Indian Institute of Management Rohtak

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Strategic Decision & Tools Assignment – Term III

1. MICL Industries
2. McKinsey - Management Consulting Industry
3. Dog Food Inc

GROUP 3 - EPGPX02

Name Roll No

Abhijeet Kumar Srivastava epgpx02-021

Shakeel Sheikh epgpx02-003

Shubhashish Chaudhari epgpx02-077

Gunasheel Kotta epgpx02-083

Sumanth MS epgpx02-084

Rishi Gupta epgpx02-032

Case 1: MICL Industries

1. Financial Performance: Construct a basic income statement for MILCO. How
would you assess the company’s overall financial performance and health?
Answer 1
As per the MILCO’s product and service data provided, we would construct its Income
statement by computing it’s revenues, COGS , SG&A, interest & taxes.

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Attached is the excel for above computations for 2014 & 2019 revenues and COGS.
Income statement 2014 2019 Remarks
Revenue 2.005 2.4575
Less: COGS 1.05 1.2961
Gross profits 0.955 1.1614
Less: SG&A 0.401 0.4915
EBITDA 0.55 0.67
Projected for 2019
Less: D&A 0.104 0.127
in terms of revenue
EBIT 0.45 0.54

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 In case Interest rate
is not given then
take Interest earned
Less: Interest 0.000225 0.000271214
thru Govt. Bond.In
US -- Govt. Yield
Bond is 0.05%
EBT 0.45 0.54
25% corporate tax
Less taxes 0.11 0.14
rate
PAT 0.34 0.41

MILCO has strong financials compared to the industry average.

● EBIDTA margin = 47.63% (0.955/2.005) and NOPAT margin=16.9%
(0.34/2.005) which is less than WACC i.e. 20%

• Debt/Equity ratio = 1800/1300 = 1.38 which is quite high as industry avg. is < 1.
• ROE= 0.34/1.3= 23.8% which should please most of the investors
• Price/Book value = 4.81 which implies that investors have faith in this company’s
future prospects
• Working Capital = Current Assets- Current Liabilities = 900 Mn (+ve) shows
MILCO’s ability to grow, expand and take advantage of opportunities
• Current ratio = Current Assets/Current Liabilities = 1.77 shows that MILCO has
the ability to cover all its short-term obligations
• It was found that MILCO was having good Operating Margins as per A&D
Industry standards, but problem with WACC and SG&A expense which are too
high.
• Recommendation: In order to retain profits in the declining A&D industry bring
in continuous technological innovations through R&D and improve operational
efficiency through organic and inorganic route

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2. Are there any products/service segments that MILCO may want to consider
exiting from? Please support with data points.
Answer 2
%inc in
Market Size
Market MILCO's Revenue revenue
Product / Growth No of product
Size (in market growth per growth
Services Trend in Players portfolio
$ bil) share (%) product per
2015 (%)
product
Military
Flight 3 Down 5 20 30 30000000 5%
Simulator
MRO IT
3 Up 15 10.2 15 140000000 47%
system
Military
Flight
1.12 Up 5 20 17.5 17500000 5%
Simulation
Instruction
Military
Flight
Simulator 1.75 flat 5 35 20 20000000 5%
services/
Mnt
MRO IT
system 1.15 Up 15 20 11.5 100000000 43%
services
Military
Facility 125 Flat 100 0.1 6 145000000 116%
construction

Market Share
MILCO Competitor A Competitor B Competitor C Competitor D Competitor E
Product /
in % in % in % in % in % in %
Services
Military
Flight 20 15 0 0 0 0
Simulator
MRO IT
10.2 0 20 7 1 0.2
system
Military
Flight
20 5 0 0 0 0
Simulation
Instruction
Military
Flight
Simulator 35 1 0 0 0 0
services/
Mnt
MRO IT
system 20 0 2.5 4 1 0.2
services
Military
Facility 0.1 0 0 0 0 0
construction

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• MILCO has high % of revenue from Military Flight simulator.
• MILCO is the sole market leader in all product segments except Military Facility
construction
• Market % share for Military facility construction is 0.1% and it contributes only
6% to MILCO’s business.
• Possible exit point for MILCO could be: Military facility construction as very
low contribution to the business (6%)

.
3. Competitive Position: What is MILCO’s current competitive position? Based on
the data provided, segment and assess each of MILCO’s major competitors.

Answer 3
Ans - MILCO’s current market position in terms of revenue as below:

MILCO revenue was USD 2005 which is far ahead of 1st competitor i.e. B. Other
competitors are far behind MILCO’s revenue.

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Product Wise Market Share

MILCO’s market in Military Flight Simulator is highest among all segments. We can
say that it has monopoly in this market or single supplier. In MRO IT system
MILCO’s share is 10% which is close to competitor C i.e. 7% share. In Military
Flight Simulator Competitor A is close to MILCO i.e. 10% share against 15% share of
MILCO.

Market Share of MILCO and Competitors

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 MILCO Competitor A Competitor B Competitor C Competitor D Competitor E
Product /
in % in % in % in % in % in %
Services
Military
Flight 20 15 0 0 0 0
Simulator
MRO IT
10.2 0 2 7 1 0.2
system
Military
Flight
20 5 0 0 0 0
Simulation
Instruction
Military
Flight
Simulator 35 1 0 0 0 0
services/
Mnt
MRO IT
system 20 0 2.5 4 1 0.2
services
Military
Facility 0.1 0 0 0 0 0
construction

Competitor A is major competitor of MILCO and no competitor in Military Facility

construction.

PRODUCT MAJOR COMPETITORS

Military Flight
Simulator A
MRO IT System C&B
Military Flight
Simulation Instruction A
Military Flight
Simulation
Maintenance A
MRO IT System Services C&B
Military Facility
Construction None

MILC
O Market share of largest Relative market
PRODUCT Share competitor share Growth
Military Flight Simulator 20 15 1.33 -2.5
MRO IT System 10.2 7 1.46 46.7
Military Flight Simulation
Instruction 20 5 4.00 5
Military Flight Simulation
Maintenance 35 1 35.00 5

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 MRO IT System Services 20 4 5.00 43.5
Military Facility
Construction 0.1 0.005 20.00 170

Impact of each Competitor future plan on MILCO and MILCO’s Recommended

Plan of Action

Competitor - A
• Plans to expand in International markets
• MILCO would want to focus on first mover advantage,
• Best Pricing and Unmatched Product/Service Quality
Competitor – B
• Expansion plans in MRO Offerings
• MILCO can target the company for a JV to provide MRO IT Systems & Services
directly to Competitor B
Competitor – C
• Expansion plans in MRO IT Solutions
• MILCO could target the company for acquisition, form a JV or seek growth
opportunities in segment before Competitor B starts aggressively with expansion
plans
Competitor -D
• Considering close of MRO Line
• MILCO can acquire their MRO IT Systems & Services business for a value of USD 100
Million Approx.
Competitor - E
• Civilian Focus but Seeks Military Market
• MILCO should try to retain and grow its market share in Military by providing Best
Quality products and Services at Competitive Pricing

4. In what existing product/service offerings will Milco possibly be able to capture

additional share?

Answer 4
MILCO: Estimated Financials-2019

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Below are the product/service offerings which MILCO should target to capture
additional market share

• SG&A expenses to be reduced from 20% in 2014 to around 15% in 2019 as

per industry norms
• Expand Product Military flight Simulation by investing Capex USD 100 mm
in 2016; Market Share in this segment will increase to 30% by 2019
• WACC is expected to decrease by reducing cost of debt while R&D expense
to increase to 10 % of revenues by 2019
• Military flight simulation will be the most preferred segment
• MILCO can target the company for a JV to provide MRO IT Systems & Services
directly to Competitor B
• Acquiring Competitor D MRO IT & Service segment and divesting Military
construction Facility business has helped to make business profitable
• Increase of future scope in automation and IT services due to cutting (both in
US and International market).
Future strategy in product offering and its Key parameters

PRODUCT KEY PARAMETERS

Relatively less profit-ability
Hold Military Flight Good Share
Simulator ↓Growth

Relatively less profit-ability

Hold MRO IT System ↑ Growth
Highest Profit
Invest in Military Flight ↑ Growth
Simulation Instruction Lesser Competition

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 Invest in Military Flight Good Share
Simulation Good Profit
Maintenance Less Competition
↑ Growth
Invest in MRO IT Good Profit
System Services Good CAGR
Divest Military Facility Least share & profit
Construction Heavy Competition

5. Recommendations Based on your understanding of Milco’s financial

performance and competitive positioning, what should be management’s top
priorities. Recommend initiatives or opportunities for Milco to improve its
position.

Answer 5
Following are the possible challenges and recommendations for MILCO’s management
to improve their current position:
.
#1 - Reduction in US defense budget –
Recommendations -
• Reduce dependence on US Military Market
• Expand operations in Civil A&D Industry through MRO IT Services
• Establish operations in emerging economies in Middle East & Asia

#2 - Low Operating Profits and ROI in Core Offerings

Recommendations -
• Reduce SG&A Expense (Current: 20%; Industry Average: 13-15%)
• Divest Non-Profitable & Non-Core business of Military Construction Facility
• Supply Simulators to Pilot Training Institutes
• Reduce COGS by bringing in best Operational and Industry Practices

#3 - Competition from New Entrants

Recommendations -
• Increased investment on R&D to maintain technological edge
• Acquire MRO IT Systems business of Competitor D and gain Market Share
• JVs and M&A of niche technological companies in US as well as Emerging
Economies of Asia and Middle East

#4 - Rising Costs and Operational Efficiency Issues

Recommendations -
• Substitution of Process Automation over Extensive Labor
• Implement Lean Manufacturing and Six Sigma initiatives
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 • Focus on Digital Product Development and Computer Aided Design

#5 - Sustain Profits and Long Term Growth in Declining A&D Industry

Recommendations -
• Application of Military Technological Innovations in Civil Aviation and
Emerging Economies
• Focus on next Generation ISR (Intelligence, Surveillance, Reconnaissance)
• Cyber Security and Adjacent Markets

Case 2: McKinsey - Management Consulting Industry

Overview: Consulting Industry and Big Players

McKinsey & Company is a multinational consulting firm that represents leading

businesses, states, non-governmental organizations, and non-profits. McKinsey work
with their clients from the C-suite to the front line to turn their companies in the ways
that matter most to them. This includes embedding technology, analytics, and
architecture into core processes and mind-sets, and creating capability that helps
organizations and people succeed in an ever-changing environment. The company
currently employs 26,000 people across 120 + offices and produces sales of $8.8bn.
Many of the alumni from McKinsey went on to become CEOs of major corporations
including Morgan Stanley, Google, and Boeing.

The world's top three management consulting companies represent nearly all
Fortune 1000 businesses and are commonly referred to as MBB:

● McKinsey & Company

● Boston Consulting Group
● Bain & Company
They receive the highest revenue between strategy consultancies and have been
around the longest in general. Higher margins, low initial capital investments,
knowledgeable workforce and client relationships are some attributes that define this
industry.

Before BCG started, the traditional approach to consulting was to look at the unique
internal issues facing a company. Yet BCG decided to take a different approach and
instead concentrate on external factors like economies and competition. That approach
led to new important business ideas that are still being used today, such as the "cash
cow," the "experience curve" and "time-based use."

Bain & Company has revolutionized the advisory industry by taking a different
approach to the management of client relationships. When it began it decided to take
just one customer per sector and focus on developing long-term relationships with these
customers.

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 The other consultancies covered below include the Big 4 strategy arms as well as
other mid-tier companies known to be among the world’s top strategic consulting firms.

● Accenture Strategy
● Oliver Wyman
● Strategy& (PWC)
● AT Kearney
● Roland Berger
● Deloitte S&O + Monitor
Accenture is a consulting behemoth that generates revenue of around $35 billion.
It does a lot of different consulting “types” with one theme that unifies: technology.
The Accenture division that is closest to McKinsey, BCG and Bain is called the
Accenture Strategy. It accounts for less than 10 percent of the company's revenue but
is the most prestigious part because it tends to work for customers in the C-suite. Over
the past few years, the brand of Accenture Strategy has been steadily getting stronger,
particularly in Europe. This is partly because of the increasing importance of the digital
strategy and Accenture has good credentials in that area.

In 2007 Oliver Wyman was founded by three multinational consultancies (Mercer

Delta, Mercer Management Consulting, and Mercer Oliver Wyman). Oliver Wyman
expanded at a rapid pace, thanks in large part to a series of acquisitions in 2008.
Through the development of its Oliver Wyman Labs unit, it has also managed to build
a very strong reputation for itself in the financial services sector as well as in digital
strategy.

Booz & Company focused and continues to focus on practical strategy, which it
calls “strategy-with-execution”. As the 80s rolled on, McKinsey & Company had
overtaken Booz & Company in management consulting. In 2014 Booz & Company
sold to PWC. The name has been changed to Strategy and, reflecting the reputed
Strategy + Business.

Porter 5-Forces Consulting Industry Analysis:

● Medium Threat of Entry: Low cost of customer switching, low initial capital
investment but factors of an experienced knowledgeable workforce and a track
record of success dictate the success of the companies.
● Low Power of Suppliers: The ease of accessibility of MBA graduates and
professional consultants determines this force. Certain suppliers such as the
software product vendors also aim to incorporate their products within the suite
of consulting firms.
● High Power of Buyers: Consulting firm’s consumers always have a choice to
market in-house experienced professionals or keep the status quo unless change
is inevitable.
● Medium Threat of Substitutes: The threat of a substitute is relatively medium in
line with buyer power.
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 ● High Firm Rivalry - Bigger consulting firms vying for the same Fortune 500
clients, smaller niche consulting firms doing business with customers in their
respective verticals all result in high competitive group rivalry.

Consulting Environment and Future Scenarios:

The consultancy industry has always made money providing advisory services
to client organizations that have been hit by fundamental economic shifts since these
tur moils had no effect on management consultants ' traditional business models. Today,
the same forces which have disrupted so many companies are beginning to reshape the
consulting landscape. The consulting industry is facing the challenge of having to
reshape itself: it needs new business models, new growth opportunities and creative
products and services. Consulting 4.0 explains the fundamental change of an industry
that has long ignored the need to respond to the disruptive threats.

The value proposition of McKinsey, like one of the two other big management
consultants-Boston Consulting Group and Bain, has long been high-value consulting
services for the world's most prestigious businesses, Judgment-based and forward-
looking answers to the most common top executive questions based on personalized
assessments, analytical skills, methodological rigor and functional knowledge. Today,
the classic strategy's share of work has been steadily declining and is now about 20
percent of its original volume.

A dynamic and unpredictable global economic climate created many and varied
new client organizations challenges. And lead to a change in demand for advisory
services. It's not that client organizations no longer need strategies. But client
organizations are becoming less dependent on consultants, and they can do a lot of the
work that consultants have hired before. We do not buy the conventional management
consulting services – provided by a bunch of junior consultants, requiring
comprehensive analyzes and data collection and relying on complex processes of
solution creation – without considering a variety of factors in determining whether a
consulting firm's costly services make sense. Moreover, after decades of hiring
consultants to carry out (the same) performance and cost-improvement projects based
on proven methodologies and methods, additional scope for change is minimal. Market
expectations reshape the consulting industry, dragging it fundamentally into two
distinct markets: low-cost consultancy, which is primarily about problems and solutions
that consumers understand. We know exactly what work is required and we understand
them; as a result, they bring experts in to fix those problems. Consequently, the best
buyers of consulting services focus their efforts on precisely articulating what is needed,
so that no time, energy or money is wasted without purpose (commodity consulting).
So high-value consulting that is about circumstances where consumers are less sure
about the problem and the work required and is much closer to conventional
management consulting and relies on the ability to think and function on complex issues
in an innovative and informed way. However, recent technological advances have also
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led to the change in the market for consulting services from the clients. New
competitors with emerging innovative business models are emerging in different
industries on the basis of these new technological possibilities, weakening the
competitive position of traditional market leaders and often triggering the "flip" to a
new competitive basis. In addition, technology-based data collection and computer-
based analyzes promote the ability to capture and store large amounts of data (e.g.
financial performance, consumer behaviour, supply chain operational efficiency and
production systems) enable new approaches to be applied to further maximize the
possibilities of that operating process quality and productivity. To automate functional
processes such as financial reporting, sales or maintenance activities, these new (digital)
technologies are implemented.

Consulting 4.0 can be found to be an appealing and commonly used term of marketing
buzz from consulting firms. In recent years, the experience required from a consultant
hasn't changed much: A consultant will bring in and show unique technical know-how,
business or sector knowledge as well as functional areas. However, new challenges,
new customer needs and demands need more. Many of the interest of management
consultants lies in their technical know-how and experience, but the real value of a
consultancy commitment is increasingly earned by the consultant's ability to influence
and enhance the operations or management of a client's business on a long-term basis
through creative, actionable approaches, a dynamic market environment at a fair or
reasonable price. Due to the current convergence of strategy and marketing (i.e.
conventional agency and PR services), strategy and technology, technical and
implementation support and software-based data collection (i.e. analytics, predictive
analytics) and consultative data interpretation, this requires multiple professional know-
how. Who will be the biggest winners able to leverage the transformative power of
technology and structural changes in the consulting sector is still hard to tell. The
market leaders of the consulting industry — strategy consultants, IT managers, and
program integrators, or the Big Four — take the opportunity to position themselves as
multi-specialists, sometimes by aggressively purchasing smaller consulting firms. Yet
smaller consulting firms alone, with their deep professional know-how and/or
innovative business models and solutions, could also be well placed to do a remarkable
amount of work in almost all industries, as customers understand the possibilities for
wide-ranging change, significant transformation and the rethinking of business models
to help them succeed in the markets of the future. Consequently, the players in the
consulting industry have become even more and more complex. Transparency is needed
to be able to maneuver through this ecosystem of consulting service providers in the
consulting industry. This will be one of their major challenges for now and the future
for customers who are looking for the right consultants for their businesses.

Case 3: Dog Food Inc

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