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Overerview of the Consulting Industry What is Consulting?
By the University of Chicago Graduate School of Business Management Consulting Group:1 In this section, we will provide an overview of the profession, the types of consulting, projects, and how consulting firms are structured. Understanding each firm's approach to consulting services is extremely important to landing a job – that is why corporate presentations can be so valuable, provided that you come with specific questions you would like answered. 1.1.1 Why Do Companies Hire Consultants?
There are several reasons that firms hire consultants: 1. To obtain an objective viewpoint regarding a given business problem or issue. Consultants are relatively unaffected by a company's politics or the way in which business was conducted in the past, so the consulting firm delivers what is perceived as an objective analysis. This perspective can be important for motivating employees to change. 2. To utilize the specific expertise of the consulting firm. For example, the consulting firm may offer an industry authority to which the client would like access. Additionally, the consulting firm may have done similar projects in the past for comparable companies.
To obtain information about where the company stands in an industry. 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. To provide resources to address a specific problem. Often, clients simply do not have enough time or resources to devise solutions to certain problems. Consulting firms can avoid the day-to-day distractions that the clients' managers cannot. Further, consultants may offer labor power to coordinate and execute an implementation. Consulting Project Types
Generally, consulting firms classify their services into of three categories: Strategy, Business Process Reengineering (or simply "Reengineering") and Specific Services. These categories are not mutually exclusive and the distinctions can easily blur. In effect, there are as many different types of consulting projects as there are business problems. We will try to explain each of these types in some detail, but keep in mind that it is impossible to describe the full spectrum of consulting services in this Guide. Regardless of project type, client involvement is extremely important to the eventual success of any project. Firms follow very different approaches to involving client personnel. For example, some firms require a certain amount of full-time client resources dedicated to the project. Others require only sporadic assistance for portions of the project, such as financial analysis or engineering problems. In extreme cases, client personnel become an integral part of the consulting project. 22.214.171.124 Strategy Consulting
Strategy is the most difficult type of project to explain, because it means different things to different firms. Generally, a strategy project involves a "life cycle crossroads" for the client. For example, determining if the client should expand its product line or focus on existing products, or deciding what services the company should provide ten years from now are examples of strategic projects. A strategy consulting engagement will typically involve the highest levels of the client's organization, since responsibility for the direction of the company lies there. 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. This would include a detailed financial projection of the different scenarios. After recommending a given strategy, the project would either conclude or lead to an implementation phase. Implementation is a major issue among consultants today. 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. On the other hand, other consultants argue that, because their firm was instrumental in
This article was obtained from the 1997-1998 Resource Guide prepared by the Management Consulting Group of the University of Chicago. 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.
developing the solution, they ought to assist the client in implementing the solution. There is a definite trend in the consulting industry toward having consultants assist in implementation. In fact, more often than ever, consultants are being judged by clients on their ability to implement change. 126.96.36.199 Business Process Reengineering
The term reengineering has been popular since Hammer and Champy's book Reengineering the Corporation became a best seller. There is nothing mystical about the term - it simply means taking an objective look at the way in which a business is run. For example, through benchmarking against similar companies, a firm may decide that it takes too long to fill customers' orders. A consultant would then analyze the individual steps of the order fulfillment process and determine ways to cut time, increase quality, enhance customer satisfaction, etc. A revised process is determined and then proposed to the client. Reengineering engagements more often include an implementation phase in a project than do strategy engagements. Some recent literature suggests that reengineering is losing favor and that certain firms are distancing themselves from the term, if not the practice. 188.8.131.52 Specific Services
Another component of the consulting industry concerns itself with specific tasks and expertise needed by clients. Although the various issues relevant to this type of consulting are innumerable, a few specific areas are currently prominent: 184.108.40.206 Technology and Systems Consulting
Systems consulting is chiefly concerned with giving clients advice about the ideal configuration of their information systems, the introduction of client-server computing, and software and hardware purchases. 220.127.116.11 Human Resources Consulting
Human resources (HR) consultants help firms make compensation decisions and offer insights on benefit packages, pension funding, workplace diversity, and employee development. Executive compensation is a hot topic in HR consulting. 18.104.22.168 Litigation Consulting
These consultants work with law firms to plan case strategies, provide economic analysis, and develop courtroom tactics and/or evidentiary presentations. 22.214.171.124 Financial Consulting
Finance consultants provide guidance to corporations and money managers in the areas of securities pricing, economic forecasts, and strategies for creating shareholder value. 126.96.36.199 Other Industry-Specific Services
Many niche firms fall into this category. For example, in the healthcare consulting field, consultants are often asked to justify the need to build a new hospital (a "feasibility study"). The financial backers of the new hospital would rely on the consultant's findings before proceeding with construction. 1.1.3 Trends
Growth - Major consulting firms have been boasting double-digit rates of growth. Overseas Expansion - Much of the growth in the consulting industry has been international, with firms competing to build a client base in various countries. Range of Services - Many firms have moved toward offering a broader range of services (e.g., strategy through implementation). Mergers and expansions are fueling this trend. Decreasing Growth of Strategy Consulting – After the restructuring, downsizing, and reengineering phase of the 80's and early 90's, strategic projects have developed around continued growth and expansion overseas. 1.1.4 The Structure of Consulting Firms
Most firms will have very few job classifications. Titles vary by firm, but the responsibilities are generally similar. The following are the basic classifications and job descriptions:
188.8.131.52 Business Analyst I Analyst
These positions are not held by MBAs, but rather by the most capable individuals right out of top undergraduate programs. The business analyst position is typically held for 1-3 years between undergraduate and graduate school. The analyst's responsibilities range from research and data gathering to functioning on a level equal to post-MBA consultants. 184.108.40.206 Associate / Senior Consultant
Entry- level for MBAs. The associate is usually given the role of information gatherer. This will typically involve research, obtaining information from clients via interviews and/or financial data, and analyzing the information to draw conclusions. These conclusions must usually be presented to the rest of the project team in the format of a presentation. In projects where there is a client team, the associate may manage a subgroup of client team members. 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. The associate is typically given very broad directions and is expected to be creative and thorough in collecting relevant information. 220.127.116.11 Senior Associate / Engagement Manager
The senior associate or manager classification implies day-to-day supervisory responsibility on engagements. The senior associate will manage client team members (if applicable), consultants, and business analysts on the project. At the senior associate level, the project budget becomes a concern.
Principal /Associate Partner / Senior Manager
Those at the principal level are required either to manage several projects simultaneously or one large project full-time. Client relationships are critical at all job classification levels, but particularly in this case because the principal typically has the most frequent contact with upper level management. Frequent contact helps to ensure additional projects in the future. The principal is responsible for setting the direction for a project, with approval from the managing partner on the engagement. In many cases, the principal also begins to take on administrative duties within the firm. 18.104.22.168 Partner/ Director/ Vice President
Partners are responsible both for negotiating engagements and for reviewing the work generated by those engagements. The ultimate responsibility for a project's success falls on the partner's shoulders. With several projects to oversee at once in addition to their marketing duties, partners are often the hardest-working consultants in the office. A partner's travel schedule is generally more hectic than that of the more junior consultants. As the partner juggles several projects at one time, the partner may only periodically visit each client site. The partner attends important meetings with senior client managers. 1.1.5 Compensation
The median salary for full-time consulting positions was $85,000 in the most recent recruiting year. For internships, consulting firms usually pay the monthly equivalent of their full-time salaries. Keep in mind, however, that first-year total compensation is usually much higher. For example, most firms offer a signing bonus of $10,000 to $25,000. Also, some firms will pay for the second year of business school (and recently, one firm offered to pay for both years of business school as part of their full-time offers to summer interns). A new employee is sometimes eligible for a performance bonus after the first year. In short, compensation is outstanding compared to what most of us were being paid before business school. 1.1.6 Lifestyle
So far, consulting looks like the ideal job: immediate responsibility, opportunity to make a difference, excellent pay, etc. For some people it is. These people are known as partners. Since only about one percent of consultants go on to become partners, what happens to the other 99 percent? There are two main reasons for the attrition. First, since consultants are in such high profile positions, they typically receive job offers from clients and frequent contacts from corporate recruiters. Second, being in a position of responsibility usually translates into long hours in the office and frequent travel. This does not leave much time for a personal life. In addition, if a spouse or children are in the picture, it may not be possible to “have it all.” The greatest amount of attrition occurs around the three- to four-year mark, 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. Given the high investment made by consulting firms in developing personnel, reducing attrition can save a lot of money. Lately, firms have implemented programs designed to lessen the burden on consultants and, theoretically, prevent valued employees from wanting to look elsewhere. To reduce
Other firms have a more office-intensive style that involves going to the client site only when necessary. many firms have institutionalized Fridays in the office or allow consultants to work from home on Fridays. so do not be shy about asking tough questions concerning the amount and frequency of travel and other lifestyle concerns. some firms have recently instituted part-time programs.4 the out-of-town burden. the best time to ask these questions of firms is during the recruiting receptions. . Most of these programs only require three days of work per week. This limits their being away from family and friends only three nights per week. To address concerns about raising a family. Contrary to popular belief. If you have lifestyle concerns. These receptions are extremely low-risk. It is also possible to ask lifestyle questions of recent alumni or second-years that interned at the firm in question. it is very hard to be rejected because of one's performance at a reception.
Internal consultants perform essentially the same functions as external consultants. Vol. dynamic industry is by no means homogeneous.000 people worldwide work full-time in the management consulting industry. p. Four of the top twelve U. however. many large corporations have their own internal consulting arms. For those who are not convinced that consulting is a lifetime career but who want a variety of experiences and exposure to senior management problems at an early stage in their careers. way to segment the consulting industry is to compare large and small firms. however. In third place as a specialization is management/strategy consulting. and one-third employ fewer than four people.4 Internal consulting can be an attractive option.5 billion. Corporate policies of early retirement. Collis David J. Contrary to the prevailing belief. This skewed size distribution reflects the low barriers to entry to this industry: anyone can hang out a shingle bearing the title "Consultant. If the typical consulting firm is small. the largest is MIS consulting. Booz Allen. Understanding how each consulting firm specializes. 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. However. 2 3 4 Economist survey. organization design.3 Just over half of these consultants come from the United States. since they lack both the breadth of clients and depth of support of the big firms. and various earlier issues. 7. downsizing. Although these firms are ostensibly full-line consultants.2 generating about $25 billion in annual revenues. covers only outside consultants. these firms generate over $3 billion in billings annually.1 Consulting Articles The Management Consulting Industry By David J. or management education . financial services. June 1992. for the most part.and customer group or industry. 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. is therefore a vital first step in considering which firms to approach for a position.1. consulting firms fall into this category. strictly speaking. and. Such a large. the generalist consultants concentrate on higher value-added consulting for senior management.1 Segmentation The first. often serving a single client. such as BCG and Bain. which is. 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. such as McKinsey. Most consulting firms are small. Instead. the strategy consultants. February 13." and many former executives do just that. Whether these firms are attractive starting points for new consultants is debatable. another quarter come from Europe. 1988. While the industry definition. while an estimated three-quarters of all consultants work in firms employing more than 100 professionals. reflecting their origins as one-person shops run by an executive with a particular skill or industry knowledge. veteran consultants often end their careers in their own consulting firms. and ensuring that it matches your interests. . health care. clients often find their cost structure uneconomic for consulting on functional activities such as logistics. and their newer first cousins. Collis is an assistant professor of business administration at the Harvard Business School and faculty adviser to the Management Consulting Club. but most of the 20% annual rate of turnover among consultants is not due to consultants being hired by clients. management information systems (MIS).000 in annual billings. albeit in a more limited number of settings-there are five times as many external consultants as internal consultants. While all firms provide a variety of services. operations: half of all consulting firms generate less than $500. Summer 1984. and outsourcing have created both the supply and the demand for independent consultants. The third important basis for segmentation in the consulting industry is degree of specialization. 3. The other functional or industry specialists in consulting tend to be small. Data estimates are from Consultants News. for example.S. the industry has nevertheless grown more than twice as fast as GNP for the last decade. Journal of Management Consulting. Professor Collis has extensive experience with consulting firms. and probably most significant. most consulting firms generate the majority of their revenue from one type of work. 2. Approximately 100. A second and often overlooked distinction in consulting is between in-house and external consultants. Transfers at junior levels are common. or government. many of these small shops exist. In the United States alone. usually affiliated with a planning department. This area includes the generalist management consultants. The two main dimensions of specialization are function-for example. 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. The second largest specialization is compensation and benefits consulting. Of these specializations. logistics.5 2 2. often one-person. while enjoying a more direct career path into line management. with annual billings exceeding $1. While management consulting fluctuates with the business cycle.
As a result. these reputations are usually more a reflection of marketing than of a fundamentally different approach to consulting. There have been. usually not the purchaser of strategy consulting. although some firms may be known for a particular technique tool. Similarly. The issue really relates to the clients' decision-making process. The rationale for hiring consultants-to access the specific expertise needed to quickly solve a current problem-will remain and will. the success of broad scope consulting firms and of outside ownership remains doubtful. Hewitt Associates. However. It has been estimated that only a third of a consultant's business comes from repeat clients. but still faster than GNP. Although it is true that these acquisitions are occurring. If an accounting firm can leverage its audit relationship into MIS consulting. "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. Saatchi & Saatchi is the most obvious example of the failure of an outsider to build a broad scope consulting business. if anything. particularly in the junior positions. When the publicity for a firm surrounds a particular solution to a general problem. under which single ownership provides a variety of consulting specialties. The purchaser of the audit . firm did 94%. Some specialists in "change management" exist. increasingly. diversified client base. Other industry trends are the acquisitions by outsiders of consulting firms and the move toward broad scope consulting firms. for example. Citibank tried and exited consulting. This structure results both from the ease of entry for newcomers. predicting which corporate activities will be outsourced could give you a head start in identifying the next growth specialty in consulting. more cyclically than in the past. One reason is the difficulty inherent in merging cultures.2 Trends Management consulting will continue to grow. and from the competitive advantages of larger firms-reputation. 2. 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). A last distinction among consulting firms is their degree of internationalization. this expense could be substantially reduced. like time-based competition for strategy. which are still operating successfully.the CFO or controller . would not be dissimilar to working at Monitor or at Braxton when each was independent. This implies that working for an international consulting firm will not necessarily allow you to work overseas. I would therefore suggest that the ultimate ownership of the firm you might work for is not of great importance. nor is the ease of buying a range of consulting services from a single source of much value to a client when compared to the ability to choose the best specialist for a given type of work. cover more tasks in the future as firms reconsider the costs of all their internal functions. As a result. The rationale for these acquisitions lies in the economies of scope that a broad line competitor can exploit.K. so they can be responsive to local needs. but the extent of non-domestic business varies substantially. partly because the problems resulting from merging cultures cause the firms' major asset-people-to leave. not of substance. All firms in all categories of consulting recognize that their role must involve effecting change in the client organization. While a few firms are able to break through the mid-size plateau to become recognized large players . does only 7% of its work outside the United States. particularly in marketing.is. and the accounting firms are still struggling to establish a relationship with their consulting arms that peaceably compensates consultants more than auditors. but even they would like to be involved in developing the direction of change. their impact on your daily activities. maintains a wall between consulting and auditing. or if a strategy consulting report can recommend hiring the sister benefits consulting firm for the follow-on organization study. for example. few acquisitions of one strategy consulting firm by another. about 20% of a consulting firm's costs lie in acquiring clients. compared with McKinsey's 60% and the U. You usually have to ask explicitly for an overseas assignment and often have to recruit with the overseas office in addition to the domestic office. and yet leverages the audit relationship into consulting work. while new business. In fact. most of the broad scope firms are essentially umbrella-holding companies for a set of independent specialists having little interaction with one another. 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. will be relatively limited. In considering a career in consulting. 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. and differences between them are now of degree. such as BCG and the experience curve in the 1970s.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. for example. even those firms with extensive overseas networks tend to have independent offices. for example. but even those companies like Mercer. Most firms now have offices or affiliations outside their home country. have yet to demonstrate the value of broad scope. and only I% of consulting firms are more than fifty years old. . and broader geographic base. it is usually not representative of a profound difference in the type of work the firm undertakes. The industry will also continue to move to an hourglass shape: increasingly. For the potential consultant. Unfortunately. is won in competitive bids against comparable consulting firms.6 The consulting industry no longer draws a distinction between formulation and implementation. one firm. Working at Braxton (now owned by Deloitte & Touche).1. Among the world's top twenty consultants.
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. a larger Asian presence. 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. 2. not simply from their possession of a particular technology. As competitiveness for summer positions in consulting has intensified. Another valuable resource not to be overlooked is your . I suspect. more capable of understanding the manager's role. As future management consultants. market. Thus the pyramid structure inside consulting firms will change-on average in the large firms. your focus will shift to the most critical step: getting an offer. Today. No longer will a 24-year-old MBA be able to add value simply by applying a concept the client has not seen before. to match the globalization of clients in the future. This will require a more experienced consultant. and Asia is undeveloped both as a market for and a source of consultants. These senior consultants will be supported by junior "para-consultants" who can perform the mechanistic. In practical terms this will mean that consultants will have to be less formulaic than in the past. The value provided by consulting firms will have to come from their ability to apply concepts and to customize them for particular client needs. U.S. 2. it is likely that the employee profile of consulting firms will alter somewhat. global competition is likely to increase. you should also take advantage of any opportunity to learn about the firms from the consultants themselves. any large consulting firm today needs a global network of offices. and it will be crucial in preparing for interviews. Most foreign offices are currently operated with a great deal of autonomy.7 There is. European firms the European market. and more versed in people skills than the functional expert of the past. 2. An effective job search will require you to assemble a considerable amount of information about each for the firms. who will give you a more detailed and realistic understanding of the firms' focuses and values. As consulting firms increase their geographic scope. firms dominate the U.2. Finally. consulting will have to become an even more exciting. both to serve your clients effectively and to learn from best practice in other countries. one could argue that management consulting has replaced it as the most sought-after business profession in the 1990s. it is doubly true for management consultants. Although this prescription is true for all executives. To serve the increasing global needs of clients effectively. 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. who must be leaders in the development of skills if they are to continue to provide value to clients. Harvard Business School If investment banking was the career of choice in the 1980s.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. one partner supports eleven consultants-as the number of very senior and very junior employee swells. based on your interests and long-term career plans. 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. Otherwise. To meet these sort of demands. consulting firms are themselves likely to further integrate their worldwide operations.S.2. This network can be created by establishing alliances with overseas affiliates but is now more often achieved by setting up foreign offices. repetitive tasks more cost effectively. and effective recruiting will by necessity require significant focus. Your time and energy will be limited. Instead. the good news is that to truly meet client demands for value for money.2 Reflections on First-Year Recruiting By Phil Collins Class of 1993. While preparing materials and attending recruiting briefings and career fairs will be helpful. however one industry trend that will affect you: globalization. However. each with its own selection criteria. consulting firms will work more closely with client management in defining and analyzing problems and in formulating and implementing solutions. obtaining summer positions in the consulting industry has become increasingly competitive. which will be useful in two ways: this information will assist you in determining which firms you would be interested in working for.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. challenging. 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. Twenty years from now there will be far more interaction among geographic markets and. 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. and ultimately rewarding career than ever before. Once you decide that pursuing a job in the consulting field is a productive way for you to spend your recruiting effort. you must be prepared to learn a foreign language and to travel overseas. As a result.
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. firms differ along a few important dimensions. other than knowing why you. 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. Given that most students at top business schools possess all of these requirements to some degree. and provides an opportunity to showcase your knowledge and skills. Be grateful that you figured this out early. Preparing for the case interview 2. and move on with enthusiasm to the next interview. the case interview can become considerably less daunting. it is also important to be honest and to be yourself. A good case interview is no more than a discussion about an interesting and challenging business problem. so prepare clear and convincing answers. What are the one or two questions that you hope they will not ask? They will. Understand what consulting firms are looking for. or where you would not enjoy the type of work being done. Look carefully at your resume and identify your weak spots. is not in the best interest of either you or the firm. 3. and do these engagements sound interesting? Focus on implementation: After developing a set of recommendations. Firms use cases to evaluate your analytic abilities and problem-solving skills. 4. most firms are looking for the same kind of people: smart. 6. Good questions are firm-specific and thoughtful. Getting a job at a firm full of people with whom you would not get along. For most firms.3 Nothing causes more anxiety in first-year students trying to land a summer job in consulting than the prospect of interview cases. While understanding the characteristics of each firm will be helpful. you should be able to identify those in which you have a sincere interest. Identify your weaknesses. and that you have demonstrated leadership abilities. You should have. Be yourself and be honest. Ask insightful questions. While they are clearly a crucial element in evaluating prospective employees. and you should schedule your interviews accordingly. want it and being able to clearly communicate your conviction. 2. There are no experience prerequisites for getting a summer job in consulting. Consulting firms hire people from a wide variety of backgrounds. traits often demonstrated by a record of past achievement. 7. Save the best interview for last. Keep in mind that they are not looking for a "correct" answer. 5. 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. but a major career change may require some explanation. or does it attempt to be strong across a number of areas? What kinds of problems has the firm worked on before. Generally. Frame your skills and experience in terms of how you can add value to the firm and its clients. Here are some tips: 1. Viewed in this way. creative problem solvers whose interpersonal skills will allow them to work well in a team environment. and how does it support the professional development of its consultants? 2. Experience will allow you to become more relaxed.1 Getting an offer Once you have a good understanding of the various consulting firms. successful candidates must communicate their unique strengths clearly and convincingly. Firms will inevitably ask you at the end of the interview if you have any questions. While it is important to be at your best in framing and communicating your skills. and it is important to understand how each firm differentiates itself Consider the following issues: • Type of work: Does the firm specialize along functional. Understand clearly why you want a job in consulting.8 classmates who worked at particular firms before business school or who went through summer consulting programs with firms. Given the nature of the work. There is a learning curve in this process. confident and convincing. Provide concrete examples from your previous experience which demonstrate that you have been a creative problem solver. consulting firms are also looking for people who are energetic and have an appetite for new challenges.2. but instead are trying to understand how you think and how you .2. and will therefore be ready to begin pursuing a summer position in earnest.2. that you are successful working in teams. interviews and cases will make or break your candidacy. they are not nearly as frightening as one might expect. does the firm ctively 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.
Listen carefully and take time to think clearly about the problem before formulating a response. 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. encompassing a number of issues and presenting a lot of data. You may be handed pages of data and asked for your impressions. Give the interviewer a road map of where you are going to take the discussion: the framework is a key to understanding how you think and approach problems and illustrates your ability to think about problems in a systematic way. the interviewing process for second-year candidates is refreshingly slower paced and more manageable than the first-year cyclone. Break the problem down into its constituent parts. and even fun experience. School career centers/placement offices offer a variety of tools. 2. Some cases might require microeconomic analysis. The last thing you should have to worry about is remembering case facts and numbers. Given an understanding of the key issues. the process of pursuing a permanent position can be broken down into three broad components: investigating consulting firms. Identify the most important issues in the case up front. and what impact have they had? Develop a clear and logical chain of reasoning and understand the linkages between key elements of the problem. If you make assumptions. Review the major frameworks developed in first-year courses. Develop a framework for approaching the problem.2. Most often. Stay calm. Think causally and logically. "Don't be discouraged if things don't work out for the summer. This is an important distinction with implications for how you should respond to case situations. brush up on your microeconomics. While a consulting job search will require a great deal of time and effort. so feel free to take notes during the case portion of the interview. and you will gain a broader understanding of the different firms and of consulting as a career. 8. you will be challenged to think on your feet to work through complex business problems. Be flexible. You will meet a wide variety of intelligent and interesting people. Keep in mind that each firm approaches cases in a different way. so don't bother. Some firms may ask you to analyze an industry you have worked in. Don't try to force every problem to conform to a generic. prefabricated and inflexible analytical framework. whether you are successful or unsuccessful. Each problem is unique and will require a unique approach.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. and approach them in a logical way rather than generating random thoughts. 6. and develop a framework that is appropriate. so your chances of receiving an offer second year increase. while others may rely on knowledge of first-year marketing. Adapt your analysis to the problem.9 approach problems. Ask questions. . Overall. and develop hypotheses to explain what is driving the important issues. I suggest keeping the following points in mind: 1. Harvard Business School First-year interviewing for summer jobs in management consulting can be characterized as an exciting. head-spinning whirlwind of back-to-back meetings. causes. 7. as opposed to what is merely interesting. and then concentrate on ways of enhancing and demonstrating your problem solving skills. This often helps you to concentrate on the problem-solving aspect of the case. What are the underlying causes of the case situation. it can also be a challenging. state them clearly. For many. If you are on the wrong track. and linkages. 4. recruiting. Try to determine what is critical. 2. The resounding line eloquently uttered by every recruiter that becomes particularly meaningful as the second-year process draws near is. The bottom line is that case interviews have been designed so that you cannot study for them. or you may have a situation described to you in a qualitative way. the process consists of five or so days crammed with as many as 20 interviews. 5. the cases will require integration of knowledge of a number of subjects and functional areas. and decision making." Fortunately. We extend more offers for permanent positions. One good way to do this is to practice a few mock cases with another student.2. Some cases are long and complex. what opportunities does the client have to take actions that will improve their performance? 3. while others may be much shorter or less quantitative. 2. rewarding.4 Second-Year Recruiting: Looking for the Long-Term By Jim McManus: Class of 1990. Take notes. the recruiters speak the truth. the interviewer will often interrupt you and provide additional data. This is especially important because it is difficult to recover from a hasty start. In addition. while other firms will deliberately ask you about industries with which you are unfamiliar. Drive to action.
The "details" that you were willing to live without for an 8. If you are particularly attracted to a certain firm. However. the primary goal of most first-years is simply to land a job at the firm of choice. and how well positioned is it to achieve that strategy? As a prospective candidate. promotion. and functional specializations. In assessing the characteristics of each firm. Given the variables of personality. revenue. 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. which will help you to differentiate between the many opportunities you are likely to have. (As a practical matter. many consulting firms have "open schedules" that allow you to arrange an on-campus interview directly through your school's career services office. When you are planning your post-graduation career.generation or cost focus. Depending on the firm. 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. by far. including the availability of international opportunities and the number (and size) of offices. performance evaluations. interview skills and resume workshops. take the initiative to call one of their recruiting coordinators to express an interest in attending. you should get a feel for other important attributes of each firm. Though the information available through formal school channels provides valuable background on particular consulting firms. while others are more relaxed. Spend some time early in the process getting familiar with the workings of your career center. as reflected by its employees. This is also important when looking into various office alternatives within a firm. you are sure to pick up important new insights with each informal conversation with classmates. so it is a good idea to understanding detail your school's policies at the start of the second year. lifestyle preference.6 The Recruiting Process Management consulting firms do not wait long after the beginning of the school year before kicking off their recruiting campaigns. Speak to as many people as possible about their summer job experiences. compensation should be just one of many criteria you use in deciding which firms to pursue. Though every firm will highlight the collaborative nature of its client relationships. In terms of their consulting work. and weigh these factors against your particular preferences. with less emphasis placed on such "details" as location. one of the most critical attributes to consider is the culture of the firm. Besides understanding the firm's personality and values. many firms invite students to information sessions and dinners throughout the fall to introduce prospective candidates to the firms' people and practices. You may find it helpful to evaluate consulting firms on three broad criteria: 1) the nature of the work they do. and an otherwise great project can quickly become a negative experience if you do not get along well with the other team members. are classmates and friends. Second. In addition.2. office location. both in the office and traveling. lifestyle and culture. The focus of your information search will also differ in the second year.to 10-week summer will become critical second year. Although the high starting salaries in consulting are undoubtedly attractive. compensation. When interviewing with consulting firms for summer positions. nitty-gritty details of what life is really like at Firm X or Y. 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. Some schools have very strict schedules. You certainly have nothing to lose! Arrangements for interviews differ by school and by firm. the best advice here is to know the policies of recruiters and of your school and to work within those policies. seek the perspectives of many people who have experience at that firm. the second-year recruit's most important resource. you should consider the size and stability of the firm's client base and its vulnerability to a downturn. and assistance in outplacement.year recruiting is for the longer term. firms (and even different offices within the same firm) differ markedly in their degree of emphasis on the following dimensions: implementation vs. strategy. . What is the firm's long-term strategy. Though the interview season does not officially begin until later in the school year. and 3) the nature of the career opportunities offered. you may need to send a cover letter requesting an interview. these discussions will provide you with the most pertinent. 2. dress codes tend to be casual for on-campus presentations and professional for off-campus events. and the nature of the projects worked on. Again. especially given our high debt levels. These "informal" get-togethers give students the opportunity to evaluate firms before getting into the more time-intensive interview process. Issues such as the size of a typical case team and the role of the new consultant on a team should be considered. industry focus.) If you are particularly attracted to a certain firm but have not been invited to attend their fall functions. 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. 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.10 including career counseling services. Can you see yourself 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. and company-specific literature that enable us to build a knowledge base on potential employers in a matter of days. 2) the characteristics and cultures of the firms.
the second-year process takes place over a period of several weeks rather than several days. Many firms have excellent out-placement services. and an up-or-out is one way in which a firm ensures its ability to regenerate itself. Most people who leave consulting firms do so of their own will. From the employee's point of view. the number of people who want to continue in consulting. with the final rounds taking place at the firms' offices. you are going to find it very hard to avoid canceling your plans and going to Timbuktu! My advice about lifestyle is. and the long-term career opportunities. Professor Collis's article provides more detailed advice about how to make choices between firms. but the real fun begins if you have the good fortune of having to decide between two or more firms of similar caliber. Rather. it is still true that. step by step. In general. and many companies employ so-called "up-or-out" policies. the characteristics of the firms. . 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. and moving out is not considered failure by any stretch of the imagination. 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 who are not able to do so because of the up-or-out policy is actually quite small. In industry. such a policy makes a lot of sense.11 Like the first-year process. Since many consulting companies give strategy cases.8 Career Paths Career paths in consulting and industry differ considerably. usually administered unofficially through contacts with alumni. who feel they are at the right firm. In most firms that have such a policy. These policies require that you develop certain skills within a defined time frame in order to be allowed to continue with the organization. Receipt of an offer does not allow you to extend your job search indefinitely. 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. the time frame can often be shorter. refer to the selection criteria you established at the outset of the entire recruiting process. If other variables are relatively equal. there are firms that have job rotation schemes and fast tracks to allow them to identify and promote their best people quickly. From the firm's point of view.2. and if you happen to have plans that evening. after all. 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. taking into account differences between the work the firms do. either because they decide consulting is not for them or because another tremendously exciting opportunity presents itself to them. 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. and employees very rarely get kicked out unexpectedly. in practice it is not always so. When going through case interviews. However. recruiters are under pressure to firm the size of the incoming class in a reasonable period of time. 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. Though increasingly. you should be aware that in almost any consulting firm. as it allows fresh ideas to be constantly brought into the firm by new recruits. the use of cases varies widely from firm to firm and even from interviewer to interviewer within the same firm. it is a pretty good idea to review the various strategy frameworks before beginning the interview season. the issue that should weigh most heavily in the decision should be the people with whom you will be working. the policy is very sensitively administered.2. The survival of a professional service firm is quite dependent on its ability to remain at the forefront of its field. In consulting.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. the commitment to the firm and time scale of your progress is still fairly long term. Promotion decisions tend to be made in the two. In practice. frequent feedback allows employees to judge their own position within the firm accurately. 2. the policy ensures that the environment will be dynamic and that the organization will provide a constant stream of new and challenging opportunities. and such consideration is not likely to be forgotten by employees. however. being considerate throughout the recruiting process can only enhance your image in the eyes of the recruiting firm. If you are unable to develop these skills. the second-year interviewing normally consists of three or four rounds of interviews. Make sure that you have met and are comfortable with enough people at all tenure levels of the organization. Although a case should be expected in most interviews. then. Unlike the first-year schedule. remember one important word of advice-relax! 2. Furthermore.to three-year time frame. If you do receive offers from more than one firm. in industry generally. a traditional career path might be to start fairly low down in the organization and to work one's way up the corporate ladder. paying particularly close attention to what the junior people are saying.
will continue to experience meteoric growth. sales force automation. its why the big IT consulting shops. specialists apply specialized process and functional knowledge to real organizations with real problems. some of the Big Six accounting firms have made tremendous inroads into the strategy consulting business. given that in the words of a classmate of mine. who was being recruited by a major manufacturing firm.3. Whatever decision you come to. At the same time. even if your objective is to pay back your MBA debt in as few years as possible. if you really do want to work in industry. for example. 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 great work that offers clear value to many organizations. cheaper. At the same time. "What's that?" It is by no means all industrial firms that are approaching remuneration parity with consulting firms! Moreover. has a very high quality strategic . Not surprisingly. offers have been continuing to increase (several firms are offering packages well into six figure territory after a few investment banks upped their ante). particularly given the wide range of available career options. Generalist or specialist. Small. Another classmate of mine. found that when she asked about the possibility of a signing bonus.2.1 The Options There are basically two career options in consulting. high technology companies are increasingly recognizing the value that MBA students can add within their firms. many of you are giving management consulting a hard look. Mercer and Monitor plus a growing list of mid-sized consultancies and smaller boutiques. the number of exceptions to this particular rule is increasing every year. then. Salary offers at top MBA schools in 1996 for consultants averaged $80. More people work for Andersen today than do for the top five generalist firms combined. consulting firms were very much the leaders in MBA remuneration. And more MBA students have entered the field within the last few years than any other area. you can be assured of an exciting. some industry salaries are rapidly approaching those offered by consulting firms. These. are some of the issues involved in making the consulting versus industry decision. values and interests is an excellent idea. Certainly.000 per year. often with significant signing bonuses or tuition relief. if so. we are all "mini-LBOs" by the time we finish our MBAs). In this process. and have fun! 2. you should not rule out a career in industry.9 Remuneration Until relatively recently. the hottest area in consulting today is informational technology. Booz Alien & Hamilton. It's very easy to see the time you're planning to spend exploring careers get taken up with other more immediate priorities. meaner and more efficiently. Speaking of generalist. consulting companies tend on the whole to have very well-oiled. These placement numbers have caught many business schools by surprise and. the other option available is to work for a firm which provides a wide variety of advice designed to make enterprises run faster. 2. so getting a high-paying job tends to be less work for the recruit. While it is still true that on average most larger firms in industry pay less than most consulting firms.3 Is Consulting the Right Field for You? By Tim Opler Consulting is hot! Salaries are up. This can often be a difficult subject to raise. McKinsey. After all. Good luck. As of December 1996. 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. too. CICS/VBASIC/UNIX. I recommend that you commit to an ongoing and serious process of introspection and skill inventorying before marching into your next job interview. the better you will do. and if remuneration is particularly important to you (and there is every reason that it should be. This is technical stuff that offers strong productivity improvements to countless businesses in areas like client/server. and in each individual situation there will be many other personal factors involved. It's absolutely vital that you not let this happen. better. today. BCG. Coopers and Lybrand. It is a tough choice. like Andersen Consulting. you will have to spend more time and effort searching out the best opportunities. Generalist firms include well-known names such as Bain & Company. she received a blank look and the reply. But is consulting really the right field for you? And. To say nothing of long-term personal happiness. The more convincingly and honestly you can answer questions about why you are across the table from the interviewer. However.12 As a potential employee. deans and administrators are scrambling to ensure that their MBA programs offer the right type of courses for prospective consultants. how should you conduct your job search? A careful examination of your own skills. And. Even some large traditional Midwest manufacturing corporations are responding to increasing competitive pressures by becoming more aggressive in recruiting bright young management talent. 2. challenging experience. you should inquire about the consulting firm's promotion policies. I understand why! Work in consulting is stimulating and the pay can be excellent. making a difference in a career that you enjoy is an important part of life. Without doubt. effective recruiting machines.
This isn't to say that you must be the ultimate extrovert. Consultants who enjoy talking to people do well. I guess sheepskin is sheepskin. You can't drive it. These individuals are in such demand that. You may very well get a job offer anyway. Let's start by asking what skills are in demand among consulting organizations. Hence the frenzy to hire the best and the brightest of America's business schools. You need to enjoy problem -diagnosis. another quarter come from Europe. PhDs and the like. And.. humor. of course.2 The Skills in Demand Consulting firm interviews typically involve a combination of general background questions. it is well-worth asking where you might fit into the industry.13 consulting unit and is managing to attract some of the very brightest students from institutions like NYU and Wharton. A consultant once told me that some of the most fulfilling relationships of his life were with clients. engineering. the MBA degree itself need not be necessary. in particular. over 300. Through their intellectual leadership they gain respect from the clients. Skill #2: A Passion for Client Service. an insight. But advancing and leading may be a different matter altogether. As a consultant you will always be working to help others. public administration. disliking writing. It's a field where the gregarious do well with their teammates and their clients. Over the years. whether it be by charm. they have numerous options to choose from. many different approaches to interviewing and. for that matter. They typically become engagement managers sooner. Pedigree can neither guarantee one success nor condemn one to failure. Not because he didn't cherish his spouse and family. In all. For that matter. and tend to set the pace for their teams. A number of firms are hiring persons with other degree backgrounds (e. generating more than $30 billion in annual revenues. at any point in time. a suggestion. knowing that they you can generate more value for them than you are being paid. 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. You need to be the type that does well in school and likes it. I would add that firms aren't nearly as pedigree-sensitive as some seem to think. of course." Skill #3: A Passion for People.. consulting firms are nothing more than repositories of pure human capital. However you accomplish this. often in two or three year programs which are expected to be followed by a stint at business school. listening or hard-work. The product is an idea. law. lasting partnerships with a number of clients through repeated contact and hard work. Your ability to serve clients will determine your success and the prospects of your employer. The result is that the institution needs the individual. A good consultant has to be a great thinker with a passion for ideas. Common skills on interviewer check lists include. It is vitally important that you make every effort to understand what these skills are before you step into the interview room. 2. understand and . After all is said and done. While intangible. a way of thinking. it's vital that you enjoy. many undergraduate students enter consulting. but instead because he had built life-long. Firms may hire you opportunistically. In a business world where institutional loyalty is rare. of course.3. but excelling along other dimensions (e. I have observed that unfriendly clients become attentive when listening to people of excellence because their contribution is unique. problem-framing and problem-solving. the individual needs to excel and generate his or her own marketability. This means that their most important asset has to be the ability to generate relevant ideas through rigorous thinking and careful research. These relationships are what can make the long hours. And. This intellectual focus of consulting is clearly important in deciding whether you would do well in the field. but you do have to connect. You can't smell it.000 people work full-time in the management consulting industry. You can't eat what a consulting firm makes. McKinsey. it can be easy to get into the profession for the wrong reason. Given the scope and size of this career opportunity. the partners and their teammates. has recently been aggressive in its pursuit of attorneys. Just over half of these consultants come from the United States. getting stuck on cases. not the reverse. a seasoned ex-McKinsey consultant put it this way: "It is only through personal excellence that this profession becomes truly enjoyable. human interaction or entrepreneurialism) you probably should not be a consultant. to being interviewed.. Those who achieve excellence feel great about themselves and are more likely to find the consulting experience a path to fulfillment. stressful travel and corporate frustrations encountered by consultants worthwhile. If you find yourself struggling with the academic-side of business school. medicine). Those who demonstrate superior skills gain personal control early in their careers. consulting is a service profession and most firms screen carefully for commitment to others and ability to excel in meeting client needs. But the bottom line is that firms are screening for skills that match their needs. The most rapid growth is currently being seen in developing economies such as Brazil and Indonesia. a case question and questions about your past behavior (the much dreaded behavioral interview approach). whether you want to fit in.g. With all of the money being thrown around by the consulting firms these days. The financial rewards become window dressing and the high of the experience becomes the drug of first choice.g. Skill #1: A Passion for Ideas. In a recent letter published by Mitchell Madison Group. Ultimately.. There are. 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. a personal commitment to excel in meeting the needs of your clients is vital to enjoying the profession.
The firms are typically tolerant of "career changers" but will be looking for you to provide a coherent story about why you are changing. alternatively. At some institutions. of course. there is no good substitute for meeting someone. tolerance for absolutely abusive hours. Better yet. ask for a meeting. superb IT skills. 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. This is a great opportunity to get a conversation started. 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." If your contact is not available.3. One of the most helpful things you can do is to get personally acquainted with consultants at firms that interest you. some relevant functional expertise (e. but it's almost always worth it. "I'll be in New York (or wherever) next week and would love to ask you a few questions over breakfast. I have listed a number of resources that might be helpful in this regard. 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. If you go to school outside of a major metropolitan area. 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. You want to call a consultant and let them know that you are a student with a specific interest in their work or firm." Unfortunately. polite. The best way to get acquainted is over the telephone. Face Time: Ultimately. all the big firms show up and will talk to you. but effective trick. Consulting firms are looking for organized resumes that convey the skills they are looking for. Not bad since a consultant has to be a natural networker. ask for voice mail and leave a voice mail introducing yourself and explaining why you are calling. 2. Consulting firm interviewers are looking for people that they'd like to work with themselves. personal appearance. On a more practical level.4 Recommended Resources A big part of getting started on a consulting career is to survey the profession. logical thinking skills. writing skills. It's human nature to favor those whom we know and like in the hiring process. Smart. The Resume: The resume is a necessary evil in your job search. Making The Phone Call: The networking phone call is the single most valuable weapon in your job search arsenal. "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. engineering or finance) and a track record of successful experience. Or. many networking phone calls end up with one of two negative outcomes: (1) "the person is not available". solid schooling. Other characteristics in demand including understanding of specific business issues. the ability to work quickly in spreadsheets.3. Moreover. let's assume that you don't yet have offers from the three firms that you truly want to work for. it's vital to have access to current contact information and to be able to locate the firms. You can overcome the "intimidation factor" by practicing this technique with a colleague or your friendly career services director. Most people will be willing to help you if you give them the chance. The screening process. even if only for ten minutes or so. Most students who land positions in the consulting profession do so by scrambling. It's not as hard as many seem to think. It really helps to have others batting for you and educating you about the profession.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. be direct and ask for help with your job search. You pick them and they pick you. not the rule. at the University of Virginia's Darden School argues that the most important aspects of conducting a consulting firm career search involve preparing the right resume. If you indicate in an interview that you already know someone at a firm your chances of landing a position will go up dramatically. networking in the profession and getting "face time". you will need to strike out on your own. Anne Harris. Networking: The key to landing a consulting position is to network. . hustling and working hard in the job search process. If you don't hear back. Instead of being pushy or hanging up.14 communicate with clients. It's only human. Not necessarily a natural combination of abilities you might say." More likely. the values that they hold and the practices they are in. A good interviewer is looking for experience. it's an odd admixture in demand at the consulting firms.g. the work and the life. keep trying. Below. This may be costly. 2. you will need to visit people at the firms that interest you. What then is your next step? This all depends on where you are going to school. willingness to travel and facility with languages. likable people who are good at helping others. 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. is to call the office in the evening. But this practice is the exception. It's important to be sincere. a tolerance for ambiguity. A dirty. or (2) "sorry but we are not looking. It's not particularly important to worry about font choice and paragraph formatting. It is very helpful to know the histories of the various firms. Now. Head of MBA Career Services. you might ask for help with an upcoming interview. There are lots of good ways to network. If you are on the job market now. So. friendly and very interested in the person you are calling on. enthusiasm and skill. can vary widely and many firms are looking for a unique traits.
Available from Harvard Business School Publishing. H. Try their web site at http. San Francisco. Gale Research. Kennedy Publications.//www. Consultants and Consulting Organizations Directory. Management Consulting: Exploring the Field. Also try their web site at http://www. 603 585-9555. San Francisco. Harvard Business School Career Guide: Management Consulting 1997.com. Available from the Consultants Bookstore at 1-800-531-0007 or fax. CA 94114-2953). 03447. So You Want to be a Management Consultant. Finding the Right Job and Landing It! Convergence Multimedia and Harvard Business School Publishing. (800) 877-GALE Consultants News. Templeton Road. MI. Directory of Management Consultants. On CD-ROM. harvard. hbsp. H. CA 94114-2953). Fitzwilliam. From Wet Feet Press at 1-800-926-4JOB or 1-415-826-1750 (349 Liberty Street. 03447. N. 1997. Fitzwilliam. N. . Templeton Road.15 Ace Your Case! The Essential Management Consulting Case Workbook. 1996. From Wet Feet Press at 1-800-926-4JOB (349 Liberty Street.weffeet. Detroit. Kennedy Publications. edu. Cost $39. Available from the Consultants Bookstore at 1-800-531-0007 or 1-603-585-2200.95.
7 Listen to introduction carefully Carefully think through the problem at hand Ask one or two clarifying questions.2.3 There are two parts to a case: 4.2 Effective communicator Tolerance for ambiguity 4.3. Remember that you are trying to lead the interviewer through your problem solving approach.5 4.1 Ability to think through problems: 4.1 4.1 4.. you want to communicate explicitly what you want to do with the case. Suggested time allocation for a 20-25 minute interview is as follows: 7.1.4 5. probe further Pick the second branch . Writing a paper is a good analogy to solving a case. the basis of consulting.1.2. possibly with a logic tree .2 5. Time management during the interview is the interviewee’s responsibility. if necessary Structure the problem. 7 .1.3 5. ask for relevant facts.how you think and solve problems 4.2 Mechanics . What are consulting companies looking for in a candidate? 3.6 5.1.2 Clear.4 4. Put it all together: try to answer the overall question 6 During the case.2 3.1 5.2 4.1 3.3 Description of a business situation A problem Based on a real situation 2 3 The purpose of a case is to judge problem-solving abilities. Go over the framework at a high level with the interviewer and then plunge into one area at a time.4 5 Both are important. probing mind ⇒ candidate to engage in solving the problem Ability to synthesize Basic numerical agility Intuitive business sense Hypothesis generation ⇒ use hypothesis to drive thinking and formulate questions Ability to quickly build working relationships: 4. Use interim conclusions to sum up a section of analysis before moving on to another area.1. logical reasoning Curious.how you structure the case and go through the analysis. A good approach: 22.214.171.124 3 1 Overview of Cases A case is: 1. you first order your thoughts in an outline..1 1. In a paper.1 4.2 1. creating a framework to solve the case. defend/refine hypotheses. develop hypotheses.4 Problem solving skills Personal impact Leadership Drive / Aspirations 4 What are consulting companies looking for in a case answer? 4.3 4. but will vary depending on the topic and your level of comfort with the issue.6 4.1 The time spent structuring the problem should average about five minutes.5 5.enables one to organize the data presented Pick one branch to probe. This is akin to creating an outline before writing a paper. Analysis .3 3.
The key to using assumptions are: 8. If the assumptions are invalid.2 7.17 7. Successful interviewees have taken up to 10 minutes to think through the issues as hand. Try to state your assumptions up-front.2 7. Bad phraseology could lead the interviewer to think that you are arrogant. This is where you can gather all of the information gathered during your analysis and present it in a logical and persuasive fashion. both during the analysis and the conclusion. the interviewer will state that they are not correct. Remember that time is the most precious commodity that you have during the interview. you may also chose to spend a minute or two discussing further areas that you would have liked to explore and why. Delivery. . prioritizing them and possibly eliminating some before you dive into the rest of your analysis. Summing up: 5 minutes. The interviewer is not a mind reader. Do not squander time be focusing on issues that will not highlight your abilities or will not lead to a viable solution.2 Timing. DO NOT BE AFRAID OF SILENCE! Plan to spend two minutes discussing the issues.1. Try to state the assumptions in a non-offensive manner. 7.3 Analyze the case: 15 minutes. this can be almost as important as the time spent up front framing the analysis. You must lead him down the path that you are walking. Finally. always provide reasons for the conclusion you are presenting. If not all areas were covered during your interview.1 8. 7.1.1 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.4 8 Assumptions enable one to close quickly an issue. Do not be afraid to take your time and think about how you plan to attack the case. In many ways. divide the time by the number of issues to be explored based on your perception of the importance of each section.
18 4 1 Different Types of Cases Classic Cases 1.1 Purpose • • 1.1 Purpose • • • • 2.2 Types • • • • 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 2 Special Cases 2.2 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 .
19 5 5.Depreciation .Cost of Goods Sold (COGS) Labor Materials Overhead Delivery Gross Margin .for profitability cases you should explore cost and revenues 1.1 1 Frameworks for Cases General Models Financial Frameworks . Reserves Shareholders Equity Common Stock Retained Earnings 2 3 Porter’s Five Forces Suppliers Potential Entrants Buyers Substitutes Industry Competition Complements – the forgotten force Business System 3.1 Income Statement Net Income .2 Balance Sheet Assets Cash Investments Accounts Receivables Inventories Property.Sales General &Administrative (SG&A) Operating Profit .1 R&D . plant & equipment Intangibles Liabilities Accounts Payables Other Short Term Debt Long-term Debt Other Liabilities.Interest Expense Earnings Before Taxes (EBT) -Taxes Net Income 1.
Some of the more relevant concepts include: .1 Supply chain 5.2 Product Development Innovation Responsiveness Manufacturing Cost Quality Speed Supply 3.3 Marketing Pricing Product Place Promotion 3.2 Economics Students should review the basics of economic theory. Focus on most important branches or components first. competition. it may help in defining a business by breaking it down into very basic components and looking for conflicting elements. 5. This model is intended to ask the critical questions in understanding the core business of an organization.3 4. Filling in these categories can be a first. Break each level down into parts that are more manageable. have a strong backing in basic economics so knowing the fundamentals will give the student a strong base from which to work. The model is more of a backof-the envelope sketch than a detailed analysis.4 Distribution Cost Channel 4 Issue Tree 4. Although this model is unlikely to produce revolutionary insights.2.2.2 Additional Models 5. cost and capabilities.2 Do not use this framework in an interview without practicing it a few times before hand. 5. Many cases.1.1 4.4 4. 4.2 Demand side Who purchases golf balls? How many golf balls do they need each year? Who makes the plastic needed for golf balls? Obtain an estimate of quantity of material supplied and work from 5. especially the strategic ones. Top-level identifies the highest level issues that need to be answered to solve the problem.1 The Four C’s The four C’s stands for customer.1 Raw Materials there. The model is difficult to use with diversified companies and interests. An example of an issue tree is provided with the China Factory case. cursory step in understanding a given company or industry. Use MECE (Mutually Exclusive and Collectively Exhaustive) to ensure that all issues are covered.5 5 Framework for a Zinger case like “How many golf balls in Albuquerque?” 5.20 3.
e. all other things being equal. the supply of another product will decrease. demand). the greater the quantity of the item that will be produced. For example.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. each additional unit contributes relatively less than the preceding unit to productivity. there are circumstances where the level of demand is not altered by a change in price.2. the smaller the quantity producers will be willing to make available. The concept of comparative advantage goes a step farther. 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. This would characterize demand that is elastic in nature.2.. However. Conversely. 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. the higher the price of a product or service.3 Law of Diminishing Returns This concept suggests that although additional units of labor may contribute to increased productivity in absolute numbers.2. 126.96.36.199..1 Supply & Demand The Supply Curve -The higher the price of a product or service.2.2 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. Supplier will be willing to make more available (i. (We live in a world with finite resources but infinite demand. the greater that demand for the quantity consumers will be willing to purchase (i. all other things being equal. For example.2.The lower the price of a product or service. 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). Price Value of Output Cost of Inputs Quantity 5. a diabetic will probably be .2. Please remember that as the supply of one product increases.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. Conversely. within a given time frame.) The Demand Curve . 5.21 5.2. the lower the price of a product or service.e. the smaller the quantity of goods consumers will be willing to purchase. Price Supply Demand Quantity 5. supply).
A ratio of less than one suggests that some cost savings due to learning is taking place. Economies of scale are not limited to manufacturing.2. the demand is inelastic. Marketing.e. a doubling of cumulative output is associated with a 20% reduction in unit costs. price." The ratio is calculated as the unit cost after doubling cumulative production divided by the previous cost (C2/C1). The magnitude of learning benefits is expressed in terms of a "progress ratio.2. placement (i. R&D. 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. It stands for product. have developed a set of strategic foci called the value disciplines (Harvard Business Review. 5. so must the marginal cost (MC). the medication that would sustain that individual's life. The disciplines are: . If AC declines as output increases.4 Value Disciplines Fred Wiersema and Michael Tracy of CSC Index. Whereas economies of scale are usually defined in terms of declining average cost functions.8 Learning Curve The learning curve refers to cost advantages that flow from accumulated experience through lower costs. distribution channels). 5.3 4P's Kellogg’s Philip Kotler developed this model. For example.2. The median appears to be approximately . pp. In this case.22 willing to pay as much money as he or she has to buy insulin. and promotion. The minimum efficient scale (MES) is the minimum level on the average cost curve. 5. 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). EQxPy = %∆ Q x %∆ 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. over a range of output. higher quality and more effective pricing and marketing.2. Cross Elasticity: Percentage change in quantity demanded of one good in response to a 1 percent change in the price of a related good. ES = % ∆ QS % ∆P = ∆ QS / QS ∆P / P 5.6 Economies of Scale Economies of scale exist when the average cost (AC) declines as output increases. This implies that for the typical firm. January-February 1993.7 Economies of Scope Economies of scope exist if the firm reduces total production costs by increasing the variety of activities it performs. Inc.80. (Marginal cost is the cost of the last incremental unit of output.2.2. These are the four critical dimensions in marketing any product (or service).) 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. 5. 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..2. and other functions can realize economies of scale.2. Economies of scope may be achieved by "leveraging core competencies" across multiple business activities. 84-93).
when a newcomer can expect to earn an attractive profit. Threat of Substitutes .23 Operational excellence .. there is a spillover effect on the primary product. Five Forces Potential Entrants Complement Suppliers Industry Competitors Rivalry among existing firms Buyers Substitutes 5. the barriers to entry are diminished. quality. The following is a brief discussion of the five components.e.. Buyer Power .2. one should consider all seven components of the organizational unit. The results indicate the overall industry attractiveness (i.g.Buyers become a stronger competitive force the more they are able to exercise bargaining leverage over price. service. ease of making a profit).g.Often. combining customer knowledge with operational flexibility to respond quickly to almost any need (e. with the goal of leading the industry in price and convenience (e. Dell Computer).. Nike).6 "Star" Diagram/Organizational Analysis In doing an organizational analysis. as well as the strength and influence that each of the competitive pressures have on the firms participating in the industry. Buyers gain strength through their sheer size and when the purchase is critical to the seller’s success. Customer intimacy . 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. 5. the most powerful of the five forces is the competitive battle among rival firms which are already present in the industry.g.Segment and target markets precisely and then tailor offerings to match exactly the demands of those niches.5 Porter’s Five Forces Michael Porter's Five Forces model analyzes the various competitive pressures at work in a given industry.Offer customers leading-edge products and services that consistently enhance the customer's use or application of the product.The competitive threat posed by substitute products is strong when policies of substitutes are attractive. thereby making rivals' goods obsolete (e. When the economics are promising for a complementary product. Benefit of Complements – This is considered a sixth force that is not directly captured in Porter’s model. 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. Supplier Power. or other terms or conditions of sale. Industry Competitors (Internal Rivalry) . Strategy determines Structure and Decision Support Systems that . Potential Entrants – This force measures the ease with which new competitors may enter the market and disrupt the position of the other firms. Product leadership . Vision should define Strategy. and buyers believe substitutes have equal or better features..Provide customers with reliable products or services at competitive prices and delivered with minimal difficulty or inconvenience. Home Depot).2. The intensity with which the competitors are jockeying for position and competitive advantages indicates the strength of the influence of this force. This force is the opposite of the Threat of Substitutes. 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.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. In addition. buyers' switching costs are low.
The model can also be utilized to analyze a portfolio of companies held by a single organization by classifying them within the matrix. Corporate Culture must reinforce all seven components." so to speak. mother is concerned because her child is not growing as anticipated. "dog" is certainly not "man's best friend. recruit and develop the personnel the organization needs to accomplish its objectives. all seven components must be considered. Cash Cow — A product with high market share in a low-growth market.. Products or categories businesses are as follows: Star — A product with high market share in a high-growth market. 5. Therefore an astute business manager would want to drop a “dog” from the product line.2. accelerating cash flow and. For example. If one component is changed.e. The Reward Systems must reinforce what you are trying to accomplish strategically and the Human Resource Systems must select. it is analogous to a "bomb" (i.e. the marketer may elect to "milk the cow dry. When considering change. it is most likely that the other components will have to be changed to be consistent with each other. 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. the product life cycle. cash).e. unless there are some extremely important overriding issues that outweigh the products market performance." Rather. Problem Child (also called "Question Marks") — A product with low market share in a high-growth market. Dog — A product with low market share in a low-growth market. Vision Strategy Decision Support Systems Human Resource Systems Structure Reward Systems Organization Culture Performance Problems arise when these seven components do not reinforce one another.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. is expanding or contracting.24 are required to make the organization function. maybe slow yet consistent growth isn't so bad. In this sense. Since the cow is generating milk (i. every mother's prayer. something that fails miserably) or to a "lemon" (i. . each as independently held businesses. as a whole. something that is defective or undesirable). managers will have trouble if they are in a decentralized structure while information and planning systems are centralized.. not coincidentally..
manufacturing.2. and physical distribution of the products.. Every business unit is a collection of discrete activities ranging from sales to accounting that allow it to compete. information systems. differentiation. Michael Porter calls these activities “value activities. The problem with this strategy is that other firms will usually emerge with still lower costs (from the Far . or focus. Texas Instruments is an excellent implementer of this strategy. What value is added to the manufacture and sale of gasoline at each point in the value chain. shared procurement). as indicated in the exhibit below.25 Hi Low Hi Market Share Low Star Problem Child Cash Cow Dog Profitability 5. so that it can price its products lower than its competitors and win a large market share. purchasing. Value chain analysis is useful in discerning possible synergies among various units of an organization (e.g. operations. Finally. and by whom?). Value Chain Support Activities Company Infrasructure Human Resource Management Information Systems Procurement Primary Activities Inbound Outbound Operations Logistics Logistics Marketing & Sales Services 5. The categories are company infrastructure. and procurement. The categories of primary activities are inbound logistics. and service.g.2. and provide after-sale support. deliver it to the market. (e. 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. Each of these strategies is described as follows: Overall Cost Leadership: Here the business works hard to achieve the lowest production and distribution costs. not the company as a whole. human resource management. outbound logistics. marketing and sales.9 Generic Strategies (Porter) Michael Porter suggests that business strategies can be classified as pursuing cost leadership. create a demand for the product. Value chain analysis is also helpful in determining which value activities are best outsourced and which are best developed internally. The value activities are grouped into nine categories..8 Value Chain A business manager must understand the internal relatedness of the many activities involved in the production of a product or service. Support activities provide the input and infrastructure that allow the primary activities to take place.” It is at this level. Primary activities create the product or service. that the unit achieves competitive advantage. Firms pursuing this strategy must be good at engineering.
Attributes of essential success factors are the following: . Further. The firm gets to know the needs of these segments and pursues either cost leadership or a form of differentiation within the target segment. the technology leader. reengineering refers to breaking down business processes and reinventing them to work more efficiently.“middle-of-the-roaders" -. They react to changes in the market and moves of their competitors and so must maintain flexibility. for example) and hurt the film that rested its whole future on being the lowest cost producer. One example is if the company strives to be the service leader in its industry. TQM was initially limited to the manufacturing sector but has more recently been applied effectively to service businesses as well.2. cutting out wasted steps and enhancing communication. put them together expertly. service. the stated objective is often "zero defects" or “six Sigmas. Porter suggests that firms that do not pursue a clear strategy . It is important to ensure that the added benefit from incrementally increasing quality outweighs the added cost associated with the quality improvement effort. the lowest-cost firm among those pursuing a low-cost strategy will do the best. Whereas TQM is more of a philosophy than a specific strategy. According to Porter. Defender—Those firms that have a leadership share of the market will often concentrate on staving off the competition.10 Strategic Types (Miles & Snow) Miles and Snow have divided strategic options into four categories (in contrast to Porter's three Generic Strategies). changes.2. those firms pursuing the same strategy directed to the same market or market segment constitute a strategic group. This has been Canon's strategy in the copy-machine field. Business processes are often replete with implicit rules that hamper the way in which work should truly be done. the highest quality producer. and speed.1 Reengineering Popularized as Business Process Reengineering (BPR).11 Other Key Concepts 5. Reactor— Such companies are second-movers. 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.” 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.2. and so on. and remaining so in the long run.2. letting others show them the way to success. but those who are successful can change the way the game is played and create very strong competitive advantages.11. 5. These firms are not necessarily innovators.11. This strategy is akin to Porter's focused companies. Prospector— These firms are the first-movers and the innovators. The firm that carries off that strategy best will make the most profits. leveraging their advanced position along the learning curve and their name recognition to maintain a superior market position.do the worst." 5. This is a high-risk strategic avenue to follow.11. its long-term value is questionable. 5. The firm cultivates those strengths that will give it a competitive advantage in one or more benefits.26 East. Analyzer— Analyzers pick apart the market very carefully looking for niches and demand/supply gaps. moving to erect as many barriers to entry as possible. A firm can only pursue one of these strategies at a time. Thus. but instead concentrate their efforts in very carefully and narrowly defined efforts. Thus. but it is common for a company to shift from one strategy to another as its situation. inspect them carefully. and the industry. processes are often viewed as discrete tasks. Thus the firm seeking quality leadership must make or buy the best components.3 Key Success Factors Essential success factors are those factors that are most critical in determining a firm's ability to survive and prosper. but it is hardly possible to be all of these things. Differentiation: Here the business concentrates on achieving superior performance in an important customer benefit area valued by a large part of the market. quality. While this strategy may be profitable in the short run. the style leader. Annstrollv Rubber has specialized in making superior tires for farm-equipment vehicles and recreational vehicles and keeps looking for new niches to serve. 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. cohesive change. They are closely related to Porter's Low Cost Producers. Focus: Here the business focuses on one or more narrow market segments rather than going after a large market.2 Total Quality Management (TQM) TQM refers to the practice of placing an overriding management objective on improving quality.2. 5. a habit that prevents management from making frame breaking.
and are difficult for competitors to imitate.11. and the price of a product to determine the minimum units of sales necessary to break even or to pay the total costs involved. To determine profits. For example. management should ask: What do customers want? What does the firm need to do to survive competition? Essential success factors are those factors that lead to the answers to the above questions.2. The classic example of a company that has effectively leveraged its core competencies is Honda. (Ct can be negative.8 Net Present Value (NPV) The NPV is a project's net contribution to wealth. for wood products.11. core competencies provide potential access to a wide variety of markets. and adaptability to changes. multiply the quantity sold times the contribution margin and subtract the total fixed cost.7 Fixed vs. essential success factors are owning large forests and maximizing the yield of those forests. 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. 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. the amount that "contributes" to paying the fixed cost of production. variable costs. such as the cost of adding new production capacity when Q reaches certain levels. 5. The necessary sales are called the BEQ. Ct 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.2. The present value is calculated by discounting future cash flows by an appropriate rate (r).2. A firm must supply what customers want and survive competition from other firms Therefore.FC 5.5 Vertical Integration In some industries companies find it advantageous to integrate backward (towards their suppliers) or forward (towards their customers). usually called the opportunity cost of capital. JIT calls for synchronization between suppliers and customer production schedules so that inventory buffers become unnecessary.6 Just-in-Time (JIT) The goal of JIT production is a zero inventory with 100% quality.11.27 Management can influence them. Fixed Costs (VC): The costs of production that do not vary with the quantity (Q) produced: these costs generally include overhead costs. Semi-variable Costs: The costs of production that vary with the quantity (Q) produced.) Break-even Point: Break-even analysis is a managerial planning technique using fixed costs. these are discrete costs. In other words. 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. or hurdle rate. or break-even quantity.11. Effective implementation of JIT should result in reduced inventory and increased quality. 5.11. (Typically. productivity. the materials arrive at the customer's factory exactly when needed. which has gained a competitive advantage in numerous product markets through its focus on leveraging its skill at making engines. Net present value is the present value (PV) of all incremental future cash flow streams minus the initial incremental investment. 5.4 Core Competencies A concept popularized by Professors Gary Hamel and C.) The NPV is calculated as follows: . 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. as in the initial investment. Prahalad. Profit = Q x (P-VC) . 5. In other words. but not directly. make a significant contribution to the perceived customer benefits.K. Co.2.2. This technique is also useful to make go/no-go decisions regarding the purchase of new equipment.
2.. the firm should not invest in the project. Typically. 5.9 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. .. This phenomenon is typified by the "80/20 rule" which states that 80% of the output comes from 20% of the input. the firm should invest in the project. + Ct/(l+r)t If the net present value of the project is greater than zero.28 NPV = Co + Cl/(l+r) + C2/(l+r)2 + . 80% of total downtime on a production line is attributed to two out of the ten manufacturing steps. a Pareto analysis is conducted to determine the areas on which management should focus its efforts. For example. Alternatively.11. 80% of a company's profits may be generated by 20% of its product lines. If the net present value is less than zero.
They also want consultants who are dedicated to their client and client’s problem.8 2. This is an area where one can demonstrate teamwork. Are your clients really that stupid? This case has no answer. I do not believe you. I would like to concentrate totally on the political implications of this situation. For example. carefully assess them and order them into a logical format.1 2. This will serve as the structure of your analysis. 3 3. During that time.7 2. interviewers will drop hints regarding the case throughout the interview process. Think then speak. DO NOT ANSWER RIGHT AWAY! Think about it and come up with five drivers.4 1.3 1..1 Don’ts If the interviewer suddenly asks you to name the three critical drivers to the industry. Then say something like this: “Well I have thought of five significant drivers.9 1. Thinking aloud leads to rambling. the more you prompt for data without assimilating what you have already been presented with. then order them from the most significant to the least significant. You can demonstrate this by being engaged. The interviewer is not clairvoyant. Practice phrasing statements clearly and succinctly.4 2. He will not understand your thought process unless you explicitly state to the interviewer. Individual pieces of data can often be combined to draw a conclusion about part of a problem.6 2. Ensure that you understand the problem at hand. if need be. Better to use the bull’s eye approach to data gathering.1 1.2 The goal of the case interview is not to crack the case but to demonstrate “how you think. do not answer any question unless you have thought through your answers fully.3 2. Keep the interviewer informed of where you are going and check to see if you are on track. Do not ask for every piece of data. There is obviously one answer to this case. What are you looking for? Is this a marketing case? I cannot believe this is a real case.. one could say: “I intend to purse.6 1. However.9 2.. the three most important are.2 2. you are trying to confuse me. Do not assume anything! Use questions to clarify issues and to gain a complete understanding of all the problems that need to be addressed.5 2. The interviewer will look to see if you build on the information provided. ask for a few moments and think out your approach. brainstorm to get all your thoughts on paper.8 1. do you believe this is worthwhile.29 6 1 Dos and Don’ts Helpful Hints: 1. Then. This case sounds exactly like what we did in Managerial Accounting.” .5 1.” 1. Do not lock yourself into your answers. Take your time. do not error on the side of being silent either. HAVE FUN WITH THE CASE! Engage yourself and get excited about the case. Rather. The interviewer possesses tons of data or will make it up..10 2 Top Ten Things not to say during an interview: 2. Once the problem or case is presented to you.” Listen carefully to everything that is said during the interview. Remember that some material may be extraneous.. I cannot solve this case because I have not had Corporate Strategy yet. as opposed to the shotgun approach.10 I need a lot more data. the more confused you could become. do not feel compelled to answer immediately.7 1. The interviewer has probably spent a few months working on the problem and consulting firms are looking for people who enjoy solving problems.
30 7 How to Prepare for the Consulting Interviews? Attend Case Interviewing Workshops by leading Consulting Firms 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 1 Step 2 Step 3 Practice the cases with a partner .
3. If you do not get into consulting what will you do? Give me an example of where “you dropped the ball. 5. 11.” 10. General Interview Questions Why consulting? Why do you want to work for this firm? Tell us about your skills. 7. Tell us about your weaknesses. Where do you see yourself in five years? 12. Tell us about your resume. 8. 9. 4. Tell us about your previous industries. Describe a situation where you had to present orally to an important group of people.31 8 1. . Describe a problem you encountered in a work environment and how you handled it. 6. Give me an example of where you did something unpopular and had to stand up for yourself at work. 2.
he wants to know if he should approve a $200 million capital expenditure for new manufacturing facilities. toilets and urinals. China products include tubs.level answers • 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 major reason for the investment is that the new process will result in a better finish.g. our client is break-even. Specifically.1 Sample Cases China Products Division 9.g.. the largest producer has a 20 percent share. industrial vs. The largest competitor has just announced plans for a major modern plant.) “Minimum” . residential vs. commercial)? Are there different price points by market or within markets? “Better answers” • Customer-buying factors: Do customers demand a full-line supplier (e.. but not substantially. The company is one of seven producers in the United States.) • Does the company rely on a limited source of raw materials? (No. 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? Probable points of clarification: .1. our client is number three with a 15% market share. • • • Prices for the client’s products have been flat in the recent past. The two largest competitors appear to earn a small return.g.. What issues must the client consider? 9. with other building products)? Is any significant portion of sales to centralized customers (e.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 • Will the planned investment lower operating costs? (Yes. Sears)? • Barriers to entry/exit: What is the minimum-size for a new plant? Are most plants fully depreciated? Generally. materials are easy to obtain.32 9 9.1.
Its goal is to double total sales and profits in less than two years.33 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? Are the products sold in combination (with each other.2.2.Increasing sales . 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: Level Two Questions: Should I invest in $200 million plant? Is there a sizable profitable market? 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 capacity? market have enough unsatisfied demand for new Can I sell at the right price? Can the market be segmented? 9. As a consultant brought in to assist them. 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. or with other products such as fittings)? Would exiting the business affect the sales.1 Issue A large healthcare company has decided it is interested in substantially increasing the size of its operations. A business can increase profits by: . what would you do? 9.2 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.2 Healthcare Company 9.Increasing prices .
You should then consider the potential for increasing sale by means of diversification through acquisition or joint venture. firms whose core business was semiconductors would have significant technology and R&D advantages.g. therefore need to find some way to reduce some of these costs e. with whom? 9. Although the company already has a subsidiary that does some microchip fabrication.) 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. It is interested in developing application specific ICs (ASICs). it turned out that only selling new product to new customers via some form of diversification could hope to achieve the company goals.1 Issue A large microelectronics manufacturing company is considering participation in a cooperative project which will receive 50% government funding. The IC market itself is expected to grow at over 10% per year too. This leaves only sales increases. Also. Strong demand has meant that price erosion is not currently an issues in the ASIC industry However. of which only a handful are of any size. 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.) 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. The government project would more or less allow the company to define an individual project within the broad category of process technology. 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.) What are the client’s current purchasing habits? . In the particular example of this case. 9. but development costs are higher. Important demand segments are entertainment electronics and automotive applications. the capacity of this subsidiary is small and its technology is relatively old.3.) 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. currently about 15% of all ICs are ASICS & this figure is expected to rise above 35% in the next 10-years. The relative benefits of each will depend on financial resources as well as the existence or otherwise of suitable targets. using CAD to shorten design cycles.) What is the market outlook for ASICS? (High growth. although there are powerful commodity-chip manufacturers. (Typical ASIC production volumes are much lower.34 . In addition.3 Electronic Joint Venture 9. the cost of which is growing steadily in many of the company's products.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. particularly if the company 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. In contrast to the commodity-chip manufacturers. 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'. The company currently uses several hundred millions of dollars worth of microelectronics every year. Assembly costs are reduced. decreasing size and weight and increasing speed and reliability. most of the top ASIC producers are in fact American. considerable effort would be required to find the staff with suitable expertise.3. some strong alliances already exist in the industry and the possibility of converting old DRAM production facilities into ASIC facilities may well lead to great overcapacity when the next generation of memory chips takes over. if the company's margins are found to be consistent with industry norms.Cutting costs However.
A: Actually they watch more television than the average. Why? Moreover. The current systems is only at 43% capacity (# of subscribers) vs.4 Television Cable Company 9. Does the cable system offer what they enjoy watching. A: Yes. there are eleven independent broadcast stations in the area. You have been hired to determine if they can turn a profit or if they should sell. The subscriber rate is low due to the high number of competitive stations available to our consumers (supply and demand problem).) Do potential joint venture partners exist? 9. very. but not our cable system. Recommendations: . Are the stations offered free of charge? A: Yes.35 (Currently purchase nearly all microelectronics through one subcontractor. Despite their best efforts. The debt and maintenance costs are also higher than systems in major metropolitan areas.Analyze current revenue and cost structure .4.Analyze the competitive situation/ substitutes . What options do our consumer have? A: In addition to the three network stations. 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.4. a 63% industry average. Revenue Subscribers monthly fees Subscribers special services .Provide recommendations Cost Fixed costs associated with lying cable Debt associated with fixed costs 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. I would assume the population is less likely to watch television perhaps because of income or lifestyle issues. they have failed to turn a profit in the past three years. The VC firm was attracted by the extremely large subscriber potential (2MM households) and potential for considerable return.2 Possible Solutions .1 Issue Three years ago a venture capital company purchased a cable TV system that had access to 2MM households in the southwest. there must be a strong competitor in the market. 9.movie channels Is the reception from these independent stations strong? A: Yes. who delivers high value sub-assemblies. can it be fixed? Market Assumptions: Based on the low subscriber rate. Competition: If consumers are watching television.Analyze the market potential of the area .
Strategic Fit Assumptions: The poor editorial content associated with these supplements may disparage the publisher’s current product offering.(gaining ad revenues and newspaper acceptance) Assumption: There are few publishing synergies with our current publications. 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. Current newspapers use the supplements in order to publish low quality editorial without disparaging their product offering. 9. turning a profit would be difficult due to the large upstart costs and the strong competition for advertising revenues and newspaper acceptance.90% penetration. light reading gossip.5. modem day folklore low quality editorial.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. 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 9.36 Determine if there are consumer needs not being met by the independents that could be provided by our system and worth paying for. Displacing a competitive supplement would require costly incentives to the newspapers. costs. If not. They have hired you to determine if they should proceed or not. Assumption: Our current advertisers (for Time) would not be interested in this format. printing/paper.5 Magazine Sunday Supplement 9. sell. Key Issues: Based on these assumptions. Additional Information: There are currently two major Sunday Supplements: Parade and U. Recommendations: Based on this information and these assumptions. we would not recommend proceeding with the supplement until potential advertisers were committed and newspapers demonstrated an interest in .5.2 Possible Solutions Can we turn a profit by publishing this supplement? How? -Revenue potential. distribution Internal and external sales force . A: True Competitive Assumptions: The competitors are deeply entrenched . Cost Assumptions: Fixed cost of supplement set-up Editorial.S.
we would recommend publishing under an alternate brand name).250MM x 4% = 10MM current cardholders $50 x 10MM = Annual loss of $500MM by dropping the fee. Do not drop the fee.1 Issue You have been hired by the CEO of a department store that has numerous locations in a major metropolitan area.6 American Express Charge Card 9.37 accepting the supplement. They would still have to pay off their balance every month. 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. .7 Television Cable Company 9. AMX loses ($50 x # of members). increased membership equivalent to 20% of the population is probably not likely.1 Issue American Express has faced strong competition from new credit cards entering the market. She needs to increase the store's earnings over the next year and has requested your help. 9. Receive 1 % of the transactions from retailers who honor the AMX card. (500MM/$10) = 50MM new members are needed 50MM new members is equivalent to 20% of the population (gut check) Assessment/ Recommendation: Based on these assumptions. Key issues: If the annual fee is dropped. They are considering dropping the $50 annual fee. May want to consider varying the fee (sensitivity vs.6.Assumptions: $50 annual fee multiplied the number of members. Evaluate the pros and cons of dropping the annual fee. new members) 9. To overcome this loss. Make a recommendation Revenue Drivers . What are the "economics" of such a decision and should they drop the fee or not? 9. Current percentage revenue: 10NM members x $1000 annual purchase (avg. 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. Therefore. population (Just a guess): .7. No additional revenue from consumers because they pay-off monthly.6.2 Possible Solutions Determine how American Express makes money.S.) [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). (Even then.
Jewelry . Yes. suburban stores are more profitable than urban stores. consumer demographics? A: Yes. the demos are different by store. so you turn to the individual store level. store revenue has declined slightly They recently hired a consulting firm to streamline the back-room costs How can you help? 9. Stereo. the product mix is the same at all stores. product mix. 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. Questions: Are certain stores more profitable than others are? A. What products are less profitable? A: Clothing. household items .why? Increased competition? Different consumer buying trends? Start with Cost/Revenue Drivers: Costs: Revenues: CGS Personnel/ OH/ SG&A Inventory holding costs. TV. household items.2 Possible Solutions Revenues have decreased for a reason The streamlined costs may have caused revenue to falter The revenue per store may differ . The population growth of the city is flat Overall.big-ticket items. No.38 Relevant Information: 20 locations in the metropolitan and surrounding suburban areas (they are present in every shopping mall). levels Cost of debt Other? # of people shopping Amount of purchase .$$ Frequency Prices Others? You learn there is nothing drastically different (overall). 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. minor appliances . tools.7. shoes. Do the higher performing stores have any common characteristics such as size.
Assumption: Customers use the card differently.39 Are the demographics better suited for the mix in the suburbs? A.currently $50 (Could change) Annual percentage (Could change) Merchant change) fee = rate = (Can 14% not 1. Case Interviewer suggests there are three distinct categories: 1."move on". however. suburban stores are outperforming urban stores.5% . Only revenue variables available are changes to the annual fee and APR. Hold small debt for short periods of time 3.8.80% of our revenue He/She then asks how you would tailor card services to each of these groups: Recommendations: Pay-Off in Full Each Month Charge high monthly fee Provide numerous services (detailed reports. Hence. Pay-off in full every month 2. SG&A.Cannot change Other costs – Can not change Key Issues: Cannot affect the cost structure.8. theft. therefore have to increase revenues.Yes. Assessment Due to the identical product mix at each store and the varied profitability by item. You need to analyze the situation and make recommendations. Competition: Interviewer tells you it is a very competitive environment . 9.analyze drivers Opportunity to vary the annual percentage rate or the annual fee Benchmark competition for opportunities Analyze cost and revenue drivers: Costs Marketing.1 Issue Our consulting firm has been retained by a major bank to help improve the profitability of their largest credit card offering. etc. there may be different customer segments based on the balance held. the urban stores are hindering earnings. how quickly balances are paid off and the "need" for the card. higher income. points Revenue Annual fee .8 Credit Card Division of Bank 9. our client believes it can become more profitable. Hold heavy debt for long periods of time (basically pay-off the interest) . 9.2 Possible Solutions Opportunity to decrease costs or increase revenues . Their card (in the same class as a Visa or MasterCard) provides average returns in comparison to the industry. . little kudos) Hold Small Debt for Short Term Increase the APR slightly Decrease the annual fee Hold Heavy Debt Long Term Waive the annual fee Increase their credit limits Cash back programs. Personnel – Can not change Bad credit. 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.
During the late '80's and early '90's this division had a great run -opening 4. 2. both growth and profit have declined substantially. but not enough to offset the decreased store traffic.000 stores and realizing considerable profits.9 Movie Rental Business 9. The majority of their business is in movie rental with a much smaller portion in sales. other: (No change) Key Learnings: Costs have actually decreased. it could buy excess numbers of the new releases to satisfy customer demand. traffic down) Overhead: (No change) SG&A: (No change) Leases. it is imperative to get them to sign up for the card (no annual fee). In the last two years.9. One of their divisions is a leading home video retailer.costs) structure Analyze the competitive situation Analyze the "substitution" factor . the focus of the case was shifted to customer segmentation and tailored services for each segment. Recently.cable on demand: (List potential causes of decreased traffic) (No real change) (Potential for future but no real current affect) Price of rental: (No change) Sale of rentals: (decreased) Accessories: (No change) Sales of movies for home use and collection: (Sales have increased dramatically) [Once the important issues have been identified. Background: Our client's division is not unlike a chain of Blockbuster video stores.] I. Competitive Assessment/ Substitutes: New movie stores: New In-home sources .2 Possible Solutions Start with a simple: (Profit = revenue . they quite often rented an existing tape from the library (additional lost revenue) Based on this industry outlook. You have been brought in by the CEO to assess the situation and provide recommendations. etc.how else are consumers getting movies? Costs: Revenues: Cost of the new movies: (Actually decreased) # of rentals: (decreased. this is no longer an option therefore fewer new releases have been ordered. With fewer new stores opening.9. 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.40 Access to case advances. 9. Key Issues: These heavy debt card holders are the key to our profitability. when customers rented a new release. In addition. point systems) and run up debt (automatic credit limit increases).1 Issue Our client is a major entertainment company on the West Coast. pick-up/delivery Develop pricing/bundling formats combining new releases with existing movies . 9. more convenient locations . Note to Case Interviewer As soon as the interviewee had identified the important drivers of revenue and cost. they would send the excess copies to the new stores as part of their "library" of existing tapes. the interviewer describes the changing industry.kiosks. many of our customers are purchasing rather than renting. How can we regain store traffic or offset the rental loses? Recommendations (these are just a few of the options considered): Develop new. use the card (cash back. Later. When division was growing. Thus. This is mainly due to the sale of these same releases through alternate channels. 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.
The stores offer two services: 1.S. Assumption: We are attempting to attract two distinct customer segments. in the U. Autoland has experienced $50MM in revenue with loses of $20MM.10 Auto Service Stores 9. Are we doing this successfully? A: We are not sure.2 Possible Solutions Analyze the competitive situation Analyze the market potential/ customer segments Competitive Situation: 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. we have to pay mechanics and have high fixed costs Assumption: We are profitable in retail. Since entering the U. the service center is much more expensive to operate.S.rent the first time. 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. They are very profitable in all cities including our U.41 Offer "rent to buy" programs . Retail sales of auto parts for customers who prefer to perform their own maintenance. markets.10.S? A: Yes. Assumptions: Due to size. I would guess they have superior buying power over Autoland in the U. a national chain of stores in the exact format as Autoland exists in the U. We attract the wrong consumer. Are the costs associated with each side of the business different? A: Yes. Market/ Customers: Autoland provides two services.S. Assumption: The market has potential due to the competitor's performance. However.. is one more profitable than the other? A: In Canada . then have option to purchase 9.1 Issue 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. are the customers for each service different? A: Yes. A service center for fixing any automobile problem. but losing in service. The owner is considering pulling out of the United States. You have been hired to determine if they can improve their performance or if they should exit the market. The customers who utilize the service center have higher incomes and no interest in fixing their own car.10.S. how would you help us determine if we are? . from an oil change to new transmission. They copied our Canadian format and have about 10 locations in every major city. Autoland Capabilities: Assumption: We actually have two businesses under one roof. Is this true? A: No. we are profitable in retail sales and losing heavily on the service center.no.S. 9. 2. Key is to determine why they are outperforming Autoland.S? A: Yes Do we have strong competition in the U. we have the same cost structure due to our presence in Canada.
historical sales patterns. Utilization on average is 70% for both sporting events. After exploration of this issue. Thus. 7. locate between the lower and upper income areas to attract both segments. She wants to own a sports team: however. 3.000 for baseball games. The financing terms available to Mrs. it turns out that they cannot be raised. The interviewee must figure out a model to answer this question. make the candidate probe for it.11. Location.11. Possible sources of data .1 Issue A wealthy woman.000 for basketball games and 54. the baseball investment has a potential for greater revenue. concessions and parking) for purposes of this analysis. Examine if 100% utilization can be reached. The interviewee should explore other streams of revenue but are irrelevant (important streams are . It is important that interviewees recognize these as possible sources of value to the investment. wants to invest in either the Cleveland Cavaliers (a basketball team) or the Cleveland Indians (a baseball team). Wentworth are the same. who is worth millions. The number of basketball and baseball home games is 41 and 81. 8. Wentworth. In new markets. on leases. In existing markets. 12.licensing of apparel. The key is to figure out whether ticket prices can be raised. The interviewee must ask for this information to be given credit. but would like to maximize the profit from the investment. the interviewee must recognize that there are other investments that she should consider. The Balance Sheets of both teams are the same in terms of liabilities and assets. move. respectively. but prohibits heavy use of the service center due the distribution of income between the inner city vs. 11. comparable data for other franchises in other cities and overall market demand. Neither franchise owns the stadium.. 2.2 Possible Solution Everything cancels out except that baseball has more seats available. She is indifferent between choosing between the two teams. Let us say that there is a $100 million price tag. Do not give this information away. Ticket Prices on average are $25 for basketball games and $6. 5. 6. 4. we located in the inner cities to save money A. The purchase price is the same for both franchises. Equation = # of seats * # of games * stadium capacity * utilization .42 Factors: Marketing.50 for baseball games. 9. or drop the service business and retain the profitable retail portion 9. border) Where is competition located? A: We do the same as the competition A: Identical to competition A: Different. regardless of the team she chooses. Which team should she buy? Additional Facts 1. Mrs. the suburbs. 9. Pricing.11 Sports Franchise 9. The stadium capacity is 20. Research shows that Cleveland residents are indifferent. 10.Between the inner city and the suburbs (on the Assumptions/ Recommendations: Our location is great for the retail sales business.
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.13. but how would you measure this problem? Interview clients and determine the importance of flexibility and personalized sales.1 Issue . then diversified functional operations? Maybe. • • • • • Accounting Order Processing Sales Management Finance 9.2 Possible Solutions Would it be more efficient to provide central functions from parent.. units on horizontal. we could determine the number of labor hours for a transaction for the sub and parent.13 Business Forms Case 9. buy one new every six years). 9. Plot labor/units on vertical. • Subsidiaries maintain all functions (were once bought by independent businesses.1 Issues SETUP A large durable goods manufacturer (i. Consumers buy primarily based on lowest cost product. Problems with this approach? Eliminating sales function and order processing at sub may reduce flexibility and hurt customer service? Maybe.12 Durable Goods Distribution Case 9. If parent is higher.e. the firm cannot create demand pull) Consumer purchase frequency is constant (i.12. For example. then bought by parent). but how would you measure that value? Study each subsidiary's functions and determine efficiencies to be realized.12.e.e. Parent manufactures all equipment (parent’s manufacturing is not the scope of this case). centralize the operations.43 9.
An internal study indicates that the firm is the low cost producer in the industry. warranty papers. The CEO has hired you to assess and make business recommendations. According to the CEO. A salesperson receives 25% of all revenue above a standard cost. etc. excellent return policy and its ability to fulfill any order. However. You have ten minutes to interview the CEO before she leaves for a meeting.14. The company has four regional plants (Midwest. West Coast & Texas). but not necessarily to increase market share by lowering price. All sales are handled through the sales force. The market is fragmented with many small local printers. The firm has modern facilities and good cost controls already in place. The company does not own delivery trucks. The product line includes credit card receipts. • MANUFACTURING: The firm is a “world class” manufacturer. supplemented with occasional visits.14 “High-End” Pots & Pans Company Case 9. Custom orders shipped between one to three weeks depending on complexity and quantity of the order. if possible. The firms should constantly monitor standard costs because of volume fluctuations. Contacts primarily via telephone. The firm uses JIT. The system handles over 100 daily orders. The sales force is paid on commissions. East Coast. The UPS delivers most orders within two days for standard items. • MARKETING: The firm only uses direct mail fliers and catalogs.” The firm is able to deliver larger orders faster than competition when asked for rush delivery. invoice forms. SPC and other cutting edge manufacturing techniques. Transfer prices negotiated between manufacturing and sales are in place. • COST STRUCTURE: Not important. 9. Use ABC inventory analysis to get a “better” standard cost and empower the sales force to maximize revenue. 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%. Client survey reveals that the company is known for the “high quality. You have ten minutes to interview the CEO before she leaves for a meeting.44 OVERVIEW A manufacturer of business forms wants to increase profitability by using pricing as a competitive weapon. Use “Time Based Competition” to increase profitability. wide product range. 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%. the materials cost is less than the shipping cost or fees charged for customized work. The sales division sets the prices to customer. The largest player has 5%. • PROFIT CENTERS: Manufacturing and sales are profit centers. The firm should exploit rush order customers by raising prices on less price sensitive customers. multi-copy sales receipts. a typical customer is a newly wed who places pots & pans on the registry at Hudson’s or Marshall Fields. sold primarily in sets and is expensive. Possible Solution One possible solution is to use price as a competitive weapon. . The market share in high-end pots & pans is 35%. • SALES FORCE: A two hundred person sales team is in place that focuses on important accounts.1 Issue 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 Pots & Pans is considered to be of premium quality. • DISTRIBUTION: Extensive information system is in place.
Inventory and outdated inventory would also decrease. Eliminating warehouses leads to O/H savings that are far greater than the increased shipping costs.45 • 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.35 a square yard compared with the $. notebooks. This can be confirmed by asking for the annual sales. since they sell so few of these pots and pans hold no inventory and thus require next-day replenishment after a sale. Each store carries one set of each product line for display and one set for inventory purposes.38 a square yard from the current supplier.10% Fixed O/H . you need to ask where the inventory is being held. Due to recent developments. the cost of delivering products quickly decreased. A quick way to solve this case is to realize that if stores require next day service from these six warehouses. The firm purchases 100.2 Possible Solutions The six regional warehouses were setup in the 1950s when long distance delivery times were slow and costs were high. you have a new option to buy from Brazil. 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 reason for the low inventory levels is that the product is bulky and expensive to store. You are the purchasing agent responsible for buying the white 20lb paper. Repeat sales equal almost 100% of the business. Little discussion or negotiation required. 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 . • COST STRUCTURE: Materials .14. you buy from a US company in Oregon. The firm will consider switching if it can gain a long-term cost advantage. The Brazilian firm is offering to sell at $. 9. two in Philadelphia and two in LA from which he services the whole country.20% Labor . Beat this figure and you have earned your exorbitant fee. Department store buyers know the company and its products well.000 tons of white 20lb paper to produce its product lines.15 Paper Products Manufacturer Case Shipping/Packaging .1 Issue OVERVIEW Your company makes legal pads. Therefore. The higher the service level. Your company values long-term supplier relationships. It turns out that stores.20% 9. warehouses and shipments). The next thing you need to know is where the warehouses are located.20% 9. • RETAIL OUTLETS: The product is carried in high-end department stores.000 units. When you divide this into the $1 million distribution cost you discover that they are pay $100 to deliver a pan to the store. No products are shipped directly from the factory. Currently. the only way they can do this is by shipping overnight at a premium rate. Your client has six warehouses . • MARKETING: The firm uses little advertising. and other standard paper products. The company and not customer pay shipping costs. Distribution is a trade-off between cost and service level. The firm has a three person sales staff that works with department store buyers. since the closer they are to the stores the cheaper distribution costs will be. the lower the cost (more inventory pools. O/H . Indiana that has been producing paper for 60 years.30% Var.15.two in Charleston. which turns out to be 10. instead. Department stores demand quick replacement upon sale. Your firm uses a sixty-year-old plant in Gary. With the advent of FedEx.
• • • • • • • • • • • Facility age, technology used, 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! • • • • • Use Lexis/Nexis , ABI Inform Ask Brazilian and US company for information and study the annual reports Ask important suppliers for information. 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. The firm stopped lower its price once it reached $.25 a square yard. 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, maybe another customer. 9.16 Pianos
9.16.1 Issue This case is one of those “are you kidding, why would you ever want to ask that in an interview” cases, but -- it was asked, and similar cases always seem to pop up. The case question is, “How many pianos do you estimate there are in the United States?” (Similar cases involve American Express cards, gasoline stations, etc.) In this type of case, the right number is not necessarily the right answer for the interviewer. Like all cases, methodology is key.
9.16.2 Possible Solutions Along with a basic framework methodology, certain “commonly known facts” should be in your hip pocket when going into case interviews. One of these facts is the approximate population of the United States. This fact can serve as your starting point for cracking this case.
Split the population (~250 million) into households. Make an assumption about the “average household,” say three, and come up to about 84 million households.
Now, split the number of households into income quartiles.
# Households 21 million
Mid-Upper Mid-Lower Lower 21 million 21 million 21 million
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).
Quartile Upper Mid-Upper Mid-Lower Lower
# Households 21 million 21 million 21 million 21 million
% With Piano 20% 10% 5% 0%
# Pianos 4.2 million 2.1 million 1 million 0
Using this methodology, the “answer” to the case would be 7.3 million. Better Answer: You have just estimated the number of pianos in homes in the United States. For a “better answer” to the question, you should state that schools, music halls, stores need to be considered as well. Be careful how you word this, the interviewer could very well say -- Well then, how would you come up with those numbers? Now... Now that you have been able to calculate the number of pianos, the interviewer may choose to expand on the case. (The number itself does not matter so much as the approach.) For instance, “given the number just calculated, 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. Assign a “number of times tuned” to each of the income quartiles. Assume that the upper quartile tunes their piano once every year, the next quartile once every three years and the next quartile once every ten years. This will give you the following: Quartile Upper Mid-Upper Mid-Lower Lower 2. 3. # Households 21 million 21 million 21 million 21 million % With Piano 20% 10% 5% 0% # Pianos 4.2 million 2.1 million 1 million 0 # Tunings 4.2 million 0.7 million 0.1 million 0.0 million
This tells you that five million pianos need to be tuned each year. Assume a piano tuner can tune four pianos a day for 250 day a year, or 1000 pianos a day. Using this methodology, the number of piano tuners that you come up with is about 5,000. Coke vs. RC Value Chain
9.17.1 Issue There is very little set-up necessary for this case. The case is used simply to test the interviewee’s “assumption” skills and reasonable hypotheses. The interviewer does not really need to provide a great deal of detail for this case to be used effectively. The interviewee is given a piece of paper with the following representation of Coca-Cola’s value chain. R&D Manufacturing Syrup $.05 Price = $1.00 Given Coca-Cola’s value chain, the interviewee is asked to formulate the value chain for a secondary manufacturer (use RC as an example). $.15 Bottling $.10 Distribution “Base” DC $.05 Local DC $.20 $.25 $.10 $.10 Marketing OHD Margin
9.17.2 Possible Solutions One approach to solve the problem would be to start at the end of the value chain with the price of RC. The interviewee may want to start here because this may be a “known” element (been shopping lately?). Now that the easy part is over, the next step is to assign percentages of the price to each portion of the value chain. For this part, the interviewee is expected to look at the percentage that Coca-Cola applies, 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. 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. • Does RC really do a lot of marketing by themselves or does it simply “ride the coattails” of Coca-Cola’s marketing? • If RC has similar machinery requirements, do they have to spread their OHD over fewer products / less volume? RC’s percentage could very well be higher than Coca-Cola. The candidate should follow this line of “assumption and inferences” until the percentages are in place. 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 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.) 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. If the syrup production and bottling costs are too large of proportion of their costs, they could consider buying syrup from someone else and use an outside bottler. Again, this case, like most others, has no “right” answer. The interviewer will just be looking for the reasonableness of your approach and assumptions. Good luck! 9.18 Fertilizer
Issue Your client is an agricultural chemical company. They produce fertilizer, which is a cyclical industry that is currently in a downward cycle. Lately, Russia has been selling fertilizer at a very low price. The firm’s plant in Louisiana blew up costing them $600 million in damages. The plant produced $2 billion of product revenue with $100 million in profits per year. The CEO resigned in shock and the new CEO has called you in to determine what they should do. HELPFUL INFORMATION (not to be offered unless asked) • • • • • • Fertilizer uses a simple manufacturing process -- 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
• Customers say it is cheaper to buy their fertilizer in LA and ship it themselves. In other words, the final price charged to the farmers is very high compare to the industry Possible Solution • Transfer pricing (from manufacturing/production to distribution to sales) is adding significant additional costs to the product. Therefore, the product is becoming less competitive in the market. • Although they are the low cost producers, they are being priced out of the market by this additional cost structure.
the firm has recently lost several major accounts due to its inability to move (the firm's) products.1 Issue Your client is the manufacturer of audiocassettes. However. They want you to determine the problem. The condition of the airplane manufacturing industry. what are the concerns your client might face? What additional information might you want to find out. a comparison: It turns out that the competitor's planes are cheaper to operate because they are more fuel-efficient. (second largest in industry). The consultant should also consider whether it might be better to try to compete on the basis of price. leisure travelers are very price sensitive. • The firm historically targeted two consumer groups -. How to prevent the new entrant from stealing market share.20. As a consultant. you have gone from being number one in market share to number two. The current competitor. on the part of purchasers for a proven safety record of accomplishment. The airplane industry's demand is a function of travel among two classes: business and leisure. • The firm has traditionally managed its relationship with retailers well. and then provide a possible solution. and what recommendations would you make? 9. Business travelers are primarily insensitive to price. • Your client offers a full range of audiocassettes -. The consultant should ask as a strategic question whether the firm is interested in the manufacture of more fuel-efficient planes.19. safety and service. In the last couple of years. 3.older. 9. Information to be divulged gradually • Mature market: 5-6 major players. middle income enthusiasts and high school rock 'n roll stereophiles.49 • The sales force may not be adding the value that the company thought/needs in order to be successful.2 Possible Answers As a consultant. Leisure travel increases with growth of middle and upper classes. Prevention of a new competitor gaining share: Key: creation of barriers to entry. Long-term contracts are pre-emptive. another company has announced that it will be entering the business and is presently tooling up its plant. The answer would depend on the future of oil prices. 9. Business travel increases as a result of market globalization.from low bias to high bias/metal. • Client used to have a steady 30% market share. In addition. 2. .19 Airplane Manufacturer 9. • The firm has been losing sales reps yet loyal reps claim that sales are at record high levels for the year. • Your client is also using the most sophisticated and quality driven cassette manufacturing techniques.1 Issue You are consulting to a CEO of an airplane manufacturer. • Recently your client has been losing younger target market customers. They have hired you to figure out why they have been experiencing an alarmingly poor sales year. Now the firm has a 44% share. High concern. you are concerned with three essential items: 1.20 Mysterious Audiocassette Market 9.19. Why the firm has lost market share and.
filing. To narrow it down. Therefore. Types of items processed include credit card. it received little focus from management. and supplier/buyer power need to be assessed to determine the market price. airline tickets. 9. for example. We must therefore examine other components. inquire how the electrical utilities measure and charge for the electricity they provide. 9. verifying the correctness of incoming paperwork and manually sorting. Other considerations upon which to discount the value might be reliability.perhaps less likely to switch to the new technology in the short run. 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. At banks. The bank has many other commercial accounts that use other companies for their item processing.2 Possible Solutions Porter's five forces dictate that industry rivalry. and coupons.g. . In the past.22 Bank of Luke 9. Historically. the processing of payment items was done more as a service to bank customers rather than as a profit-making endeavor. maintenance. the Bank recently lost the item processing business of one of its largest accounts to Vader Inc. The firm should consider new sources and production necessary to exploit this new demand.21 Windmill 9. these items were usually processed by the issuing company (e. This could be an appropriate start.short-term. In fact. etc.22. your older target market is loyal -. airlines would process their own tickets) or by bank item processing departments like the Bank of Luke's. mortgage. let us assume competition and demand/supply levels are far beyond your capacity. the largest item processor in the U. Hence..21. The windmill costs you $10. the Department generates $1.000 to manufacture. The $10m cost is irrelevant. You have no idea what this product is worth to anyone. for the long-term. 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 -. The closest substitute to the windmill is probably utility produced electricity. Assessing the value of the benefits of the product is perhaps the next step.1 Issue Mr.50 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.5 million of fee revenue processing retail credit card and mortgage payments ("items") for 15 commercial accounts. in addition to handling of retail lock box transactions. The item processing industry has undergone dramatic changes in recent years.1 Issue You produce a windmill with an accompanying electric generator (generator harnesses the power produced by the windmill).) Your client’s historically flat market share suggests brand loyal customers. How much are your customers willing to pay for it? 9. Each year.. The Retail Lock Box Department consists of 100 clerks and eight managers and Supervisors. The firm should target the older customers as well as other segments that are less likely to switch over to CD's. Moreover. Check is the Director of Retail Lock Box Services for the Bank of Luke.S. potential substitutes. and totaling the items was performed by only the largest banks which were highly automated. and utility payments (checks). The firm should also explore the opportunities and constraints of developing or acquiring the new technology. a medium-sized Midwestern bank.21.
Mr. Vader has a significant cost advantage over smaller operations. Check to evaluate how the retail lock box service can be made profitable. the President has given Mr. most of who are not customers of its parent bank. Once in Mr. the parent bank is beginning to profit from the float of checks processed. In fact.. you note a picture showing the Department's staff in 1965. Mr. 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. such as the Bank of Luke. Inc. 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. 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.2 Possible Solutions In this case. Each year Vader processes millions of airline tickets and retail payments for hundreds of companies. Check was a supervising clerk at that time. Vader benefits from a more constant workload by processing both airline tickets and retail lock box receipts.000 last year. high-speed equipment and methods. Processing time is rapid and processing costs are low. Although industry-wide. Vader. Within five years. In addition. Airline tickets have few peaks and valleys. Check's officer. with limited use of modern. and not simply believe that the business is necessary just because Mr. Check believes that the bank must offer retail lock box services. Recognizing that outside expertise is needed. whereas mortgage payments always peak early in the month with very low volumes the rest of the month. The candidates should challenge the general premise of the case.51 Companies specializing in item processing have emerged in the past ten years. We also want to test creativity with this case. It is expected that Vader and the other large processors will dominate this market. Mr. Check asks you the following questions: Question One What do you see as your (the consultant's) role at the Bank of Luke? 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. Mr. We purposely leave the case rather vague by not suggesting any particular actions and by not offering much data. The President of the Bank. After reviewing some background information with you. Check has asked you to visit his office to discuss the proposed engagement. 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. it is expected that most of the business will continue to migrate to Vader and other large processors. Mr. because of this speed advantage.22. the service lost $100. Check a budget to be used to hire a consulting firm. has asked Mr. Check says so. 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? . and it must price the service to be competitive with companies such as Vader. Kenobi. you observe that the Bank's retail lock box operations remains primarily a manual system. While walking to his office. Mr. the largest such company is a subsidiary of a small bank in Georgia. a majority of the items are still processed by the issuing company or by small processors.
The firm should streamline product lines. makes the problem worse).) Controlling schedules manufacturing which is rather efficient already but not packaging.52 • • What is the strategic plan for the bank and how does this unit fit into those plans? What does Mr. The production process consists of two basic activities: manufacturing and packaging.23.000 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.1 Issue Your company is a rather successful producer of candy. The firm has also expanded its sales through product line extensions. reduce low margin trade brand production. trade brands. creativity and sensitivity to the real issues should be the goals of your probe. high setup times). emphasize pull marketing. However. The firm should consider reducing the number of product lines and introducing controlling/scheduling measures for packaging. labor and fixed cost.24 Skyscraper . It originally started as a single product line. Find the critical components of cost: raw material. we still need to consider whether the company's customers (i. retailers demanding large introductory discounts for new products and high failure rate of new products. thus causing slack in labor and fixed capital (small batch sizes. cost exercise. Upon further examination. Raw materials are commodities with cyclical prices that have fallen in recent years but are expected to swing up (as you have guessed. What can you recommend? 9. retailers) are willing to accept the reduced product line. Labor and fixed capital has increased per unit over-proportionally compared with ten years ago. Revenue killers: Concentration of retailers. and reduce introduction rate for new products. $15.e. Again.23. 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. 9. 9. (Candy is candy and the product line extension is primarily an issue of different packaging.2 Possible Solution This is a revenue vs. cutting 25 percent of the staff is too obvious and too easy.23 Candy Company 9. Check feel his unit should be generating? (After all. Management is concerned that sales are growing but profits are not increasing at the same rate. Margins are shrinking..
you have noticed an increasing number of your firm's proposals are rejected because of a lack of information technology expertise in your firm. So far. Clearly. 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 firm should stop adding stories to the building. you do not want to lose money on the deal. How should he decide how tall to make the building? 9. Recently. what steps would you take to rapidly build IT capacity in this area? What are the major risks in executing an IT capacity-expansion? 9. . Better answers focus on the costs of losing clients to competitors. strategic value of information and information loss. you are becoming increasingly concerned about the need to develop the firm’s capabilities in information technology.1 Issue Your are the managing director in a large international consulting firm.2 Possible Solution This is an economic supply/demand mind teaser. Assuming your concern is valid.53 9. Nonetheless.2 Possible Answers Good answers focus on the value of IT to clients. The methods may include buying expertise by acquiring another firm. The traditional strengths of your firm have been solving strategy and organizational issues.25 Consulting Firm (I) 9. Good answers will focus on various methods to build expertise. but is not sure how tall it should be. 9.24. building capacity through recruitment of IT experts and training them to be consultants.1 Issue Your client is going to build a skyscraper. raiding IT practices of other firms for a few key consultants. Discussion topics should include the increasing importance of information in business. the importance of information systems for implementing new organizational structures and management control systems. When marginal revenue equals marginal cost.24. building capacity by training current consultants in IT practice skills and establishing a strategic alliance with a IT boutique firm.25. who will pay to reside there. your firm's growth has been strong enough that proposals lost have not hurt annual earnings. 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.25. 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.
. Possible Solutions What is the structure of the industry? -. thinks he should change his strategy. A few big companies own several brands.26 Cosmetic Company in Europe 9. Eurocos produces all products in all countries Transportation costs are small (see operational part). The various products are quite similar in terms of raw material and production. Better answers will realize the importance of stimulating client demand as capacity builds through seminars. • Diverse markets. Discussion points should address the impact on firm's current culture. These issues could be intensified if "external experts" are brought into the organization. the cost to the firm and the time needed to build expertise.1 Issue Eurocos Inc. customs exist between geographical markets How can fragmentation be overcome and is the strategy feasible for Eurocos? Learning curves present -. • High product differentiation (many ways of differentiation). strategic studies in IT areas.Highly fragmented industry with the following characteristics: • Low entry barriers (small setup costs.. customer needs (language. however profits have been shrinking in recent years. Good answers depend on the expansion methods discussed. rapid technological changes in the IT industry require significant ongoing training and development costs. articles.No Separate the commodity aspect of the product from fragmenting aspect -. 9. The company's different brands are well established in the markets.Yes Changing environment: reduced tariffs . but an important issue is the loss of the firm’s focus on just strategy and organizational issues.Yes Standardize market needs -.. He asks you if this is a good idea and what he should do next. Better answers will focus on the difficulty of implementation in IT. tariffs. produces and sells various cosmetics products in several European countries. Many small to medium size brands. new practice cultures may be significantly different from current culture.). complexions). • High barriers. The CEO of Eurocos Inc.26. Additional information: • • • • • The industry has many small to medium size companies. The company has been doing very well in the past.54 Candidates should discuss the pros and cons of each method..
trade restraints.27. Therefore. accusations of "dumping” against the Japanese. The split between fixed and variable costs involved.g. Is government involvement even feasible? What will be the priorities for the scarce government resources? Will the relaxation of antitrust laws help? The candidate will also need to consider foreigner's access to cheaper capital.. fixed costs are high. Finally. etc. quality) Optimizes locations (interest rates. Semiconductor firms need access to huge amounts of capital on a continuous basis to survive for the long term.27.1 Issue The domestic semiconductor industry is beleaguered .roughly 250m in research and 600m for each plant. 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. Domestic semiconductor manufacturers are clamoring for protection from Washington. labor) Learning curve of running a more complex plant and logistics (see also Cons) 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. Pros: • • • • • Lower costs in production (better sourcing.brutal price competition from the Japanese. You are a consultant at a major firm. You know that each generation of memory chips lasts only four to five years.S.2 Possible Solutions What are the cost drivers in the industry? (e. wages. and some of the public policy solutions being proposed are research consortium sponsored by the government. 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.27 Semiconductors 9.marginal cost of an additional chip is minimal. longer runs. etc. Negligible variable costs. This increases exponentially for each succeeding generation of memory chip. what will shared research accomplish? .55 The firm should consider consolidating production while keeping the marketing and branding nationally decentralized.) The basic issue to be determined is that it costs huge amounts of money to be a player . manufacturers? 9. Raise pros/cons/issues of government participation in this issue. Cut-rate volume-oriented pricing .
1 Issue Your rich uncle has just passed away and left you with three small oil tankers in the Persian Gulf. The larger airlines priced every seat individually based on continuously monitoring of demand/supply.30 Fertilizer 9. 9. Demand for the services of tankers is assumed inelastic due to refinery economics dominating the purchase decision. medium. only large and medium tankers are put into service. discount carriers like People Express sprang up.29. Years later. Their market share and profits are declining and they cannot figure out what is happening. 9. How do you determine how much they are worth? 9.28 Airline Industry 9.30. Characteristics of major carriers: • • • Higher fares but better coverage and service Hub systems Full service capabilities with larger volume base. This renders your late uncle's small tankers suitable only for scrap at the present time.29.2 Possible 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. why is it that the higher-cost carriers were able to survive and the low-cost ones were not? 9. the discounters have gone out of business. Competitive moves by major airlines included the innovative use of information technology for yield management and differential pricing. They wooed leisure customers with fares lower than discounters and charged more from business travelers (indifferent to price but sensitive to service and frequency).1 Issue You have been hired by a fertilizer manufacturer to help them out of a difficult situation. In the early years after deregulation. a step-function supply curve rsults for the industry with each step representing a different tanker type.29 Oil Tanker 9. It will turn out (by carefully drafting the supply/demand curves) that at the given level of demand. and large) in the industry and the cost-related prices associated with employing each type. In a price-competitive industry. The larger airlines stole the discounters' market and forced them out of business.2 Possible Solutions Characteristics of discounters: • • Low fares Limited service.1 Issue Historically low returns and stiff competition characterize the airline industry. In effect.56 9.28. What are you going to do? Possible Solutions .28.
1 Issue Your client. Assess gap between actual departmental performance and assigned targets. What are your alternatives? (If you got this far.e. (Naturally. What do you look at to analyze the issue? 9. Looks like you would try to explore the possibility of competing on a scale basis. He also wants to make a big splash by presenting a new "strategic pricing methodology" aimed at achieving "value-based differentiated pricing. This morning you received a call from the advertising director (your boss). . you will have to flush this out with your questions and approach. All three company’s current car models are "badged" Japanese designed cars (i. The Japanese market is much bigger than the Australian market. has over the last few years under-performed relative to its competitors as measured by profitability." 9.2 Possible Solutions The interviewee must first find out the corporate profitability objectives.. He sounded extremely worried about the retail advertising division's performance. costs have not risen significantly. Further. So. they are products of joint ventures with one of the smaller Japanese automobile manufactures). You also do not have any scale advantages. Examine competitor pricing and customer price sensitivity.31. 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. etc. one of the big three automakers in Australia. breadth of product line. 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). A classic demand-curve scenario has led to greatly decreased cumulative ad volume with potentially serious long-term consequences.31 Retail Advertising Pricing 9..1 Issue You are the new retail-advertising manager of a large daily newspaper.32.57 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 visa-vis your competitors (a long drawn out process).32 Automobile Industry 9. you are probably doing fine!). color. 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. why worry?) Apparently. etc. he does not explain why. corporate pressure to improve bottom-line results has led to steep advertising price increases. Discuss heterogeneity in advertising customers based on business size. Again. frequency.g.). 9. Examine both revenue and cost issues. The candidate must understand advertising attributes of importance to different segments (e.31. size. price-point. discounting. Use difference in needs of customers to implement prices based on appropriate advertising service needed. (The candidate will discover that revenues have gone up steadily over the past few years.
explore the relevance of the Japanese connection? . 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 solution is at hand. the only difference being the place of manufacture and the model names (i. .33 Scientific Industry 9.33. marketing.58 These cars are then sold in both Japan and Australia.1 Issue A manufacturer of scientific instruments.Poor sales/ distribution? .Are the terms of out joint venture different from our competitors? .Labor costs. To recap.High general expenses (admin. etc. Why? . in similar amounts and to similar markets in Australia. ..Design.Does our car cost more to design than our competitors? Although the answer to the last set of questions are negative. badges). NONE OF THE ABOVE HELPS! Don't panic. Your Japanese partner incurred similar design costs (in absolute costs). your client sells a similar product.e. 9.Published financial accounts. Reverse engineering. The key lies in your discovery that design costs are pro-rated.Raw materials.High cost of production? Given that the reason for under-performance is the high cost of production.Different market segments? . Thus the design costs defrayed by the Japanese partner's sales in Japan are relatively small and your client’s share is significantly larger than the Japanese counterpart.Manufacturing overhead.32.dissimilar products or production leading to the under-performance? . you know the solution of the problem has something to do with cost so. 9. using: . Given that design costs are by far the most important component of costs. determine what makes up the costs and their relative importance? .is experiencing declining sales in its major product line.2 Possible Solutions Explore possible reasons for the under-performance .. You have been asked to establish why your client has performed poorly relative to the competition. .Management accounts. Data from your American holding company.. . the candidate should establish the sources of high costs relative to the (other auto makers.It turns out that the terms are all similar? .Interior product? .What are the terms of the joint venture? respectively? Share of design costs pro-rated between the parties based on number of cars sold .)? .
33. What other products does our client manufacture? (Goal: gather background information on the client). 8.59 9. Is the market for X and Y growing. Consequently.What is the current percentage? (Goal: determine whether this could be a cause of the sales decline). 1. but Y is essentially dependent on X for its operation. except for replacement sales. Response: They recently began manufacturing X. 4. Y is an accessory for larger and much more expensive instrument that functions almost exactly like a microscope. and they have begun producing an unrelated product. 3. Response: Our client's product is regarded as one of the best in the market. that is.primarily semiconductor manufacturers. Who uses X and Y? (Goal: determine market segments). Response: Both markets are flat. is able to perform elemental mapping. 5. shrinking or flat? (Goal: a shrinking market could be a good explanation for declining company sales). call it Y. and academia. Describe the instrument and what it does.2 Possible Solutions Here are some questions that may help isolate the important issues: l. In fact. our X does compete directly with other Ys and our client introduced the product about one and a half years ago. Response: It is currently around 5%. 2. in research labs.How does our product compare to other Y's? (Goal: determine whether others are beating us in technological or other product features). Y is rarely sold individually. What we have noticed lately is that the specific users in each of these . Response: The instrument.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). (You have discovered a significant portion of the sales decline). (Goal: gather background information on the product). 2. Response: There are two basic user groups: industry . which we will call X. Response: X can be used by itself. X's sales force will frequently recommend that a buyer purchase a certain Y while buying an X.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). over 30 percent of our clients sales were generated by a manufacturer of X. it is able to determine the specific composition of material placed in the chamber for observation. Two years ago. Response: Yes.
As part of a strategic review. you have been asked to construct an industry cost curve (cost/kg of aluminum produces vs.34 Aluminum Industry 9.2 Possible Solutions How to estimate competitors cost management? Financial accounts.35 Meat Packing Industry . 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. In addition to ruining our relationship with a manufacturer of X by producing our own. who also happen to be the primary buyers have become relatively less sophisticated. How to simulate the market mechanism? Determine what kind of market structure exists . These buyers have become even more dependent on the sales forces. for various plant-to-market combinations. Indirect estimates by client management. Your model should be flexible enough to enable various future scenarios to be run.1 Issue Your client is a leading manufacturer in the aluminum industry. Perfect competition.perhaps an oligopoly. (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. There are five major players in the industry. supplying six major geographic market segments.60 groups. (There are many combinations!) .34. Direct estimates by client management.34. Given perfect competition.Linear programming approach. which market segment is most likely to be affected? What will the equilibrium price be in the future? 9. relative cost position is the primary source of competitive advantage. 9. industry supply). how do you simulate demand? Back of the envelope approach. 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. Because aluminum is a commodity. In other words.) This is the second part of the main reason for our clients declining sales. we happened to do so at a time when relationships became even more important. The buyers are relying more and more on the X sales force who is typically called well in advance of' the Y sales force. they are hired just to run the instruments and therefore know less about their technical qualities. 9.
1 Issue Your client. your production costs have remained stable. you can estimate how often these pianos are tuned. owns a meat packing plant in Spain. The test is to see if you can come up with an answer based on information that you provide during the case using estimates. By looking at the suppliers. In addition.2 Possible Solutions Porter's five forces is a useful starting model in this case. In analyzing the internal rivalry.000. Next. You will also discover that there has been no introduction of a substitute product.000/3 + 25.36 Piano Tuners 9. Hence.35.000. Therefore. 5% of third. you will discover the market is regional. Since there are stable costs and strong sales. You have been hired to figure out why. Its purpose is to test your logical and quick mathematical thinking. You need to start by asking questions about the critical factors.167 or approximately 120.000/10) = 119.000 5 500. 9. the second quarter once every three years and third quarter once every 10 years.000 + 50.35.36. 9.000 20 500. There is no right answer. 10% of second quarter.1 Issue How many piano tuners are there in Chicago? Possible Solutions This is a brain teaser case. you will know that they are independent farmers with little power against your client. . the costs of your raw material cannot be the issue. You can then make an estimate of 20% of highest income quarter have pianos. Your margins are being squeezed due to the increasing concentration and buying power of your customers. transportation costs and competition have not changed dramatically. profits have steadily declined despite the fact that sales are growing.000 pianos to tune. a US firm.000 10 500. the only other alternative is the price of your product.000 households. and you will discover the buyer link.000 each).000 4th 0 Population % w/Pianos #of Pianos 500. Over the last few periods.000 2nd 50. One way to solve it is to estimate the number of households in the Chicago area.000 0 With 175. Investigate this avenue. you can break the income of the households into four quarters (500. Thus: Income quarter 1st 100. The interviewer gave this piece of information at 2.000 3rd 25. You can estimate that the top income cluster tunes their pianos once a year.61 9. This gives you (100. and 0% of fourth.
therefore: 120000/250=480 pianos a day to tune 4 = 120 pianos tuners needed. 250 days a year. By the way. there are 46 piano tuners listed in the Chicago Yellow pages.62 We can estimate that a piano tuner can do four pianos a day. Would all the piano turners be in there? You could guess that at least half would be. How could you check this? Look in the yellow pages. .
and push prices lower. Supplier Bargaining (low-moderate): Major suppliers are the intellectual capital employed by firm (e. What matters here is the thinking process. As you leave the meeting. 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? 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. ask the interviewee to develop his or her own hypotheses. you begin to realize the enormous task to which you have committed yourself. however. When information is not available. Top tier firms in particular are able to have high price points. Buyer Bargaining (moderate-high): In the last decade. reputation (McKinsey versus accounting firms). which you will present to the committee at its next meeting. the consulting market supply generally following demand. Its possible demand may decrease as companies quit expanding.37. which lowers buyer power. Firms must pay market price or risk losing suppliers. give buyers more bargaining power. experienced consultants who bring in sales and new consultants who provide analytic). not necessarily the answer. and the resources they employ (no MBAs versus all MBAs). As an interviewer. you volunteer to study the industry and propose a firm strategy for next millenium. A good place to begin is to evaluate the industry from a competitive analysis perspective. However. Eager to be accepted by your more senior peers.37 Consulting Firm Strategy 9. Potential Entry (moderate): There are no great barriers to entry into the consulting industry. Substitutes (moderate): Companies can move the consulting process in-house by hiring exconsultants and bright MBAs. which limits competition and keeps prices high. Many companies are relationship-driven with their customers. type of customer (Fortune 100 versus Fortune 1000 companies). you should feel free to add information on an as-needed basis. with many players each holding relatively small concentration of total market. Its possible new firms would enter if the industry were earning positive economic profits. Firms act as competitive monopolists and differentiate themselves by specialty. such as Porter’s five forces. Rivalry (low to moderate): The management consulting industry is fragmented.63 9.. This is also an interesting case since the salience is likely to be high. it is primarily the established firms that compete in the top tier of the industry. The following is an abbreviated analysis.g. it is appropriate to question the effect a recession might have on industry. .1 Issue You are the newest member on the management committee of a well-known top-tier strategyconsulting firm. which would reduce demand.
journal and newspaper articles.g. in-person interviews.1 Issue . etc. Most answers will depend upon the material covered in the first two sections of the interview.38 Corn Feed Company 9. the thought process is more important here than actual answers. 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. The interviewer should ask the following questions of the candidate: What are the likely trends? What is a positive scenario? A negative one? this issue? If you had any information at your disposal. specialized studies. 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. such as leveraging through technology? Given your firm's competitive strengths and core competencies. An interviewee should have an understanding of business information sources and how information is gathered. Specifically. associations.38. laboratory experiments.).64 Other interesting points might explore the critical success factors in the consulting industry.). However. major competitors. focus groups. 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.g. Primary research is then used to focus in on the critical issues. Information gathering is a critical reason companies use consultants. government sources. industry experts. This research includes telephone interviews. Hypotheses are often created from the secondary information. cost-cutting studies rather than market expansion studies. etc.g. investment bank research. This often points towards other good sources (e. how could you get a better handle on There is no right answer here. so the interviewee may balk. books. mailed questionnaires. what is the best strategic route? 9. Information can be broken into two groups: secondary and primarily.) 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. a complete review of published literature (a "lit search") pertaining to the study (e. etc. Usually one begins with secondary material.
1 °Issue 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.65 A corn feed company has eight manufacturing plants located in the Midwest. Corn feed is a commodity product.1. which is industry standard. Build a larger plant at the current location 3.1 Location of Plant Transportation cost and perishability are the main issues with location. Refurbish the existing plant 2. The plant size and the plant location should he considered separate. The proposed largest plant will not have economies of scales that are not already present in the existing plant.2 Possible Solutions There are two issues to this decision. Included in this analysis could be the rate of spoilage through longer transportation of corn stock.38. 9. Build a larger plant at a new location Which is the best option for this plant? 9. For example.2.1. Size of Plant First. The current customers buy from all four manufacturers in order to guarantee supply. Build a similar size plant at a new location 4. Pricing on the product is dependent on current corn prices as opposed to the manufacturing process.39 Selective Binding Case 9. The raw material is perishable where as the corn feed can be stored for any length of time and is easier to transport. These plants service the entire United States.39. Cost analysis of the transportation cost of feed versus raw material should be completed. 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. All four competitors have similar manufacturing processes and similar cost structure. consider the demand for the product. 9. advertisers can .our company is the second largest. Conclusion The current plant is located close to the cornfields and this is the best location for the plant from the cost/benefit analysis. The corn is grown in the Ohio area and the feed is sold to the East Coast. The company has four possible options: 1. There are four main competitors in the industry . Their plant in Ohio is in need of refurbishing. The capacity utilization is 65%. In this way.38.1. Currently demand is being met and there are no alternative uses for corn fed. The transportation cost per ton of corn stock (raw material) is much higher than the cost of transporting the actual feed.
Most advertisers are selling high-end fashion products. The client's closest direct competitor has 500. .000. They charge $70 per thousand for their full one-page ads. 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. revenue associated with a single inserted page (front and back) in an issue is 100 per thousand.000 and those who make over $50. The same mix applies to the newsstand buyers according to readership audits.000 readers.000 and 75% make over $50. so 75% of them are targeting the highincome group. Twenty-five percent of subscribers make under $50. instead of 100% of advertisers paying the full $50/thousand per page. Q.000 of who are subscribers. Effectively.000. Assume that all advertisers continue to advertise in 100% of the newsstand copies. What is the total readership. 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. What proportion of the client's advertisers target each demographic category of readers'? A.2 Possible Solutions This is a straightforward cost/benefit analysis. Q. Would you advise your client to take advantage of this new process and offer selective binding to its advertisers? 9. 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. Q. There are 1 million readers. What does the client's closest direct competitor charge for ads and what is their readership like? A.66 focus their communications on the demographic segment they are targeting. Q.000. the 25% of advertisers targeting the lower income segment will choose to target only that 25% of subscribers. Of course. 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. Presumably. 80% of who are subscribers. Therefore. The client charges $50 per thousand per full-page ad (selective binding can only be offered on full-page ads). all of their readers make over $50. The only breakdown possible on your database is between subscribers who make under $50. What demographic breakdowns are possible to make in the magazine's database? A. the proportion of readers who are subscribers (as opposed to newsstand buyers). Q. and the proportion of subscribers in each demographic category? A.39. The 75% of the advertisers targeting the high-income segment will advertise only to the high-income subscribers (75% of subscribers). Since the printing cost to the client of selective binding is zero. 100. 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.
67 New ad revenue per page = $50 X [(25% X 25%) + (75% X 75%)] at old rate = $31. their alternative to advertising in your client's magazine is to put their ad dollars toward the 100% high-income readership competitor. 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. our client's ad rates must be looked at from the perspective of their advertisers. Specifically. However.75 is less than the $50 that advertisers are currently paying.40.40 Video Games 9. Any higher cost and the advertisers would switch to their competitor.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 today.1 Issue The CEO of a large. 9.40.and low-income advertisers. To mention these other possibilities and areas for further investigation is certainly wise. If you consider the advertisers targeting the high-income group. 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. it is important at the end of the interview to have reached a recommendation regarding the initial question posed by the interviewer. $70 is the maximum price per thousand the client can charge its advertisers for selectively targeted ads. he needs to know if he should approve a $200 million capital request for tripling the division's capacity. To answer this question. Assume you and I are at the first team meeting. there are other issues which interviewees might want to mention such as the possibility of price discriminating between high . 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. the magazine should not often advertisers the selective binding service.000 = $66.67 If the client charged $70/thousand for selectively bound ads. the average revenue per thousand to the client would he: $70 X [(255 X 25%) + (75% X 75%)] = $43.2 Possible Solutions .000)/500.000 = $70 Thus. the potential for and cost of expanding the advertising base using selective binding as a selling tool. Of course. diversified entertainment corporation has asked a consulting team to examine the operations of a subsidiary of his corporation that manufactures video games. You are a member of the consulting team assigned to this project.75 Since $43. 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. For example.
Industry growth has been strong though over last few months sales growth has slowed. control of retail channels and R&D capabilities (rate of new product introductions. new remote joystick) to appeal to market segments.68 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. 2. but should not be expected to solve the problem. It the candidate begins to discuss too deeply a specific issue before having covered the key issues overall. The main costs are assembly components and labor. The division’s sales remain less than 20 percent of parent company sales. What is the future market potential? The candidate needs to question the continuation of overall industry growth. Distribution: The primarily outlets of distribution are top retailers and electronics stores.000 units annually.. ask. The remainder is divided among small producers. per se. however. The top two competitors also develop. The following issues would need to be covered for the candidate to have done an acceptable job: 1. Sales: The division sales have increased rapidly over last year from a relatively small base. Issue areas might include: concentration of market shares.). The candidate should identify issues that are necessary for assessing both the industry and our client's position. respectively. The division’s current sales price for the basic unit is $45 per unit. The requested expansion should reduce the cost by 5 to 7 percent and triple production capacity of the hardware units. yet. "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. Profitability: The division currently exceeds corporate return requirements. Costs: The division estimates current cost is $30 fully loaded. What is the competitive outlook? The candidate should at least recognize the need to examine the competitive dynamics. She/he might ask about the saturation of markets.000 units. Customers: The division estimates that much of the initial target market (young families) have now purchased video game hardware.g. Our competitors are estimated to have a 10 to 15 percent cost advantage currently. The division sells to great range of consumers. . Product: the industry leaders have established hardware standards. Industry growth of software continues to increase. No other large segments have been identified. margins have recently been falling. The current estimate of industry hardware sales is 5.000. Product features are constantly being developed (e. competitive products (home computers). if our client's position in that industry is sustainable. The top two producers have 30 and 25 percent market share. 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. Market Share: The division is the third largest manufacturer of hardware in the industry with 10 percent market share. etc. The primary issue of the case is to determine if the industry is attractive and especially. Current estimated annual sales of 500. and declining "per capita" usage. manufacture and sell software/games though our division sells only licensed software.
1 Issue The firm was asked by a diversified manufacturing client to help turn around the steam boiler hose division.41. 9. Address the shitting mix of product purchases.) Software Recognize industry leaders set technology standards. What will be the price/volume relationship in the future? Issues of prices need to be considered. There has been increasing price pressure in the industry. from hardware (player units) to software (videocassettes).e.69 3. The client is third of eight industry participants. 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. In this situation. Seek to look at buyer behavior in critical buyer segments. Recognize that different distribution needs may exist for different products (in this case. (i. yields an industry volume estimate.. but better answers would address: Market Potential Recognize that there is a relationship between market penetration and growth in new users which. In this case. How would you structure an analysis aimed at restoring profitability? Where do you expect to be able to save in costs? 9. Company ability to Compete Should ask what the capacity expansion is designed to do. This steam hose division provides boiler hoses for both external customers and the client's boiler division.2 Possible Solutions The following information is also available in response to questions asked by the candidate: .41 Steam Boiler Hoses 9. hardware versus software).41. when combined. -Seek to understand the reason for poor profit performance of division. There are no bounds on creativity. Explore the cost position of the client division relative to that of other competitors.
) 2. Are there other areas in the company where similar problems exist? 9. How is our product engineering operation wired into the marketplace? (There is little contact between the engineering and marketing/sales organizations. 2. 2. What kind of comments are we receiving form our sales force? (Customers are delighted with our hoses but require all the product features. Raw material purchasing practices (material are purchased through long term contracts with prices based on the spot market minus a discount). requiring excess raw material. Scale economies (client is big enough to achieve scale production). Raw material prices (they are the same as everyone else's) 3.) 3. MINIMUM REOUIREMENTS The candidate should avoid being bogged down in the following areas: 1. OUTSTANDING ANSWERS The best answers follow a logical progression and should not stumble upon the actual answer: The product has been over-designed. Drop the product line (apparently not possible because hoses are necessary for boiler sales). SG&A (standard industry fee paid for independent installers).70 Last year's P&L showed (as a percent of sales): Raw Material Labor Distributed overhead SG&A Profit 70% 20% 10% 15% (15%) The raw material is a commodity petrochemical. BETTER ANSWERS Better answers will move beyond the previous answers to consider: 1. Allocation of overhead (no cash savings and provides little savings potential) 4. 3. At least two of the other companies in the industry are making moderate profits.42 Merger Candidate in Chemical Industry . Production technology (client has a modern plant) Labor costs (wages rates and productivity are average for the industry) 4. The answer should address the following organizational implication: 1.
Essential facts included: • • Production of this chemical has slowly declined over the last five years. and how expensive is entry/exit'' (Entrance is expensive. Both companies are bulk commodity chemical producers. Prices have declined rapidly. (It is a bluff to try to encourage smaller competitors to shut down. The target company is probably at breakeven and the rest are operating at break-even or loss.) 2. How important is this product line to each of the competitors? (Most producers are fully diversified. Are there niche or value-added uses for chemical? (Not really. The target company has reasonably "good" position.) 4. How is the product sold and distributed? (Economies of scale in marketing and transportation are critical.42. • The largest competitor has just announced construction plans for a major new plant.42. • There are 7 to 8 major producers: the largest producer has a 30 percent share. What has been the relative capacity utilization of competitors in the industry? (60 to 70 percent for last three years).) OUTSTANDING ANSWERS 1. Is there synergy between our client and target? (Not really.) 5. How would you structure an analysis of the target company's future prospects in this product line? 9.) 3.) 2.) 3.) 2. age of plant. 4. a bulk chemical used in the production of plastics.2 Possible Solutions MINIMUM REOUIRENENTS 1. exit cheap mostly because older plants are fully depreciated. What is nature of operational improvements that target company could make? (Lots) 4.1 Issue One major chemical producer has retained the consulting firm to evaluate another major participant in the industry. How much overall capacity exists now? (Far too much.) .71 9. What are relative cost positions of competitors? (Related to size/efficiency. our target company has 15 percent and the rest is divided among the other competitors. We have been asked to begin our work by analyzing the future prospects of the target company's major product line.) 5.) 3. How often have companies entered/exited. Is regulation important? (Yes: all competitors have installed pollution control equipment. Does the chemical have a major by-product or is it a by-product? (Not of significance in this case. • The two largest competitors earn a small return. number two has 20 percent. Reasons for announced capacity expansion.) BETTER ANSWERS 1. How rational is pricing in the market? (The industry is prone to self-destructive cuts to gain temporary share points. 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.
etc. All products can be obtained from a number of sources. The candidate could cover differences for each product in the fixed and variable manufacturing. Is there flexibility in pricing of' these products? . A variety of' small manufacturers supply similar products to a wide range of customers. Each material is used for packaging but differs in physical properties in terms of costs. water. and general performance. light. Suppliers: Our client uses primarily commodity products in the manufacturing process. The client has asked us what combination of products he should ran to increase the profitability of the plant. 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. Price: Each product has a different price dependent on both the client's cost to manufacture as well as the market for the product. How would you go about determining the optimal mix of potential products? 9. Are there market limitations to the potential production of any one material'? 2.72 9. Each machine is capable of running any one of the various materials and/or coating combinations. Customers: Our client's customers are primarily consumers or industrial product manufacturers who use the synthetic materials in packaging their own products. vapor. No competitor has more than three percent of the total market. The client does not wish to invest in additional equipment at this time.43. do some coatings cost more than others do? Do some materials have inherent cost differences? 4. Is there competition for these products? 3.43 TYPE PURPOSE Machine-Loading Case Macroeconomic To determine problem whether the candidate can dissect a general economic 9. The interviewee should also address the market demand for each product (to ensure what is produced can be sold at an acceptable price).43.2 Possible Solutions Market Share: The industry is highly fragmented. Some are unique to meet specific customer requirements while others are used by a variety of customers. All of the machines on which these materials are made are housed in one enormous factory location. Each material can he coated with any one of four or five types of chemicals which make the materials more or less impervious to heat.1 Issue A client produces a range of synthetic materials in varying widths and lengths. weight. Products: Our client's machinery can produce hundreds of different products. 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. Cost: Each product has a different cost to manufacture dependent on materials used and the manufacturing process. selling cost and prices. flexibility. Our client estimates he has less than 1 percent of' the total market. MINIMUM REQUIREMENTS 1.
operating status" . Are there technological displacement or replacement products on the horizon? OUTSTANDIN'G ANSWERS The best candidates will formulate a profit maximization algorithm. Their primary product line. Is there unlimited market demand for these products? 5. farming tractors. competitor #1: 30%. which supplies machinery to refineries (not owned by your company) around the world.) .44 Oil Refining Industry 9.45 Agricultural Equipment Manufacturer 9.45. with the remaining 15% belonging to many small manufacturers.2 Possible Solutions Define "assess. An outstanding answer must include recognition of the asset costs and capital implied in that as well as income or profit contribution. 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. Suppose the answer is that there are two direct competitors.44. Machine-hour capacity is a surrogate for fixed costs per unit of volume. competitor #2: 15%.45.1 Issue Your client is a large agricultural equipment manufacturer.most likely in comparison two dissimilar pieces of information: 25% market share and $4M (but no idea what % of the market this represents). Profit contribution is (unit volume) times (unit price minus variable cost). 9. The guide is to request what % of the market $4M represents. is losing money. You might want to start off by asking how many competitors there are. the potential substantial differences in volume produced per product-hour and/or the price obtainable in the market demand and competitive actions.2 Possible Solutions It is unlikely that there are too many players in this market. From this. What is your client's market share relative to their competitors (your client has 40% of the market. how long they last (actual life.. The best algorithm is to maximize the profit contribution per machine hour. Are the machines truly interchangeable or are some better suited to one product or another? 4. Do these materials move at different speeds through the machines? 3. Are there differences in setup time and cost for various materials or coatings? 2. What questions would you ask of your client to help them solve their profitability problem? 9. 2. Divide the above mentioned $4M into this and the refining division's market share can be assessed. You generate $4M annually in revenues through the machinery division of the company.. How do you asses the current operating status of this division? 9.44. In addition. 3. one can estimate what the industry spends per year on machinery can. 9. 1. The way to do this is to ask how many oil refineries there are.73 BETTER AN'SWERS 1. Assume this is unknown. not dependent life) and what the machinery replacement costs are.1 Issue Your company has 25% world-wide market share of the oil industry. An estimate of the market size is therefore needs to be done. how much does each cost to build. This % can then be compared to the 25% share of the parent.
they all have the same basic features. . your client had 60% of the market. they're not. and the client has no answer as to why material prices have gone up so staggeringly.) Are your customers willing to pay for these product improvements? (What do you mean. in fact both the price and costs are up.) Do you manufacture your tractor or just assemble it? (Primarily an assembly operation.) Are sales revenues down? Are sales quantities down? (Yes) Is the price down? All costs the same? (No. and competitor #2. 10%.) Are your customers willing to pay a marginal price which will cover your cost of implementing these improvements? (I don't know. Obviously.) 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. competitor #l. tractors are not commodity items and a few differences do exist.) Has this always been the case? (Yes) Are the products the same? (Essentially yes.) Why do you make these improvements? (Because we strive to continue to sell the best tractors in the world. your client has lost significant market share to its two competitors over the last few years. 15%. the prices have increased as a result of our product improvement efforts.) have gone up out of sight..) 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. but customers do not value these improvements unless they are essentially free --so sales are down. (variable costs.) Have fixed costs increased? (`No. that you must consider the long-term effects of these decisions.74 What-are the market share trends in the industry? (Five years ago. Of course.) It turns out that prices have been raised to cover the costs of these improvements. material costs.) 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. We've tightened tolerances and improved the durability of our component parts.. I guess we assume that they will. The client needs to incorporate a cost/benefit analysis procedure into its product improvement process. Don't forget though. This can be critical for some farmers because they cannot afford to have a piece of equipment break down at a critical time.
2 Possible Solutions This. It turns out that stores. in case you have not already surmised. hold no inventory and thus require next-day replenishment after a sale. in specialty and department stores. the higher the cost (more inventory pools. In essence. Short-term treasury bills are yielding 7 percent. How would you go about determining a fair price for company 456? 9. since the closer they are to the stores the cheaper the distribution costs.no wonder they're spending so much)..1 Issue Your client is the treasurer in a significantly privately held corporation.1 Issue A manufacturing company based in Charleston.one in Charleston. When you divide this into the $1 million distribution cost you discover that they are pay $100 to deliver a pan to the store.2 Solution $22 per share 9. the only way they can do this is by shipping overnight at a premium rate (UPS ." is applicable. 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. The only factor determining how much the agents paid is their sales $.from which they cover the whole country. 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). The treasurer's investment analyst predicts that the stock will pay a dividend of $1. depending on how risky (costly) an insured party proves to be.75 9.47. Your client has three warehouses . Beat this figure and you've earned your exorbitant fee. The higher the service level. You are called in because they feel that the $ l million that they spent on distribution last year was way too high.47 Consulting Firm (2) 9.2 Possible Solutions Distribution is basically a trade-off between cost and service level. She is in charge of managing a portfolio of investments in addition to her treasury responsibilities. they are motivated to issue a policy to anyone at as high a price as possible. is an organizational behavior scenario. How can you show your client money that he can save money.. you must define what the "right way is". 9.1 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). A more efficient compensation structure might pay the agent on a sliding scale. Having set up by definition. SC makes high quality pots and pans which are sold throughout the U. since they sell so few of these pots and pans. .46. she has asked your advice about the purchase of a large position in company 456. 9. This can be confirmed by asking for the annual sales which turns out to be 10. So you need to ask where the inventory is being held.47. Which is the right way to pay the sales agents? 9.46.48. They are not motivated to give consideration to the riskiness of the insured party. The treasurer is contemplating the purchase of 5000 shares of company 456 and wants your help in determining a fair market price. The absence of such a consideration (for example) would be detrimental to the company in the long run.48.25 for the foreseeable future.48 Pots & Pans (2) 9.000 units. A quick way to solve this case is to realize that if stores require next day service from these three warehouses. Company 456 is currently selling for $22 per share. whose stock is listed on the NYSE. Again. the results achieved by the above mentioned composed system are examined. Recently. one in Philadelphia and one in LA .S. warehouses and shipments). and long-term t-bills are yielding 8 percent.46 Insurance Company 9. The next thing you need to know is where the warehouses are located.
These rates have been steady over the past three years in the Northeast. juice boxes. Her division produces fruit juices in three forms. Cable penetration rates in the three Northeastern markets average 45%. They are also prohibitively expensive for most people. This division has sales of $600 million per year. However. The penetration rate in Tucson is 20%. Fixed costs relate to the cable lines. and frozen concentrate. and. usually). Figures on garbage tonnage (denominator) are probably available in some obscure federal report. Tucson is also growing at 12% per year on average. 9. free HBO for one month. While juice boxes and frozen concentrate are profitable. The chilled segment represents $120 million in sales per year.2 Solution The real error of management results from their failure to recognize another “substitute” good: no cable television at all. free hookup.). The cost of programming is based on number of subscribers and is equal across the nation. This is strictly a mathematical. You need a numerator (diapers) and a denominator (total US household garbage).50.1 Issue Q: Your client is a small holding company that owns three cable television companies in the Northeast: Rochester. but larger than Rochester and Stamford. Each of these three companies is profitable. which is a function of physical area covered. Philadelphia and Stamford. 9. many communities are enacting legislation that limits their usage in Tucson. Per capita income is higher than in Philadelphia and the same as in Rochester and in Stamford. such as free Disney programming for one month. yielding the estimate of total diaper weight (numerator). wait until after the interview for that).50. CT. Despite every effort of management. 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. There is only one real substitute good for cable television: satellite dishes. therefore. television reception is far better in the desert Southwest than in Northeastern cities. Only maintenance is higher that in the other markets.2 Possible Solution Wet your pants/skirts. The entire company has sales of over $20 billion. What would you advise that she do? To be divulged gradually: . However. The Tucson company has attempted marketing efforts in the past.76 9.49. NY. Operating costs are composed of variable items: sales staff. The penetration rate in Tucson has only rised by 2% in the past three years in Tucson. acquired another cable television company in Tucson. and the company has been losing money. number crunching exercise. maitenence. Operating costs in Tucson are essentially the same as in the other markets. all marketed under the same name: chilled (found in the milk section of the supermarket. chilled juices are only breaking even in good quarters and losing money in bad quarters.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.49 Diapers 9. the Tucson company’s sales have been stagnant. Arizona a little over a year ago. For diapers you could take the total $ sales of disposable diapers and divide by the average price per total unit (box: etc. Let's assume this will be done in pounds.51 Chilled Beverages You are consulting for the manager of a division of a large consumer products company. Multiply this number by the average weight per unit. These programs have been modeled after the other three markets. How would you analyze this situation. She has received a proposal from upper management to sell the chilled juices business. due to the larger land area serviced. 9. (No. etc. the management feels that th e Northeast is not the fastest growing area of the country.50 Cable Television Company (2) 9. administration and marketing.49. 9. and each has been experiencing steadily growing sales over the past few years. The lower penetration rate is most likely a result of different climate conditions and lower interference in Arizona.
What could be causing this: Other information: The split of product sold has consistently been 60% vodka / 40% run over the past few years. There are two large players that have 40% and 25% of the market. Overall sales are growing at about 3 to 5% per year. The two market leaders are able to fund more advertising and more promotion. Keep the chilled juice business and rework the ingredients and costs. as in juice boxes and frozen concentrate. as there are both advertising and manufacturing synergies.52 Distilled Spirits 9. the same as the idustry average for these product lines. but the other flavorings cost about twice as much. etc. “open” states. juice boxes and frozen. affect the juice bix and frozen concentrate businesses. etc. as the buyer could capture the synergies. however. as mothers tend to prefer highly reliable products for their children. In 27 states. Your client’s market share.1 Issue You are consulting for a major United States producer of distilled spirits. 9. The market for chilled juices is essentially mothers with school age children. The selling prices of the two lines are essentially the same. 12%. This turns out to be the most feasible option. mangoes. trade and couponing that your client. 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. Such stores are alsom becoming less and less willing to hold inventory.1 Solution: There are three choices: Sell the chilled juice business. One plant in California produces all of the product. makes her third in the industry. shelf space is extremely expensive and trade promotions are critical. which . This would.77 Chilled beverages is a $5 billion dollar industry nationwide. the business has become less and less profitable. Your product uses more elaborate blends of juices. It would be difficult to find another use for the plant without a major conversion. bananas. This is a highly price sensitive market that loves coupons. The market leaders produce pure orange juice and blends that are based on citrus juices. The best available information indicates that the two market leaders are profitable. (the other 5% of the inputs). However. Sell all of the juice business. Pear and peach juice are about the same price as orange juice.51. respectively. Therefore. all branded juices tend to sell in the same price range.52. the brand premium must be in line with other branded products. The selling price is likely to be low. chilled. Over the past few years. Brand name is important in this market. This may be more feasible. as evidenced by the success of the competitors. where alcohol is sold in privately managed supermarkets and liquor stores. usually with a base of pear or peach juice (95% of the inputs) and flavored with cranberries. 9. Their primary products are a line of mid-priced vodkas and two brands of mid-range rum. but would not be too likely to turn the business around. promotions.
the current competitor. try to understand the likely competitive response of Spizza to your client’s entry. and therefore. 9. Total packs per year is 9.4 billion. liquor is only sold through state regulated liquor stores.55.55 Golfball Market Entry 9. advertising spending is lower.53.S. more profitable. 15% are between the ages of 10 and 20. annual sales would be $2. including sales. How will you defend your position if Spizza decides to fight for market share? 9. a reasonable figure.S. for a total of 45 million. number of stores.1 Possible Information Needs: An estimate of the size of the Parisian home pizza delivery market.54. Having had no time to do background research. and what factors drive demand. (70% of the 300 million population. 9. what is the cost structure of their business and what products are most profitable. Determine what are the needs of any neglected market.250 packs per year. Because the regulated states are less expensive to serve. you sit on the plane wondering what is the annual market size for golfballs inthe U. 9. market segments that are neglected by Spizza. Estimate that these people chew two packs per week. figure the dollar sales that these packs represent: at 25 cents per pack. 9. and therefore. In the other 23 states.2 Method of analysis: The best method of analysis would start by determining if any part of the market is not well served currently by Spizza. and proportion of Paris that is currently served by Spizza. chewing gum market? Check your answer for reasonableness. Distribution costs in these states is much lower.2 A typical approach: Estimate the number of people who chew gum: of the 300 million population.53.54 French Pizza Market Pizza Hut has recently entered the home pizza delivery business in Paris. Advertising of alcohol is much more tightly regulated.1 Issue How would you estimate the size of the annual U. For the other users over age 20. How do you go about answering these questions? .2 Solution: A greater and greater share of the volume is being sold in the “open” states. what do they charge for thier product. for a total of 5. how would you analyze the pizza delivery market? 9.52.78 is increasing distribution costs by requiring more frequent deliveries.1 Issue You are visiting a client who sells golfballs in the United States. or 210 million) estimate a usage rate of one half pack per week. Also. Your plane lands in fifteen minutes. Pizza Hut has asked your consulting firm to help it analyze issues that will determine its likelihood of success in the Parisian Pizza market. You may also want to know the size of Spizza.750. Sales in the regulated states are actually decreasing. To check for reasonableness. First. This could be obtained by knowing the population of Paris (6 million) and making some educated guesses about factors that determine pizza market size.53 Chewing Gum Market 9. with sales in these states increasing at about 10% per year. what information would you need and second. 9. The market for home delivery is currently dominated by Spizza Pizza.54.500 million packs. and understand if your client could profitably serve this market. the fact that they represent a shrinking portion of the total has caused total profits to decline. the heaviest users. as there are far fewer outlets to service and central warehouses for the state-run stores. Other useful information: market segments targeted and served by Spizza. for annual sales of 4. what type of product do they offer.
the success of the venture would depend notonly upon the means of entry. including allocated fixed costs. Profit margins are 20%. For example: Non-unionized labor might help support a low cost production strategy (but for how long?) Proprietary technology not available to other compaies in the region Special expertise in a growth area (such as. Poyethylene is a commodity chemical. The client had 100% of the market until two years ago.2 Typical solution: Golfball sales are driven by end-users. Your client does not have much information about this competitor.79 9. 9. However.3 Possible Solution Diversification could be effected through joint ventures or through acquisition. Now. for example. the company has 80% of the market. If the average golfer plays twenty times per year. They have also been undercutting your client on price. that’s forty balls per person. Solution: . 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. assume that people between 20 and 70 play golf (about 2/3 of the population. This factory has purchased technology from a German company.56. and the technology used is the same as when the factory opened. and has asked your firm to assess the strategic outlook for this company. regional market.56. resulting in a 2 billion ball market.57 Packaging Material Manufacturer Your client is the largest North American producer of a certain kind of bubble-pack packaging material. 15% marketing and overhead.55. The number of end users: take the population of 300 million. Multipy that times the 50 million.56. 35% conversion costs. a localized upstart company has appeared in the Philadelphia / New Jersey market and has captured nearly all of that market. and requires two balls per time. labor and energy costs 10% distribution and storage. 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.S. The factory is thriry years old. Other critical factors would include: The existence of a distinct sustainable competitive advantage.56 Overseas Construction 9. How should it go about doing this? What factors are critical for its success? 9. estimate the frequentcy of purchase. Currently. but it appears that their factory is extremely efficient. a plastic chemical.1 Issue An overseas construction firm wants to expand by estamblishing a presence in a growing U.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. How would you begin to assess the future for this client. Since that time. hazardous waste) Access to distribution channels 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.
last but not least.80 The competitor has used their new technology to produce a lower price product. nearly all customers prefer this product to your client’s. Then. perhaps by updating their own technology. the elderly) have a higher incidence of kidney problems. also. etc.60 Local Banking Demand . you discover that kidney dialysis is a major portion of public health care expenditures. Don’t forget the external factors. Since this is a procedure.59 Health Care Costs Bill Clinton has just fired Hillary Clinton as Chief of Health Reforms and has appointed you to fill the position. 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. Simply determine if revenue less costs equals a positive profit. is ours higher? If so. incremental costs for landing rights. 9. the sum of which is measured by cost per unit x # of units. and they should be advised to respond to the competitive threat. As evidenced in the Philadelphia / New Jersey market. And. Is there room for any type of preventative program for these groups? 9. the competitive invironment and the extent to which our client could win over passengers from competitor routes. Both of these will be determined by expected demand. build a model (regression. Perhaps those who are typically covered by public funds (the poor. Compare the indicence of kidney disorder in the country with other countries.Fixed + Variable). rather than a shole industry. 9. Thus. It is also very important to estimate the cost of cannibalization on existing Tokyo-LA. Interviewer Notes: Revenues will be determined by occupancy rates and expected prices. can public policy ofr efforts to increase awareness help reduce it? If incidence is indeed higher for the U. such as corruption or government regulation.S. analyze the factors that go into revenue and the factors that comprise cost to come to a conclusion. perhaps) that will somehow determine the factors that are most related to kidney treatment. Operating costs will depend on expected fuel costs. it is mostly a variable costs.S. the future is extremely bleak for your client. it is important to note that losing passengers to cannibalization is better than losing them to competitors. How can it determine if the route is a good idea? Suggested frameworks: Profitability analysis looks like the best approach.58 Airline Expansion A major airline is considering acquiring an existing route from Tokyo to New York. 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. LA-New York routes. that may play role. Therefore. 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 .
maybe a cash machine would suffice. 9. etc. Competitor reactions could easily make this benture unprofitable. one should consider a marketing framework. business concentration. frozen yogurt has begun to outsell ice cream. 9. each 100 catalogs mailed results in 2. Solution: Margins on frozen yogurt products must be lower than for ice cream.81 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. vanilla and coffee. high growth or high profitability. etc. so it is essential to anticipate them. however. These will depend on the importance of the area to competitiors (in terms of profit. The premium frozen yogurts use more exotic flavorings such as mangoes. Interviewer Notes: The demographics of the area surrounding the prospective branch should be examined. In other words. All other costs are equal for the two lines. Your client’s catalog printing and postage costs have just increased to thirty-two cents per catalog.) The client will have to match competitors’ incentives to customers and should estimate the cost of doing so. etc. The client must examine if the new branch would complement their existing competence and strategy (retail or commercial. Therefore. and flavorings such as chocolate. or possibly even negative. income levels. (Ice cream and similar products). Though sales have been increasing. the shift of sales from ice cream into frozen yogurt is causing the company as a whole to be less profitable. share. Ice cream uses locally available milk and cream. 25% of customers who order product . pecans.62 Direct Mail Retailer You are consulting for a direct mail retailer that sells ladies clothing. Additional information: The client sells a complete line of product (ice cream and frozen yogurt) in major supermarket chains in the Northeast. Population. such as the 4 P’s. pineapple and raspberries. should be compared with those of historically successful branches. In recent years. The ingredients are different.) and what purpose it would serve. as Americans jump on the fitness bandwagon. and currently represents 55% of product sold. kiwis. The average order size is $80. due to the higher ingredient costs. the business is barely making a profit and the management is unsure that they will able to pay their usual dividend this year. The selling price per pint is the same for frozen yogurt and ice cream. If the need focuses on deposits and withdrawls only. In addition. 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%.5 orders place. They have asked you to help them identify the problem. regional maker of high quality premium priced frozen desserts.61 Frozen Desserts You are consulting for a small.
9.82 can be expected to reorder within six months. (100 x 32 cents). The brand name of the product has slowly become a common household word.g. this product will be able to retain some of its premium due to the strong brand name. Solution: This is a classic customer analysis problem. these sales will return a total profit of $30. The fully allocated profit margin (excluding mailing Solution: For each 100 catalogs mailed.5 additional reorders. plus 2 x 25%.63 Chemical Sweetener Manufacturer Your client manufactures a chemical sweetener used in beverages and other food products. Information to be divulged gradually: This is the only product of its kind. Because the major two customers feature the chemical name on their product. Therefore. the client should reject the printing arrangement at 32 cents per copy. Currently. or $200 in sales. In addition. Each 100 catalogs will result in 2 orders. You have been asked to predict what might happen to the profitability of this product when the product comes off patent. While most products that come off patent quickly drop in price (e. and because the chemical represents such a small portion of their total costs. in terms of taste and safety (lack of harmful health effects) as proven in lab tests. The costs to manufacture the product are extremely low (about 20% of the price of the product).5 orders placed per 100 catalogs mailed. for a total of 2. The chemical will come off patent in one year. The largest two customers (75% of your sales) are two worldwide beverage companies. The $30 profit is not sufficient to cover the printing and mailing costs of $32. At a profit margin of fifteen percent. or . 9. pharmaceuticals). the cost of the chemical sweetener represents 1. 2. costs) on catalog orders is 15%. The companies feature the brand name of your client’s chemical on their product. they can be expected to be willing to continue to pay the premium into the future. printing and postage costs are $32. They are considering entering the market for electronic home security systems. Would you recommend that they do so? Suggested frameworks: .5% of their total costs.5 orders will result in 2.5 x 80. the outlook for the product is good even after the patent expires. the margins on this chemical are almost 40%. Therefore. and consider it a sign of quality.64 Telecommunications Diversification A Baby Bell company is interested in diversifying into other areas besides telecommunications.
to determine whether this is a business you want to be in. Interviewer Notes: The company is a holding company. then. They have previously made unsuccessful forays into software and into real estate.65 Aluminium Can Manufacturer An aluminum can manufacturer has discovered a way to improve its manufacturing process. This is is some sense a razor and razor blade sort of business.89 to $0. regional companies. Price sensitivity is unknown in “moderate-priced home” segment. It turns out that the client is the leader in its market with a 40% share and supplies directly to major beverage manufacturers. Interviewer Notes: Clearly. As a result. The number two player in the market has about 30% of the market and the rest is shared by many small competitors. determine if the core competencies of the Baby Bell are likely to match the demands of the home security markets. the client should either drop price or reap additional profits. once you feel you understand the market. such as Porter’s Five Forces. How can the manufacturer best exploit this cost advantage? Suggested frameworks: Remember basic economics. its manufacturing cost has been reduced from $0.79 cents. The home security business is highly fragmented. transmission system (phone lines) Consider: It turns out that the “expensive home” segment of this market is saturated. The top five players in the industry generate less than 4% of the total industry revenues. The conclusion is that this business is a reasonably good fit for the company. or at least to determine what kind of returns you can expect to achieve. Growth has been slow in recent years. 9. This implies that the industry largely consists of small. don’t forget to think about any substitutes for aluminum cans. Also. Consider the impact of either strategy on the company and its competitors. . The firm can either use a penetration strategy or price skimming strategy.500 Monthly Service 0-10% margin $5 / month $20 / month What strengths / competencies of the Baby Bell company are useful in this market? Installation expertise.$1. The economics are: Item Retail Price Cost / Margin Equipment and Installation $500 . finally. 10% of all residences currently own an electronic security systems.83 Use an industry attractiveness framework. but that more market research needs to be done to assess the growth and profit potential of each segment of the market. operator services. use the value chain to look at where value is added in the home security business.
The resulting growth in the aluminum can market will attract steel can manufacturers to enter it. What would your approach be? Suggested frameworks: This is and industry entry question. so profits are easier with high volume. 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. This is a scale economy business in the back-office. think about what part of the marketing mix (4 P’s) would be best for film developing.84 Aluminum cans have a lower priced substitute.S. it is best to retain prices and generate extra profits for now. thus hurting manufacturers in that market. Then.67 Concrete Manufacturer Your client. Your client’s customers are large construction firms and contractors generally in the office and commercial building construction business.) . the Southeastern U. other competitors will have to follow since this is a commodity market and not following would mean a quick demise. these new entrants could pose a future threat to our client. This makes the business tough to enter. Both companies compete in the geographical market. (Swimming pool installation firms. Since some steel can manufacturers have deep pockets and a strong backing. This company ended up establishing a “store within a store” concept with Wal-Mart. would you recommend the acquisition? Additional Information to be divulged gradually: The target firm is currently profitable. and a stable labor force. What factors should be considered? After considering these factors. The smaller firm sells mainly to other small businesses and contractors. a concrete manufacturer is considering acquiring a small local firm. At the same time. Major discout stores sell the service. steel cans. etc. He needs your advice on how to go about evaluation this idea. Interviewer Notes: Distribution chanels are the key factor in this business. 9. analyze competitive response.66 Film Processing The CEO of the largest domestic manufacturer of photo film want to enter the film developing business. In conclusion. Your client attributes its higher profit margin to economies of scale in trucking and mixing. The lowering of prices might increase the client’s market share marginally. The cost advantage may help another day during a price war. 9. Finally. look at industry attractiveness with Porter’s five forces analysis. with margins of 5%. Steel cans are used by customers who do not want to pay the premium for aluminum cans. steel can users sill start switching to aluminum cans. If the client drops prices. Your client’s margin is 15%. which have inferior printing and stamping characteristics. patio builders.
As a consultant brought in to assis them. manufacturing costs. growth of the largest customer industries. The smaller firm has strong contacts with many local customers. Solution: From a financial point of view. What issues might you examine? Suggessted Issues: Sales and cost issues: The growth of the shipping container market. Market issues: changes in the worldwide shipping market (e. The client has asked you to do an assessment of their strategy. (Acquisition price = 3 x sales. new technology in shipping containers. costs of handling the Healthcare Company Growth A large healthcare company has decided it is interested in substantially increasing the size of its operations. the acquisition would be advisable.69 Production and disposal of the insulation chemicals. customs and trade agreement trends. This analysis. or 30% of annual sales. Its goal is to double total sales and profits in less than two years. which could raise the profit level of the target firm. ignores the tax shields. 9. Interest on this amount will be 10% x 3 x sales. Your client is not able to fund the acquisition internally. the income generated by the smaller firm will not cover the capital charges (interest due to the bank) on the acquisition price. your client’s share in that market. trends in the leasing terms in the industry.g. of course. The container consists of a steel frame. Profits are only 5% of sales. and make the acquisition more attractive. and is often the preferred supplier due to their customer responsiveness.85 Additional research shows that the smaller customers for concrete are growing. The containers are leased by the company to worldwide shipping companies. Environmental Issues: chemicals. but could obtain bank financing at a rate of 10%. a steel shell and an insulation and waterproofing material that uses a hazardous chemical. 9. while the major office building construction market is stagnant. the acquisition is not attractive if there are no synergies between the firms.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. Shippers can lease the containers one-way or roundtrip. if your client were able to use some of its competitive advantages to improve the financial outlook of the target firm. customer power.) However. steel prices. Similar acquisitions generally are made for two to three times current sales of the target firm. 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? reducing prices and margins? What would be the effect on sales and profits of . With profit margins of only 5%. does the growth of an area like Southeast Asia imply many more one-way contracts than round-trip?). It is reasonable to expect that synergies would arise from economies of scale in trucking and mixing.
it turned out that only selling new products to new customers via some form of diversification could hope to achieve the company goals. and competition for suitable targets. A business can increase profits by: Increasing sales Increasing prices Decreasing costs However.e. the flexibility of delivery times and quantities. i. Will the stores prefer delivery direct from the supplier or from the warehouse? Consider the time tied up in order processing.86 What potential is there for expansion by acquisition? Do they have the financial capability? potential acquisition targets exist? Will the market for acquisitions be competitive? do Possible recommendations: Naturally. You should then consider the potential for increasing sales by means of diversification through acquisition or joint venture. This leaves only sales increases. if the company’s margins are found to be consistent with industry norms. 9. 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. particularly if the company is operating in a moderately competitive environment. The relative benefits of each will depend on financial resources as well as the existence of. each store deals directly with the vairous suppliers.e. 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. In the particular example of this case. 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. . it would seem unlikely that either increasing prices or cutting costs represent feasible methods by which to double sales & profits. 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. a suitable solution will depend upon the answers to the above questions.70 Regional Grocery Store Chain A regional chain of grocery stores currently receives its stock on a decentralized basis.
In order to refine our appraisal. She has massive amounts of historical data for sales volumes through these outlets and a well constructed internal accounting system. marginal revenues whould be set equal to marginal costs. but also that all the affected players can be persuaded to buy into it. The marginal revenue for a magazine would be its cover price times the probability that it will be sold. It should be observed immediately that to maximize profits. Furthermore. for instance) is being purchased per unit time per inhabitant of the world. 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. For you to propose going with the new method. 9.87 Possible solution: The proposed solution would depend upon your interpretation of the trade-offs both financially and organizationally for the two methods of delivery. The probability of sale. could be established in some manner from the historical data.73 Cement Manufacturer Capacity Addition . A detailed discussion of the application of these concepts from basic microeconomics and statistics may be necessary.72 Knitting Machine Demand How would you asses the world demand for knitting machines? Possible Solution: The worl demand for knitting machines basically depends on the world demand for cloth.71 Magazine Distribution A magazine publisher is trying to decide how many magazines she should deliver to each individual distribution outlet in order to maximize profits. we may segment the inhabitants of our planet per level of personal wealth. we need to know how much cloth (measured in square meters. you may need to consider other factors: 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. Note that this may not be a linear relationship. The marginal costs could be obtained from the internal accounting data. you need to establish not only that it will cost less. In order to evaluate the world demand for cloth. with an appropriate confidence interval. 9.
in Southern Portugal. about 200 miles to the north. and feel it could have more. Therefore. and transport all product directly to the customers throughout the country. it is safe to assume customers that are further away are less inclined to buy due to the increased trucking costs. but is running at 100% capacity of their one plant. and prices are set by a yearly contract with the government. location of the plant in the north may increase sales in the north by reducing delivery costs to these customers. From the data. there is also a suitable site near Porto. it makes sense to minimize distribution costs in choosing the site of the next facility. The trucks are owned by the company. Additional information to be divulged gradually: The cost structure for cement production is as follows: Raw materials Labor and allocated fixed costs Distribution Sales and overhead Pre-tax profit 28% 16% 26% 18% 12% The company’s selling prices are set by prevailing market prices in Portugal. Approximately 80% of the customers are within 100 miles of the current plant. The CEO has asked you to help him decide if they should build another plant or expand the current plant. Land is available to expand the current factory. This company currently has 45% of the market.88 You are consulting for the number-one producer of cement in Portugal. located near Lisbon. . and extra shifts are not possible. Raw materials are purchased from a government-owned company. Customers pay for trucking by the mile. The fixed cost of plant additions is roughly the same as the cost of a new plant of the same capacity. The plant is unionized. Solution: As distribution is the second-largest cost item.
Together. Lastly. though the same number of outlets are still covered by this sales force. 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. The product line of the client has not changed over this period. indicating a missed opportunity for new products in the market. Promotions usually occur at the end of each quarter.74 Snack Food Company A large salted snack food company has steadily been losing market share over that past two years. the product line has not changed in the past two years in a product category where new products and line extensions are routine.89 9. These channels are traditionally driven by periodic trade promotions. In addition. It turns out that the company went on a cost-cutting spree over the past two years. the market has been growing. Profits as a percent of sales. 9. The product is sold through the same channels as previously: large grocery chains and convenience stores. the increase in profitability has resulted from the lower costs. The largest competitors are two multinational consumer products companies that feature complete lines of snack foods. The sales force generally visits each customer at least once per quarter. but not kept pace with the market. Grocery stores and convenience stores require some type of promotion to grant valuable end of aisle displays or advertising space. however. Most of the reduction came from trade promotions. Their sales forces are regarded as the best in the industry. Also. but may not be sustainable. The changes in the marketing budget come from reduced trade promotions. which has directly led to the decrease in market share. The products are mostly sold through large grocery store chains and convenience stores. the interviewee’s conclusion should be that the client’s total dollar sales have actually grown. The marketing expenditure was also decreased. 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. these two companies have 55% of the market. The reduction in trade promotions brought about a loss of shelf space. The sales force was drastically cut and the commission scheme was reworked. Solution: The data show that the greatest change is in the sales force numbers. have been growing.75 Beverage Company Cost Structure . from a high of 20% to the current level of 18%.
The two companies sell their products side by side for essentially the same price in similar outlets internationally.77 Super Regional Bank . putting the competitor out of business and greatly reducing their own business. for which would they be lower.90 RC Cola and Coca Cola both compete in the same industry. who will have several stops within an immediate area. all bulbs would be permanent and the industry volume would greatly decrease. The lab is ready to licence this product to a light bulb manufacturer. Using Coca Cola as a benchmark. Possible solutions: One outcome is that one of the two major players purchases the technology. this player may enjoy an advantage for a limited time. as there are fewer. In the case of Coca Cola. Their cost structures are vastly different. the typical order size for RC Cola would be smaller. Distribution: would be higher for RC Cola for two reasons. If the technology is patented and exclusively licenced. RC is not distributed in as many outlets as Coca Cola. Sales Costs: could be lower for RC. the average truck driver will be driving more miles and spending more time to deliver a truckload of RC that the Coca Cola driver. Marketing: is lower for RC Cola as they are not a frequent advertiser like Coca Cola. with this filament. estimate the likely cost structure for RC Cola. meaning that more stops would have to be made. however. 9. A possible analysis. the light bulb will never burn out. There are a several small local players in various regions of the world who produce local brands and some private store brand light bulbs. 9. If the producer makes enough bulbs at a low enough cost. Over time. What will be the effect on the light bulb industry? Additional Information: The light bulb industry is dominated by two multinational producers. Also. Another solution is that all of the players obtain some version of this technology. In other words.76 Permanent Light Bulbs A small R&D lab in the Swiss Alps has developed a super-durable filament for light bulbs. all customers will eventually switch over to the permanent light bulb. making the industry more competitive and wiping out industry profits. 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. Therefore. 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. and customers would shift to the permanent light bulb. for which costs would RC Cola be higher. If that were to happen. it is conceivable that one truckload may be deliver to just one customer. but more loyal customers. thereby drying up the industry. There have been no technological innovations in light bulbs for many years. the price for this product would decline to the normal industry profit level. Administration / Overhead: lower for RC Cola as they are more of a “one-product” company than is Coca Cola.
The new Centers would offer virtually all of the services currently offered through local branches plus some additional things. While enjoying one of the bar’s finest stogies and sipping a cognac. Like most banks in its class it has branches in 8 geographically contiguous states. . the new age of electronic banking and commerce is changing all of that. Calling Centers offer both live and phone automated services that may be accessed by phone.91 You have a have recently been assigned to a project with one of the nation’s super regional banks. 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. It was a Saturday night and the weather was fair. Typically. however this type of case occurs frequently.78 Cigar Bar I was sitting in one of Chicago’s new specialty “Cigar Bars” around the end of August with a friend. I asked my friend how much he thought the bar was worth. etc. 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. There appeared to be 30 customers already there. however. what kinds of things would you investigate? and what hypothesis would you form? Possible Solution: This is a very open broad-brushed case. The bank is one of the top 10 largest retail banks in the country. 9. Your client has recently concluded that the old “local branch” way of business is no longer viable. this bank has canvassed its territory with small free-standing branches. 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. 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 . The question to you is: how would you go about setting up the engagement to determine the viability of this new concept? Specifically. There certainly is no right answer. On the back of an envelope. how would you go about determining the value of this bar? Issues to consider We arrived at the bar around 8:30pm. By 11pm the place had at least 70 customers. I would estimate the maximum capacity to be close to 100. They are considering replacing many branches with Calling Centers. Fund transfer.thus requiring less tellers? Summary: It probably is best setup as a cost benefit analysis.
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 average cost of a cigar is $8 and the average cost of a drink is $7. . The only real variable cost is the cost of goods sold. 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. In any case pick some number for the expected life (4-5 years). management. Based on a normal distribution with the average life span of 80 years. For example Target Customers The total US population is approximately 240 million. and possibly employees. You now have the annual cash flows generated from the bar. This gives you a value of: Value = CF1/1.. Costs: There are two components to costs: fixed costs and variable costs. approximately 2/3 of the population falls between 30-50 or about 160 million people.79 New Magazine 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. Possible Solution: This is an estimation case. + Cfn/(1. How long do you anticipate this bar being around? Cigar bars are a trend. liquor license. Both businesses are profitable but are not growing quickly. He want’s to start a third monthly magazine in the US targeted at 30-50 year old men (eg. Under fixed costs you might consider: rent.. 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. assume that at least 1/2 would read a magazine or 40 million.2)n 9. The bar is open Tuesday thru Sunday from 5 pm until 2 am. GQ Magazine) His stated goal is to generate circulation revenues of $10 million in the first year. There was one bar tender. He has hired you to figure out whether this is possible. The bar is located on one of Chicago’s trendier streets with a lot of foot traffic. All three were there the entire evening. Of the 80 million 30-50 year old men in the country.92 The bar sells two things: liquor and cigars. the specific anwser is not important as long as you are making reasonable assumptions. insurance. 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).2)2 + . The discount rate should be a rate representative of WACC’s of similar businesses with the same risk. The key here is to clearly define your assumptions.2 + CF2/(1. Valuation: Subtract the costs from the revenues and adjust for taxes. Approximately 1/2 are male or 80 million. Perhaps 20%. general maintenance. Possible Solution: This is a straight forward valuation. a waiter and a waitresses.
000. 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. the hospital bed division is located in the East German manufacturing operation. The hospital bed and mop bucket divisions are located in the West German manufacturing operation. A: This is a typical revenue/cost case. Similarly. Over the past two years the company’s profits have declined by 20% while revenues have been relatively flat. Further investigation shows that labor is the major component of cost in manufacturing castors. profits are down 10% for both the mop bucket and chair divisions but are down 30% for the hospital bed division.000) and 50% buy at the news stand (120. it would not make sense to launch the magazine. In this case given the CEO’s stated goal of $10 million in circulation revenues.00) assume a cover price. This would generate total revenues of $600. and 25% are to chair manufacturers. For simplicity assume that all target customers buy a magazine every month. Land is leased to . Sometimes the interviewer will provide you with an income statement that will break out the major cost components by percentage. In the past two years. Revenues Based on what other magazines sell for ($2. Lets say $3/magazine at the news stand and $2/magazine for a subscription. Finally. The logging industry in Canada is regulated by the government. Profitability Analysis 9.000 customers. lets say 50% subsrcibe (120. 9. Similarly. In this case it helps to work logically through both the fixed and variable costs to see if there are any major items. Now make some assumptions on how many customers will buy on the news stand versus subscription.81 Logging Company Background: You are hired by a Canadian logging company to analyze its current operations and provide advice on future operations. Information to be divulged slowly: The company operates in three divisions: 50% of sales are to hospital bed manufacturers. wages in the formerly state regulated East Germany have skyrocketed. this is a monthly magazine.50-$5. You have been asked to find out what is happening and suggest a course of action to reverse these trends. This is what is driving most of the increased costs. 25% are to mop bucket manufacturers.000 + $240. This comes out to $360.000 X 12 or $7.93 Share As a new magazine assume that you can generate a 5% share of the men’s magazine market in year one or 240.2 million.000 or $600. Case Type: Industry Analysis.000).80 Castor Manufacturer Q: 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 demand for hospital beds (and thus castors) in East Germany has declined as they have become more efficient at managing their health care system. We have already been told that revenues are flat which should be a clue to explore the cost side of the income statement.
individual companies by the government. The company is making a lot of money and is unsure why. 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”. commodity product and as such the company is a price-taker in the market. Lumber is a
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. Thus, all tracts of land have the same lease price per acre. The leases last for 99 years and the original lessee has the right of first renewal on the lease. • • Profit Structure: The profit equation for the lumber industry can be written as: Profit per ft^3 = Revenue per ft^3 - Non-land cost per ft^3 - Lease Cost per ft^3 Revenues: There is a revenue advantage for the company due to its product mix. Margins are higher on 2”x8” boards than on 2”x4” boards. The company’s product mix is made up of a greater percentage of 2”x8” boards than the “typical” logging company percentage. Non-land Costs: The company has a 5% cost advantage in its ”tree-to-dock” production process. There is no significant difference between the distribution costs among the industry firms. Production Process: The cost advantage is not generated by a better logging process (i.e. better equipment, 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 mineral content of the land leads to faster growth of healthier trees which improves both yield and turnover. Healthier trees are straighter and easier to cut, thus reducing costs in each phase of the logging process. These healthier, taller, straighter trees yield more 2”x8” board-feet than is typical and leads to the advantaged product mix. There are no significant economies of scale to the process.
Key Points • The company leases land with a significantly higher quality of trees. This leads to a revenue advantage because more 2”x8” board-feet can be produced per acre of land. Additionally, there is a cost advantage because the higher quality inputs make the logging process easier and increase yields and turnover. Since the leases are for 99 years and renewable, the current situation seems sustainable. Since it is unlikely that another piece of land similar to this one exists or that another firm will give up advantaged land, the situation is not replicable. Information Services Company
Background: You are hired by a library information services company that provides a computerized article search product on CD-ROM. The product allows users in a library to locate articles by keyword search. The company currently has a weak market share of only 10% of all installed units. The company wants to understand (1) why they have so small a market share, (2) what could be done to improve the situation, and (3) where it should focus its resources.
Additional Details: • • Competition: There is a single major competitor which has 50% market share. The client and two other competitors each have 10%; and the remainder is divided among many competitors. Market Segmentation: The following table outlines many of the details of the market segmentation and client product data. Client Market Share 20% 80% 13% 10% Major Competitor Market Share 60% 10% 66% 40% Search Quality, Content Content, Ease of Use Content, Ease of Use
Type of Library Academic • • Research Other
Number of Libraries 5000 500 4500 10000
Secondary Schools • 20000 ~0% 10% Price, Ease of Use
Product: The client sells a CD-ROM based product which is used on a dedicated PC in a library. The product has different versions that are upgraded each year. Each version is marketed to a specific library segment. Libraries are interested in matching the article search to hardboard volumes available within the library. The client’s product is considered to have the highest quality of article search. 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. 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, (2) Content, (3) Ease of Use, and (4) Price. The table above indicates the relative preference for these features for each market segment. There is a trade-off between ease of use and search quality. A better search requires a more skilled approach to keyword usage and often makes the search more difficult. The client’s product is considered to have the highest quality search among the competitors. Production: the product is created by programmers who seek to match the product to library volumes. Since the principal input is labor, the type of CD-ROM created can be altered relatively easily.
Key Points • The client’s product does not match the needs of the large segments of the market (i.e. 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 -products that emphasize content and ease of use over search quality.
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. Academic = 5000 x 500= $2.5M; Public = 10000 x 500 = $5.0M; Secondary = 20000 x 100 = $2.0M. Therefore, if we realign our product to emphasize ease of use and content, the potential profit is 4500 x 500 + 10000 x 500 = 7.25M ( minimum since profit in academic segment is > $500 per unit). 9.83 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. The pipeline industry sprang up as transportation costs for mineral extraction companies began to escalate. There is currently 20,000 miles of pipeline throughout the U.S. What information would you want to know about the pipeline industry that could help you plot a strategy for a pipeline company?
Additional Details: • Industry Structure: There are many pipeline competitors. 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.g. a pipeline from a port station to a near-shore refinery). There are many suppliers of common carrier pipelines. The second group (proprietary) is not regulated by the government. Products: The pipelines carry liquid and gaseous materials -- crude oil, natural gas, methane gas, liquid nitrogen, refined oil products (gasoline), and chemicals. Cost Structure: There are exceptionally high fixed costs involved in a pipeline. The variable costs are primarily the electricity to power pumping stations along the pipeline. There are different cost structures depending on the type of product being moved. Pumping crude oil along the pipeline
can cost as much as $2M/month in electricity for a station. Gaseous products require considerably less energy to move. • Market Conditions: U.S. proven reserves are diminishing and foreign imports are increasing. It is expected that for the next 5-10 years demand will be steady.
Key Points: (classic Porter analysis could be used -- This is rarely the case!!!)
Threat of Entry is low because ...
- there are high fixed costs (high initial investment) - pipeline services are essentially a commodity product (commodity markets are slow growth and unattractive)
Industry Rivalry is strong because ...
- there are many competitors and switching costs are low - industry growth is expected to be slow (i.e. market share is important) - many competitors use pipeline for in-house uses and only carry other products if capacity is underutilized - there are very high exit barriers (i.e. there is a strategic relationship between refining and piping)
Substitute Products are many as witnessed ...
- by proliferation of tanker cars and tractor trailer rigs for liquid and gaseous materials Power of Suppliers is not a significant factor.
Power of Buyers is not a significant factor because many pipelines are regulated and there are many buyers Other considerations:
- Product Mix: The margins on gaseous products is higher than heavy unrefined products. - Government Regulation: environmental Margins are greatly affected by common carrier status. regulations will cut even deeper into margins. Any future
- 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. The classic question: Is it better to make product and sell it now at low prices or wait for prices to increase (e.g. crude oil prices)? A large pipeline could be a temporary storage facility. - Operations: Maximizing profit means understanding the parameters of pumping -- costs of pumping at less than full capacity; layout of pipeline and pumping stations; products which can share the same pipeline; construction of parallel pipelines.
Market Differences: The market for crude oil is very different than the market for specialty chemicals or natural gas. the pipeline manager must aware of these rapidly changing commodity markets to maximize his profit.
Background: Your team is hired by a large U.S. automobile manufacturer (GM). They are interested in your evaluation of their $10B after-market parts business. This business can be segmented into two sets of buyers: dealers authorized to sell GM parts ($8B) and non-dealer merchandisers ($2B). This second group can be subdivided into mass merchandisers and “service” providers. Mass merchandisers are of two types -- those which specialize in auto parts (e.g. Auto Zone) and those which sell diverse products including auto parts (e.g. Sears). “Service” providers include Goodyear or Western Auto. 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?
filters. brakes. Details: • The Company: . Platform-specific Parts Types of Parts Market Characteristics Body panels. The market share loss is primarily in the premium category. strong competition. 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. midrange. GM’s ability to produce a full-range of products is also an advantage. Brand names (e.g. and premium). • • • • GM’s Position: GM may have a cost advantage due to its fully depreciated plants and excess capacity in a fixed-cost environment. Switching costs among consumers is very low. All of GM’s parts manufacturing facilities are fully depreciated and they currently have excess capacity.g.Product: The firm produces plastic-wrapped packages of sliced deli meats at all price points (generic. The deli meats carry a well-known brand label.. 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. transmissions. batteries Sold through many outlets. Industry Rivalry is important for the mass merchandiser category because margins are slim (meaning price wars are more prevalent).97 • Company Economics: There are tremendous fixed costs in the auto business (including labor). and full range of products to go after the most lucrative market -. brand names. These advantages combined with the high growth rates for the non-dealer merchandisers should motivate GM to expand it business in this segment.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. AutoLite) are important to many consumers. they are not nearly as integrated as GM and tend to focus in specific parts categories. 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. . AC Delco. hoses. Also. GM should use its cost advantage. Fram. Thus its variable costs must be below sales revenue. slim margins/very high volume $2B • • GM Sales • Growth Rates: The table below provides the basic facts about each market segment’s growth rate. 9. a manufacturer could go after a niche play if it were to develop an advantaged cost structure or superior product. However. high margins/low volume $8B Universal Parts Spark plugs. engines Sold through dealers under warranty. high turnover. The client would like an action plan for resolving the cause of this decrease. Power of Suppliers is not a significant factor because inputs are commodity raw metal and rubber. its brand names are respected and are valuable to merchandisers in maintaining margins.the mass merchandisers. Competitors: While Ford and Chrysler make parts for their own cars. Products: GM produces a full spectrum of parts classified as either platform-specific or universal. There are hundreds of small parts manufacturers which tend to focus on commodity-like auto parts (e. oil filters).
-Place (Distribution): The product is sold in grocery stores and delis. Meat in the 90-rated bin ranges from 80-95 while meat in the 70-rated bin ranges from 55-80. sometimes not.? The second option will add cost to the production process and reduce margins. 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. midrange and premium) is growing. • The Competition: There are three other competitors in the deli meat industry. Individual chunks within a bin may vary from this average. Although price decreases will garner market share.Price: Products in the premium category carry a higher price and have slightly higher margins. is the client a major buyer.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. The variability in the quality of the premium product is being driven by the variability within a 90-rated bin. and 90. Overall the market (generic. Meat is rated on a scale of 1 to 100 (100 being best). That is. The Customer: Although the customer buying premium deli meats has not changed. This was causing customers to change to the competition. The premium deli meats are made from a mix of the three bins with the majority coming from the 90-rated bin. a survey of the customers indicated a variability in the quality of the product produced by the client. The competition uses the same channels to sell its products. how much longer is the contract set to run. Each of these competitors has about 20% of the market share.98 . • Solution: • Production Process: The client receives chunk meat in bins which meet a certain average quality measurement. 70. The client is in a long-term contract with a supplier for bins at three quality ratings: 40. To reduce the variability. . 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). the client has 40% of the market share. the competitors have maintained prices during the recent loss in market share. • . The impact of the first proposal will depend on the relationship with the supplier. Sometimes the product was better than the competition.
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