very low. a manufacturer could go after a niche play if it were to develop an advantaged cost structure or superior product. • • • • GM’s Position: GM may have a cost advantage due to its fully depreciated plants and excess capacity in a fixed-cost environment.139 Platform-specific Parts Types of Parts Market Characteristics Body panels. 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. strong competition. high turnover. Thus its variable costs must be below sales revenue. Industry Rivalry is important for the mass merchandiser category because margins are slim (meaning price wars are more prevalent). transmissions.
brand names. The deli meats carry a well-known brand label. • The Competition: There are three other competitors in the deli meat industry. . The competition uses the same channels to sell its products. the competitors have maintained prices during the recent loss in market share. midrange and premium) is growing. Sometimes the product was better than competition. This was causing customers to change to competition. and 90. Although price decreases will garner market share. -Place (Distribution): The product is sold in grocery stores and delis. The premium deli meats are made from a mix of the three bins with the majority coming from the 90-rated bin. 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). Meat is rated on a scale of 1 to 100 (100 being best). The market share loss is primarily in the premium category. and premium).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. Details: • The Company: . 70. Each of these competitors has about 20% of the market share. sometimes not. The client is in a long-term contract with a supplier for bins at three quality ratings: 40. The client would like an action plan for resolving the cause of this decrease. Individual chunks within a bin may vary from this average. a survey of the customers indicated a variability in the quality of product produced by the client.Price: Products in the premium category carry a higher price and have slightly higher margins. the client has 40% of the market share. 9.140 use its cost advantage. midrange. not the the the • Solution: • Production Process: The client receives chunk meat in bins which meet a certain average quality measurement.the mass merchandisers. and full range of products to go after the most lucrative market -. The Customer: Although the customer buying premium deli meats has changed. Meat in the 90-rated bin ranges from 80- . .Product: The firm produces plastic-wrapped packages of sliced deli meats at all price points (generic. Overall the market (generic.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.
. • To reduce the variability. how much longer is the contract set to run. That is. The variability in the quality of the premium product is being driven by the variability within a 90-rated bin. 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.? The second option will add cost to the production process and reduce margins. is the client a major buyer. The impact of the first proposal will depend on the relationship with the supplier.141 95 while meat in the 70-rated bin ranges from 55-80.
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