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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. 188.8.131.52 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. 184.108.40.206 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. 220.127.116.11 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: 18.104.22.168 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. 22.214.171.124 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. 126.96.36.199 Litigation Consulting
These consultants work with law firms to plan case strategies, provide economic analysis, and develop courtroom tactics and/or evidentiary presentations. 188.8.131.52 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. 184.108.40.206 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:
220.127.116.11 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. 18.104.22.168 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. 22.214.171.124 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. 126.96.36.199 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
This limits their being away from family and friends only three nights per week. Other firms have a more office-intensive style that involves going to the client site only when necessary. so do not be shy about asking tough questions concerning the amount and frequency of travel and other lifestyle concerns. . These receptions are extremely low-risk. it is very hard to be rejected because of one's performance at a reception. To address concerns about raising a family. Contrary to popular belief.4 the out-of-town burden. If you have lifestyle concerns. Most of these programs only require three days of work per week. many firms have institutionalized Fridays in the office or allow consultants to work from home on Fridays. some firms have recently instituted part-time programs. the best time to ask these questions of firms is during the recruiting receptions. It is also possible to ask lifestyle questions of recent alumni or second-years that interned at the firm in question.
clients often find their cost structure uneconomic for consulting on functional activities such as logistics. Collis is an assistant professor of business administration at the Harvard Business School and faculty adviser to the Management Consulting Club. albeit in a more limited number of settings-there are five times as many external consultants as internal consultants. covers only outside consultants. consulting firms fall into this category. another quarter come from Europe. While all firms provide a variety of services.5 2 2. p. and various earlier issues. such as McKinsey. organization design. however. however. which is. often one-person. The two main dimensions of specialization are function-for example. The third important basis for segmentation in the consulting industry is degree of specialization. Approximately 100. health care. 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. The second largest specialization is compensation and benefits consulting. these firms generate over $3 billion in billings annually. and one-third employ fewer than four people. 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. dynamic industry is by no means homogeneous. the generalist consultants concentrate on higher value-added consulting for senior management.000 in annual billings.and customer group or industry.1. often serving a single client. and probably most significant. for the most part. June 1992. 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. the largest is MIS consulting. Understanding how each consulting firm specializes. 3. February 13. Instead.S. management information systems (MIS). and outsourcing have created both the supply and the demand for independent consultants. Most consulting firms are small. strictly speaking. or management education .3 Just over half of these consultants come from the United States. financial services. Although these firms are ostensibly full-line consultants. while an estimated three-quarters of all consultants work in firms employing more than 100 professionals. operations: half of all consulting firms generate less than $500. The other functional or industry specialists in consulting tend to be small. most consulting firms generate the majority of their revenue from one type of work. or government. downsizing. If the typical consulting firm is small. Data estimates are from Consultants News. many of these small shops exist. Of these specializations. In the United States alone.000 people worldwide work full-time in the management consulting industry. reflecting their origins as one-person shops run by an executive with a particular skill or industry knowledge. for example. many large corporations have their own internal consulting arms. and ensuring that it matches your interests. Transfers at junior levels are common. 7. 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. While management consulting fluctuates with the business cycle. Corporate policies of early retirement. Such a large. 1988. usually affiliated with a planning department. Professor Collis has extensive experience with consulting firms. However.4 Internal consulting can be an attractive option. since they lack both the breadth of clients and depth of support of the big firms. This skewed size distribution reflects the low barriers to entry to this industry: anyone can hang out a shingle bearing the title "Consultant. such as BCG and Bain. 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. Collis David J. logistics. the industry has nevertheless grown more than twice as fast as GNP for the last decade. with annual billings exceeding $1. while enjoying a more direct career path into line management. This area includes the generalist management consultants. and their newer first cousins. Internal consultants perform essentially the same functions as external consultants.1 Segmentation The first.2 generating about $25 billion in annual revenues.5 billion. the strategy consultants. is therefore a vital first step in considering which firms to approach for a position.1 Consulting Articles The Management Consulting Industry By David J. A second and often overlooked distinction in consulting is between in-house and external consultants. Vol. Four of the top twelve U. and. way to segment the consulting industry is to compare large and small firms. While the industry definition. veteran consultants often end their careers in their own consulting firms. Contrary to the prevailing belief. . 2 3 4 Economist survey. Booz Allen. but most of the 20% annual rate of turnover among consultants is not due to consultants being hired by clients. 2." and many former executives do just that. In third place as a specialization is management/strategy consulting. Summer 1984. Whether these firms are attractive starting points for new consultants is debatable. Journal of Management Consulting.
If an accounting firm can leverage its audit relationship into MIS consulting. so they can be responsive to local needs. usually not the purchaser of strategy consulting. and yet leverages the audit relationship into consulting work. cover more tasks in the future as firms reconsider the costs of all their internal functions. few acquisitions of one strategy consulting firm by another. Most firms now have offices or affiliations outside their home country. Other industry trends are the acquisitions by outsiders of consulting firms and the move toward broad scope consulting firms. This implies that working for an international consulting firm will not necessarily allow you to work overseas. diversified client base. All firms in all categories of consulting recognize that their role must involve effecting change in the client organization. for example. for example. 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. Hewitt Associates. Saatchi & Saatchi is the most obvious example of the failure of an outsider to build a broad scope consulting business. these reputations are usually more a reflection of marketing than of a fundamentally different approach to consulting. but even those companies like Mercer. In fact. about 20% of a consulting firm's costs lie in acquiring clients. 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. one firm.6 The consulting industry no longer draws a distinction between formulation and implementation. It has been estimated that only a third of a consultant's business comes from repeat clients. Among the world's top twenty consultants. Similarly. is won in competitive bids against comparable consulting firms. 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. For the potential consultant. 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. Citibank tried and exited consulting. and from the competitive advantages of larger firms-reputation. under which single ownership provides a variety of consulting specialties. Although it is true that these acquisitions are occurring. while new business. However. which are still operating successfully. even those firms with extensive overseas networks tend to have independent offices. and only I% of consulting firms are more than fifty years old. The rationale for hiring consultants-to access the specific expertise needed to quickly solve a current problem-will remain and will. While a few firms are able to break through the mid-size plateau to become recognized large players . There have been. Unfortunately. 2.1. Some specialists in "change management" exist. In considering a career in consulting. maintains a wall between consulting and auditing. The purchaser of the audit . The issue really relates to the clients' decision-making process. 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). When the publicity for a firm surrounds a particular solution to a general problem. particularly in the junior positions. and broader geographic base. such as BCG and the experience curve in the 1970s. partly because the problems resulting from merging cultures cause the firms' major asset-people-to leave. this expense could be substantially reduced. it is usually not representative of a profound difference in the type of work the firm undertakes. "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.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.is. most of the broad scope firms are essentially umbrella-holding companies for a set of independent specialists having little interaction with one another. does only 7% of its work outside the United States. for example. or if a strategy consulting report can recommend hiring the sister benefits consulting firm for the follow-on organization study.the CFO or controller . would not be dissimilar to working at Monitor or at Braxton when each was independent. like time-based competition for strategy. I would therefore suggest that the ultimate ownership of the firm you might work for is not of great importance. As a result.2 Trends Management consulting will continue to grow. compared with McKinsey's 60% and the U. predicting which corporate activities will be outsourced could give you a head start in identifying the next growth specialty in consulting. although some firms may be known for a particular technique tool. but even they would like to be involved in developing the direction of change. and differences between them are now of degree. the success of broad scope consulting firms and of outside ownership remains doubtful. have yet to demonstrate the value of broad scope. firm did 94%. if anything. . their impact on your daily activities. not of substance. increasingly. for example.K. more cyclically than in the past. will be relatively limited. As a result. One reason is the difficulty inherent in merging cultures. but still faster than GNP. The industry will also continue to move to an hourglass shape: increasingly. This structure results both from the ease of entry for newcomers. particularly in marketing. and the accounting firms are still struggling to establish a relationship with their consulting arms that peaceably compensates consultants more than auditors. The rationale for these acquisitions lies in the economies of scope that a broad line competitor can exploit. but the extent of non-domestic business varies substantially. A last distinction among consulting firms is their degree of internationalization. Working at Braxton (now owned by Deloitte & Touche).
While preparing materials and attending recruiting briefings and career fairs will be helpful.S. In practical terms this will mean that consultants will have to be less formulaic than in the past. and it will be crucial in preparing for interviews. 2. market. consulting will have to become an even more exciting. and effective recruiting will by necessity require significant focus. Instead. 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. To meet these sort of demands. not simply from their possession of a particular technology. The value provided by consulting firms will have to come from their ability to apply concepts and to customize them for particular client needs.1 Why consulting? Perhaps the first and most important step in first-year recruiting is deciding what type of summer position is right for you. and Asia is undeveloped both as a market for and a source of consultants.S. As consulting firms increase their geographic scope. it is doubly true for management consultants. 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. challenging. based on your interests and long-term career plans. Another valuable resource not to be overlooked is your . To serve the increasing global needs of clients effectively. the good news is that to truly meet client demands for value for money.2. Once you decide that pursuing a job in the consulting field is a productive way for you to spend your recruiting effort. global competition is likely to increase. you must be prepared to learn a foreign language and to travel overseas. This network can be created by establishing alliances with overseas affiliates but is now more often achieved by setting up foreign offices. 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.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.7 There is. one could argue that management consulting has replaced it as the most sought-after business profession in the 1990s. who must be leaders in the development of skills if they are to continue to provide value to clients.2. Your time and energy will be limited. 2. An effective job search will require you to assemble a considerable amount of information about each for the firms. each with its own selection criteria. Twenty years from now there will be far more interaction among geographic markets and. who will give you a more detailed and realistic understanding of the firms' focuses and values. which will be useful in two ways: this information will assist you in determining which firms you would be interested in working for. 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. repetitive tasks more cost effectively. one partner supports eleven consultants-as the number of very senior and very junior employee swells. 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. 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. more capable of understanding the manager's role. As competitiveness for summer positions in consulting has intensified. to match the globalization of clients in the future. and more versed in people skills than the functional expert of the past. Harvard Business School If investment banking was the career of choice in the 1980s. These senior consultants will be supported by junior "para-consultants" who can perform the mechanistic. and ultimately rewarding career than ever before. However. As a result. I suspect. firms dominate the U. Otherwise. any large consulting firm today needs a global network of offices. No longer will a 24-year-old MBA be able to add value simply by applying a concept the client has not seen before. your focus will shift to the most critical step: getting an offer. 2. it is likely that the employee profile of consulting firms will alter somewhat.2 Reflections on First-Year Recruiting By Phil Collins Class of 1993. As future management consultants. a larger Asian presence. Finally. This will require a more experienced consultant. you should also take advantage of any opportunity to learn about the firms from the consultants themselves. Most foreign offices are currently operated with a great deal of autonomy. European firms the European market. both to serve your clients effectively and to learn from best practice in other countries. consulting firms are themselves likely to further integrate their worldwide operations. however one industry trend that will affect you: globalization. Although this prescription is true for all executives. Thus the pyramid structure inside consulting firms will change-on average in the large firms. Today. obtaining summer positions in the consulting industry has become increasingly competitive. consulting firms will work more closely with client management in defining and analyzing problems and in formulating and implementing solutions. U.
Be yourself and be honest. and move on with enthusiasm to the next interview. Firms will inevitably ask you at the end of the interview if you have any questions. Ask insightful questions.2. 4.8 classmates who worked at particular firms before business school or who went through summer consulting programs with firms. and it is important to understand how each firm differentiates itself Consider the following issues: • Type of work: Does the firm specialize along functional. 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. Viewed in this way. 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. and how does it support the professional development of its consultants? 2. and you should schedule your interviews accordingly. most firms are looking for the same kind of people: smart. While understanding the characteristics of each firm will be helpful. Generally. 3. For most firms. or where you would not enjoy the type of work being done.2. firms differ along a few important dimensions. traits often demonstrated by a record of past achievement. While it is important to be at your best in framing and communicating your skills. but instead are trying to understand how you think and how you . 5. 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. 2. 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. other than knowing why you. Look carefully at your resume and identify your weak spots. Understand what consulting firms are looking for. There are no experience prerequisites for getting a summer job in consulting. There is a learning curve in this process. Experience will allow you to become more relaxed. Consulting firms hire people from a wide variety of backgrounds. Firms use cases to evaluate your analytic abilities and problem-solving skills. consulting firms are also looking for people who are energetic and have an appetite for new challenges. What are the one or two questions that you hope they will not ask? They will. that you are successful working in teams. successful candidates must communicate their unique strengths clearly and convincingly. While they are clearly a crucial element in evaluating prospective employees. You should have. and provides an opportunity to showcase your knowledge and skills. Frame your skills and experience in terms of how you can add value to the firm and its clients. so prepare clear and convincing answers. creative problem solvers whose interpersonal skills will allow them to work well in a team environment. but a major career change may require some explanation. Preparing for the case interview 2.3 Nothing causes more anxiety in first-year students trying to land a summer job in consulting than the prospect of interview cases. Understand clearly why you want a job in consulting. Identify your weaknesses. they are not nearly as frightening as one might expect. want it and being able to clearly communicate your conviction. Good questions are firm-specific and thoughtful. Be grateful that you figured this out early. Here are some tips: 1. Given the nature of the work. confident and convincing. interviews and cases will make or break your candidacy.2. it is also important to be honest and to be yourself. Getting a job at a firm full of people with whom you would not get along. Given that most students at top business schools possess all of these requirements to some degree. 6. or does it attempt to be strong across a number of areas? What kinds of problems has the firm worked on before. Provide concrete examples from your previous experience which demonstrate that you have been a creative problem solver. the case interview can become considerably less daunting. and will therefore be ready to begin pursuing a summer position in earnest. A good case interview is no more than a discussion about an interesting and challenging business problem. and that you have demonstrated leadership abilities. is not in the best interest of either you or the firm.1 Getting an offer Once you have a good understanding of the various consulting firms. you should be able to identify those in which you have a sincere interest. and do these engagements sound interesting? Focus on implementation: After developing a set of recommendations. Save the best interview for last. Keep in mind that they are not looking for a "correct" answer. 7.
Adapt your analysis to the problem. the interviewer will often interrupt you and provide additional data. Most often. the recruiters speak the truth. For many. Think causally and logically. Given an understanding of the key issues. If you make assumptions. The bottom line is that case interviews have been designed so that you cannot study for them.2. We extend more offers for permanent positions. If you are on the wrong track. I suggest keeping the following points in mind: 1. and what impact have they had? Develop a clear and logical chain of reasoning and understand the linkages between key elements of the problem. it can also be a challenging. . 8. In addition. 6. and decision making. 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. Ask questions. While a consulting job search will require a great deal of time and effort. Some cases are long and complex.9 approach problems. Keep in mind that each firm approaches cases in a different way. the cases will require integration of knowledge of a number of subjects and functional areas. The resounding line eloquently uttered by every recruiter that becomes particularly meaningful as the second-year process draws near is. You may be handed pages of data and asked for your impressions. brush up on your microeconomics. what opportunities does the client have to take actions that will improve their performance? 3. One good way to do this is to practice a few mock cases with another student. while others may be much shorter or less quantitative. 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. while other firms will deliberately ask you about industries with which you are unfamiliar. This often helps you to concentrate on the problem-solving aspect of the case. and you will gain a broader understanding of the different firms and of consulting as a career. 4. or you may have a situation described to you in a qualitative way. Try to determine what is critical.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. Stay calm. causes. encompassing a number of issues and presenting a lot of data. and then concentrate on ways of enhancing and demonstrating your problem solving skills. Overall. prefabricated and inflexible analytical framework. head-spinning whirlwind of back-to-back meetings. Develop a framework for approaching the problem. School career centers/placement offices offer a variety of tools. so feel free to take notes during the case portion of the interview.2. 2. Listen carefully and take time to think clearly about the problem before formulating a response. Some cases might require microeconomic analysis. 7. the process of pursuing a permanent position can be broken down into three broad components: investigating consulting firms. and approach them in a logical way rather than generating random thoughts. 2. so your chances of receiving an offer second year increase. Harvard Business School First-year interviewing for summer jobs in management consulting can be characterized as an exciting. Review the major frameworks developed in first-year courses. Take notes. you will be challenged to think on your feet to work through complex business problems. You will meet a wide variety of intelligent and interesting people. rewarding. This is an important distinction with implications for how you should respond to case situations. Each problem is unique and will require a unique approach. recruiting. 5. 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. and develop hypotheses to explain what is driving the important issues. the process consists of five or so days crammed with as many as 20 interviews. state them clearly. and even fun experience. so don't bother. and develop a framework that is appropriate. What are the underlying causes of the case situation. 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. Identify the most important issues in the case up front. 2.4 Second-Year Recruiting: Looking for the Long-Term By Jim McManus: Class of 1990." Fortunately. Be flexible. as opposed to what is merely interesting. and linkages. Drive to action. while others may rely on knowledge of first-year marketing. The last thing you should have to worry about is remembering case facts and numbers. This is especially important because it is difficult to recover from a hasty start. "Don't be discouraged if things don't work out for the summer. whether you are successful or unsuccessful.
performance evaluations. Given the variables of personality. office location.10 including career counseling services. The focus of your information search will also differ in the second year. When interviewing with consulting firms for summer positions. Some schools have very strict schedules. Though every firm will highlight the collaborative nature of its client relationships.) If you are particularly attracted to a certain firm but have not been invited to attend their fall functions. Though the information available through formal school channels provides valuable background on particular consulting firms. are classmates and friends. the second-year recruit's most important resource. 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. seek the perspectives of many people who have experience at that firm. and an otherwise great project can quickly become a negative experience if you do not get along well with the other team members. and functional specializations. both in the office and traveling. In terms of their consulting work. many firms invite students to information sessions and dinners throughout the fall to introduce prospective candidates to the firms' people and practices. (As a practical matter. 2. take the initiative to call one of their recruiting coordinators to express an interest in attending. You certainly have nothing to lose! Arrangements for interviews differ by school and by firm.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. while others are more relaxed. and assistance in outplacement. What is the firm's long-term strategy. You may find it helpful to evaluate consulting firms on three broad criteria: 1) the nature of the work they do. lifestyle preference. so it is a good idea to understanding detail your school's policies at the start of the second year. compensation should be just one of many criteria you use in deciding which firms to pursue. revenue. which will help you to differentiate between the many opportunities you are likely to have. nitty-gritty details of what life is really like at Firm X or Y.2. Although the high starting salaries in consulting are undoubtedly attractive. you are sure to pick up important new insights with each informal conversation with classmates. strategy. In assessing the characteristics of each firm. dress codes tend to be casual for on-campus presentations and professional for off-campus events. 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. 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. In addition. by far. you should get a feel for other important attributes of each firm. interview skills and resume workshops. one of the most critical attributes to consider is the culture of the firm. 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. Besides understanding the firm's personality and values. 2) the characteristics and cultures of the firms. you should consider the size and stability of the firm's client base and its vulnerability to a downturn. 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. Second. Depending on the firm. and how well positioned is it to achieve that strategy? As a prospective candidate. many consulting firms have "open schedules" that allow you to arrange an on-campus interview directly through your school's career services office. and weigh these factors against your particular preferences. Issues such as the size of a typical case team and the role of the new consultant on a team should be considered. the best advice here is to know the policies of recruiters and of your school and to work within those policies. If you are particularly attracted to a certain firm. Spend some time early in the process getting familiar with the workings of your career center. This is also important when looking into various office alternatives within a firm. industry focus. The "details" that you were willing to live without for an 8. these discussions will provide you with the most pertinent. including the availability of international opportunities and the number (and size) of offices. promotion. 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. and 3) the nature of the career opportunities offered. These "informal" get-togethers give students the opportunity to evaluate firms before getting into the more time-intensive interview process. as reflected by its employees. especially given our high debt levels. .generation or cost focus. you may need to send a cover letter requesting an interview. firms (and even different offices within the same firm) differ markedly in their degree of emphasis on the following dimensions: implementation vs.to 10-week summer will become critical second year.year recruiting is for the longer term. Again. Though the interview season does not officially begin until later in the school year. However. with less emphasis placed on such "details" as location. and the nature of the projects worked on. and company-specific literature that enable us to build a knowledge base on potential employers in a matter of days. When you are planning your post-graduation career. lifestyle and culture. the primary goal of most first-years is simply to land a job at the firm of choice. compensation.
Unlike the first-year schedule. However. and employees very rarely get kicked out unexpectedly. frequent feedback allows employees to judge their own position within the firm accurately. Many firms have excellent out-placement services.2. If other variables are relatively equal. a traditional career path might be to start fairly low down in the organization and to work one's way up the corporate ladder. the policy ensures that the environment will be dynamic and that the organization will provide a constant stream of new and challenging opportunities. 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. it is still true that. either because they decide consulting is not for them or because another tremendously exciting opportunity presents itself to them. usually administered unofficially through contacts with alumni. Professor Collis's article provides more detailed advice about how to make choices between firms. In most firms that have such a policy. When going through case interviews. 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. In industry. and such consideration is not likely to be forgotten by employees. and who are not able to do so because of the up-or-out policy is actually quite small. being considerate throughout the recruiting process can only enhance your image in the eyes of the recruiting firm. the policy is very sensitively administered. Furthermore. the time frame can often be shorter. the second-year process takes place over a period of several weeks rather than several days. recruiters are under pressure to firm the size of the incoming class in a reasonable period of time. Rather. with the final rounds taking place at the firms' offices. in industry generally. Most people who leave consulting firms do so of their own will. and many companies employ so-called "up-or-out" policies. such a policy makes a lot of sense. In consulting.to three-year time frame. step by step. Receipt of an offer does not allow you to extend your job search indefinitely. but the real fun begins if you have the good fortune of having to decide between two or more firms of similar caliber. From the firm's point of view. the second-year interviewing normally consists of three or four rounds of interviews. refer to the selection criteria you established at the outset of the entire recruiting process. the use of cases varies widely from firm to firm and even from interviewer to interviewer within the same firm. as it allows fresh ideas to be constantly brought into the firm by new recruits. the commitment to the firm and time scale of your progress is still fairly long term. From the employee's point of view. Promotion decisions tend to be made in the two. you are going to find it very hard to avoid canceling your plans and going to Timbuktu! My advice about lifestyle is. 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. then. after all. you may find that the opportunities presented to you by the firm diminish somewhat rapidly! Although an up-or-out policy may at first sound rather brutal. in practice it is not always so. and moving out is not considered failure by any stretch of the imagination. and an up-or-out is one way in which a firm ensures its ability to regenerate itself. Though increasingly. The survival of a professional service firm is quite dependent on its ability to remain at the forefront of its field. paying particularly close attention to what the junior people are saying. and the long-term career opportunities. who feel they are at the right firm. there are firms that have job rotation schemes and fast tracks to allow them to identify and promote their best people quickly. the number of people who want to continue in consulting. . If you do receive offers from more than one firm. and if you happen to have plans that evening.2. however.8 Career Paths Career paths in consulting and industry differ considerably.11 Like the first-year process. These policies require that you develop certain skills within a defined time frame in order to be allowed to continue with the organization. it is a pretty good idea to review the various strategy frameworks before beginning the interview season. Make sure that you have met and are comfortable with enough people at all tenure levels of the organization. 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. remember one important word of advice-relax! 2. Although a case should be expected in most interviews. 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. the characteristics of the firms. If you are unable to develop these skills. Since many consulting companies give strategy cases. 2. In general. you should be aware that in almost any consulting firm. In practice.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 issue that should weigh most heavily in the decision should be the people with whom you will be working.
effective recruiting machines. then. Whatever decision you come to. 2. and have fun! 2. who was being recruited by a major manufacturing firm. Even some large traditional Midwest manufacturing corporations are responding to increasing competitive pressures by becoming more aggressive in recruiting bright young management talent.12 As a potential employee. specialists apply specialized process and functional knowledge to real organizations with real problems. To say nothing of long-term personal happiness. consulting companies tend on the whole to have very well-oiled. challenging experience. will continue to experience meteoric growth. if you really do want to work in industry. But is consulting really the right field for you? And. Another classmate of mine. It's absolutely vital that you not let this happen. you will have to spend more time and effort searching out the best opportunities. sales force automation. Generalist firms include well-known names such as Bain & Company. Coopers and Lybrand. 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. you should inquire about the consulting firm's promotion policies. I understand why! Work in consulting is stimulating and the pay can be excellent. I recommend that you commit to an ongoing and serious process of introspection and skill inventorying before marching into your next job interview. and in each individual situation there will be many other personal factors involved. BCG. making a difference in a career that you enjoy is an important part of life. Booz Alien & Hamilton. are some of the issues involved in making the consulting versus industry decision. and if remuneration is particularly important to you (and there is every reason that it should be. The more convincingly and honestly you can answer questions about why you are across the table from the interviewer. After all. consulting firms were very much the leaders in MBA remuneration. if so. McKinsey. found that when she asked about the possibility of a signing bonus.3 Is Consulting the Right Field for You? By Tim Opler Consulting is hot! Salaries are up.2. Not surprisingly. she received a blank look and the reply. how should you conduct your job search? A careful examination of your own skills. 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. often with significant signing bonuses or tuition relief. And. offers have been continuing to increase (several firms are offering packages well into six figure territory after a few investment banks upped their ante). you should not rule out a career in industry. meaner and more efficiently. you can be assured of an exciting. values and interests is an excellent idea. some of the Big Six accounting firms have made tremendous inroads into the strategy consulting business. high technology companies are increasingly recognizing the value that MBA students can add within their firms. like Andersen Consulting. we are all "mini-LBOs" by the time we finish our MBAs). too. cheaper. deans and administrators are scrambling to ensure that their MBA programs offer the right type of courses for prospective consultants. for example. However. Without doubt. some industry salaries are rapidly approaching those offered by consulting firms. Mercer and Monitor plus a growing list of mid-sized consultancies and smaller boutiques. This is technical stuff that offers strong productivity improvements to countless businesses in areas like client/server.9 Remuneration Until relatively recently. Speaking of generalist. These. At the same time. It's great work that offers clear value to many organizations. the hottest area in consulting today is informational technology. More people work for Andersen today than do for the top five generalist firms combined. today. This can often be a difficult subject to raise. "What's that?" It is by no means all industrial firms that are approaching remuneration parity with consulting firms! Moreover. 2. better. It's very easy to see the time you're planning to spend exploring careers get taken up with other more immediate priorities. its why the big IT consulting shops. the other option available is to work for a firm which provides a wide variety of advice designed to make enterprises run faster. many of you are giving management consulting a hard look. At the same time. As of December 1996. Certainly. so getting a high-paying job tends to be less work for the recruit. Small. These placement numbers have caught many business schools by surprise and. CICS/VBASIC/UNIX.000 per year. While it is still true that on average most larger firms in industry pay less than most consulting firms. Good luck.3. Generalist or specialist. has a very high quality strategic . And more MBA students have entered the field within the last few years than any other area. It is a tough choice.1 The Options There are basically two career options in consulting. the better you will do. particularly given the wide range of available career options. given that in the words of a classmate of mine. the number of exceptions to this particular rule is increasing every year. Salary offers at top MBA schools in 1996 for consultants averaged $80. even if your objective is to pay back your MBA debt in as few years as possible. In this process.
whether you want to fit in. over 300. of course. humor. lasting partnerships with a number of clients through repeated contact and hard work. a seasoned ex-McKinsey consultant put it this way: "It is only through personal excellence that this profession becomes truly enjoyable. Given the scope and size of this career opportunity. it can be easy to get into the profession for the wrong reason. to being interviewed.13 consulting unit and is managing to attract some of the very brightest students from institutions like NYU and Wharton. and tend to set the pace for their teams. consulting firms are nothing more than repositories of pure human capital. You can't smell it. The product is an idea.. an insight. I have observed that unfriendly clients become attentive when listening to people of excellence because their contribution is unique. whether it be by charm. many undergraduate students enter consulting. of course.g. You can't drive it. often in two or three year programs which are expected to be followed by a stint at business school. A good consultant has to be a great thinker with a passion for ideas. For that matter. It's a field where the gregarious do well with their teammates and their clients. law. a case question and questions about your past behavior (the much dreaded behavioral interview approach). Your ability to serve clients will determine your success and the prospects of your employer. This means that their most important asset has to be the ability to generate relevant ideas through rigorous thinking and careful research. another quarter come from Europe. However you accomplish this. not the reverse. the individual needs to excel and generate his or her own marketability.. Those who demonstrate superior skills gain personal control early in their careers. You need to enjoy problem -diagnosis. public administration. of course. These relationships are what can make the long hours. Firms may hire you opportunistically. But advancing and leading may be a different matter altogether. problem-framing and problem-solving. but excelling along other dimensions (e. If you find yourself struggling with the academic-side of business school. Over the years.. knowing that they you can generate more value for them than you are being paid. In a recent letter published by Mitchell Madison Group. The most rapid growth is currently being seen in developing economies such as Brazil and Indonesia. consulting is a service profession and most firms screen carefully for commitment to others and ability to excel in meeting client needs. Consultants who enjoy talking to people do well. There are. This intellectual focus of consulting is clearly important in deciding whether you would do well in the field. getting stuck on cases. This isn't to say that you must be the ultimate extrovert. a suggestion. I guess sheepskin is sheepskin. Not because he didn't cherish his spouse and family. These individuals are in such demand that. in particular. With all of the money being thrown around by the consulting firms these days. I would add that firms aren't nearly as pedigree-sensitive as some seem to think. at any point in time.. a way of thinking. You may very well get a job offer anyway. The financial rewards become window dressing and the high of the experience becomes the drug of first choice. Those who achieve excellence feel great about themselves and are more likely to find the consulting experience a path to fulfillment. But the bottom line is that firms are screening for skills that match their needs. the MBA degree itself need not be necessary. 2. understand and . 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. human interaction or entrepreneurialism) you probably should not be a consultant. listening or hard-work. And.g. McKinsey. 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.3. While intangible. You can't eat what a consulting firm makes. engineering. After all is said and done. A number of firms are hiring persons with other degree backgrounds (e. As a consultant you will always be working to help others. Pedigree can neither guarantee one success nor condemn one to failure. for that matter.2 The Skills in Demand Consulting firm interviews typically involve a combination of general background questions. Ultimately. PhDs and the like. Skill #2: A Passion for Client Service. generating more than $30 billion in annual revenues. the partners and their teammates. Through their intellectual leadership they gain respect from the clients. many different approaches to interviewing and. but you do have to connect. Skill #1: A Passion for Ideas. It is vitally important that you make every effort to understand what these skills are before you step into the interview room. Hence the frenzy to hire the best and the brightest of America's business schools. Just over half of these consultants come from the United States. A consultant once told me that some of the most fulfilling relationships of his life were with clients. They typically become engagement managers sooner. a personal commitment to excel in meeting the needs of your clients is vital to enjoying the profession. stressful travel and corporate frustrations encountered by consultants worthwhile. Common skills on interviewer check lists include. it's vital that you enjoy.000 people work full-time in the management consulting industry. disliking writing. And. has recently been aggressive in its pursuit of attorneys. but instead because he had built life-long. You need to be the type that does well in school and likes it. In all. they have numerous options to choose from. Let's start by asking what skills are in demand among consulting organizations. medicine). The result is that the institution needs the individual. In a business world where institutional loyalty is rare. it is well-worth asking where you might fit into the industry." Skill #3: A Passion for People.
the work and the life. there is no good substitute for meeting someone. "I'll be in New York (or wherever) next week and would love to ask you a few questions over breakfast. Consulting firm interviewers are looking for people that they'd like to work with themselves. . keep trying. is to call the office in the evening. Face Time: Ultimately. Networking: The key to landing a consulting position is to network. It really helps to have others batting for you and educating you about the profession. 2. ask for a meeting. friendly and very interested in the person you are calling on. logical thinking skills. all the big firms show up and will talk to you. but it's almost always worth it. the ability to work quickly in spreadsheets. Or. 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. A dirty. hustling and working hard in the job search process. It is very helpful to know the histories of the various firms." More likely. Most students who land positions in the consulting profession do so by scrambling. You pick them and they pick you. willingness to travel and facility with languages. You want to call a consultant and let them know that you are a student with a specific interest in their work or firm. solid schooling. ask for voice mail and leave a voice mail introducing yourself and explaining why you are calling. This may be costly. tolerance for absolutely abusive hours. many networking phone calls end up with one of two negative outcomes: (1) "the person is not available". The screening process. you will need to visit people at the firms that interest you. If you go to school outside of a major metropolitan area. Smart. But this practice is the exception. Head of MBA Career Services. not the rule. If you are on the job market now. Instead of being pushy or hanging up. One of the most helpful things you can do is to get personally acquainted with consultants at firms that interest you. Not bad since a consultant has to be a natural networker. Other characteristics in demand including understanding of specific business issues. let's assume that you don't yet have offers from the three firms that you truly want to work for." If your contact is not available. There are lots of good ways to network. Most people will be willing to help you if you give them the chance.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. Now. superb IT skills. "Can I send you my resume?" "What are you looking for?" You might ask a series of questions about the pros and cons of the firm. This is a great opportunity to get a conversation started. can vary widely and many firms are looking for a unique traits. you might ask for help with an upcoming interview. polite. The Resume: The resume is a necessary evil in your job search. be direct and ask for help with your job search. If you indicate in an interview that you already know someone at a firm your chances of landing a position will go up dramatically. I have listed a number of resources that might be helpful in this regard. It's only human. Better yet. The best way to get acquainted is over the telephone. 2. You can overcome the "intimidation factor" by practicing this technique with a colleague or your friendly career services director. it's vital to have access to current contact information and to be able to locate the firms.3. or (2) "sorry but we are not looking. Moreover.3." Unfortunately. it's an odd admixture in demand at the consulting firms. The firms are typically tolerant of "career changers" but will be looking for you to provide a coherent story about why you are changing. 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. of course. 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.14 communicate with clients. Anne Harris. If you don't hear back. On a more practical level. networking in the profession and getting "face time". personal appearance. you will need to strike out on your own. engineering or finance) and a track record of successful experience. At some institutions. likable people who are good at helping others. enthusiasm and skill. even if only for ten minutes or so. Consulting firms are looking for organized resumes that convey the skills they are looking for. What then is your next step? This all depends on where you are going to school. It's important to be sincere. It's not particularly important to worry about font choice and paragraph formatting. Making The Phone Call: The networking phone call is the single most valuable weapon in your job search arsenal. 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. 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. a tolerance for ambiguity. Not necessarily a natural combination of abilities you might say.g. It's not as hard as many seem to think. but effective trick. Below. A good interviewer is looking for experience. some relevant functional expertise (e.4 Recommended Resources A big part of getting started on a consulting career is to survey the profession. It's human nature to favor those whom we know and like in the hiring process. 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. writing skills. So. the values that they hold and the practices they are in. alternatively.
Available from Harvard Business School Publishing. 03447. Fitzwilliam. Detroit. (800) 877-GALE Consultants News. Fitzwilliam.15 Ace Your Case! The Essential Management Consulting Case Workbook. N.95. 03447. H. Finding the Right Job and Landing It! Convergence Multimedia and Harvard Business School Publishing. Management Consulting: Exploring the Field. From Wet Feet Press at 1-800-926-4JOB (349 Liberty Street. hbsp. N. Also try their web site at http://www. CA 94114-2953). MI. edu.//www. harvard. Gale Research. So You Want to be a Management Consultant. On CD-ROM. San Francisco. 603 585-9555. Harvard Business School Career Guide: Management Consulting 1997. Available from the Consultants Bookstore at 1-800-531-0007 or 1-603-585-2200. Directory of Management Consultants. Templeton Road. From Wet Feet Press at 1-800-926-4JOB or 1-415-826-1750 (349 Liberty Street. Try their web site at http. Templeton Road. Kennedy Publications. . CA 94114-2953). San Francisco. Available from the Consultants Bookstore at 1-800-531-0007 or fax.weffeet.com. H. Cost $39. Kennedy Publications. 1996. Consultants and Consulting Organizations Directory. 1997.
2 3.3 4.1 The time spent structuring the problem should average about five minutes.1 1.1. develop hypotheses.4 Problem solving skills Personal impact Leadership Drive / Aspirations 4 What are consulting companies looking for in a case answer? 4.2 4.1 3. logical reasoning Curious. ask for relevant facts.4 5 Both are important.1. Go over the framework at a high level with the interviewer and then plunge into one area at a time.1 4. Analysis . Use interim conclusions to sum up a section of analysis before moving on to another area.2 Clear.3 5.1.1 4. Writing a paper is a good analogy to solving a case.1 4.1. 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. A good approach: 5.how you structure the case and go through the analysis. 7 . Put it all together: try to answer the overall question 6 During the case.how you think and solve problems 4.5 4.2 1. Remember that you are trying to lead the interviewer through your problem solving approach.3.4 4.1.3 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. Suggested time allocation for a 20-25 minute interview is as follows: 7.3 3.1 5.enables one to organize the data presented Pick one branch to probe. What are consulting companies looking for in a candidate? 3. probe further Pick the second branch .2 5.1 Ability to think through problems: 4.2.2 Mechanics . creating a framework to solve the case.5 5.4 5.6 5. if necessary Structure the problem.1. In a paper. you want to communicate explicitly what you want to do with the case.3. you first order your thoughts in an outline..2.6 4. possibly with a logic tree . Time management during the interview is the interviewee’s responsibility..2 Effective communicator Tolerance for ambiguity 4.7 Listen to introduction carefully Carefully think through the problem at hand Ask one or two clarifying questions. but will vary depending on the topic and your level of comfort with the issue. the basis of consulting.16 3 1 Overview of Cases A case is: 1. This is akin to creating an outline before writing a paper.3 There are two parts to a case: 4. defend/refine hypotheses.
2 7. always provide reasons for the conclusion you are presenting. The key to using assumptions are: 8. Try to state your assumptions up-front.1 Plan to spend at least three minutes thinking about the problem and framing the top-level issues/questions that will need to be answered during the course of the analysis. both during the analysis and the conclusion. The interviewer is not a mind reader. prioritizing them and possibly eliminating some before you dive into the rest of your analysis. you may also chose to spend a minute or two discussing further areas that you would have liked to explore and why. Do not be afraid to take your time and think about how you plan to attack the case.1. Successful interviewees have taken up to 10 minutes to think through the issues as hand. Delivery. In many ways. You must lead him down the path that you are walking. Remember that time is the most precious commodity that you have during the interview. DO NOT BE AFRAID OF SILENCE! Plan to spend two minutes discussing the issues.1 8.2 7. This is where you can gather all of the information gathered during your analysis and present it in a logical and persuasive fashion. If not all areas were covered during your interview.1. Try to state the assumptions in a non-offensive manner.4 8 Assumptions enable one to close quickly an issue. Finally.17 7.3 Analyze the case: 15 minutes. Bad phraseology could lead the interviewer to think that you are arrogant. this can be almost as important as the time spent up front framing the analysis. 7. If the assumptions are invalid. Summing up: 5 minutes. 7. Do not squander time be focusing on issues that will not highlight your abilities or will not lead to a viable solution.2 Timing. divide the time by the number of issues to be explored based on your perception of the importance of each section. . the interviewer will state that they are not correct.
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 .1 Purpose • • 1.2 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 2.18 4 1 Different Types of Cases Classic Cases 1.1 Purpose • • • • 2.
19 5 5.Interest Expense Earnings Before Taxes (EBT) -Taxes Net Income 1.2 Balance Sheet Assets Cash Investments Accounts Receivables Inventories Property.Sales General &Administrative (SG&A) Operating Profit . 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.Depreciation .1 1 Frameworks for Cases General Models Financial Frameworks .Cost of Goods Sold (COGS) Labor Materials Overhead Delivery Gross Margin .1 Income Statement Net Income .1 R&D . plant & equipment Intangibles Liabilities Accounts Payables Other Short Term Debt Long-term Debt Other Liabilities.for profitability cases you should explore cost and revenues 1.
The model is more of a backof-the envelope sketch than a detailed analysis. Focus on most important branches or components first. competition. Break each level down into parts that are more manageable.1 Raw Materials there. cost and capabilities.1.2 Additional Models 5. 5. 4.20 3.2. it may help in defining a business by breaking it down into very basic components and looking for conflicting elements.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 5.2 Do not use this framework in an interview without practicing it a few times before hand. Although this model is unlikely to produce revolutionary insights. Use MECE (Mutually Exclusive and Collectively Exhaustive) to ensure that all issues are covered. have a strong backing in basic economics so knowing the fundamentals will give the student a strong base from which to work. 5. Some of the more relevant concepts include: . The model is difficult to use with diversified companies and interests. Top-level identifies the highest level issues that need to be answered to solve the problem. An example of an issue tree is provided with the China Factory case.1 The Four C’s The four C’s stands for customer.2.2 Product Development Innovation Responsiveness Manufacturing Cost Quality Speed Supply 3. This model is intended to ask the critical questions in understanding the core business of an organization. Filling in these categories can be a first.3 Marketing Pricing Product Place Promotion 3.1 4. Many cases.3 4.4 4.5 5 Framework for a Zinger case like “How many golf balls in Albuquerque?” 5.1 Supply chain 5.4 Distribution Cost Channel 4 Issue Tree 4. cursory step in understanding a given company or industry. especially the strategic ones.2 Economics Students should review the basics of economic theory.
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. For example. 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). (We live in a world with finite resources but infinite demand. the higher the price of a product or service.) The Demand Curve .2. This would characterize demand that is elastic in nature. Supplier will be willing to make more available (i. 5. all other things being equal. the greater that demand for the quantity consumers will be willing to purchase (i. The concept of comparative advantage goes a step farther.The lower the price of a product or service. Price Supply Demand Quantity 5.2.. 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. the lower the price of a product or service. supply).2. there are circumstances where the level of demand is not altered by a change in price.e.2.2. demand). the supply of another product will decrease.2.21 5. contending that it may be to a country's advantage to import goods from other nations even though they may be able to produce the goods less expensively at home.2 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. Please remember that as the supply of one product increases.3 Law of Diminishing Returns This concept suggests that although additional units of labor may contribute to increased productivity in absolute numbers.1 Supply & Demand The Supply Curve -The higher the price of a product or service. Price Value of Output Cost of Inputs Quantity 5. each additional unit contributes relatively less than the preceding unit to productivity. Conversely. a diabetic will probably be .2. 5. the smaller the quantity of goods consumers will be willing to purchase. However.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. within a given time frame.2. the greater the quantity of the item that will be produced. the smaller the quantity producers will be willing to make available. Conversely. For example.2..2.e. all other things being equal.
2. 5. For example. R&D. In this case.7 Economies of Scope Economies of scope exist if the firm reduces total production costs by increasing the variety of activities it performs.3 4P's Kellogg’s Philip Kotler developed this model. The magnitude of learning benefits is expressed in terms of a "progress ratio. Whereas economies of scale are usually defined in terms of declining average cost functions.2. the demand is inelastic.. Economies of scale are not limited to manufacturing. 5. 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. A ratio of less than one suggests that some cost savings due to learning is taking place.80. a doubling of cumulative output is associated with a 20% reduction in unit costs. It stands for product. higher quality and more effective pricing and marketing. January-February 1993.2. the medication that would sustain that individual's life. placement (i. 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. 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). 5.8 Learning Curve The learning curve refers to cost advantages that flow from accumulated experience through lower costs. This implies that for the typical firm. price. Inc. over a range of output. Marketing. ES = % ∆ QS % ∆P = ∆ QS / QS ∆P / P 5. 84-93). distribution channels). The minimum efficient scale (MES) is the minimum level on the average cost curve.6 Economies of Scale Economies of scale exist when the average cost (AC) declines as output increases.2." The ratio is calculated as the unit cost after doubling cumulative production divided by the previous cost (C2/C1).22 willing to pay as much money as he or she has to buy insulin. Economies of scope may be achieved by "leveraging core competencies" across multiple business activities.2. (Marginal cost is the cost of the last incremental unit of output.2.) 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. and promotion.2.2. The median appears to be approximately .4 Value Disciplines Fred Wiersema and Michael Tracy of CSC Index. These are the four critical dimensions in marketing any product (or service). 5. so must the marginal cost (MC). The disciplines are: .e. have developed a set of strategic foci called the value disciplines (Harvard Business Review. pp. 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. and other functions can realize economies of scale. If AC declines as output increases. Cross Elasticity: Percentage change in quantity demanded of one good in response to a 1 percent change in the price of a related good.
The results indicate the overall industry attractiveness (i. Benefit of Complements – This is considered a sixth force that is not directly captured in Porter’s model.5 Porter’s Five Forces Michael Porter's Five Forces model analyzes the various competitive pressures at work in a given industry. combining customer knowledge with operational flexibility to respond quickly to almost any need (e.. This force is the opposite of the Threat of Substitutes. The following is a brief discussion of the five components.2. Product leadership .g. Five Forces Potential Entrants Complement Suppliers Industry Competitors Rivalry among existing firms Buyers Substitutes 5.e.g. ease of making a profit).. Buyer Power . 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.23 Operational excellence . with the goal of leading the industry in price and convenience (e. Buyers gain strength through their sheer size and when the purchase is critical to the seller’s success. Nike).Segment and target markets precisely and then tailor offerings to match exactly the demands of those niches. The intensity with which the competitors are jockeying for position and competitive advantages indicates the strength of the influence of this force. one should consider all seven components of the organizational unit.2. When the economics are promising for a complementary product.6 "Star" Diagram/Organizational Analysis In doing an organizational analysis.The competitive threat posed by substitute products is strong when policies of substitutes are attractive. and buyers believe substitutes have equal or better features. 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.Provide customers with reliable products or services at competitive prices and delivered with minimal difficulty or inconvenience. Dell Computer). there is a spillover effect on the primary product. Industry Competitors (Internal Rivalry) . quality. service. when a newcomer can expect to earn an attractive profit. the most powerful of the five forces is the competitive battle among rival firms which are already present in the industry.g. Threat of Substitutes . the barriers to entry are diminished.. 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. Vision should define Strategy. Customer intimacy .Buyers become a stronger competitive force the more they are able to exercise bargaining leverage over price. or other terms or conditions of sale. Potential Entrants – This force measures the ease with which new competitors may enter the market and disrupt the position of the other firms.Offer customers leading-edge products and services that consistently enhance the customer's use or application of the product. buyers' switching costs are low. In addition..Often.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. as well as the strength and influence that each of the competitive pressures have on the firms participating in the industry. 5. Strategy determines Structure and Decision Support Systems that . Home Depot). Supplier Power. thereby making rivals' goods obsolete (e.
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. as a whole." so to speak.. In this sense.e.2. every mother's prayer.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. Corporate Culture must reinforce all seven components. Cash Cow — A product with high market share in a low-growth market. all seven components must be considered.. maybe slow yet consistent growth isn't so bad. accelerating cash flow and. each as independently held businesses. . managers will have trouble if they are in a decentralized structure while information and planning systems are centralized. Dog — A product with low market share in a low-growth market. recruit and develop the personnel the organization needs to accomplish its objectives. The Reward Systems must reinforce what you are trying to accomplish strategically and the Human Resource Systems must select.e. 5. 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." Rather. Problem Child (also called "Question Marks") — A product with low market share in a high-growth market. "dog" is certainly not "man's best friend. For example.. is expanding or contracting. unless there are some extremely important overriding issues that outweigh the products market performance.e. If one component is changed. something that fails miserably) or to a "lemon" (i. Products or categories businesses are as follows: Star — A product with high market share in a high-growth market.24 are required to make the organization function. Since the cow is generating milk (i. it is analogous to a "bomb" (i. cash). something that is defective or undesirable). the marketer may elect to "milk the cow dry. When considering change. Therefore an astute business manager would want to drop a “dog” from the product line. it is most likely that the other components will have to be changed to be consistent with each other. not coincidentally. The model can also be utilized to analyze a portfolio of companies held by a single organization by classifying them within the matrix. mother is concerned because her child is not growing as anticipated. the product life cycle.
2. Primary activities create the product or service. Texas Instruments is an excellent implementer of this strategy. not the company as a whole. as indicated in the exhibit below.. or focus. and physical distribution of the products. and procurement.g. differentiation. and by whom?). Michael Porter calls these activities “value activities. human resource management. shared procurement). purchasing. What value is added to the manufacture and sale of gasoline at each point in the value chain. manufacturing. The problem with this strategy is that other firms will usually emerge with still lower costs (from the Far . Value chain analysis is also helpful in determining which value activities are best outsourced and which are best developed internally.2. and provide after-sale support. The categories are company infrastructure.g. information systems. Value chain analysis is useful in discerning possible synergies among various units of an organization (e. Every business unit is a collection of discrete activities ranging from sales to accounting that allow it to compete. deliver it to the market. Support activities provide the input and infrastructure that allow the primary activities to take place. The categories of primary activities are inbound logistics. Firms pursuing this strategy must be good at engineering. and service. (e. Value Chain Support Activities Company Infrasructure Human Resource Management Information Systems Procurement Primary Activities Inbound Outbound Operations Logistics Logistics Marketing & Sales Services 5. Finally. that the unit achieves competitive advantage.8 Value Chain A business manager must understand the internal relatedness of the many activities involved in the production of a product or service.9 Generic Strategies (Porter) Michael Porter suggests that business strategies can be classified as pursuing cost leadership. Each of these strategies is described as follows: Overall Cost Leadership: Here the business works hard to achieve the lowest production and distribution costs. create a demand for the product.25 Hi Low Hi Market Share Low Star Problem Child Cash Cow Dog Profitability 5. marketing and sales.. so that it can price its products lower than its competitors and win a large market share. 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.” It is at this level. operations. outbound logistics. The value activities are grouped into nine categories.
the highest quality producer. cohesive change.2. Porter suggests that firms that do not pursue a clear strategy . This has been Canon's strategy in the copy-machine field. and speed. The firm that carries off that strategy best will make the most profits.11. and the industry. a habit that prevents management from making frame breaking.2. put them together expertly. 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. for example) and hurt the film that rested its whole future on being the lowest cost producer. A firm can only pursue one of these strategies at a time.3 Key Success Factors Essential success factors are those factors that are most critical in determining a firm's ability to survive and prosper. service. processes are often viewed as discrete tasks. leveraging their advanced position along the learning curve and their name recognition to maintain a superior market position.2. Analyzer— Analyzers pick apart the market very carefully looking for niches and demand/supply gaps.2. inspect them carefully. The firm gets to know the needs of these segments and pursues either cost leadership or a form of differentiation within the target segment. Prospector— These firms are the first-movers and the innovators. the style leader.11 Other Key Concepts 5. cutting out wasted steps and enhancing communication. those firms pursuing the same strategy directed to the same market or market segment constitute a strategic group. The firm cultivates those strengths that will give it a competitive advantage in one or more benefits. Thus. but it is hardly possible to be all of these things. 5. but it is common for a company to shift from one strategy to another as its situation. While this strategy may be profitable in the short run. TQM was initially limited to the manufacturing sector but has more recently been applied effectively to service businesses as well. but those who are successful can change the way the game is played and create very strong competitive advantages. Further. These firms are not necessarily innovators.10 Strategic Types (Miles & Snow) Miles and Snow have divided strategic options into four categories (in contrast to Porter's three Generic Strategies). the stated objective is often "zero defects" or “six Sigmas. 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. They are closely related to Porter's Low Cost Producers. 5. Annstrollv Rubber has specialized in making superior tires for farm-equipment vehicles and recreational vehicles and keeps looking for new niches to serve. 5.do the worst. They react to changes in the market and moves of their competitors and so must maintain flexibility. This is a high-risk strategic avenue to follow. Thus. It is important to ensure that the added benefit from incrementally increasing quality outweighs the added cost associated with the quality improvement effort. One example is if the company strives to be the service leader in its industry. and remaining so in the long run.2. its long-term value is questionable. reengineering refers to breaking down business processes and reinventing them to work more efficiently. According to Porter. Attributes of essential success factors are the following: . Business processes are often replete with implicit rules that hamper the way in which work should truly be done.“middle-of-the-roaders" -. Thus the firm seeking quality leadership must make or buy the best components. changes. Whereas TQM is more of a philosophy than a specific strategy. but instead concentrate their efforts in very carefully and narrowly defined efforts. Defender—Those firms that have a leadership share of the market will often concentrate on staving off the competition. the technology leader.1 Reengineering Popularized as Business Process Reengineering (BPR).2 Total Quality Management (TQM) TQM refers to the practice of placing an overriding management objective on improving quality. Reactor— Such companies are second-movers.26 East. This strategy is akin to Porter's focused companies.11. letting others show them the way to success." 5. the lowest-cost firm among those pursuing a low-cost strategy will do the best. moving to erect as many barriers to entry as possible. quality.11. Focus: Here the business focuses on one or more narrow market segments rather than going after a large market. and so on.” 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. Differentiation: Here the business concentrates on achieving superior performance in an important customer benefit area valued by a large part of the market.
Net present value is the present value (PV) of all incremental future cash flow streams minus the initial incremental investment.K.FC 5. and the price of a product to determine the minimum units of sales necessary to break even or to pay the total costs involved. usually called the opportunity cost of capital. 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.7 Fixed vs.) The NPV is calculated as follows: . 5. (Typically.11.2. Ct represents the cash flow at time t. Fixed Costs (VC): The costs of production that do not vary with the quantity (Q) produced: these costs generally include overhead costs. This technique is also useful to make go/no-go decisions regarding the purchase of new equipment.11. Prahalad.8 Net Present Value (NPV) The NPV is a project's net contribution to wealth. Profit = Q x (P-VC) . multiply the quantity sold times the contribution margin and subtract the total fixed cost. The classic example of a company that has effectively leveraged its core competencies is Honda. Effective implementation of JIT should result in reduced inventory and increased quality. for wood products. but not directly. For example.11. The present value is calculated by discounting future cash flows by an appropriate rate (r).4 Core Competencies A concept popularized by Professors Gary Hamel and C. In other words. Variable Costs Variable Costs (VC): The costs of production that vary directly with the quantity (Q) produced: these costs generally include direct materials and direct labor cost.5 Vertical Integration In some industries companies find it advantageous to integrate backward (towards their suppliers) or forward (towards their customers). 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. 5. Co. To determine profits. The contribution margin represents the revenue left after the sale of each unit after paying the variable costs in that unit. Semi-variable Costs: The costs of production that vary with the quantity (Q) produced. these are discrete costs. A firm must supply what customers want and survive competition from other firms Therefore. 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. as in the initial investment.27 Management can influence them. JIT calls for synchronization between suppliers and customer production schedules so that inventory buffers become unnecessary. The necessary sales are called the BEQ. such as the cost of adding new production capacity when Q reaches certain levels. or hurdle rate. the amount that "contributes" to paying the fixed cost of production.) Break-even Point: Break-even analysis is a managerial planning technique using fixed costs. In other words. and are difficult for competitors to imitate.2.2. which has gained a competitive advantage in numerous product markets through its focus on leveraging its skill at making engines. essential success factors are owning large forests and maximizing the yield of those forests. productivity. 5. variable costs. 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. 5.6 Just-in-Time (JIT) The goal of JIT production is a zero inventory with 100% quality. or break-even quantity. make a significant contribution to the perceived customer benefits. and adaptability to changes. core competencies provide potential access to a wide variety of markets. (Ct can be negative.2. the materials arrive at the customer's factory exactly when needed.2.11.11.
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 not invest in the project. Typically. + Ct/(l+r)t If the net present value of the project is greater than zero..11. If the net present value is less than zero. a Pareto analysis is conducted to determine the areas on which management should focus its efforts. 80% of a company's profits may be generated by 20% of its product lines. For example. the firm should invest in the project. Alternatively.2. .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. 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.
5 1. Keep the interviewer informed of where you are going and check to see if you are on track.9 2. Thinking aloud leads to rambling. do not feel compelled to answer immediately. Are your clients really that stupid? This case has no answer... you are trying to confuse me. Do not lock yourself into your answers. do not error on the side of being silent either.3 1. one could say: “I intend to purse. The interviewer will look to see if you build on the information provided. The interviewer is not clairvoyant. The interviewer possesses tons of data or will make it up. as opposed to the shotgun approach. Then. interviewers will drop hints regarding the case throughout the interview process.9 1. I do not believe you. However. Think then speak..” 1. They also want consultants who are dedicated to their client and client’s problem. DO NOT ANSWER RIGHT AWAY! Think about it and come up with five drivers.4 2.8 2.. Practice phrasing statements clearly and succinctly.3 2. During that time. Ensure that you understand the problem at hand. What are you looking for? Is this a marketing case? I cannot believe this is a real case. carefully assess them and order them into a logical format. This will serve as the structure of your analysis. do you believe this is worthwhile. do not answer any question unless you have thought through your answers fully. He will not understand your thought process unless you explicitly state to the interviewer. then order them from the most significant to the least significant. There is obviously one answer to this case. I cannot solve this case because I have not had Corporate Strategy yet. The interviewer has probably spent a few months working on the problem and consulting firms are looking for people who enjoy solving problems. I would like to concentrate totally on the political implications of this situation. This case sounds exactly like what we did in Managerial Accounting.” Listen carefully to everything that is said during the interview.10 I need a lot more data. the more confused you could become.. Do not assume anything! Use questions to clarify issues and to gain a complete understanding of all the problems that need to be addressed.1 2. Once the problem or case is presented to you. ask for a few moments and think out your approach. if need be.6 2. 3 3. HAVE FUN WITH THE CASE! Engage yourself and get excited about the case.5 2.7 1.2 2.29 6 1 Dos and Don’ts Helpful Hints: 1.2 The goal of the case interview is not to crack the case but to demonstrate “how you think. brainstorm to get all your thoughts on paper. You can demonstrate this by being engaged. the three most important are. Remember that some material may be extraneous.4 1.10 2 Top Ten Things not to say during an interview: 2.8 1.7 2.6 1. Then say something like this: “Well I have thought of five significant drivers. Individual pieces of data can often be combined to draw a conclusion about part of a problem. Do not ask for every piece of data. Rather. This is an area where one can demonstrate teamwork. Take your time.” . Better to use the bull’s eye approach to data gathering.1 1. the more you prompt for data without assimilating what you have already been presented with.1 Don’ts If the interviewer suddenly asks you to name the three critical drivers to the industry. For example.
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 .30 7 How to Prepare for the Consulting Interviews? Attend Case Interviewing Workshops by leading Consulting Firms Research the firms and know their differences.
Describe a situation where you had to present orally to an important group of people. . 9. Tell us about your weaknesses. 7.” 10. 8. 11.31 8 1. 5. Give me an example of where you did something unpopular and had to stand up for yourself at work. 6. General Interview Questions Why consulting? Why do you want to work for this firm? Tell us about your skills. Where do you see yourself in five years? 12. If you do not get into consulting what will you do? Give me an example of where “you dropped the ball. 2. Tell us about your resume. 4. 3. Tell us about your previous industries. Describe a problem you encountered in a work environment and how you handled it.
with other building products)? Is any significant portion of sales to centralized customers (e.. our client is number three with a 15% market share. industrial vs. but not substantially. The largest competitor has just announced plans for a major modern plant.1. What issues must the client consider? 9.2 Possible Solutions • Will the planned investment lower operating costs? (Yes.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.1 Sample Cases China Products Division 9. the largest producer has a 20 percent share.) “Minimum” .. The two largest competitors appear to earn a small return..) • Does the company rely on a limited source of raw materials? (No.1. • • • Prices for the client’s products have been flat in the recent past. he wants to know if he should approve a $200 million capital expenditure for new manufacturing facilities.g. The major reason for the investment is that the new process will result in a better finish. 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: .g.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. Specifically.g. The company is one of seven producers in the United States. commercial)? Are there different price points by market or within markets? “Better answers” • Customer-buying factors: Do customers demand a full-line supplier (e.32 9 9. China products include tubs. our client is break-even. residential vs. materials are easy to obtain. toilets and urinals. Sears)? • Barriers to entry/exit: What is the minimum-size for a new plant? Are most plants fully depreciated? Generally.
Increasing sales .2.2 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.1 Issue A large healthcare company has decided it is interested in substantially increasing the size of its operations. what would you do? 9.2 Healthcare Company 9. 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. A business can increase profits by: . or with other products such as fittings)? Would exiting the business affect the sales.2.Increasing prices . As a consultant brought in to assist them. 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. 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.
Strong demand has meant that price erosion is not currently an issues in the ASIC industry However. In the particular example of this case. it would seem unlikely that either increasing prices or cutting costs represent feasible methods by which to double sales & profits.3. You should then consider the potential for increasing sale by means of diversification through acquisition or joint venture.) 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.1 Issue A large microelectronics manufacturing company is considering participation in a cooperative project which will receive 50% government funding. There is currently only one producer of ASICS in a similar line of business to the company under discussion in this case but this competitor has much more sophisticated semiconductor production capabilities.3 Electronic Joint Venture 9. Assembly costs are reduced.34 .) 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. most of the top ASIC producers are in fact American. The company currently uses several hundred millions of dollars worth of microelectronics every year.) What are the client’s current purchasing habits? . particularly if the company operating in a moderately competitive environment. the cost of which is growing steadily in many of the company's products.) 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. 9. Also. currently about 15% of all ICs are ASICS & this figure is expected to rise above 35% in the next 10-years. Important demand segments are entertainment electronics and automotive applications. It is interested in developing application specific ICs (ASICs). (Typical ASIC production volumes are much lower. The relative benefits of each will depend on financial resources as well as the existence or otherwise of suitable targets. although there are powerful commodity-chip manufacturers. 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. firms whose core business was semiconductors would have significant technology and R&D advantages.g. but development costs are higher. it turned out that only selling new product to new customers via some form of diversification could hope to achieve the company goals. 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. The government project would more or less allow the company to define an individual project within the broad category of process technology. the capacity of this subsidiary is small and its technology is relatively old. 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'. decreasing size and weight and increasing speed and reliability. with whom? 9. The IC market itself is expected to grow at over 10% per year too.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. Although the company already has a subsidiary that does some microchip fabrication. therefore need to find some way to reduce some of these costs e. considerable effort would be required to find the staff with suitable expertise. if the company's margins are found to be consistent with industry norms.Cutting costs However. This leaves only sales increases. In addition. using CAD to shorten design cycles. In contrast to the commodity-chip manufacturers. of which only a handful are of any size.) What is the market outlook for ASICS? (High growth.3.
4. who delivers high value sub-assemblies. can it be fixed? Market Assumptions: Based on the low subscriber rate. Revenue Subscribers monthly fees Subscribers special services . You have been hired to determine if they can turn a profit or if they should sell.) Do potential joint venture partners exist? 9. they have failed to turn a profit in the past three years. Recommendations: . a 63% industry average.1 Issue Three years ago a venture capital company purchased a cable TV system that had access to 2MM households in the southwest. Competition: If consumers are watching television. Overall Assumptions: The low subscriber rate (revenues) cannot overcome the high fixed costs.Analyze current revenue and cost structure . Are the stations offered free of charge? A: Yes.Analyze the market potential of the area . What options do our consumer have? A: In addition to the three network stations. 9.35 (Currently purchase nearly all microelectronics through one subcontractor.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. The debt and maintenance costs are also higher than systems in major metropolitan areas. Despite their best efforts. there must be a strong competitor in the market. but not our cable system.4. The current systems is only at 43% capacity (# of subscribers) vs. Why? Moreover.Analyze the competitive situation/ substitutes . A: Actually they watch more television than the average. Does the cable system offer what they enjoy watching.2 Possible Solutions . I would assume the population is less likely to watch television perhaps because of income or lifestyle issues.movie channels Is the reception from these independent stations strong? A: Yes. A: Yes. very. Assumptions: High fixed costs are overwhelming the current revenues The current subscriber rate is too low.4 Television Cable Company 9. The VC firm was attracted by the extremely large subscriber potential (2MM households) and potential for considerable return. there are eleven independent broadcast stations in the area. The subscriber rate is low due to the high number of competitive stations available to our consumers (supply and demand problem).
S.5.90% penetration. costs. printing/paper. A: True Competitive Assumptions: The competitors are deeply entrenched . 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. Additional Information: There are currently two major Sunday Supplements: Parade and U.5. we would not recommend proceeding with the supplement until potential advertisers were committed and newspapers demonstrated an interest in . Assumption: Our current advertisers (for Time) would not be interested in this format. They have hired you to determine if they should proceed or not. Recommendations: Based on this information and these assumptions. Displacing a competitive supplement would require costly incentives to the newspapers. 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.5 Magazine Sunday Supplement 9. Current newspapers use the supplements in order to publish low quality editorial without disparaging their product offering. turning a profit would be difficult due to the large upstart costs and the strong competition for advertising revenues and newspaper acceptance. sell. light reading gossip. Strategic Fit Assumptions: The poor editorial content associated with these supplements may disparage the publisher’s current product offering. distribution Internal and external sales force . 9.2 Possible Solutions Can we turn a profit by publishing this supplement? How? -Revenue potential. If not. Cost Assumptions: Fixed cost of supplement set-up Editorial. 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.36 Determine if there are consumer needs not being met by the independents that could be provided by our system and worth paying for.(gaining ad revenues and newspaper acceptance) Assumption: There are few publishing synergies with our current publications. Key Issues: Based on these assumptions.
(Even then. Current percentage revenue: 10NM members x $1000 annual purchase (avg.37 accepting the supplement.1 Issue You have been hired by the CEO of a department store that has numerous locations in a major metropolitan area. new members) 9. population (Just a guess): . They are considering dropping the $50 annual fee.S.2 Possible Solutions Determine how American Express makes money. (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.6 American Express Charge Card 9. She needs to increase the store's earnings over the next year and has requested your help. increased membership equivalent to 20% of the population is probably not likely. What are the "economics" of such a decision and should they drop the fee or not? 9. 9. No additional revenue from consumers because they pay-off monthly. . 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. Evaluate the pros and cons of dropping the annual fee.250MM x 4% = 10MM current cardholders $50 x 10MM = Annual loss of $500MM by dropping the fee.Assumptions: $50 annual fee multiplied the number of members. To overcome this loss. They would still have to pay off their balance every month.) [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). Key issues: If the annual fee is dropped. 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. Do not drop the fee. Make a recommendation Revenue Drivers .7 Television Cable Company 9. we would recommend publishing under an alternate brand name).7.6. Receive 1 % of the transactions from retailers who honor the AMX card. May want to consider varying the fee (sensitivity vs.6.1 Issue American Express has faced strong competition from new credit cards entering the market. Therefore. AMX loses ($50 x # of members).
levels Cost of debt Other? # of people shopping Amount of purchase .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.why? Increased competition? Different consumer buying trends? Start with Cost/Revenue Drivers: Costs: Revenues: CGS Personnel/ OH/ SG&A Inventory holding costs. Jewelry .big-ticket items. What products are less profitable? A: Clothing. the product mix is the same at all stores. Questions: Are certain stores more profitable than others are? A. Yes.$$ Frequency Prices Others? You learn there is nothing drastically different (overall).7. 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. consumer demographics? A: Yes. No. Do the higher performing stores have any common characteristics such as size.38 Relevant Information: 20 locations in the metropolitan and surrounding suburban areas (they are present in every shopping mall). store revenue has declined slightly They recently hired a consulting firm to streamline the back-room costs How can you help? 9. Yes. Stereo.2 Possible Solutions Revenues have decreased for a reason The streamlined costs may have caused revenue to falter The revenue per store may differ . shoes. product mix. The population growth of the city is flat Overall. household items. TV. the demos are different by store. household items . so you turn to the individual store level. suburban stores are more profitable than urban stores. tools. minor appliances .
Hold small debt for short periods of time 3.8.8 Credit Card Division of Bank 9. Assumption: Customers use the card differently. . Case Interviewer suggests there are three distinct categories: 1. etc. therefore have to increase revenues.5% . our client believes it can become more profitable.Yes. points Revenue Annual fee .2 Possible Solutions Opportunity to decrease costs or increase revenues . 9. You need to analyze the situation and make recommendations. theft. 9.1 Issue Our consulting firm has been retained by a major bank to help improve the profitability of their largest credit card offering. there may be different customer segments based on the balance held. Personnel – Can not change Bad credit. Hold heavy debt for long periods of time (basically pay-off the interest) . Pay-off in full every month 2. higher income. suburban stores are outperforming urban stores. how quickly balances are paid off and the "need" for the card.currently $50 (Could change) Annual percentage (Could change) Merchant change) fee = rate = (Can 14% not 1. Their card (in the same class as a Visa or MasterCard) provides average returns in comparison to the industry. however.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.Cannot change Other costs – Can not change Key Issues: Cannot affect the cost structure. 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. Only revenue variables available are changes to the annual fee and APR.39 Are the demographics better suited for the mix in the suburbs? A. 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.analyze drivers Opportunity to vary the annual percentage rate or the annual fee Benchmark competition for opportunities Analyze cost and revenue drivers: Costs Marketing. Competition: Interviewer tells you it is a very competitive environment ."move on". the urban stores are hindering earnings. Hence.8. Assessment Due to the identical product mix at each store and the varied profitability by item. SG&A.
One of their divisions is a leading home video retailer. 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. How can we regain store traffic or offset the rental loses? Recommendations (these are just a few of the options considered): Develop new. Key Issues: These heavy debt card holders are the key to our profitability.1 Issue Our client is a major entertainment company on the West Coast. both growth and profit have declined substantially. traffic down) Overhead: (No change) SG&A: (No change) Leases. This is mainly due to the sale of these same releases through alternate channels. point systems) and run up debt (automatic credit limit increases). they would send the excess copies to the new stores as part of their "library" of existing tapes.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.9. it could buy excess numbers of the new releases to satisfy customer demand.kiosks. etc.how else are consumers getting movies? Costs: Revenues: Cost of the new movies: (Actually decreased) # of rentals: (decreased. In the last two years. Later. Thus. use the card (cash back. it is imperative to get them to sign up for the card (no annual fee).40 Access to case advances. other: (No change) Key Learnings: Costs have actually decreased.] I. 2. the interviewer describes the changing industry. pick-up/delivery Develop pricing/bundling formats combining new releases with existing movies . they quite often rented an existing tape from the library (additional lost revenue) Based on this industry outlook. During the late '80's and early '90's this division had a great run -opening 4. When division was growing. 9. this is no longer an option therefore fewer new releases have been ordered. Recently. when customers rented a new release. 9. Background: Our client's division is not unlike a chain of Blockbuster video stores.costs) structure Analyze the competitive situation Analyze the "substitution" factor . The majority of their business is in movie rental with a much smaller portion in sales. You have been brought in by the CEO to assess the situation and provide recommendations. Note to Case Interviewer As soon as the interviewee had identified the important drivers of revenue and cost. more convenient locations . In addition.000 stores and realizing considerable profits. many of our customers are purchasing rather than renting.2 Possible Solutions Start with a simple: (Profit = revenue . the focus of the case was shifted to customer segmentation and tailored services for each segment.9 Movie Rental Business 9. but not enough to offset the decreased store traffic. Competitive Assessment/ Substitutes: New movie stores: New In-home sources .9. 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. With fewer new stores opening.
S? A: Yes. However. we have to pay mechanics and have high fixed costs Assumption: We are profitable in retail. we have the same cost structure due to our presence in Canada.10 Auto Service Stores 9. Is this true? A: No. The customers who utilize the service center have higher incomes and no interest in fixing their own car.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.S? A: Yes Do we have strong competition in the U.no. is one more profitable than the other? A: In Canada .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. Assumption: The market has potential due to the competitor's performance.. a national chain of stores in the exact format as Autoland exists in the U. we are profitable in retail sales and losing heavily on the service center.S. They copied our Canadian format and have about 10 locations in every major city. 2. We attract the wrong consumer. The stores offer two services: 1.S.S. how would you help us determine if we are? . Autoland Capabilities: Assumption: We actually have two businesses under one roof. 9.41 Offer "rent to buy" programs . Autoland has experienced $50MM in revenue with loses of $20MM.10. Retail sales of auto parts for customers who prefer to perform their own maintenance. are the customers for each service different? A: Yes. from an oil change to new transmission.S.10. but losing in service. Are the costs associated with each side of the business different? A: Yes. I would guess they have superior buying power over Autoland in the U. markets. The owner is considering pulling out of the United States.rent the first time. You have been hired to determine if they can improve their performance or if they should exit the market. Assumption: We are attempting to attract two distinct customer segments. A service center for fixing any automobile problem. Market/ Customers: Autoland provides two services. Since entering the U. then have option to purchase 9. Are we doing this successfully? A: We are not sure. in the U. the service center is much more expensive to operate. Key is to determine why they are outperforming Autoland. Assumptions: Due to size. 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.S.
She wants to own a sports team: however. Do not give this information away. 9. make the candidate probe for it. The interviewee should explore other streams of revenue but are irrelevant (important streams are .. the interviewee must recognize that there are other investments that she should consider. we located in the inner cities to save money A. Possible sources of data . locate between the lower and upper income areas to attract both segments. Pricing. respectively. Which team should she buy? Additional Facts 1.11. it turns out that they cannot be raised. 3. Location. 12. Ticket Prices on average are $25 for basketball games and $6. 4. border) Where is competition located? A: We do the same as the competition A: Identical to competition A: Different. The stadium capacity is 20.licensing of apparel. comparable data for other franchises in other cities and overall market demand. but prohibits heavy use of the service center due the distribution of income between the inner city vs.1 Issue A wealthy woman. 9. Mrs.2 Possible Solution Everything cancels out except that baseball has more seats available. The Balance Sheets of both teams are the same in terms of liabilities and assets. The number of basketball and baseball home games is 41 and 81. move.000 for baseball games. 8.000 for basketball games and 54. Neither franchise owns the stadium. regardless of the team she chooses. concessions and parking) for purposes of this analysis. the baseball investment has a potential for greater revenue. Research shows that Cleveland residents are indifferent. or drop the service business and retain the profitable retail portion 9. The financing terms available to Mrs. Equation = # of seats * # of games * stadium capacity * utilization . Examine if 100% utilization can be reached. Let us say that there is a $100 million price tag. Thus.11 Sports Franchise 9. Wentworth. The interviewee must ask for this information to be given credit. 2.50 for baseball games. who is worth millions. In existing markets. Wentworth are the same.historical sales patterns. After exploration of this issue.42 Factors: Marketing. 7.Between the inner city and the suburbs (on the Assumptions/ Recommendations: Our location is great for the retail sales business. 6. but would like to maximize the profit from the investment. the suburbs. 11. Utilization on average is 70% for both sporting events. The key is to figure out whether ticket prices can be raised. The purchase price is the same for both franchises. In new markets. She is indifferent between choosing between the two teams. 5. The interviewee must figure out a model to answer this question. on leases. wants to invest in either the Cleveland Cavaliers (a basketball team) or the Cleveland Indians (a baseball team).11. 10. It is important that interviewees recognize these as possible sources of value to the investment.
12. 9. but how would you measure that value? Study each subsidiary's functions and determine efficiencies to be realized. Consumers buy primarily based on lowest cost product.1 Issue . then bought by parent). If parent is higher. For example.12 Durable Goods Distribution Case 9.43 9. we could determine the number of labor hours for a transaction for the sub and parent. 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 Business Forms Case 9. buy one new every six years). units on horizontal. • • • • • Accounting Order Processing Sales Management Finance 9. • Subsidiaries maintain all functions (were once bought by independent businesses. Parent manufactures all equipment (parent’s manufacturing is not the scope of this case). but how would you measure this problem? Interview clients and determine the importance of flexibility and personalized sales. Problems with this approach? Eliminating sales function and order processing at sub may reduce flexibility and hurt customer service? Maybe.e.e. the firm cannot create demand pull) Consumer purchase frequency is constant (i. Plot labor/units on vertical.1 Issues SETUP A large durable goods manufacturer (i. then diversified functional operations? Maybe. centralize the operations.12.e.13.2 Possible Solutions Would it be more efficient to provide central functions from parent..
invoice forms. The firm uses JIT. The market share in high-end pots & pans is 35%. wide product range. etc. The firms should constantly monitor standard costs because of volume fluctuations. The sales division sets the prices to customer. The system handles over 100 daily orders. multi-copy sales receipts. All sales are handled through the sales force.14. The product line includes credit card receipts. The UPS delivers most orders within two days for standard items. Possible Solution One possible solution is to use price as a competitive weapon. warranty papers. . The sales force is paid on commissions. 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%. The market is fragmented with many small local printers. • COST STRUCTURE: Not important.14 “High-End” Pots & Pans Company Case 9. • PROFIT CENTERS: Manufacturing and sales are profit centers. • DISTRIBUTION: Extensive information system is in place. The company has four regional plants (Midwest. • SALES FORCE: A two hundred person sales team is in place that focuses on important accounts. Custom orders shipped between one to three weeks depending on complexity and quantity of the order. You have ten minutes to interview the CEO before she leaves for a meeting. supplemented with occasional visits. the materials cost is less than the shipping cost or fees charged for customized work. East Coast. • MARKETING: The firm only uses direct mail fliers and catalogs. a typical customer is a newly wed who places pots & pans on the registry at Hudson’s or Marshall Fields. The CEO has hired you to assess and make business recommendations. The firm should exploit rush order customers by raising prices on less price sensitive customers. Client survey reveals that the company is known for the “high quality.44 OVERVIEW A manufacturer of business forms wants to increase profitability by using pricing as a competitive weapon. The largest player has 5%. Use ABC inventory analysis to get a “better” standard cost and empower the sales force to maximize revenue. excellent return policy and its ability to fulfill any order. The firm has modern facilities and good cost controls already in place. Transfer prices negotiated between manufacturing and sales are in place. but not necessarily to increase market share by lowering price.” The firm is able to deliver larger orders faster than competition when asked for rush delivery. Contacts primarily via telephone. 9. According to the CEO. sold primarily in sets and is expensive. • MANUFACTURING: The firm is a “world class” manufacturer. The company does not own delivery trucks. West Coast & Texas). Use “Time Based Competition” to increase profitability. if possible. However. You have ten minutes to interview the CEO before she leaves for a meeting. 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%. A salesperson receives 25% of all revenue above a standard cost. SPC and other cutting edge manufacturing techniques. An internal study indicates that the firm is the low cost producer in the industry.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.
Repeat sales equal almost 100% of the business. two in Philadelphia and two in LA from which he services the whole country. • RETAIL OUTLETS: The product is carried in high-end department stores.two in Charleston. • MARKETING: The firm uses little advertising. Your firm uses a sixty-year-old plant in Gary. you need to ask where the inventory is being held. No products are shipped directly from the factory. The firm will consider switching if it can gain a long-term cost advantage. Distribution is a trade-off between cost and service level. It turns out that stores. 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 . Your client has six warehouses .30% Var. The next thing you need to know is where the warehouses are located. Currently. you have a new option to buy from Brazil. you buy from a US company in Oregon. This can be confirmed by asking for the annual sales. Little discussion or negotiation required. A quick way to solve this case is to realize that if stores require next day service from these six warehouses.15.35 a square yard compared with the $. Inventory and outdated inventory would also decrease.14. notebooks. since the closer they are to the stores the cheaper distribution costs will be. • COST STRUCTURE: Materials .1 Issue OVERVIEW Your company makes legal pads. Therefore. instead. Eliminating warehouses leads to O/H savings that are far greater than the increased shipping costs.15 Paper Products Manufacturer Case Shipping/Packaging . 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).20% 9.45 • 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. Indiana that has been producing paper for 60 years. O/H .000 units. The firm purchases 100. 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 Possible Solutions The six regional warehouses were setup in the 1950s when long distance delivery times were slow and costs were high. the lower the cost (more inventory pools. With the advent of FedEx. 9. Beat this figure and you have earned your exorbitant fee.20% Labor . The firm has a three person sales staff that works with department store buyers. The company and not customer pay shipping costs. The reason for the low inventory levels is that the product is bulky and expensive to store.38 a square yard from the current supplier. the only way they can do this is by shipping overnight at a premium rate. Department stores demand quick replacement upon sale. The higher the service level.000 tons of white 20lb paper to produce its product lines.10% Fixed O/H . the cost of delivering products quickly decreased. Each store carries one set of each product line for display and one set for inventory purposes. The Brazilian firm is offering to sell at $. Your company values long-term supplier relationships. which turns out to be 10. Department store buyers know the company and its products well.20% 9. Due to recent developments. You are the purchasing agent responsible for buying the white 20lb paper. since they sell so few of these pots and pans hold no inventory and thus require next-day replenishment after a sale. warehouses and shipments). and other standard paper products.
• • • • • • • • • • • 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.
3. The condition of the airplane manufacturing industry. • The firm historically targeted two consumer groups -. 9. what are the concerns your client might face? What additional information might you want to find out. In addition. In the last couple of years. The current competitor. Business travelers are primarily insensitive to price. The consultant should also consider whether it might be better to try to compete on the basis of price. and then provide a possible solution. The consultant should ask as a strategic question whether the firm is interested in the manufacture of more fuel-efficient planes. on the part of purchasers for a proven safety record of accomplishment.older. However.1 Issue You are consulting to a CEO of an airplane manufacturer.2 Possible Answers As a consultant.19 Airplane Manufacturer 9. safety and service. Prevention of a new competitor gaining share: Key: creation of barriers to entry. Long-term contracts are pre-emptive. • Recently your client has been losing younger target market customers. 2.1 Issue Your client is the manufacturer of audiocassettes.20.49 • The sales force may not be adding the value that the company thought/needs in order to be successful. (second largest in industry). Leisure travel increases with growth of middle and upper classes. • Your client is also using the most sophisticated and quality driven cassette manufacturing techniques. • Client used to have a steady 30% market share. 9.from low bias to high bias/metal. Why the firm has lost market share and. • The firm has traditionally managed its relationship with retailers well.19. How to prevent the new entrant from stealing market share. • Your client offers a full range of audiocassettes -.20 Mysterious Audiocassette Market 9. leisure travelers are very price sensitive. As a consultant. the firm has recently lost several major accounts due to its inability to move (the firm's) products. High concern. The airplane industry's demand is a function of travel among two classes: business and leisure. Business travel increases as a result of market globalization. • The firm has been losing sales reps yet loyal reps claim that sales are at record high levels for the year.19. They have hired you to figure out why they have been experiencing an alarmingly poor sales year. you have gone from being number one in market share to number two. you are concerned with three essential items: 1. They want you to determine the problem. middle income enthusiasts and high school rock 'n roll stereophiles. another company has announced that it will be entering the business and is presently tooling up its plant. . Information to be divulged gradually • Mature market: 5-6 major players. The answer would depend on the future of oil prices. a comparison: It turns out that the competitor's planes are cheaper to operate because they are more fuel-efficient. Now the firm has a 44% share. and what recommendations would you make? 9.
22 Bank of Luke 9. and utility payments (checks). The item processing industry has undergone dramatic changes in recent years. let us assume competition and demand/supply levels are far beyond your capacity. and totaling the items was performed by only the largest banks which were highly automated.2 Possible Solutions Porter's five forces dictate that industry rivalry. The firm should consider new sources and production necessary to exploit this new demand.1 Issue You produce a windmill with an accompanying electric generator (generator harnesses the power produced by the windmill). it received little focus from management. The bank has many other commercial accounts that use other companies for their item processing. Moreover. Types of items processed include credit card. Assessing the value of the benefits of the product is perhaps the next step. At banks. To narrow it down. inquire how the electrical utilities measure and charge for the electricity they provide. in addition to handling of retail lock box transactions. the processing of payment items was done more as a service to bank customers rather than as a profit-making endeavor. The Retail Lock Box Department consists of 100 clerks and eight managers and Supervisors. This could be an appropriate start. The firm should also explore the opportunities and constraints of developing or acquiring the new technology. airlines would process their own tickets) or by bank item processing departments like the Bank of Luke's. Therefore.g. In fact. Check is the Director of Retail Lock Box Services for the Bank of Luke.. the Bank recently lost the item processing business of one of its largest accounts to Vader Inc. verifying the correctness of incoming paperwork and manually sorting. You have no idea what this product is worth to anyone.000 to manufacture. 9. maintenance.5 million of fee revenue processing retail credit card and mortgage payments ("items") for 15 commercial accounts. Each year. 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.) Your client’s historically flat market share suggests brand loyal customers. your older target market is loyal -. We must therefore examine other components. In the past.1 Issue Mr.short-term. Historically. mortgage. Other considerations upon which to discount the value might be reliability.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. for example. potential substitutes. How much are your customers willing to pay for it? 9.. The closest substitute to the windmill is probably utility produced electricity.21 Windmill 9. The firm should target the older customers as well as other segments that are less likely to switch over to CD's.S. The windmill costs you $10. and coupons. .21. etc.21. a medium-sized Midwestern bank. these items were usually processed by the issuing company (e. filing. 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 -. for the long-term. the largest item processor in the U.22.perhaps less likely to switch to the new technology in the short run. 9. and supplier/buyer power need to be assessed to determine the market price. the Department generates $1. airline tickets. The $10m cost is irrelevant. Hence.
22. In fact. The candidates should challenge the general premise of the case. Vader benefits from a more constant workload by processing both airline tickets and retail lock box receipts. the service lost $100. Mr.000 last year. 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. and not simply believe that the business is necessary just because Mr. the President has given Mr. Although industry-wide.. Inc. Kenobi. Mr. Once in Mr. Vader has a significant cost advantage over smaller operations. has asked Mr. Check a budget to be used to hire a consulting firm. because of this speed advantage. In addition. Check has asked you to visit his office to discuss the proposed engagement. whereas mortgage payments always peak early in the month with very low volumes the rest of the month. Mr. Mr. with limited use of modern. a majority of the items are still processed by the issuing company or by small processors. Check was a supervising clerk at that time. Check to evaluate how the retail lock box service can be made profitable. 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. 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. high-speed equipment and methods. such as the Bank of Luke. Check says so. it is expected that most of the business will continue to migrate to Vader and other large processors. because of the great economies of scale they gain from processing such volumes of items. Mr. you observe that the Bank's retail lock box operations remains primarily a manual system. 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? . While walking to his office. you note a picture showing the Department's staff in 1965. After reviewing some background information with you. and it must price the service to be competitive with companies such as Vader. Each year Vader processes millions of airline tickets and retail payments for hundreds of companies.2 Possible Solutions In this case. most of who are not customers of its parent bank. 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. the parent bank is beginning to profit from the float of checks processed. Recognizing that outside expertise is needed. Check believes that the bank must offer retail lock box services. We purposely leave the case rather vague by not suggesting any particular actions and by not offering much data. We also want to test creativity with this case.51 Companies specializing in item processing have emerged in the past ten years. Airline tickets have few peaks and valleys. the largest such company is a subsidiary of a small bank in Georgia. Vader. It is expected that Vader and the other large processors will dominate this market. Vader uses high-speed processing equipment and is highly automated. Check's officer. Mr. Processing time is rapid and processing costs are low. The President of the Bank. Within five years.
It originally started as a single product line. (Candy is candy and the product line extension is primarily an issue of different packaging. Again. thus causing slack in labor and fixed capital (small batch sizes. Upon further examination. 9.23. cutting 25 percent of the staff is too obvious and too easy. What can you recommend? 9.52 • • What is the strategic plan for the bank and how does this unit fit into those plans? What does Mr.) Controlling schedules manufacturing which is rather efficient already but not packaging.24 Skyscraper . emphasize pull marketing. Find the critical components of cost: raw material.e. Raw materials are commodities with cyclical prices that have fallen in recent years but are expected to swing up (as you have guessed. and reduce introduction rate for new products. retailers demanding large introductory discounts for new products and high failure rate of new products. labor and fixed cost. retailers) are willing to accept the reduced product line. we still need to consider whether the company's customers (i. The firm has also expanded its sales through product line extensions. 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. reduce low margin trade brand production.23 Candy Company 9. Margins are shrinking. 9.. Check feel his unit should be generating? (After all. The firm should streamline product lines. $15. The firm should consider reducing the number of product lines and introducing controlling/scheduling measures for packaging. Labor and fixed capital has increased per unit over-proportionally compared with ten years ago. Management is concerned that sales are growing but profits are not increasing at the same rate. makes the problem worse).2 Possible Solution This is a revenue vs. The production process consists of two basic activities: manufacturing and packaging. cost exercise. creativity and sensitivity to the real issues should be the goals of your probe.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. high setup times).23. However. Revenue killers: Concentration of retailers. trade brands.1 Issue Your company is a rather successful producer of candy.
Good answers will focus on various methods to build expertise.2 Possible Solution This is an economic supply/demand mind teaser. 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. Nonetheless. Better answers focus on the costs of losing clients to competitors. building capacity through recruitment of IT experts and training them to be consultants. .1 Issue Your client is going to build a skyscraper.25 Consulting Firm (I) 9. strategic value of information and information loss. When marginal revenue equals marginal cost. How should he decide how tall to make the building? 9. your firm's growth has been strong enough that proposals lost have not hurt annual earnings. but is not sure how tall it should be. Assuming your concern is valid. building capacity by training current consultants in IT practice skills and establishing a strategic alliance with a IT boutique firm. you do not want to lose money on the deal. raiding IT practices of other firms for a few key consultants. 9. who will pay to reside there. you are becoming increasingly concerned about the need to develop the firm’s capabilities in information technology.25.24. The traditional strengths of your firm have been solving strategy and organizational issues.25. So far. what steps would you take to rapidly build IT capacity in this area? What are the major risks in executing an IT capacity-expansion? 9.24. you have noticed an increasing number of your firm's proposals are rejected because of a lack of information technology expertise in your firm. Discussion topics should include the increasing importance of information in business. The methods may include buying expertise by acquiring another firm. the importance of information systems for implementing new organizational structures and management control systems.2 Possible Answers Good answers focus on the value of IT to clients. Clearly.1 Issue Your are the managing director in a large international consulting firm. 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. 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.53 9. Recently. the firm should stop adding stories to the building. The building will house tenants.
Possible Solutions What is the structure of the industry? -. rapid technological changes in the IT industry require significant ongoing training and development costs. Better answers will focus on the difficulty of implementation in IT.Yes Changing environment: reduced tariffs . A few big companies own several brands. but an important issue is the loss of the firm’s focus on just strategy and organizational issues. The various products are quite similar in terms of raw material and production. • Diverse markets.26. Additional information: • • • • • The industry has many small to medium size companies.54 Candidates should discuss the pros and cons of each method. Discussion points should address the impact on firm's current culture. 9.). complexions).. The company's different brands are well established in the markets. however profits have been shrinking in recent years. Eurocos produces all products in all countries Transportation costs are small (see operational part).No Separate the commodity aspect of the product from fragmenting aspect -. The CEO of Eurocos Inc. customer needs (language. thinks he should change his strategy.1 Issue Eurocos Inc....Highly fragmented industry with the following characteristics: • Low entry barriers (small setup costs.26 Cosmetic Company in Europe 9. strategic studies in IT areas. the cost to the firm and the time needed to build expertise. Many small to medium size brands. customs exist between geographical markets How can fragmentation be overcome and is the strategy feasible for Eurocos? Learning curves present -. produces and sells various cosmetics products in several European countries. These issues could be intensified if "external experts" are brought into the organization. • High barriers. new practice cultures may be significantly different from current culture. • High product differentiation (many ways of differentiation). tariffs. articles. The company has been doing very well in the past. Good answers depend on the expansion methods discussed.Yes Standardize market needs -. He asks you if this is a good idea and what he should do next. Better answers will realize the importance of stimulating client demand as capacity builds through seminars.
27. quality) Optimizes locations (interest rates. etc..g. Cut-rate volume-oriented pricing .27. manufacturers? 9. and some of the public policy solutions being proposed are research consortium sponsored by the government. what will shared research accomplish? . longer runs.marginal cost of an additional chip is minimal. Semiconductor firms need access to huge amounts of capital on a continuous basis to survive for the long term. wages.55 The firm should consider consolidating production while keeping the marketing and branding nationally decentralized. 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. Pros: • • • • • Lower costs in production (better sourcing. This increases exponentially for each succeeding generation of memory chip. Raise pros/cons/issues of government participation in this issue.) The basic issue to be determined is that it costs huge amounts of money to be a player . Negligible variable costs. Domestic semiconductor manufacturers are clamoring for protection from Washington. The split between fixed and variable costs involved.S. You are a consultant at a major firm. 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. accusations of "dumping” against the Japanese. 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. Therefore. fixed costs are high.2 Possible Solutions What are the cost drivers in the industry? (e.27 Semiconductors 9. You know that each generation of memory chips lasts only four to five years. etc. 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. trade restraints.brutal price competition from the Japanese.roughly 250m in research and 600m for each plant.1 Issue The domestic semiconductor industry is beleaguered . Finally.
30 Fertilizer 9. The nature of tanker supply will be revealed by defining the different tanker types (in layman’s terms: small. discount carriers like People Express sprang up.28. why is it that the higher-cost carriers were able to survive and the low-cost ones were not? 9.1 Issue Historically low returns and stiff competition characterize the airline industry. In a price-competitive industry.29.1 Issue Your rich uncle has just passed away and left you with three small oil tankers in the Persian Gulf. the discounters have gone out of business. In the early years after deregulation. only large and medium tankers are put into service. 9.2 Possible Solutions This problem involves the interplay of supply and demand forces to determine the value of the tankers.2 Possible Solutions Characteristics of discounters: • • Low fares Limited service. How do you determine how much they are worth? 9. a step-function supply curve rsults for the industry with each step representing a different tanker type. In effect. The larger airlines priced every seat individually based on continuously monitoring of demand/supply.28. What are you going to do? Possible Solutions . It will turn out (by carefully drafting the supply/demand curves) that at the given level of demand. This renders your late uncle's small tankers suitable only for scrap at the present time. They wooed leisure customers with fares lower than discounters and charged more from business travelers (indifferent to price but sensitive to service and frequency). and large) in the industry and the cost-related prices associated with employing each type.1 Issue You have been hired by a fertilizer manufacturer to help them out of a difficult situation. Their market share and profits are declining and they cannot figure out what is happening.28 Airline Industry 9.29 Oil Tanker 9. 9.56 9. medium. Characteristics of major carriers: • • • Higher fares but better coverage and service Hub systems Full service capabilities with larger volume base. Demand for the services of tankers is assumed inelastic due to refinery economics dominating the purchase decision. The larger airlines stole the discounters' market and forced them out of business.30. Competitive moves by major airlines included the innovative use of information technology for yield management and differential pricing. Years later.29.
You also do not have any scale advantages. He also wants to make a big splash by presenting a new "strategic pricing methodology" aimed at achieving "value-based differentiated pricing. The Japanese market is much bigger than the Australian market. . This morning you received a call from the advertising director (your boss).1 Issue You are the new retail-advertising manager of a large daily newspaper.2 Possible Solutions The interviewee must first find out the corporate profitability objectives.). color. he does not explain why. (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. Again.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. He sounded extremely worried about the retail advertising division's performance.32. Examine competitor pricing and customer price sensitivity. What are your alternatives? (If you got this far.31 Retail Advertising Pricing 9. Examine both revenue and cost issues.. Assess gap between actual departmental performance and assigned targets." 9.e. The candidate must understand advertising attributes of importance to different segments (e. price-point. Further.31. frequency. costs have not risen significantly. 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). why worry?) Apparently.g.. etc. 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. corporate pressure to improve bottom-line results has led to steep advertising price increases. 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. (The candidate will discover that revenues have gone up steadily over the past few years. has over the last few years under-performed relative to its competitors as measured by profitability. etc.32 Automobile Industry 9. All three company’s current car models are "badged" Japanese designed cars (i. they are products of joint ventures with one of the smaller Japanese automobile manufactures). Use difference in needs of customers to implement prices based on appropriate advertising service needed.1 Issue Your client. one of the big three automakers in Australia. Discuss heterogeneity in advertising customers based on business size. size. you are probably doing fine!). you will have to flush this out with your questions and approach. 9. discounting. breadth of product line.31. So. 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.
What are the terms of the joint venture? respectively? Share of design costs pro-rated between the parties based on number of cars sold .Management accounts.Published financial accounts. .Raw materials. determine what makes up the costs and their relative importance? . Reverse engineering. To recap.High cost of production? Given that the reason for under-performance is the high cost of production.It turns out that the terms are all similar? . marketing. 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. you know the solution of the problem has something to do with cost so. in similar amounts and to similar markets in Australia.Manufacturing overhead. .32. ..Poor sales/ distribution? ..High general expenses (admin.58 These cars are then sold in both Japan and Australia. etc. Your Japanese partner incurred similar design costs (in absolute costs). . Why? . NONE OF THE ABOVE HELPS! Don't panic. using: . Data from your American holding company. your client sells a similar product.2 Possible Solutions Explore possible reasons for the under-performance .33. Given that design costs are by far the most important component of costs. the solution is at hand. explore the relevance of the Japanese connection? .Interior product? . The key lies in your discovery that design costs are pro-rated..is experiencing declining sales in its major product line. 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 only difference being the place of manufacture and the model names (i.)? . badges).Different market segments? .e.Design.Does our car cost more to design than our competitors? Although the answer to the last set of questions are negative. 9.dissimilar products or production leading to the under-performance? .Labor costs.Are the terms of out joint venture different from our competitors? . You have been asked to establish why your client has performed poorly relative to the competition.33 Scientific Industry 9. the candidate should establish the sources of high costs relative to the (other auto makers. 9.1 Issue A manufacturer of scientific instruments.
5. Response: There are two basic user groups: industry . 2. Response: The instrument. Response: It is currently around 5%.Does our product X compete with other manufacturers of X and particularly the manufacturer that was selling our Y? (Goal: understand reasons for our friendly X manufacturer stopping promotion of our product). and academia. What other products does our client manufacture? (Goal: gather background information on the client).primarily semiconductor manufacturers.59 9. but Y is essentially dependent on X for its operation. 1. Is the market for X and Y growing. over 30 percent of our clients sales were generated by a manufacturer of X.2 Possible Solutions Here are some questions that may help isolate the important issues: l. which we will call X. In fact. Y is an accessory for larger and much more expensive instrument that functions almost exactly like a microscope. 8. shrinking or flat? (Goal: a shrinking market could be a good explanation for declining company sales). Who uses X and Y? (Goal: determine market segments). Two years ago. and they have begun producing an unrelated product. in research labs. X's sales force will frequently recommend that a buyer purchase a certain Y while buying an X.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). Response: Both markets are flat. 3. except for replacement sales. call it Y. is able to perform elemental mapping. our X does compete directly with other Ys and our client introduced the product about one and a half years ago.33.What is the current percentage? (Goal: determine whether this could be a cause of the sales decline). 2. Describe the instrument and what it does. it is able to determine the specific composition of material placed in the chamber for observation. Response: Yes.How does our product compare to other Y's? (Goal: determine whether others are beating us in technological or other product features). that is. Response: They recently began manufacturing X. Response: X can be used by itself. Y is rarely sold individually. 4. Consequently. Response: Our client's product is regarded as one of the best in the market. What we have noticed lately is that the specific users in each of these . (You have discovered a significant portion of the sales decline). (Goal: gather background information on the product).
(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. 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. we happened to do so at a time when relationships became even more important.34. (There are many combinations!) . they are hired just to run the instruments and therefore know less about their technical qualities.perhaps an oligopoly. how do you simulate demand? Back of the envelope approach. Perfect competition. How to simulate the market mechanism? Determine what kind of market structure exists .Linear programming approach. which market segment is most likely to be affected? What will the equilibrium price be in the future? 9. you have been asked to construct an industry cost curve (cost/kg of aluminum produces vs. In addition to ruining our relationship with a manufacturer of X by producing our own.34 Aluminum Industry 9. There are five major players in the industry. Given perfect competition.2 Possible Solutions How to estimate competitors cost management? Financial accounts. relative cost position is the primary source of competitive advantage.35 Meat Packing Industry . who also happen to be the primary buyers have become relatively less sophisticated.1 Issue Your client is a leading manufacturer in the aluminum industry. In other words. Because aluminum is a commodity. The buyers are relying more and more on the X sales force who is typically called well in advance of' the Y sales force. 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. These buyers have become even more dependent on the sales forces. supplying six major geographic market segments. 9. for various plant-to-market combinations.) This is the second part of the main reason for our clients declining sales. industry supply). As part of a strategic review. Your model should be flexible enough to enable various future scenarios to be run. Indirect estimates by client management. 9.34. Direct estimates by client management.60 groups.
35. and 0% of fourth.61 9. By looking at the suppliers. you can break the income of the households into four quarters (500. The test is to see if you can come up with an answer based on information that you provide during the case using estimates.36.2 Possible Solutions Porter's five forces is a useful starting model in this case. Over the last few periods.000 2nd 50. You have been hired to figure out why. 9. You can estimate that the top income cluster tunes their pianos once a year. Therefore. In analyzing the internal rivalry.000. In addition. the second quarter once every three years and third quarter once every 10 years. There is no right answer. 5% of third.1 Issue How many piano tuners are there in Chicago? Possible Solutions This is a brain teaser case.000 each). You can then make an estimate of 20% of highest income quarter have pianos.35. transportation costs and competition have not changed dramatically. You will also discover that there has been no introduction of a substitute product.1 Issue Your client.000 3rd 25.36 Piano Tuners 9.167 or approximately 120.000 + 50. you will know that they are independent farmers with little power against your client.000 5 500.000. profits have steadily declined despite the fact that sales are growing. This gives you (100.000 20 500.000/3 + 25.000 households. Hence. owns a meat packing plant in Spain. a US firm. . you will discover the market is regional.000/10) = 119. Your margins are being squeezed due to the increasing concentration and buying power of your customers. the costs of your raw material cannot be the issue. The interviewer gave this piece of information at 2.000 pianos to tune.000 0 With 175. 10% of second quarter. Next.000 4th 0 Population % w/Pianos #of Pianos 500. Investigate this avenue.000 10 500. One way to solve it is to estimate the number of households in the Chicago area. Thus: Income quarter 1st 100. the only other alternative is the price of your product. and you will discover the buyer link. 9. your production costs have remained stable. Its purpose is to test your logical and quick mathematical thinking. you can estimate how often these pianos are tuned. Since there are stable costs and strong sales. You need to start by asking questions about the critical factors.
By the way.62 We can estimate that a piano tuner can do four pianos a day. 250 days a year. Would all the piano turners be in there? You could guess that at least half would be. . therefore: 120000/250=480 pianos a day to tune 4 = 120 pianos tuners needed. there are 46 piano tuners listed in the Chicago Yellow pages. How could you check this? Look in the yellow pages.
the consulting market supply generally following demand. not necessarily the answer. you should feel free to add information on an as-needed basis. Its possible demand may decrease as companies quit expanding. Firms must pay market price or risk losing suppliers. you begin to realize the enormous task to which you have committed yourself.63 9. . it is appropriate to question the effect a recession might have on industry. experienced consultants who bring in sales and new consultants who provide analytic). Potential Entry (moderate): There are no great barriers to entry into the consulting industry. give buyers more bargaining power. ask the interviewee to develop his or her own hypotheses. Rivalry (low to moderate): The management consulting industry is fragmented.g. you volunteer to study the industry and propose a firm strategy for next millenium. Top tier firms in particular are able to have high price points. and push prices lower. Its possible new firms would enter if the industry were earning positive economic profits. Supplier Bargaining (low-moderate): Major suppliers are the intellectual capital employed by firm (e. Eager to be accepted by your more senior peers. However. with many players each holding relatively small concentration of total market. The following is an abbreviated analysis. A good place to begin is to evaluate the industry from a competitive analysis perspective. and the resources they employ (no MBAs versus all MBAs). which would reduce demand. which limits competition and keeps prices high. This is also an interesting case since the salience is likely to be high. Firms act as competitive monopolists and differentiate themselves by specialty. such as Porter’s five forces. which you will present to the committee at its next meeting. Many companies are relationship-driven with their customers.1 Issue You are the newest member on the management committee of a well-known top-tier strategyconsulting firm. type of customer (Fortune 100 versus Fortune 1000 companies). Substitutes (moderate): Companies can move the consulting process in-house by hiring exconsultants and bright MBAs.37. What matters here is the thinking process. it is primarily the established firms that compete in the top tier of the industry.. When information is not available. 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. however. reputation (McKinsey versus accounting firms). which lowers buyer power. As you leave the meeting. As an interviewer. Buyer Bargaining (moderate-high): In the last decade.37 Consulting Firm Strategy 9.
).g.38. 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. journal and newspaper articles. etc. associations. etc. so the interviewee may balk. a complete review of published literature (a "lit search") pertaining to the study (e. Information gathering is a critical reason companies use consultants. in-person interviews. Primary research is then used to focus in on the critical issues. government sources. 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. Hypotheses are often created from the secondary information.64 Other interesting points might explore the critical success factors in the consulting industry. Specifically. 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. what is the best strategic route? 9. focus groups. 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.1 Issue . Information can be broken into two groups: secondary and primarily. etc. laboratory experiments. specialized studies. industry experts. This research includes telephone interviews. books. mailed questionnaires. how could you get a better handle on There is no right answer here. 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. Most answers will depend upon the material covered in the first two sections of the interview. major competitors.) 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.38 Corn Feed Company 9. the thought process is more important here than actual answers. cost-cutting studies rather than market expansion studies. investment bank research.g.).g. Usually one begins with secondary material. However. This often points towards other good sources (e.
Pricing on the product is dependent on current corn prices as opposed to the manufacturing process. The raw material is perishable where as the corn feed can be stored for any length of time and is easier to transport. Cost analysis of the transportation cost of feed versus raw material should be completed. For example. All four competitors have similar manufacturing processes and similar cost structure. The transportation cost per ton of corn stock (raw material) is much higher than the cost of transporting the actual feed. 9. Build a similar size plant at a new location 4. Corn feed is a commodity product. The proposed largest plant will not have economies of scales that are not already present in the existing plant. The corn is grown in the Ohio area and the feed is sold to the East Coast.38. Build a larger plant at the current location 3.1. Size of Plant First. There are four main competitors in the industry . which is industry standard.1. Refurbish the existing plant 2. Build a larger plant at a new location Which is the best option for this plant? 9.2. Conclusion The current plant is located close to the cornfields and this is the best location for the plant from the cost/benefit analysis. advertisers can . 9.our company is the second largest.38. consider the demand for the product. Currently demand is being met and there are no alternative uses for corn fed.65 A corn feed company has eight manufacturing plants located in the Midwest.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.39 Selective Binding Case 9. The plant size and the plant location should he considered separate. These plants service the entire United States.2 Possible Solutions There are two issues to this decision.1 Location of Plant Transportation cost and perishability are the main issues with location. Their plant in Ohio is in need of refurbishing. The capacity utilization is 65%. The company has four possible options: 1. Included in this analysis could be the rate of spoilage through longer transportation of corn stock. The current customers buy from all four manufacturers in order to guarantee supply.1. 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.39. In this way.
so 75% of them are targeting the highincome group. Effectively. They charge $70 per thousand for their full one-page ads. Q.000.000. Would you advise your client to take advantage of this new process and offer selective binding to its advertisers? 9. Q.000 of who are subscribers. There are 1 million readers. 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. Since the printing cost to the client of selective binding is zero.000. Twenty-five percent of subscribers make under $50. The 75% of the advertisers targeting the high-income segment will advertise only to the high-income subscribers (75% of subscribers). the 25% of advertisers targeting the lower income segment will choose to target only that 25% of subscribers. the client simply needs to evaluate cost on the basis of revenue per thousand gained or lost as their advertiser base uses the service to better target. Q. Assume that all advertisers continue to advertise in 100% of the newsstand copies. Presumably.000 and those who make over $50.66 focus their communications on the demographic segment they are targeting. 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. 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. Therefore. Of course.000 readers. the proportion of readers who are subscribers (as opposed to newsstand buyers). 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. and the proportion of subscribers in each demographic category? A. The only breakdown possible on your database is between subscribers who make under $50. The client's closest direct competitor has 500.000 and 75% make over $50. instead of 100% of advertisers paying the full $50/thousand per page. What is the total readership. 100. What demographic breakdowns are possible to make in the magazine's database? A. revenue associated with a single inserted page (front and back) in an issue is 100 per thousand. Q. What does the client's closest direct competitor charge for ads and what is their readership like? A. Q. The same mix applies to the newsstand buyers according to readership audits. all of their readers make over $50.2 Possible Solutions This is a straightforward cost/benefit analysis. The client charges $50 per thousand per full-page ad (selective binding can only be offered on full-page ads). 80% of who are subscribers. What proportion of the client's advertisers target each demographic category of readers'? A. . Most advertisers are selling high-end fashion products.39.
000 = $66. he needs to know if he should approve a $200 million capital request for tripling the division's capacity.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.75 is less than the $50 that advertisers are currently paying. If you consider the advertisers targeting the high-income group. The cost per thousand high-income readers with the competitor magazine is: (Page rate X total readership)/ (portion of readers who are high income) = ($70 X 500. For example. the magazine should not often advertisers the selective binding service. there are other issues which interviewees might want to mention such as the possibility of price discriminating between high . it is important at the end of the interview to have reached a recommendation regarding the initial question posed by the interviewer.2 Possible Solutions .67 New ad revenue per page = $50 X [(25% X 25%) + (75% X 75%)] at old rate = $31.1 Issue The CEO of a large. our client's ad rates must be looked at from the perspective of their advertisers. the potential for and cost of expanding the advertising base using selective binding as a selling tool. Of course. $70 is the maximum price per thousand the client can charge its advertisers for selectively targeted ads.67 If the client charged $70/thousand for selectively bound ads.40. Assume you and I are at the first team meeting.40 Video Games 9. the average revenue per thousand to the client would he: $70 X [(255 X 25%) + (75% X 75%)] = $43.and low-income advertisers.75 Since $43. To mention these other possibilities and areas for further investigation is certainly wise. Any higher cost and the advertisers would switch to their competitor. 9.000 = $70 Thus. 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. However. their alternative to advertising in your client's magazine is to put their ad dollars toward the 100% high-income readership competitor.40. Specifically. 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)/750.000)/500. but it is also important not to get too far off track or to complicate the issue so much that a final recommendation is never reached. diversified entertainment corporation has asked a consulting team to examine the operations of a subsidiary of his corporation that manufactures video games. To answer this question. You are a member of the consulting team assigned to this project.
if our client's position in that industry is sustainable. new remote joystick) to appeal to market segments. Product features are constantly being developed (e. Issue areas might include: concentration of market shares. The current estimate of industry hardware sales is 5. The main costs are assembly components and labor. The primary issue of the case is to determine if the industry is attractive and especially. 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. The top two producers have 30 and 25 percent market share. The following issues would need to be covered for the candidate to have done an acceptable job: 1. . per se. "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.). margins have recently been falling. 2. Sales: The division sales have increased rapidly over last year from a relatively small base. and declining "per capita" usage. The remainder is divided among small producers. Industry growth of software continues to increase.g. The requested expansion should reduce the cost by 5 to 7 percent and triple production capacity of the hardware units. but should not be expected to solve the problem. The top two competitors also develop. Customers: The division estimates that much of the initial target market (young families) have now purchased video game hardware. ask. manufacture and sell software/games though our division sells only licensed software.000. Industry growth has been strong though over last few months sales growth has slowed..000 units. Our competitors are estimated to have a 10 to 15 percent cost advantage currently. It the candidate begins to discuss too deeply a specific issue before having covered the key issues overall.000 units annually. respectively. What is the future market potential? The candidate needs to question the continuation of overall industry growth. No other large segments have been identified. Market Share: The division is the third largest manufacturer of hardware in the industry with 10 percent market share. competitive products (home computers). Profitability: The division currently exceeds corporate return requirements. She/he might ask about the saturation of markets.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. etc. control of retail channels and R&D capabilities (rate of new product introductions. The division sells to great range of consumers. Costs: The division estimates current cost is $30 fully loaded. Current estimated annual sales of 500. Product: the industry leaders have established hardware standards. The division’s sales remain less than 20 percent of parent company sales. Distribution: The primarily outlets of distribution are top retailers and electronics stores. What is the competitive outlook? The candidate should at least recognize the need to examine the competitive dynamics. The division’s current sales price for the basic unit is $45 per unit. yet. The candidate should identify issues that are necessary for assessing both the industry and our client's position. however.
69 3. This steam hose division provides boiler hoses for both external customers and the client's boiler division. Recognize that different distribution needs may exist for different products (in this case. In this situation. Background information on the client and industry includes: Boiler hoses are sold both with original equipment and as replacements.e. -Seek to understand the reason for poor profit performance of division. hardware versus software). from hardware (player units) to software (videocassettes). Address the shitting mix of product purchases.41. In this case.) Software Recognize industry leaders set technology standards. There has been increasing price pressure in the industry. yields an industry volume estimate. How would you structure an analysis aimed at restoring profitability? Where do you expect to be able to save in costs? 9.. 9. Company ability to Compete Should ask what the capacity expansion is designed to do. the division as a secondary player and will have to follow these standards. but better answers would address: Market Potential Recognize that there is a relationship between market penetration and growth in new users which.1 Issue The firm was asked by a diversified manufacturing client to help turn around the steam boiler hose division. The client is third of eight industry participants. (i. Explore the cost position of the client division relative to that of other competitors. when combined. There are no bounds on creativity. Seek to look at buyer behavior in critical buyer segments. What will be the price/volume relationship in the future? Issues of prices need to be considered.2 Possible Solutions The following information is also available in response to questions asked by the candidate: . "fad" potential of product.41 Steam Boiler Hoses 9.41.
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. requiring excess raw material. What kind of comments are we receiving form our sales force? (Customers are delighted with our hoses but require all the product features. BETTER ANSWERS Better answers will move beyond the previous answers to consider: 1. 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. 3. Allocation of overhead (no cash savings and provides little savings potential) 4. OUTSTANDING ANSWERS The best answers follow a logical progression and should not stumble upon the actual answer: The product has been over-designed. Are there other areas in the company where similar problems exist? 9.) 2. MINIMUM REOUIREMENTS The candidate should avoid being bogged down in the following areas: 1. How is our product engineering operation wired into the marketplace? (There is little contact between the engineering and marketing/sales organizations. Drop the product line (apparently not possible because hoses are necessary for boiler sales). Raw material prices (they are the same as everyone else's) 3. Raw material purchasing practices (material are purchased through long term contracts with prices based on the spot market minus a discount). 2.) 3. 2.42 Merger Candidate in Chemical Industry . At least two of the other companies in the industry are making moderate profits. Scale economies (client is big enough to achieve scale production).
) 4.) 3. The target company is probably at breakeven and the rest are operating at break-even or loss. a bulk chemical used in the production of plastics. number two has 20 percent. The target company has reasonably "good" position. 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. Both companies are bulk commodity chemical producers.1 Issue One major chemical producer has retained the consulting firm to evaluate another major participant in the industry. How is the product sold and distributed? (Economies of scale in marketing and transportation are critical.) 2. our target company has 15 percent and the rest is divided among the other competitors.) 3.) 2. age of plant. How would you structure an analysis of the target company's future prospects in this product line? 9.42.) 5.) 5.) OUTSTANDING ANSWERS 1. Essential facts included: • • Production of this chemical has slowly declined over the last five years. Is there synergy between our client and target? (Not really. Are there niche or value-added uses for chemical? (Not really.) . How often have companies entered/exited. We have been asked to begin our work by analyzing the future prospects of the target company's major product line. • The largest competitor has just announced construction plans for a major new plant. How much overall capacity exists now? (Far too much. 4.) BETTER ANSWERS 1. How rational is pricing in the market? (The industry is prone to self-destructive cuts to gain temporary share points.71 9. Prices have declined rapidly. exit cheap mostly because older plants are fully depreciated.) 2. • There are 7 to 8 major producers: the largest producer has a 30 percent share.) 3. (It is a bluff to try to encourage smaller competitors to shut down. What has been the relative capacity utilization of competitors in the industry? (60 to 70 percent for last three years). Is regulation important? (Yes: all competitors have installed pollution control equipment. What is nature of operational improvements that target company could make? (Lots) 4. Reasons for announced capacity expansion. How important is this product line to each of the competitors? (Most producers are fully diversified.42. • The two largest competitors earn a small return. and how expensive is entry/exit'' (Entrance is expensive. What are relative cost positions of competitors? (Related to size/efficiency. Does the chemical have a major by-product or is it a by-product? (Not of significance in this case.2 Possible Solutions MINIMUM REOUIRENENTS 1.
How would you go about determining the optimal mix of potential products? 9. Are there differences in costs in the manufacturing of these materials? For example. Our client estimates he has less than 1 percent of' the total market. Customers: Our client's customers are primarily consumers or industrial product manufacturers who use the synthetic materials in packaging their own products.2 Possible Solutions Market Share: The industry is highly fragmented.43. The candidate could cover differences for each product in the fixed and variable manufacturing. The interviewee should also address the market demand for each product (to ensure what is produced can be sold at an acceptable price). Products: Our client's machinery can produce hundreds of different products. 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. flexibility. A variety of' small manufacturers supply similar products to a wide range of customers. etc. and general performance. No competitor has more than three percent of the total market. These areas must be determined to understand the profitability of each product. light. Each material is used for packaging but differs in physical properties in terms of costs. Are there market limitations to the potential production of any one material'? 2. Is there competition for these products? 3. 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. Some are unique to meet specific customer requirements while others are used by a variety of customers. Cost: Each product has a different cost to manufacture dependent on materials used and the manufacturing process. Price: Each product has a different price dependent on both the client's cost to manufacture as well as the market for the product. Each machine is capable of running any one of the various materials and/or coating combinations. The client has asked us what combination of products he should ran to increase the profitability of the plant. selling cost and prices. Suppliers: Our client uses primarily commodity products in the manufacturing process. vapor.72 9. do some coatings cost more than others do? Do some materials have inherent cost differences? 4. All products can be obtained from a number of sources.43 TYPE PURPOSE Machine-Loading Case Macroeconomic To determine problem whether the candidate can dissect a general economic 9. MINIMUM REQUIREMENTS 1. weight. water. All of the machines on which these materials are made are housed in one enormous factory location. The client does not wish to invest in additional equipment at this time. Is there flexibility in pricing of' these products? .43.
44. how much does each cost to build. The guide is to request what % of the market $4M represents. Are there technological displacement or replacement products on the horizon? OUTSTANDIN'G ANSWERS The best candidates will formulate a profit maximization algorithm. one can estimate what the industry spends per year on machinery can. This % can then be compared to the 25% share of the parent.. The best algorithm is to maximize the profit contribution per machine hour. not dependent life) and what the machinery replacement costs are. Suppose the answer is that there are two direct competitors. In addition. with the remaining 15% belonging to many small manufacturers. 2.45. Are there differences in setup time and cost for various materials or coatings? 2. which supplies machinery to refineries (not owned by your company) around the world.45. 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.73 BETTER AN'SWERS 1.most likely in comparison two dissimilar pieces of information: 25% market share and $4M (but no idea what % of the market this represents). Divide the above mentioned $4M into this and the refining division's market share can be assessed. From this.45 Agricultural Equipment Manufacturer 9. Are the machines truly interchangeable or are some better suited to one product or another? 4.operating status" .2 Possible Solutions Define "assess. 1.1 Issue Your company has 25% world-wide market share of the oil industry. Do these materials move at different speeds through the machines? 3. You might want to start off by asking how many competitors there are. how long they last (actual life. What is your client's market share relative to their competitors (your client has 40% of the market.2 Possible Solutions It is unlikely that there are too many players in this market.44. competitor #2: 15%. is losing money. Profit contribution is (unit volume) times (unit price minus variable cost).44 Oil Refining Industry 9. 9. How do you asses the current operating status of this division? 9. 3.1 Issue Your client is a large agricultural equipment manufacturer. competitor #1: 30%. Machine-hour capacity is a surrogate for fixed costs per unit of volume..) . What questions would you ask of your client to help them solve their profitability problem? 9. An estimate of the market size is therefore needs to be done. farming tractors. The way to do this is to ask how many oil refineries there are. 9. Assume this is unknown. Is there unlimited market demand for these products? 5. the potential substantial differences in volume produced per product-hour and/or the price obtainable in the market demand and competitive actions. Their primary product line. You generate $4M annually in revenues through the machinery division of the company. An outstanding answer must include recognition of the asset costs and capital implied in that as well as income or profit contribution.
I guess we assume that they will. We've tightened tolerances and improved the durability of our component parts.) 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. 10%. Obviously.) Do you manufacture your tractor or just assemble it? (Primarily an assembly operation. . your client has lost significant market share to its two competitors over the last few years..) Are your customers willing to pay for these product improvements? (What do you mean.74 What-are the market share trends in the industry? (Five years ago. they all have the same basic features. that you must consider the long-term effects of these decisions. (variable costs. material costs. and the client has no answer as to why material prices have gone up so staggeringly. but customers do not value these improvements unless they are essentially free --so sales are down.) 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. they're not.) 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. tractors are not commodity items and a few differences do exist.) Have fixed costs increased? (`No. Don't forget though. the prices have increased as a result of our product improvement efforts. competitor #l. in fact both the price and costs are up. The client needs to incorporate a cost/benefit analysis procedure into its product improvement process. This can be critical for some farmers because they cannot afford to have a piece of equipment break down at a critical time.) have gone up out of sight.) Are sales revenues down? Are sales quantities down? (Yes) Is the price down? All costs the same? (No.) 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. your client had 60% of the market. and competitor #2. Of course.. 15%.) Are your customers willing to pay a marginal price which will cover your cost of implementing these improvements? (I don't know.) It turns out that prices have been raised to cover the costs of these improvements.
How can you show your client money that he can save money.1 Issue A manufacturing company based in Charleston. whose stock is listed on the NYSE. the only way they can do this is by shipping overnight at a premium rate (UPS . The treasurer is contemplating the purchase of 5000 shares of company 456 and wants your help in determining a fair market price. one in Philadelphia and one in LA . Recently. 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.2 Solution $22 per share 9. warehouses and shipments). How would you go about determining a fair price for company 456? 9. hold no inventory and thus require next-day replenishment after a sale. Again. in case you have not already surmised. 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).46 Insurance Company 9. You are called in because they feel that the $ l million that they spent on distribution last year was way too high. Short-term treasury bills are yielding 7 percent." is applicable.47. When you divide this into the $1 million distribution cost you discover that they are pay $100 to deliver a pan to the store.S.48 Pots & Pans (2) 9. A quick way to solve this case is to realize that if stores require next day service from these three warehouses. This can be confirmed by asking for the annual sales which turns out to be 10. since the closer they are to the stores the cheaper the distribution costs. . they are motivated to issue a policy to anyone at as high a price as possible. the results achieved by the above mentioned composed system are examined. in specialty and department stores. She is in charge of managing a portfolio of investments in addition to her treasury responsibilities. is an organizational behavior scenario. Having set up by definition.one in Charleston.2 Possible Solutions Distribution is basically a trade-off between cost and service level. The next thing you need to know is where the warehouses are located.. 9. The higher the service level. depending on how risky (costly) an insured party proves to be.2 Possible Solutions This. The absence of such a consideration (for example) would be detrimental to the company in the long run. she has asked your advice about the purchase of a large position in company 456. 9.1 Issue Your client is the treasurer in a significantly privately held corporation. In essence.48. and long-term t-bills are yielding 8 percent. Your client has three warehouses . They are not motivated to give consideration to the riskiness of the insured party. So you need to ask where the inventory is being held. you must define what the "right way is".no wonder they're spending so much). Which is the right way to pay the sales agents? 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). since they sell so few of these pots and pans. The only factor determining how much the agents paid is their sales $.48. the higher the cost (more inventory pools. Beat this figure and you've earned your exorbitant fee.46. SC makes high quality pots and pans which are sold throughout the U. A more efficient compensation structure might pay the agent on a sliding scale.47.46.from which they cover the whole country. Company 456 is currently selling for $22 per share.47 Consulting Firm (2) 9..000 units. The treasurer's investment analyst predicts that the stock will pay a dividend of $1.75 9. It turns out that stores.25 for the foreseeable future.
yielding the estimate of total diaper weight (numerator). 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. many communities are enacting legislation that limits their usage in Tucson. the management feels that th e Northeast is not the fastest growing area of the country. Multiply this number by the average weight per unit. etc. Arizona a little over a year ago. The cost of programming is based on number of subscribers and is equal across the nation. all marketed under the same name: chilled (found in the milk section of the supermarket. television reception is far better in the desert Southwest than in Northeastern cities. chilled juices are only breaking even in good quarters and losing money in bad quarters. administration and marketing. which is a function of physical area covered. Per capita income is higher than in Philadelphia and the same as in Rochester and in Stamford. How would you analyze this situation. They are also prohibitively expensive for most people. but larger than Rochester and Stamford. due to the larger land area serviced. What would you advise that she do? To be divulged gradually: . free hookup. The entire company has sales of over $20 billion. These rates have been steady over the past three years in the Northeast. Figures on garbage tonnage (denominator) are probably available in some obscure federal report. This division has sales of $600 million per year. 9.2 Possible Solution Wet your pants/skirts. and. 9. the Tucson company’s sales have been stagnant. 9. juice boxes. CT.1 Issue Q: Your client is a small holding company that owns three cable television companies in the Northeast: Rochester. usually). Her division produces fruit juices in three forms. Despite every effort of management. (No. and frozen concentrate. However. Only maintenance is higher that in the other markets. You need a numerator (diapers) and a denominator (total US household garbage). such as free Disney programming for one month. therefore. Operating costs in Tucson are essentially the same as in the other markets. The Tucson company has attempted marketing efforts in the past. Philadelphia and Stamford. wait until after the interview for that).49. Operating costs are composed of variable items: sales staff.50. There is only one real substitute good for cable television: satellite dishes.50 Cable Television Company (2) 9. This is strictly a mathematical.49 Diapers 9. 9. Each of these three companies is profitable. 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. For diapers you could take the total $ sales of disposable diapers and divide by the average price per total unit (box: etc. The lower penetration rate is most likely a result of different climate conditions and lower interference in Arizona. Cable penetration rates in the three Northeastern markets average 45%. The penetration rate in Tucson has only rised by 2% in the past three years in Tucson. acquired another cable television company in Tucson.). Tucson is also growing at 12% per year on average. However. She has received a proposal from upper management to sell the chilled juices business. number crunching exercise. These programs have been modeled after the other three markets. While juice boxes and frozen concentrate are profitable.2 Solution The real error of management results from their failure to recognize another “substitute” good: no cable television at all. and the company has been losing money.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. free HBO for one month. maitenence.76 9. and each has been experiencing steadily growing sales over the past few years.50. NY. Fixed costs relate to the cable lines.49. The chilled segment represents $120 million in sales per year. The penetration rate in Tucson is 20%.
What could be causing this: Other information: The split of product sold has consistently been 60% vodka / 40% run over the past few years. trade and couponing that your client. The best available information indicates that the two market leaders are profitable. However. The market leaders produce pure orange juice and blends that are based on citrus juices. as evidenced by the success of the competitors. 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. mangoes. Brand name is important in this market. respectively.1 Issue You are consulting for a major United States producer of distilled spirits. Such stores are alsom becoming less and less willing to hold inventory. 9. The selling price is likely to be low. There are two large players that have 40% and 25% of the market.52.51. affect the juice bix and frozen concentrate businesses. as mothers tend to prefer highly reliable products for their children. Over the past few years. The selling prices of the two lines are essentially the same. etc. This turns out to be the most feasible option. which . 9. bananas. Sell all of the juice business. where alcohol is sold in privately managed supermarkets and liquor stores. It would be difficult to find another use for the plant without a major conversion. Their primary products are a line of mid-priced vodkas and two brands of mid-range rum. usually with a base of pear or peach juice (95% of the inputs) and flavored with cranberries. Therefore. etc. 12%. One plant in California produces all of the product. chilled. the brand premium must be in line with other branded products. the business has become less and less profitable. juice boxes and frozen. “open” states. This is a highly price sensitive market that loves coupons.52 Distilled Spirits 9. Pear and peach juice are about the same price as orange juice. makes her third in the industry. Keep the chilled juice business and rework the ingredients and costs. This would. all branded juices tend to sell in the same price range. promotions.77 Chilled beverages is a $5 billion dollar industry nationwide. as in juice boxes and frozen concentrate. as there are both advertising and manufacturing synergies. (the other 5% of the inputs). shelf space is extremely expensive and trade promotions are critical. as the buyer could capture the synergies. Overall sales are growing at about 3 to 5% per year. The market for chilled juices is essentially mothers with school age children. Your client’s market share.1 Solution: There are three choices: Sell the chilled juice business. The two market leaders are able to fund more advertising and more promotion. but would not be too likely to turn the business around. In 27 states. the same as the idustry average for these product lines. but the other flavorings cost about twice as much. This may be more feasible. Your product uses more elaborate blends of juices. however.
what do they charge for thier product. Sales in the regulated states are actually decreasing.53. Distribution costs in these states is much lower. as there are far fewer outlets to service and central warehouses for the state-run stores. or 210 million) estimate a usage rate of one half pack per week. chewing gum market? Check your answer for reasonableness. liquor is only sold through state regulated liquor stores. annual sales would be $2. and understand if your client could profitably serve this market. 15% are between the ages of 10 and 20. the current competitor. This could be obtained by knowing the population of Paris (6 million) and making some educated guesses about factors that determine pizza market size.54. How do you go about answering these questions? . and therefore.1 Issue How would you estimate the size of the annual U.S.54 French Pizza Market Pizza Hut has recently entered the home pizza delivery business in Paris. the fact that they represent a shrinking portion of the total has caused total profits to decline.S. Total packs per year is 9. First. Because the regulated states are less expensive to serve.500 million packs. In the other 23 states. 9. The market for home delivery is currently dominated by Spizza Pizza. Having had no time to do background research. the heaviest users. try to understand the likely competitive response of Spizza to your client’s entry. market segments that are neglected by Spizza.2 Solution: A greater and greater share of the volume is being sold in the “open” states. you sit on the plane wondering what is the annual market size for golfballs inthe U. for annual sales of 4. with sales in these states increasing at about 10% per year. for a total of 45 million. what information would you need and second. what type of product do they offer.55 Golfball Market Entry 9. 9.52. 9. advertising spending is lower. (70% of the 300 million population. Pizza Hut has asked your consulting firm to help it analyze issues that will determine its likelihood of success in the Parisian Pizza market. and therefore. 9.55.1 Issue You are visiting a client who sells golfballs in the United States. what is the cost structure of their business and what products are most profitable. including sales.2 A typical approach: Estimate the number of people who chew gum: of the 300 million population. Also. Estimate that these people chew two packs per week. a reasonable figure. Determine what are the needs of any neglected market. and proportion of Paris that is currently served by Spizza.53. 9.2 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. To check for reasonableness. and what factors drive demand.250 packs per year.54. Advertising of alcohol is much more tightly regulated. Your plane lands in fifteen minutes. How will you defend your position if Spizza decides to fight for market share? 9. For the other users over age 20.53 Chewing Gum Market 9.750. how would you analyze the pizza delivery market? 9. You may also want to know the size of Spizza.4 billion. Other useful information: market segments targeted and served by Spizza.1 Possible Information Needs: An estimate of the size of the Parisian home pizza delivery market. for a total of 5.78 is increasing distribution costs by requiring more frequent deliveries. figure the dollar sales that these packs represent: at 25 cents per pack. number of stores. more profitable.
labor and energy costs 10% distribution and storage. Now. but it appears that their factory is extremely efficient. 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. 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. a plastic chemical. Currently. a localized upstart company has appeared in the Philadelphia / New Jersey market and has captured nearly all of that market. Your client does not have much information about this competitor.56. Since that time. 15% marketing and overhead. The number of end users: take the population of 300 million. They have also been undercutting your client on price. the success of the venture would depend notonly upon the means of entry. hazardous waste) Access to distribution channels 9. 35% conversion costs. Poyethylene is a commodity chemical. and requires two balls per time. Other critical factors would include: The existence of a distinct sustainable competitive advantage. Solution: . resulting in a 2 billion ball market. and the technology used is the same as when the factory opened. Profit margins are 20%.57 Packaging Material Manufacturer Your client is the largest North American producer of a certain kind of bubble-pack packaging material.56.1 Issue An overseas construction firm wants to expand by estamblishing a presence in a growing U. How should it go about doing this? What factors are critical for its success? 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. The factory is thriry years old. The client had 100% of the market until two years ago.56 Overseas Construction 9. If the average golfer plays twenty times per year. How would you begin to assess the future for this client.2 Typical solution: Golfball sales are driven by end-users. assume that people between 20 and 70 play golf (about 2/3 of the population. 9. that’s forty balls per person.3 Possible Solution Diversification could be effected through joint ventures or through acquisition. This factory has purchased technology from a German company. estimate the frequentcy of purchase. Multipy that times the 50 million. and has asked your firm to assess the strategic outlook for this company. including allocated fixed costs.55. regional market. However.56. for example.S.79 9. the company has 80% of the market. 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.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.
perhaps) that will somehow determine the factors that are most related to kidney treatment. 9. it is mostly a variable costs. As evidenced in the Philadelphia / New Jersey market. build a model (regression.59 Health Care Costs Bill Clinton has just fired Hillary Clinton as Chief of Health Reforms and has appointed you to fill the position. Interviewer Notes: Revenues will be determined by occupancy rates and expected prices. Compare the indicence of kidney disorder in the country with other countries. And. that may play role. such as corruption or government regulation.80 The competitor has used their new technology to produce a lower price product. last but not least. 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 . rather than a shole industry. you discover that kidney dialysis is a major portion of public health care expenditures.58 Airline Expansion A major airline is considering acquiring an existing route from Tokyo to New York. How can it determine if the route is a good idea? Suggested frameworks: Profitability analysis looks like the best approach. Since this is a procedure. and they should be advised to respond to the competitive threat.60 Local Banking Demand . analyze the factors that go into revenue and the factors that comprise cost to come to a conclusion. Then.Fixed + Variable). incremental costs for landing rights. is ours higher? If so. the sum of which is measured by cost per unit x # of units. Don’t forget the external factors. Therefore. Is there room for any type of preventative program for these groups? 9. nearly all customers prefer this product to your client’s. Perhaps those who are typically covered by public funds (the poor.S. etc.S. while in his office. can public policy ofr efforts to increase awareness help reduce it? If incidence is indeed higher for the U. also. It is also very important to estimate the cost of cannibalization on existing Tokyo-LA. 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. Operating costs will depend on expected fuel costs. it is important to note that losing passengers to cannibalization is better than losing them to competitors. Thus. 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. the future is extremely bleak for your client. perhaps by updating their own technology. Both of these will be determined by expected demand. the competitive invironment and the extent to which our client could win over passengers from competitor routes. LA-New York routes. the elderly) have a higher incidence of kidney problems. 9.
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%. such as the 4 P’s. 25% of customers who order product . 9. maybe a cash machine would suffice. Your client’s catalog printing and postage costs have just increased to thirty-two cents per catalog. In addition. each 100 catalogs mailed results in 2. regional maker of high quality premium priced frozen desserts. should be compared with those of historically successful branches. and flavorings such as chocolate.) The client will have to match competitors’ incentives to customers and should estimate the cost of doing so. the shift of sales from ice cream into frozen yogurt is causing the company as a whole to be less profitable. These will depend on the importance of the area to competitiors (in terms of profit. the business is barely making a profit and the management is unsure that they will able to pay their usual dividend this year. They have asked you to help them identify the problem. however. The client must examine if the new branch would complement their existing competence and strategy (retail or commercial. pineapple and raspberries. etc.5 orders place. as Americans jump on the fitness bandwagon. business concentration. All other costs are equal for the two lines. income levels. kiwis. If the need focuses on deposits and withdrawls only. vanilla and coffee. Solution: Margins on frozen yogurt products must be lower than for ice cream. The ingredients are different. Additional information: The client sells a complete line of product (ice cream and frozen yogurt) in major supermarket chains in the Northeast. etc. (Ice cream and similar products). so it is essential to anticipate them. pecans. The selling price per pint is the same for frozen yogurt and ice cream. etc. The premium frozen yogurts use more exotic flavorings such as mangoes. Population. frozen yogurt has begun to outsell ice cream. share.62 Direct Mail Retailer You are consulting for a direct mail retailer that sells ladies clothing. Though sales have been increasing.) and what purpose it would serve. Ice cream uses locally available milk and cream. In recent years. or possibly even negative. and currently represents 55% of product sold. Competitor reactions could easily make this benture unprofitable. Therefore. high growth or high profitability. Interviewer Notes: The demographics of the area surrounding the prospective branch should be examined. 9. The average order size is $80. due to the higher ingredient costs. one should consider a marketing framework.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.61 Frozen Desserts You are consulting for a small. In other words.
5 orders placed per 100 catalogs mailed. At a profit margin of fifteen percent. Information to be divulged gradually: This is the only product of its kind. 9. pharmaceuticals). Solution: This is a classic customer analysis problem. the margins on this chemical are almost 40%. or $200 in sales. 9. or .5 orders will result in 2. While most products that come off patent quickly drop in price (e.82 can be expected to reorder within six months.64 Telecommunications Diversification A Baby Bell company is interested in diversifying into other areas besides telecommunications. for a total of 2.g. The $30 profit is not sufficient to cover the printing and mailing costs of $32. this product will be able to retain some of its premium due to the strong brand name. the outlook for the product is good even after the patent expires. They are considering entering the market for electronic home security systems. The costs to manufacture the product are extremely low (about 20% of the price of the product). Each 100 catalogs will result in 2 orders. In addition. The chemical will come off patent in one year. printing and postage costs are $32.5 additional reorders. plus 2 x 25%. Therefore. The fully allocated profit margin (excluding mailing Solution: For each 100 catalogs mailed. costs) on catalog orders is 15%. (100 x 32 cents). Therefore. the cost of the chemical sweetener represents 1. Because the major two customers feature the chemical name on their product.5% of their total costs. The largest two customers (75% of your sales) are two worldwide beverage companies. Would you recommend that they do so? Suggested frameworks: . 2. and because the chemical represents such a small portion of their total costs.5 x 80. these sales will return a total profit of $30. the client should reject the printing arrangement at 32 cents per copy. they can be expected to be willing to continue to pay the premium into the future. and consider it a sign of quality. in terms of taste and safety (lack of harmful health effects) as proven in lab tests. Currently. The brand name of the product has slowly become a common household word.63 Chemical Sweetener Manufacturer Your client manufactures a chemical sweetener used in beverages and other food products. The companies feature the brand name of your client’s chemical on their product. You have been asked to predict what might happen to the profitability of this product when the product comes off patent.
65 Aluminium Can Manufacturer An aluminum can manufacturer has discovered a way to improve its manufacturing process. operator services. The top five players in the industry generate less than 4% of the total industry revenues. Also.$1.79 cents. such as Porter’s Five Forces. Interviewer Notes: Clearly. The firm can either use a penetration strategy or price skimming strategy. once you feel you understand the market. but that more market research needs to be done to assess the growth and profit potential of each segment of the market. They have previously made unsuccessful forays into software and into real estate. Growth has been slow in recent years. don’t forget to think about any substitutes for aluminum cans. The home security business is highly fragmented. It turns out that the client is the leader in its market with a 40% share and supplies directly to major beverage manufacturers. This implies that the industry largely consists of small.83 Use an industry attractiveness framework. The number two player in the market has about 30% of the market and the rest is shared by many small competitors. Consider the impact of either strategy on the company and its competitors. Price sensitivity is unknown in “moderate-priced home” segment. use the value chain to look at where value is added in the home security business. How can the manufacturer best exploit this cost advantage? Suggested frameworks: Remember basic economics. or at least to determine what kind of returns you can expect to achieve. Interviewer Notes: The company is a holding company. 9.500 Monthly Service 0-10% margin $5 / month $20 / month What strengths / competencies of the Baby Bell company are useful in this market? Installation expertise. determine if the core competencies of the Baby Bell are likely to match the demands of the home security markets. This is is some sense a razor and razor blade sort of business. The economics are: Item Retail Price Cost / Margin Equipment and Installation $500 . the client should either drop price or reap additional profits. transmission system (phone lines) Consider: It turns out that the “expensive home” segment of this market is saturated. to determine whether this is a business you want to be in.89 to $0. The conclusion is that this business is a reasonably good fit for the company. 10% of all residences currently own an electronic security systems. finally. As a result. its manufacturing cost has been reduced from $0. then. regional companies. .
Steel cans are used by customers who do not want to pay the premium for aluminum cans. analyze competitive response. He needs your advice on how to go about evaluation this idea. Your client’s margin is 15%. The lowering of prices might increase the client’s market share marginally. Major discout stores sell the service. This company ended up establishing a “store within a store” concept with Wal-Mart. look at industry attractiveness with Porter’s five forces analysis. and a stable labor force.84 Aluminum cans have a lower priced substitute. the Southeastern U. other competitors will have to follow since this is a commodity market and not following would mean a quick demise. Since some steel can manufacturers have deep pockets and a strong backing. What would your approach be? Suggested frameworks: This is and industry entry question. If the client drops prices. The smaller firm sells mainly to other small businesses and contractors.) . Interviewer Notes: Distribution chanels are the key factor in this business. In conclusion.67 Concrete Manufacturer Your client. At the same time. 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. steel can users sill start switching to aluminum cans. patio builders. This is a scale economy business in the back-office. Your client’s customers are large construction firms and contractors generally in the office and commercial building construction business. The resulting growth in the aluminum can market will attract steel can manufacturers to enter it. etc. Both companies compete in the geographical market. 9. which have inferior printing and stamping characteristics.S. What factors should be considered? After considering these factors. steel cans. with margins of 5%. The cost advantage may help another day during a price war.66 Film Processing The CEO of the largest domestic manufacturer of photo film want to enter the film developing business. these new entrants could pose a future threat to our client. thus hurting manufacturers in that market. This makes the business tough to enter. a concrete manufacturer is considering acquiring a small local firm. 9. think about what part of the marketing mix (4 P’s) would be best for film developing. (Swimming pool installation firms. it is best to retain prices and generate extra profits for now. so profits are easier with high volume. would you recommend the acquisition? Additional Information to be divulged gradually: The target firm is currently profitable. Finally. Then. Your client attributes its higher profit margin to economies of scale in trucking and mixing.
Solution: From a financial point of view. steel prices. and make the acquisition more attractive. while the major office building construction market is stagnant. The containers are leased by the company to worldwide shipping companies. Similar acquisitions generally are made for two to three times current sales of the target firm. your client’s share in that market. the acquisition is not attractive if there are no synergies between the firms. a steel shell and an insulation and waterproofing material that uses a hazardous chemical. Its goal is to double total sales and profits in less than two years. 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.g. It is reasonable to expect that synergies would arise from economies of scale in trucking and mixing.69 Production and disposal of the insulation chemicals. the acquisition would be advisable. With profit margins of only 5%. Market issues: changes in the worldwide shipping market (e. Shippers can lease the containers one-way or roundtrip.) However. of course. growth of the largest customer industries.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. trends in the leasing terms in the industry. As a consultant brought in to assis them. 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 . The client has asked you to do an assessment of their strategy. costs of handling the Healthcare Company Growth A large healthcare company has decided it is interested in substantially increasing the size of its operations. Interest on this amount will be 10% x 3 x sales. customer power. if your client were able to use some of its competitive advantages to improve the financial outlook of the target firm. new technology in shipping containers. Environmental Issues: chemicals. The container consists of a steel frame. or 30% of annual sales. The smaller firm has strong contacts with many local customers. and is often the preferred supplier due to their customer responsiveness. but could obtain bank financing at a rate of 10%. which could raise the profit level of the target firm. 9. 9. Profits are only 5% of sales. This analysis.85 Additional research shows that the smaller customers for concrete are growing. does the growth of an area like Southeast Asia imply many more one-way contracts than round-trip?). customs and trade agreement trends. manufacturing costs. What issues might you examine? Suggessted Issues: Sales and cost issues: The growth of the shipping container market. ignores the tax shields. (Acquisition price = 3 x sales.
The relative benefits of each will depend on financial resources as well as the existence of. particularly if the company is operating in a moderately competitive environment. A business can increase profits by: Increasing sales Increasing prices Decreasing costs However. it would seem unlikely that either increasing prices or cutting costs represent feasible methods by which to double sales & profits. a suitable solution will depend upon the answers to the above questions. 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. 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. What are the key consideration to making this decision? Issues to consider: Would the savings from bulk purhcasing more than compensate for the cost of: Building and maintaining the warehouse Employing additional personnel and trucks Opportunity cost of capital tied up in inventory for additional periods Do the stores buy similar products? (i. You should then consider the potential for increasing sales by means of diversification through acquisition or joint venture. Will the stores prefer delivery direct from the supplier or from the warehouse? Consider the time tied up in order processing. . This leaves only sales increases.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. each store deals directly with the vairous suppliers.70 Regional Grocery Store Chain A regional chain of grocery stores currently receives its stock on a decentralized basis. 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. the flexibility of delivery times and quantities.e. In the particular example of this case. it turned out that only selling new products to new customers via some form of diversification could hope to achieve the company goals. i. 9.e. and competition for suitable targets. if the company’s margins are found to be consistent with industry norms.
we need to know how much cloth (measured in square meters. with an appropriate confidence interval. but also that all the affected players can be persuaded to buy into it. for instance) is being purchased per unit time per inhabitant of the world. In order to evaluate the world demand for cloth. you need to establish not only that it will cost less.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. She has massive amounts of historical data for sales volumes through these outlets and a well constructed internal accounting system. could be established in some manner from the historical data. For you to propose going with the new method. In order to refine our appraisal.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.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. How should she go about computing an appropriate number? Possible solution: The best way to tackle this one (without going into a huge Economic Order Quantity qunatitative analysis) is not so much to start asking questions as to set out and outline analysis and fill in as you go. The marginal revenue for a magazine would be its cover price times the probability that it will be sold. The marginal costs could be obtained from the internal accounting data. 9. 9. The probability of sale. marginal revenues whould be set equal to marginal costs. we may segment the inhabitants of our planet per level of personal wealth. Furthermore.73 Cement Manufacturer Capacity Addition . Note that this may not be a linear relationship. It should be observed immediately that to maximize profits. 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. A detailed discussion of the application of these concepts from basic microeconomics and statistics may be necessary.
and extra shifts are not possible. Therefore. The CEO has asked you to help him decide if they should build another plant or expand the current plant. and feel it could have more. The plant is unionized. location of the plant in the north may increase sales in the north by reducing delivery costs to these customers. . The trucks are owned by the company.88 You are consulting for the number-one producer of cement in Portugal. 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. This company currently has 45% of the market. Approximately 80% of the customers are within 100 miles of the current plant. Raw materials are purchased from a government-owned company. it is safe to assume customers that are further away are less inclined to buy due to the increased trucking costs. and prices are set by a yearly contract with the government. From the data. Solution: As distribution is the second-largest cost item. it makes sense to minimize distribution costs in choosing the site of the next facility. there is also a suitable site near Porto. and transport all product directly to the customers throughout the country. about 200 miles to the north. 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. Land is available to expand the current factory. located near Lisbon. in Southern Portugal. but is running at 100% capacity of their one plant.
the product line has not changed in the past two years in a product category where new products and line extensions are routine.75 Beverage Company Cost Structure . In addition.89 9. Grocery stores and convenience stores require some type of promotion to grant valuable end of aisle displays or advertising space. though the same number of outlets are still covered by this sales force. 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. Most of the reduction came from trade promotions. The marketing expenditure was also decreased. Their sales forces are regarded as the best in the industry. The sales force was drastically cut and the commission scheme was reworked. The product line of the client has not changed over this period. It turns out that the company went on a cost-cutting spree over the past two years. Lastly. however. these two companies have 55% of the market. Profits as a percent of sales. the market has been growing. but may not be sustainable. Solution: The data show that the greatest change is in the sales force numbers. 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. Promotions usually occur at the end of each quarter. The changes in the marketing budget come from reduced trade promotions. These channels are traditionally driven by periodic trade promotions. indicating a missed opportunity for new products in the market. Together. but not kept pace with the market. The reduction in trade promotions brought about a loss of shelf space. have been growing. Also. 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. 9. The products are mostly sold through large grocery store chains and convenience stores.74 Snack Food Company A large salted snack food company has steadily been losing market share over that past two years. The product is sold through the same channels as previously: large grocery chains and convenience stores. which has directly led to the decrease in market share. from a high of 20% to the current level of 18%. the interviewee’s conclusion should be that the client’s total dollar sales have actually grown. The sales force generally visits each customer at least once per quarter.
the light bulb will never burn out. Over time. The two companies sell their products side by side for essentially the same price in similar outlets internationally. What will be the effect on the light bulb industry? Additional Information: The light bulb industry is dominated by two multinational producers. but more loyal customers. the typical order size for RC Cola would be smaller. putting the competitor out of business and greatly reducing their own business. Another solution is that all of the players obtain some version of this technology. Possible solutions: One outcome is that one of the two major players purchases the technology. for which would they be lower. The lab is ready to licence this product to a light bulb manufacturer. the average truck driver will be driving more miles and spending more time to deliver a truckload of RC that the Coca Cola driver. Distribution: would be higher for RC Cola for two reasons.77 Super Regional Bank . There are a several small local players in various regions of the world who produce local brands and some private store brand light bulbs. with this filament. 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. who will have several stops within an immediate area. thereby drying up the industry. If that were to happen. If the technology is patented and exclusively licenced. A possible analysis. the price for this product would decline to the normal industry profit level. Marketing: is lower for RC Cola as they are not a frequent advertiser like Coca Cola. making the industry more competitive and wiping out industry profits. as there are fewer. all customers will eventually switch over to the permanent light bulb. however. 9.90 RC Cola and Coca Cola both compete in the same industry.76 Permanent Light Bulbs A small R&D lab in the Swiss Alps has developed a super-durable filament for light bulbs. Therefore. There have been no technological innovations in light bulbs for many years. If the producer makes enough bulbs at a low enough cost. Their cost structures are vastly different. Administration / Overhead: lower for RC Cola as they are more of a “one-product” company than is Coca Cola. RC is not distributed in as many outlets as Coca Cola. estimate the likely cost structure for RC Cola. this player may enjoy an advantage for a limited time. meaning that more stops would have to be made. it is conceivable that one truckload may be deliver to just one customer. Also. In other words. Using Coca Cola as a benchmark. for which costs would RC Cola be higher. and customers would shift to the permanent light bulb. Sales Costs: could be lower for RC. 9. 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. all bulbs would be permanent and the industry volume would greatly decrease. In the case of Coca Cola.
Typically. 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. 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. Like most banks in its class it has branches in 8 geographically contiguous states. however this type of case occurs frequently. The question to you is: how would you go about setting up the engagement to determine the viability of this new concept? Specifically. however. It was a Saturday night and the weather was fair. Your client has recently concluded that the old “local branch” way of business is no longer viable. 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. By 11pm the place had at least 70 customers. 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 new Centers would offer virtually all of the services currently offered through local branches plus some additional things. how would you go about determining the value of this bar? Issues to consider We arrived at the bar around 8:30pm.thus requiring less tellers? Summary: It probably is best setup as a cost benefit analysis. There certainly is no right answer. They are considering replacing many branches with Calling Centers. I asked my friend how much he thought the bar was worth. Fund transfer. 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. There appeared to be 30 customers already there.91 You have a have recently been assigned to a project with one of the nation’s super regional banks. etc. While enjoying one of the bar’s finest stogies and sipping a cognac.78 Cigar Bar I was sitting in one of Chicago’s new specialty “Cigar Bars” around the end of August with a friend. I would estimate the maximum capacity to be close to 100. 9. . 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. On the back of an envelope. this bank has canvassed its territory with small free-standing branches.
GQ Magazine) His stated goal is to generate circulation revenues of $10 million in the first year. and possibly employees. He has hired you to figure out whether this is possible. management. Costs: There are two components to costs: fixed costs and variable costs. the specific anwser is not important as long as you are making reasonable assumptions. The bar is located on one of Chicago’s trendier streets with a lot of foot traffic. 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. Valuation: Subtract the costs from the revenues and adjust for taxes. In any case pick some number for the expected life (4-5 years). Both businesses are profitable but are not growing quickly. All three were there the entire evening. Possible Solution: This is an estimation case. The bar is open Tuesday thru Sunday from 5 pm until 2 am.92 The bar sells two things: liquor and cigars. a waiter and a waitresses. Of the 80 million 30-50 year old men in the country. Approximately 1/2 are male or 80 million.. insurance.2 + CF2/(1. 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). You now have the annual cash flows generated from the bar. There was one bar tender. Possible Solution: This is a straight forward valuation. The only real variable cost is the cost of goods sold. 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.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. This gives you a value of: Value = CF1/1.2)2 + . Perhaps 20%. 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. The key here is to clearly define your assumptions.. . + Cfn/(1. 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. Under fixed costs you might consider: rent.2)n 9. The average cost of a cigar is $8 and the average cost of a drink is $7. How long do you anticipate this bar being around? Cigar bars are a trend. general maintenance. approximately 2/3 of the population falls between 30-50 or about 160 million people. liquor license. He want’s to start a third monthly magazine in the US targeted at 30-50 year old men (eg. assume that at least 1/2 would read a magazine or 40 million. The discount rate should be a rate representative of WACC’s of similar businesses with the same risk.
50-$5. Similarly. In the past two years.000 customers. the hospital bed division is located in the East German manufacturing operation. 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.000 or $600. 9.80 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. Sometimes the interviewer will provide you with an income statement that will break out the major cost components by percentage. this is a monthly magazine. Lets say $3/magazine at the news stand and $2/magazine for a subscription. Further investigation shows that labor is the major component of cost in manufacturing castors. Revenues Based on what other magazines sell for ($2. it would not make sense to launch the magazine. This would generate total revenues of $600.000). Profitability Analysis 9.000) and 50% buy at the news stand (120. Now make some assumptions on how many customers will buy on the news stand versus subscription. The hospital bed and mop bucket divisions are located in the West German manufacturing operation. A: This is a typical revenue/cost case.2 million.00) assume a cover price. and 25% are to chair manufacturers. This comes out to $360. lets say 50% subsrcibe (120. Similarly. profits are down 10% for both the mop bucket and chair divisions but are down 30% for the hospital bed division. We have already been told that revenues are flat which should be a clue to explore the cost side of the income statement. Finally.000 X 12 or $7. Land is leased to . The logging industry in Canada is regulated by the government.000.000 + $240. You have been asked to find out what is happening and suggest a course of action to reverse these trends. In this case given the CEO’s stated goal of $10 million in circulation revenues. For simplicity assume that all target customers buy a magazine every month. Case Type: Industry Analysis.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. Over the past two years the company’s profits have declined by 20% while revenues have been relatively flat. This is what is driving most of the increased costs. 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. 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. 25% are to mop bucket manufacturers. In this case it helps to work logically through both the fixed and variable costs to see if there are any major items.81 Logging Company Background: You are hired by a Canadian logging company to analyze its current operations and provide advice on future operations.
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?
Products: GM produces a full spectrum of parts classified as either platform-specific or universal. and premium). its brand names are respected and are valuable to merchandisers in maintaining margins. high turnover. brand names. batteries Sold through many outlets. 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. slim margins/very high volume $2B • • GM Sales • Growth Rates: The table below provides the basic facts about each market segment’s growth rate. There are hundreds of small parts manufacturers which tend to focus on commodity-like auto parts (e. a manufacturer could go after a niche play if it were to develop an advantaged cost structure or superior product. The market share loss is primarily in the premium category. hoses. they are not nearly as integrated as GM and tend to focus in specific parts categories. Thus its variable costs must be below sales revenue. However. Brand names (e. These advantages combined with the high growth rates for the non-dealer merchandisers should motivate GM to expand it business in this segment. AutoLite) are important to many consumers. 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. 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. GM should use its cost advantage.g. 9. engines Sold through dealers under warranty. Also. Power of Suppliers is not a significant factor because inputs are commodity raw metal and rubber.Product: The firm produces plastic-wrapped packages of sliced deli meats at all price points (generic. Details: • The Company: . Switching costs among consumers is very low. strong competition. midrange. AC Delco. GM’s ability to produce a full-range of products is also an advantage. high margins/low volume $8B Universal Parts Spark plugs. and full range of products to go after the most lucrative market -.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.g. Platform-specific Parts Types of Parts Market Characteristics Body panels. Fram. All of GM’s parts manufacturing facilities are fully depreciated and they currently have excess capacity. Competitors: While Ford and Chrysler make parts for their own cars.the mass merchandisers. The deli meats carry a well-known brand label.97 • Company Economics: There are tremendous fixed costs in the auto business (including labor). . filters. brakes. The client would like an action plan for resolving the cause of this decrease. transmissions. Industry Rivalry is important for the mass merchandiser category because margins are slim (meaning price wars are more prevalent).. • • • • GM’s Position: GM may have a cost advantage due to its fully depreciated plants and excess capacity in a fixed-cost environment. oil filters).
is the client a major buyer. 70. the competitors have maintained prices during the recent loss in market share. The Customer: Although the customer buying premium deli meats has not changed. The variability in the quality of the premium product is being driven by the variability within a 90-rated bin. Although price decreases will garner market share.Price: Products in the premium category carry a higher price and have slightly higher margins. Individual chunks within a bin may vary from this average. sometimes not. 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. Meat is rated on a scale of 1 to 100 (100 being best). • Solution: • Production Process: The client receives chunk meat in bins which meet a certain average quality measurement. • The Competition: There are three other competitors in the deli meat industry. how much longer is the contract set to run. -Place (Distribution): The product is sold in grocery stores and delis. This was causing customers to change to the competition. Sometimes the product was better than the competition. Meat in the 90-rated bin ranges from 80-95 while meat in the 70-rated bin ranges from 55-80. To reduce the variability. • . That is. The premium deli meats are made from a mix of the three bins with the majority coming from the 90-rated bin. and 90. Each of these competitors has about 20% of the market share. midrange and premium) is growing. a survey of the customers indicated a variability in the quality of the product produced by the client. Overall the market (generic.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 second option will add cost to the production process and reduce margins. . The competition uses the same channels to sell its products.98 . The client is in a long-term contract with a supplier for bins at three quality ratings: 40. the client could (1) negotiate with the supplier to narrow the range within a bin or (2) sort the meat within the 90-rated bin at his own facility. The impact of the first proposal will depend on the relationship with the supplier.