Consulting Cases

"Crack The Case - Design firm growth strategy - Strategies "

Category: Strategies

Growth Decisions – A company wants to venture into new territories:

 

Typical possibilities:

o    New Geography with same product/ service line

o    Same geography but with  new service or product line (but within same industry ,for eg. Within FMCG
multinational cos.

o    A domestic company going global – With new or same product line

o    Totally new industry – (for eg. From automobile to retail sector)  - Unrelated diversification

o   Mix of above all possibilities

Typical approach to above cases (will be elaborated for each subsequently):

1.   Desirability: 

      Find out the business logic to enter that busness or try find answer to why does the client want to venture i
This basically help u define the success parameter for that entry. Typical motives could be:

o    Increase in top-line

o    To survive in dynamic market

o    Emulate the industry leader

o    Future growth (not in near future but at the horizon or new era) 

2.   Feasibility: 

      How feasible is to enter in the market in context with following things : Timing, offering mix,  manpower an
etc. This can be typical looked from various angles like :  

o    Demand – Market sizing, price and cross elasticity

o    Growth – Growth drivers and dampers

o    Competition: Number and relative size of competitors, this drives profit-levels, and strength: chances
(steel/ auto) or monopoly (microsoft) or perfect competition (agriculture) etc.

o    Barriers-to-entry: cost of entry, access to resources, economies of scale, regulations, strength of exis

o    Internal synergy : Do we have any expertise (management, machinery, geographical exposure, bran
that can be leveraged

o    Value chain : Our position in the value chain, Availability of suppliers and distributors, cost and availa
material or semi finished goods)
 o    Expectations for the future – Scalability and stability of this business

o    Product life cycle – The stage of the cycle at which the product or service is operatings

 
3.    Roll out plan:

Strategic Plan

-          Exact product or service design along with desired customer value proposition

-          Timing to enter

-          Organisational/ Management Structure for that market

-          Long term targets and milestones along with Success parameters or KPIs 

-          Exit strategy (if required)

-          Need for any tie-up any member of the value chain

Marketing Plan

-          Segmenting, Targeting and positioning

-          Marketing budget

-          Advertising or business development strategy

Operational Plan

-          Schedules for delivery or development of delivery centre

-          Vendors and other value chain member selection

-          Decision to setup new unit or leverage existing infrastructure

-          Modifications on the production setup to incorporate customisation of your products, for th

Financial Plan

-          Cost estimation

-          Revenue forecasting, NVP analysis

-          Arranging finances – Equity or debt (cost of capital)

-          Budgeting

-          Any special accounting methods

-          Tax planning , Tax holidays or tax breaks (SEZs or IT Zones etc)

Case Specific Issues

New Geography with same product/ service line

o    Political factors in the region – Is the government supportive to industries, how proactive are the fina
ministries etc.

o    Legal Aspects – How friendly are the labour laws, what are the penalties for defaults (especially Incom
 structure, corporate governance laws etc.

o    Economic conditions of the region – Market stability, financial availability, exchange rate (fixed or floa
import and export promotions etc.

o    Are we already present in that region or a region similar to it.

o    What is the availability of resources – Manpower as well as raw materials

o    Infrastructure – Physical and IT

o    Climatic conditions – For production setup as well as for service industry

o    Cultural aspects and purchase power of that region (it helps in deciding the pay structures as well as

Same geography but with new service or product line (but within same industry)

o    Is it operational need (Vertical integration) or a strategic need (Horizontal integration)

o    Is the product totally new or just an extension.

o    Business logic of making such move – Market and target audience

o    Its synergy with previous offering

o    Effect on the previous offering (cannibalisation or support)

o    Issue related to brand dilution of both new or existing brand

o    Existing customers or new customer base (how to reach them if they are new)

o    Leveraging – Production facility, domain expertise(in service industry) – this can be due to working in
industry

o    Are other players of similar business nature also going for such move – If yes, why and if no, why no

Totally new industry – (for eg. From automobile to retail sector)  

    The ones mentioned for second possibility

o    Find a strong reason, why the company wants to enter into totally new area. This could be due to

o    Cash rich position and thus looking to invest in newer opportunities (eg. Reliance)

o    The new opportunity is the thing of future

o    The current opportunities have saturated

o    Do we have any internal resistance to it? Is it a temporary move or a long term strategic plan?

o    Will it benefit the existing business, how will the efforts currently put in the previous business change
exit the current business line?)

o    Is market big enough to accept players like us who are traditionally not expert in this market?

o     Changes required in the management structure – Do we need separate management, or a new busin
will be the reporting structure for it?

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 "Crack The Case - Firm Competitive Position Analysis - Strategies

Category: Strategies

Key Things to be done

    Your competitive position - Try to identify your  position in the market in both absolute (with the targets sets by y
as relative terms (relative to the competitors).

1.    Consider the 5 C’s:

    Competition: How many? Who are they? Comparison w.r.t. the following.
o    Customer: ability to handle customers’ needs, current and future, w.r.t. product and price
o    Competencies/ Capabilities/ Strengths/ Weaknesses
    Cost structure: fixed and variable
o    Channels: for both resources and distribution
 

2.     Summarize with a SWOT analysis: strengths, weaknesses, opportunities and threats

Once you have gauged your own position, now you are in the best platform to identify your competitors in respect
with, the scarce resources for which you compete, the customer value proposition that you offer along with price r

    Competition Identification – competitor can be identified on the following basis :

1.         Customer base : 

    Same customer base? And whats the overlap

2.         Product/ service mix: 

o    Same product? Or Better? 

o    Varied product mix (i.e., package consisting of several products)?
3.         Price: 

    Same or different? And How much? 

    Cross price elasticity.
 
4.         Brand loyalty

5.         Cost advantage

    Fixed & Variable? The break-up of the same.  

    Economies of scale/ scope?

6.         Access to resources

o    Supply chain with respect to raw materials, and supplier base
    Labor and other talent pool
    Patents
 
7.         Promotion: 

o    Where? And How much? And to the extent directly against your product?

8.         Distribution: 

    Visibility
    Access to customers
    Shelf-space, etc.
    Relationships with distributors
    Buyer (distributor) power
 

Once the competitor has been identified, one must also identify the extent to which it is a threat .i.e. the magnitud
canbe seen on the basis of three steps:

Tangible Threat

o    Overlap in customer base – Percentage contribution of these customers to our revenues
o    Supply demand comparison of the resources considering the current situation and situation wh
absent
    This defines our cost as well price structure
 
In-tangible Threat

    This deal with the promotion and visibility of the products.
o    Measured through the change in brand loyality and also effects the price elasticity
  
Combined Threat

o    The first threat decide the price structure , combining this with customer’s brand loyality and c
the magnitude of competition.
 

Once the real threat has been identified it’s the time to deal with it.

        Deal with competition - It can be done on two fundamental approaches.

o    Quit that Market or – This might seem to be strategy not generally followed, however it can benefi

§ When the firm has not been doing very well in that sector in general too.

§ It has other sectors to shift focus

§ There is too much of competition and may lead to consolidation and the firm might lose its id
firms) – In this case it is better to sell of that particular business at right valuation.

§ When the forecast of the industry is not very promising (due to change in demand pattern, g

o    Try overcome the competition – This can be done through three ways:

 Customer Focused strategy

·         Expand/Improve  the offerings , target higher value or untouched customer bas

complimentary/supplementary products

·         Improve pricing (better pricing, or smaller/affordable packaging)

·         Better promotional strategy – More visibility, discounts or similar price promotio

§ Cost or Resource Focus Strategy – It also helps in achieving the first strategy

·         Better and efficient supply chain

·         Adopting cheaper raw material (without compromising on costs) and cost efficie

·         Reach economy of scale or scope by expansion or a strategic tie-up with other p

·         Develop Talent pool

 Competitor Focus Strategy

 ·         If the company is small enough to be bought, go for it (try keep synergy in min

·         Keep track of the company and try develop strategy to mitigate their moves.

·         Poach talent pool.

        Create barriers for new competitors

o    Customer Focus

 Create strong brand loyalty

 Form long term contracts

§ Provide VAS – Like service and maintenance contracts, easy renewal of contracts etc.

§ Keep educating the customer about benefits of the products

§ Indulge in CSR to create a brand equity for the company as whole

§ Rather than product provider, try to sell respective solutions.

§ Keep coming up with newer versions and upgradations.

o    Resource Focus

§ Form long term supply contracts to gain cost advantage

§ Try to develop strategic tie-ups with important members of the value chain in terms of owne
talent pool, raw material or knowledge base etc.

§ Vertically integrate to reduce cost margins.

o    Environment Focus

§ Form govt. influencing lobbies and thus be always on the favourable side of the trade policie

 Cartelisation

§ Form industry associations to garner collective support to form barriers to new entrants

§ Be vary of international competition – If you cannot beat them, try joining hands with them
national presence etc.

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 "Crack The Case - Market Sizing: Product/Service - Strategies "

Category: Strategies

Why is it required?

To realise the optimum profit potential of your products and services you need to know the size of yo
understand what trends are shaping the development of those markets.

What all is covered in it?

·         Market Size (volume as well as value)

·         Your own expected revenue (this differs from market size, until it is a monopoly)

·         New trends – That helps in forecasting the market size

·         Assumptions and scenarios (most optimistic to most pessimistic) – need some probabilities (generally in

Application of market sizing – Where all it can be used?

·         Identify key objectives

·         Set realistic targets

·         Plan your sales and marketing activity

·         Tailor differing marketing action according to the characteristics of particular market groups

·         Maximise revenue and profit potential

Key Stages of Market Sizing

1.       Defining the 'universe' in which your market exists by listing all the sectors to which your product/service

2.       Conducting secondary as well as primary research to assess the potential penetration of the produc
players already present in that market

3.       Grossing the figure up to produce an estimate of total expected revenue

4.       Researching shifts in behaviours and attitudes amongst key market players across time, to identify vario

Key issues that should be considered during stage 2 include:

·         Identifying current and potential customers by company size and type

·         Identifying competing offerings and how they may impact your own market

·         Placing specific offerings at the appropriate place along their life cycle curve, and identifying the stru
similar products ramp up? how long do they sustain high growth rates?) and time span of the curve
 ·         Identifying specific obstacles to success (usually related to specific customer categories) that will or may

·         Considering bandwidth or resource issues such as too few distributors or an insufficient number of salesp

 
Ways to perform step 3 (actual guesstimate):

Top Down Vs Bottom Up - Top-down (what percent of the market can we reasonably expect to penetrate) and b
units can we expect to sell at what price)

To calculate market size or your market share 

1.       Top Down Method : (to calculate your expected revenue) –“A top down approach starts w
data. It takes a close look at a geographic market area and profiles the consumers and/or busine

  
Steps:

a.        Calculate the market size (this can be further calculated by different approaches mentioned in

b.       Find out or estimate the expected market share. (based on barriers to entry as well as numbe
services)

c.        Calculate the expected penetration that you can achieve based on ur product’s features and
the customers. (Pricing of the product also governs the penetration)

 Tip:

Ø Used when you are very short on time and require a quick estimate of market.

Ø It takes into consideration lots of assumptions and thus is slightly off the mark.

2.              Bottom Up Method – “A bottom up approach to market sizing starts with your customers.
they buy? What is their profile? How many potential customers do you have in the market b
profiles? How can you reach them?” 

 
 Steps: 

a.        Identify the customers or customer base / or count the number of sales point you have (sale
sales persons)

b.       Try sketch the consumption pattern of your customers (frequency of purchase)/ or find out
sales point (number of units they expect to sell).

c.        Multiply the number of sales point or customers with their selling capacity or purchase frequenc

d.       In the customer frequency method, take into account the presence of other competitors
expected from the market size.

 
 Tip:

Ø Used when you are very sure of the targeted customers and their behaviours.

Ø More précised than the top down, but requires more tedious work.

To calculate sales expected in a given time frame (number of units that can be sold in one/n year or ye

1.   Extrapolate the growth by extending the previous years’ performance. The difference between the current
give you the expected sales during that period. This is the simplest method, but has a major assumptio
 active in the past period are active and acting in a similar pattern as they did last year or during the past pe

2.   Calculate the current market (based on the approaches explained above) and then multiply it with the
similar to what you expect your market to grow at. If you cannot figure this, try taking the rate at which
an average. The change will give you the sales expected during that period. This method can be applied to
confidently find a proxy to fix the growth rates. However, it also runs a risk of assumptions taken during the

3.   List down all the factors that you have considered while calculating the market size, consider the pattern
over the period in consideration. Make the relevant changes, this will give you the new parameters for the n
find the market size and the difference gives you the sales expectations.This is the most exhaustive meth
most accurate result too. Try forecast each factor independently to get the maximum advantage of this met

Pow

"Crack The Case - Firm Profitability Improvement - Strategies "

Category: Strategies

Profitability is derived from two aspects:

·         Top Line : Revenue model

·         Bottom Line: Cost structure

By this we mean that profitability in an ideal situation given by:

 
nP = nR – (F+nV)
Where:

-          n (number of units sold)

-          P (Profit per unit sale)

-          R (Revenue per unit)

-          F (Fixed cost)

-          V (Variable cost)

To improve the profitability of the organisation we shall consider Top line and Bottom line aspects separately. How
analysis, we must set the context of the analysis. By setting the context, we mean, to answer following questions:

Situation

·         The profitability has been declining over a significant period

·         The profitability has been constant, but the management wants to accelerate the profitability

 Scale

·         The profit situation is observed across the company

        ·          The profit situation is observed for only a particular product or service of the company (if it is a multi pr
Top Line Considerations
       

Factor to be Reason for current situation Steps that can be taken Issues and ch
improved  
  ·   Improved marketing focus ·   Higher adverti
Sales volume (n) Low market penetration ·   Product improvement with ·   Lack of suppor
  additional features/ value chain me
technology improvement (unavailability
High competition ·   Reduction of prices ·   High fixed cos
the features an
Low acceptance of the product ·   May lead to pr
·   Expand to adjacent ·   High entry bar
Small market size markets markets
  ·   Add features to the ·   Company may
product to increase market current market
Market Saturation scope and target customer ·   Perceived valu
base features may b
price paid by cu
·   Increase the capacity to ·   This may not b
Limited firm capacity attain economy of scale or physically po
firm
 
 
  ·   Improve product offering to ·   May lead t
Price (R) High competition differentiate and thus charge in volume o
premiums ·   Company’s
·   Position to a niche segment, may get aff
who can pay premium  
(advertising strategy)  
·   Should adopt variable pricing
catering to different markets
·   No clear option,  
High price elasticity ·   Try to move to newer markets
and focus on cost reductions  
Low purchase power of existing
customer base
·   Spend on ·   Increased
Low brand image marketing/advertising to build costs
brand image ·   Returns m
·   Introduction of new/advanced clearly visib
products

Lower end product range Focus more on the volumes Limited scope
expansion

Bottom Line Considerations

       

Factor to be Reason for current situation Steps that can be taken Issues and ch
improved  
  ·   Focus on economy of scale ·   Limited marke
Fixed Costs (F) Industry norm (focus on volume and ·   Variable costs
reduce profit per unit) their lowest lev
·   Control on variable costs ·   Customer may
(avoid wastage) higher prices, u
·   See if higher prices are features are on
feasible
·   Fully utilize the technology ·   The technology
Invested in costly technology to produce differentiated limitations to pr

 
Variable Costs (V) Poor technology (high
consumption of resources)
High wastage
 
Higher cost of raw material &
labour
 
Higher overhead cost
products and charge variants
premium ·   These products
·   Explore/develop new be acceptable in
markets for such products current market
to achieve economy of
scale
·   Invest in new/efficient ·   New technolog
technology be afforded by
·   Better preventive organisation
maintenance ·   Increase in pre
·   Tighter quality controls ·   Increased cost
·   Change in manufacturing implementation
processes control method
·   Improve labour training on labour traini
·   Process the waste to ·   Returns from b
develop by-products may not justify
incurred for wa
processing.
·   Improve bargaining power ·   Limited numbe
(through high volume suppliers (high
purchase, identify more power)
suppliers) ·   Resistance from
·   Reduce logistic costs unions and IR la
·   Benchmark the labour  
wages
·   Improve labour
productivity
·   Rework power/water ·   Scope of such
consumption patterns of improvements i
the plant
·   Promote re-usage
(wherever possible)
·   Reduction in
administrative costs (cut
down on non value adding
activities like travelling
etc.)
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 "Crack The Case - Prepartion of Firm Exit strategy - Strategies "

Category: Strategies

1. Problem Definition phase

Desirability - Identify the motive to exit

The investment has given the value expected or has one past the harvest period.
The returns have started declining and show no signs of improving
A better opportunity has arrived and you require cash for investment – Require partial or full liquid
Any personal disputes with the management or any other stakeholder
Feasibility:- Identify the roadblocks and possible issues
Is the identified reason for exit justified?
Is there a complete consensus between all the decision makers on the exit plan
What are the HR policies post exit – Any resistance from the workforce
Any legal issues that can create a roadblock
Decision Levers for this stage (Data points that will help you do the desirability process, mentioned above)
Intention to invest initially
Sector comparison - Expectations from a particular sector, general trend of the sector, vis-à-vis en
such as regulation stability, competition, and capital market performance.
Company Comparison - It is used as a benchmarking tool and also finding out alternative investme
Performance benchmarks – Expectations the client had while investing in the company.
Harvest Time - Timeline as committed to the investors for achieving the expected returns.

 
  

1. Planning Phase

The above stage gives us the brief idea about the whole scenario. Now we look at the key decisions that n
that the objectives set in the first stage are met. These decisions are:

How to sell – (Exit Route): Various exit routes are:

IPO ROUTE, OTC ROUTE
M& A OPTION
STRATEGIC SALE
SECONDARY SALE
PROMOTER BUYBACK
MBOs

We look at the feasibility of various exit routes by further answering following questions :

When to sell: Determine the right timing for selling the portfolio company to ensure maximum value extra
This decision could be driven by three important factors namely:
Industry (product/sector cycle),
Economic outlook, and
Confidence on captive management after decoupling.
What to sell: A particular business line, entire company, certain assets etc.
How much to sell:
Percentage of management control – If business line or company being sold or
Quantum of assets
This is driven by
Amount of liquidity required, confidence in management and expected further improvemen
exit 

1. Execution Phase

Pre exit phase – Preparation for exit

Make the company or the assets attractive enough to attract the buyers (Focus on bringing the op
performance to a benchmark level)
Correctly value your business (Don’t under value or over value)- COnsirder the following aspect wh
valuation:
Its size, future growth prospects, diversification, customer base, profitability and cash flow
management.
Identify suitable buyers considering three basic parameters –
Alignment with future business strategy,
Correct market valuation by the buyer
Future strategy for the bought assets
Prepare a befitting and convincing sales pitch taking care of aspects such as:
Justification for exit from portfolio company
Future outlook of the company
 Decision on management retention
Synergies expected from the buyout
Provide full financial disclosure to the buyers
Appoint professional advisors such as solicitors, accountants and specialist tax advisers early in th
the heads of terms are agreed.
Post exit phase - Ensure that the true value out of an “exit” has been derived
Correctly evaluate the investment opportunities again
Stay associated with the previous investment and ensure a gradual phase out (of management or
will create a good market image.
Try invest in similar opportunities (if available) to ensure leverage of past learnings.

 
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