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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.

3. 4.

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

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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. 1.1.2.1 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
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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.

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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. 1.1.2.2 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. 1.1.2.3 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: 1.1.2.4 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. 1.1.2.5 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. 1.1.2.6 Litigation Consulting

These consultants work with law firms to plan case strategies, provide economic analysis, and develop courtroom tactics and/or evidentiary presentations. 1.1.2.7 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. 1.1.2.8 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:

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1.1.4.1 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. 1.1.4.2 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. 1.1.4.3 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.

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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. 1.1.4.5 Partner/ Director/ Vice President

Partners are responsible both for negotiating engagements and for reviewing the work generated by those engagements. The ultimate responsibility for a project's success falls on the partner's shoulders. With several projects to oversee at once in addition to their marketing duties, partners are often the hardest-working consultants in the office. A partner's travel schedule is generally more hectic than that of the more junior consultants. As the partner juggles several projects at one time, the partner may only periodically visit each client site. The partner attends important meetings with senior client managers. 1.1.5 Compensation

The median salary for full-time consulting positions was $85,000 in the most recent recruiting year. For internships, consulting firms usually pay the monthly equivalent of their full-time salaries. Keep in mind, however, that first-year total compensation is usually much higher. For example, most firms offer a signing bonus of $10,000 to $25,000. Also, some firms will pay for the second year of business school (and recently, one firm offered to pay for both years of business school as part of their full-time offers to summer interns). A new employee is sometimes eligible for a performance bonus after the first year. In short, compensation is outstanding compared to what most of us were being paid before business school. 1.1.6 Lifestyle

So far, consulting looks like the ideal job: immediate responsibility, opportunity to make a difference, excellent pay, etc. For some people it is. These people are known as partners. Since only about one percent of consultants go on to become partners, what happens to the other 99 percent? There are two main reasons for the attrition. First, since consultants are in such high profile positions, they typically receive job offers from clients and frequent contacts from corporate recruiters. Second, being in a position of responsibility usually translates into long hours in the office and frequent travel. This does not leave much time for a personal life. In addition, if a spouse or children are in the picture, it may not be possible to “have it all.” The greatest amount of attrition occurs around the three- to four-year mark, when consultants have gained enough experience to be offered positions involving a better balance of work and personal life at the same or higher compensation. Given the high investment made by consulting firms in developing personnel, reducing attrition can save a lot of money. Lately, firms have implemented programs designed to lessen the burden on consultants and, theoretically, prevent valued employees from wanting to look elsewhere. To reduce

Other firms have a more office-intensive style that involves going to the client site only when necessary. Most of these programs only require three days of work per week. This limits their being away from family and friends only three nights per week. . To address concerns about raising a family. many firms have institutionalized Fridays in the office or allow consultants to work from home on Fridays. It is also possible to ask lifestyle questions of recent alumni or second-years that interned at the firm in question. it is very hard to be rejected because of one's performance at a reception. some firms have recently instituted part-time programs. If you have lifestyle concerns. Contrary to popular belief. 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.4 the out-of-town burden. the best time to ask these questions of firms is during the recruiting receptions.

logistics. This skewed size distribution reflects the low barriers to entry to this industry: anyone can hang out a shingle bearing the title "Consultant. the largest is MIS consulting. Summer 1984. 1988. In third place as a specialization is management/strategy consulting. The two main dimensions of specialization are function-for example.5 billion. 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. or government. 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. Such a large. strictly speaking. and probably most significant. operations: half of all consulting firms generate less than $500.2 generating about $25 billion in annual revenues. The third important basis for segmentation in the consulting industry is degree of specialization. 2 3 4 Economist survey. While the industry definition. 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. June 1992. Four of the top twelve U. Internal consultants perform essentially the same functions as external consultants. however. consulting firms fall into this category. many of these small shops exist. veteran consultants often end their careers in their own consulting firms. often serving a single client. covers only outside consultants. downsizing. 3. and one-third employ fewer than four people. While all firms provide a variety of services.1 Consulting Articles The Management Consulting Industry By David J.4 Internal consulting can be an attractive option. and ensuring that it matches your interests. 7. and outsourcing have created both the supply and the demand for independent consultants. A second and often overlooked distinction in consulting is between in-house and external consultants. This area includes the generalist management consultants. 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. the generalist consultants concentrate on higher value-added consulting for senior management. Collis is an assistant professor of business administration at the Harvard Business School and faculty adviser to the Management Consulting Club.1 Segmentation The first. Collis David J. 2. February 13. Although these firms are ostensibly full-line consultants.S. which is. but most of the 20% annual rate of turnover among consultants is not due to consultants being hired by clients.1. financial services. Transfers at junior levels are common. way to segment the consulting industry is to compare large and small firms. Corporate policies of early retirement. and various earlier issues. such as McKinsey. usually affiliated with a planning department.000 in annual billings. while enjoying a more direct career path into line management. or management education . often one-person. the strategy consultants. with annual billings exceeding $1. most consulting firms generate the majority of their revenue from one type of work.and customer group or industry. the typical consultant works for a large firm: the fifty largest consulting firms in the United States account for approximately three-quarters of domestic revenue. Vol.000 people worldwide work full-time in the management consulting industry. for example. since they lack both the breadth of clients and depth of support of the big firms. If the typical consulting firm is small. Of these specializations. Booz Allen. However. for the most part. such as BCG and Bain. and. these firms generate over $3 billion in billings annually. is therefore a vital first step in considering which firms to approach for a position. the industry has nevertheless grown more than twice as fast as GNP for the last decade. dynamic industry is by no means homogeneous. albeit in a more limited number of settings-there are five times as many external consultants as internal consultants. management information systems (MIS). many large corporations have their own internal consulting arms. however. p. Instead.3 Just over half of these consultants come from the United States.5 2 2. Journal of Management Consulting. while an estimated three-quarters of all consultants work in firms employing more than 100 professionals. another quarter come from Europe. While management consulting fluctuates with the business cycle. The other functional or industry specialists in consulting tend to be small. Professor Collis has extensive experience with consulting firms. organization design. health care. Whether these firms are attractive starting points for new consultants is debatable. Data estimates are from Consultants News. and their newer first cousins. Most consulting firms are small. Understanding how each consulting firm specializes. In the United States alone. The second largest specialization is compensation and benefits consulting. clients often find their cost structure uneconomic for consulting on functional activities such as logistics. ." and many former executives do just that. Contrary to the prevailing belief. Approximately 100. reflecting their origins as one-person shops run by an executive with a particular skill or industry knowledge.

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). Working at Braxton (now owned by Deloitte & Touche). but even they would like to be involved in developing the direction of change.6 The consulting industry no longer draws a distinction between formulation and implementation.1. Citibank tried and exited consulting. for example. Among the world's top twenty consultants. but the extent of non-domestic business varies substantially. It has been estimated that only a third of a consultant's business comes from repeat 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.K. As a result. these reputations are usually more a reflection of marketing than of a fundamentally different approach to consulting. under which single ownership provides a variety of consulting specialties. The purchaser of the audit . which are still operating successfully. and from the competitive advantages of larger firms-reputation. There have been. firm did 94%. predicting which corporate activities will be outsourced could give you a head start in identifying the next growth specialty in consulting. This implies that working for an international consulting firm will not necessarily allow you to work overseas. One reason is the difficulty inherent in merging cultures. although some firms may be known for a particular technique tool. The industry will also continue to move to an hourglass shape: increasingly.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. Although it is true that these acquisitions are occurring. "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. When the publicity for a firm surrounds a particular solution to a general problem. does only 7% of its work outside the United States. 2. for example. Other industry trends are the acquisitions by outsiders of consulting firms and the move toward broad scope consulting firms. this expense could be substantially reduced. is won in competitive bids against comparable consulting firms. Saatchi & Saatchi is the most obvious example of the failure of an outsider to build a broad scope consulting business. Hewitt Associates. In considering a career in consulting. A last distinction among consulting firms is their degree of internationalization. . would not be dissimilar to working at Monitor or at Braxton when each was independent. 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. about 20% of a consulting firm's costs lie in acquiring clients. not of substance. compared with McKinsey's 60% and the U. like time-based competition for strategy. In fact. their impact on your daily activities. All firms in all categories of consulting recognize that their role must involve effecting change in the client organization. few acquisitions of one strategy consulting firm by another. The issue really relates to the clients' decision-making process. more cyclically than in the past. For the potential consultant. but even those companies like Mercer. This structure results both from the ease of entry for newcomers. while new business. usually not the purchaser of strategy consulting. the success of broad scope consulting firms and of outside ownership remains doubtful. 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. have yet to demonstrate the value of broad scope. for example. As a result. If an accounting firm can leverage its audit relationship into MIS consulting. diversified client base. However. Similarly. maintains a wall between consulting and auditing. 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. it is usually not representative of a profound difference in the type of work the firm undertakes. and the accounting firms are still struggling to establish a relationship with their consulting arms that peaceably compensates consultants more than auditors. and only I% of consulting firms are more than fifty years old. if anything. Unfortunately. such as BCG and the experience curve in the 1970s. I would therefore suggest that the ultimate ownership of the firm you might work for is not of great importance. While a few firms are able to break through the mid-size plateau to become recognized large players . and differences between them are now of degree. increasingly.2 Trends Management consulting will continue to grow. The rationale for hiring consultants-to access the specific expertise needed to quickly solve a current problem-will remain and will. particularly in the junior positions. one firm. for example.is. partly because the problems resulting from merging cultures cause the firms' major asset-people-to leave. or if a strategy consulting report can recommend hiring the sister benefits consulting firm for the follow-on organization study. and broader geographic base. so they can be responsive to local needs. cover more tasks in the future as firms reconsider the costs of all their internal functions. will be relatively limited. Some specialists in "change management" exist. most of the broad scope firms are essentially umbrella-holding companies for a set of independent specialists having little interaction with one another. but still faster than GNP.the CFO or controller . The rationale for these acquisitions lies in the economies of scope that a broad line competitor can exploit. particularly in marketing. and yet leverages the audit relationship into consulting work. Most firms now have offices or affiliations outside their home country. even those firms with extensive overseas networks tend to have independent offices.

who will give you a more detailed and realistic understanding of the firms' focuses and values. Once you decide that pursuing a job in the consulting field is a productive way for you to spend your recruiting effort. consulting will have to become an even more exciting. more capable of understanding the manager's role. This network can be created by establishing alliances with overseas affiliates but is now more often achieved by setting up foreign offices. you should also take advantage of any opportunity to learn about the firms from the consultants themselves. Twenty years from now there will be far more interaction among geographic markets and. 2. Finally. a larger Asian presence.2 Reflections on First-Year Recruiting By Phil Collins Class of 1993. you must be prepared to learn a foreign language and to travel overseas. and more versed in people skills than the functional expert of the past. however one industry trend that will affect you: globalization. consulting firms are themselves likely to further integrate their worldwide operations.2. The value provided by consulting firms will have to come from their ability to apply concepts and to customize them for particular client needs.S.7 There is. who must be leaders in the development of skills if they are to continue to provide value to clients. Most foreign offices are currently operated with a great deal of autonomy. 2. As consulting firms increase their geographic scope. both to serve your clients effectively and to learn from best practice in other countries. your focus will shift to the most critical step: getting an offer. While preparing materials and attending recruiting briefings and career fairs will be helpful. to match the globalization of clients in the future. Otherwise. Today. and effective recruiting will by necessity require significant focus. Instead. 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. repetitive tasks more cost effectively. the good news is that to truly meet client demands for value for money. No longer will a 24-year-old MBA be able to add value simply by applying a concept the client has not seen before.S. each with its own selection criteria. U. To serve the increasing global needs of clients effectively. 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. To meet these sort of demands. In practical terms this will mean that consultants will have to be less formulaic than in the past. Your time and energy will be limited. Harvard Business School If investment banking was the career of choice in the 1980s. As future management consultants. 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. it is doubly true for management consultants. global competition is likely to increase. which will be useful in two ways: this information will assist you in determining which firms you would be interested in working for. market. one could argue that management consulting has replaced it as the most sought-after business profession in the 1990s. Another valuable resource not to be overlooked is your . and ultimately rewarding career than ever before. obtaining summer positions in the consulting industry has become increasingly competitive. not simply from their possession of a particular technology. 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. Thus the pyramid structure inside consulting firms will change-on average in the large firms. As competitiveness for summer positions in consulting has intensified.2. any large consulting firm today needs a global network of offices. European firms the European market. and it will be crucial in preparing for interviews. This will require a more experienced consultant. An effective job search will require you to assemble a considerable amount of information about each for the firms. However. challenging. 2. 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. 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.1 Why consulting? Perhaps the first and most important step in first-year recruiting is deciding what type of summer position is right for you. one partner supports eleven consultants-as the number of very senior and very junior employee swells.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. I suspect. Although this prescription is true for all executives. These senior consultants will be supported by junior "para-consultants" who can perform the mechanistic. As a result. consulting firms will work more closely with client management in defining and analyzing problems and in formulating and implementing solutions. firms dominate the U. and Asia is undeveloped both as a market for and a source of consultants. it is likely that the employee profile of consulting firms will alter somewhat. based on your interests and long-term career plans.

Be grateful that you figured this out early.8 classmates who worked at particular firms before business school or who went through summer consulting programs with firms. For most firms. Provide concrete examples from your previous experience which demonstrate that you have been a creative problem solver. While understanding the characteristics of each firm will be helpful. You should have. or where you would not enjoy the type of work being done. 7. confident and convincing. Look carefully at your resume and identify your weak spots. Identify your weaknesses. is not in the best interest of either you or the firm. Frame your skills and experience in terms of how you can add value to the firm and its clients.2. and move on with enthusiasm to the next interview. so prepare clear and convincing answers. 4. want it and being able to clearly communicate your conviction. or does it attempt to be strong across a number of areas? What kinds of problems has the firm worked on before. it is also important to be honest and to be yourself. Firms will inevitably ask you at the end of the interview if you have any questions. consulting firms are also looking for people who are energetic and have an appetite for new challenges. and you should schedule your interviews accordingly.2. Generally. Given that most students at top business schools possess all of these requirements to some degree. creative problem solvers whose interpersonal skills will allow them to work well in a team environment. traits often demonstrated by a record of past achievement. 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. Save the best interview for last. While it is important to be at your best in framing and communicating your skills. the case interview can become considerably less daunting. and will therefore be ready to begin pursuing a summer position in earnest. Consulting firms hire people from a wide variety of backgrounds. and that you have demonstrated leadership abilities. Ask insightful questions. 5. There is a learning curve in this process. Given the nature of the work. Preparing for the case interview 2. Firms use cases to evaluate your analytic abilities and problem-solving skills. most firms are looking for the same kind of people: smart. and provides an opportunity to showcase your knowledge and skills. They should be designed to demonstrate a strong understanding of the firm and to help you gain further insight into whether the firm is a top choice for you. but a major career change may require some explanation.2. Keep in mind that they are not looking for a "correct" answer. 2. other than knowing why you. but instead are trying to understand how you think and how you . 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. Understand clearly why you want a job in consulting. and it is important to understand how each firm differentiates itself Consider the following issues: • Type of work: Does the firm specialize along functional. successful candidates must communicate their unique strengths clearly and convincingly. that you are successful working in teams. 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. Here are some tips: 1. A good case interview is no more than a discussion about an interesting and challenging business problem. Good questions are firm-specific and thoughtful. they are not nearly as frightening as one might expect. Viewed in this way. you should be able to identify those in which you have a sincere interest. interviews and cases will make or break your candidacy. Understand what consulting firms are looking for. While they are clearly a crucial element in evaluating prospective employees. Experience will allow you to become more relaxed. Getting a job at a firm full of people with whom you would not get along. firms differ along a few important dimensions. Be yourself and be honest. and how does it support the professional development of its consultants? 2. 6. and do these engagements sound interesting? Focus on implementation: After developing a set of recommendations. 3.1 Getting an offer Once you have a good understanding of the various consulting firms. What are the one or two questions that you hope they will not ask? They will. There are no experience prerequisites for getting a summer job in consulting.3 Nothing causes more anxiety in first-year students trying to land a summer job in consulting than the prospect of interview cases.

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. The resounding line eloquently uttered by every recruiter that becomes particularly meaningful as the second-year process draws near is. 2. Some cases might require microeconomic analysis. what opportunities does the client have to take actions that will improve their performance? 3. 5. the interviewer will often interrupt you and provide additional data. Identify the most important issues in the case up front. We extend more offers for permanent positions. Each problem is unique and will require a unique approach. you will be challenged to think on your feet to work through complex business problems. 6. If you make assumptions. I suggest keeping the following points in mind: 1. Think causally and logically. and linkages. so your chances of receiving an offer second year increase. encompassing a number of issues and presenting a lot of data. and even fun experience. Keep in mind that each firm approaches cases in a different way. Adapt your analysis to the problem. This is especially important because it is difficult to recover from a hasty start. state them clearly. and what impact have they had? Develop a clear and logical chain of reasoning and understand the linkages between key elements of the problem. Be flexible. and decision making. 8. This often helps you to concentrate on the problem-solving aspect of the case. You will meet a wide variety of intelligent and interesting people. whether you are successful or unsuccessful. it can also be a challenging. and approach them in a logical way rather than generating random thoughts. School career centers/placement offices offer a variety of tools. 2. so feel free to take notes during the case portion of the interview. Some cases are long and complex. Ask questions. and then concentrate on ways of enhancing and demonstrating your problem solving skills. Take notes. prefabricated and inflexible analytical framework. Some firms may ask you to analyze an industry you have worked in. This is an important distinction with implications for how you should respond to case situations. What are the underlying causes of the case situation. as opposed to what is merely interesting. the cases will require integration of knowledge of a number of subjects and functional areas. If you are on the wrong track. the process consists of five or so days crammed with as many as 20 interviews. You may be handed pages of data and asked for your impressions. 4. brush up on your microeconomics. the process of pursuing a permanent position can be broken down into three broad components: investigating consulting firms. Drive to action. 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. The last thing you should have to worry about is remembering case facts and numbers. head-spinning whirlwind of back-to-back meetings. . Don't try to force every problem to conform to a generic. Overall. In addition. One good way to do this is to practice a few mock cases with another student. 7.2. the recruiters speak the truth. and develop a framework that is appropriate. while others may be much shorter or less quantitative.9 approach problems.4 Second-Year Recruiting: Looking for the Long-Term By Jim McManus: Class of 1990. Develop a framework for approaching the problem. rewarding. and you will gain a broader understanding of the different firms and of consulting as a career. the interviewing process for second-year candidates is refreshingly slower paced and more manageable than the first-year cyclone. The bottom line is that case interviews have been designed so that you cannot study for them. or you may have a situation described to you in a qualitative way. while other firms will deliberately ask you about industries with which you are unfamiliar. and develop hypotheses to explain what is driving the important issues. Given an understanding of the key issues. Harvard Business School First-year interviewing for summer jobs in management consulting can be characterized as an exciting. so don't bother. Stay calm. Most often. Listen carefully and take time to think clearly about the problem before formulating a response. recruiting." Fortunately.2. Break the problem down into its constituent parts. "Don't be discouraged if things don't work out for the summer. Try to determine what is critical. For many. 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. 2. causes. while others may rely on knowledge of first-year marketing. Review the major frameworks developed in first-year courses. While a consulting job search will require a great deal of time and effort.

When interviewing with consulting firms for summer positions. Issues such as the size of a typical case team and the role of the new consultant on a team should be considered. the primary goal of most first-years is simply to land a job at the firm of choice.year recruiting is for the longer term. nitty-gritty details of what life is really like at Firm X or Y. The "details" that you were willing to live without for an 8. Given the variables of personality. compensation should be just one of many criteria you use in deciding which firms to pursue. one of the most critical attributes to consider is the culture of the firm. you should consider the size and stability of the firm's client base and its vulnerability to a downturn. 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. (As a practical matter. 2) the characteristics and cultures of the firms. What is the firm's long-term strategy. 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. 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. lifestyle and culture. are classmates and friends. as reflected by its employees. 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. office location. many firms invite students to information sessions and dinners throughout the fall to introduce prospective candidates to the firms' people and practices. and 3) the nature of the career opportunities offered. industry focus. When you are planning your post-graduation career. 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. performance evaluations. Spend some time early in the process getting familiar with the workings of your career center. . the second-year recruit's most important resource. both in the office and traveling. with less emphasis placed on such "details" as location. firms (and even different offices within the same firm) differ markedly in their degree of emphasis on the following dimensions: implementation vs. take the initiative to call one of their recruiting coordinators to express an interest in attending. especially given our high debt levels. compensation. However.to 10-week summer will become critical second year. you should get a feel for other important attributes of each firm. you are sure to pick up important new insights with each informal conversation with classmates. and how well positioned is it to achieve that strategy? As a prospective candidate. and company-specific literature that enable us to build a knowledge base on potential employers in a matter of days. you may need to send a cover letter requesting an interview. Depending on the firm. promotion. so it is a good idea to understanding detail your school's policies at the start of the second year. Second. and functional specializations. In addition. and weigh these factors against your particular preferences.generation or cost focus. seek the perspectives of many people who have experience at that firm. The focus of your information search will also differ in the second year. Though the interview season does not officially begin until later in the school year. These "informal" get-togethers give students the opportunity to evaluate firms before getting into the more time-intensive interview process. strategy.6 The Recruiting Process Management consulting firms do not wait long after the beginning of the school year before kicking off their recruiting campaigns. lifestyle preference.2. 2.10 including career counseling services. In terms of their consulting work. revenue. In assessing the characteristics of each firm. Though every firm will highlight the collaborative nature of its client relationships. Some schools have very strict schedules. Speak to as many people as possible about their summer job experiences. by far. dress codes tend to be casual for on-campus presentations and professional for off-campus events. while others are more relaxed. You may find it helpful to evaluate consulting firms on three broad criteria: 1) the nature of the work they do. This is also important when looking into various office alternatives within a firm. and the nature of the projects worked on. If you are particularly attracted to a certain firm. and assistance in outplacement. 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. You certainly have nothing to lose! Arrangements for interviews differ by school and by firm.) If you are particularly attracted to a certain firm but have not been invited to attend their fall functions. many consulting firms have "open schedules" that allow you to arrange an on-campus interview directly through your school's career services office. including the availability of international opportunities and the number (and size) of offices. interview skills and resume workshops. Although the high starting salaries in consulting are undoubtedly attractive. and an otherwise great project can quickly become a negative experience if you do not get along well with the other team members. which will help you to differentiate between the many opportunities you are likely to have. Again. these discussions will provide you with the most pertinent. the best advice here is to know the policies of recruiters and of your school and to work within those policies. Besides understanding the firm's personality and values. Though the information available through formal school channels provides valuable background on particular consulting firms.

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. 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.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. and such consideration is not likely to be forgotten by employees. being considerate throughout the recruiting process can only enhance your image in the eyes of the recruiting firm. but the real fun begins if you have the good fortune of having to decide between two or more firms of similar caliber. and who are not able to do so because of the up-or-out policy is actually quite small. Though increasingly. 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. such a policy makes a lot of sense. In general.8 Career Paths Career paths in consulting and industry differ considerably. the policy ensures that the environment will be dynamic and that the organization will provide a constant stream of new and challenging opportunities. and many companies employ so-called "up-or-out" policies. . who feel they are at the right firm. If you do receive offers from more than one firm. Make sure that you have met and are comfortable with enough people at all tenure levels of the organization. in industry generally. If you are unable to develop these skills. 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 issue that should weigh most heavily in the decision should be the people with whom you will be working. Most people who leave consulting firms do so of their own will.11 Like the first-year process. Many firms have excellent out-placement services. Furthermore. From the firm's point of view. 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. the policy is very sensitively administered. after all. in practice it is not always so. the time frame can often be shorter. recruiters are under pressure to firm the size of the incoming class in a reasonable period of time. The survival of a professional service firm is quite dependent on its ability to remain at the forefront of its field. 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. as it allows fresh ideas to be constantly brought into the firm by new recruits. and employees very rarely get kicked out unexpectedly. When going through case interviews. Rather. then. either because they decide consulting is not for them or because another tremendously exciting opportunity presents itself to them. and the long-term career opportunities. there are firms that have job rotation schemes and fast tracks to allow them to identify and promote their best people quickly. step by step. the characteristics of the firms. the second-year interviewing normally consists of three or four rounds of interviews. Unlike the first-year schedule. Professor Collis's article provides more detailed advice about how to make choices between firms. Although a case should be expected in most interviews. you are going to find it very hard to avoid canceling your plans and going to Timbuktu! My advice about lifestyle is. In consulting. however. it is a pretty good idea to review the various strategy frameworks before beginning the interview season. If other variables are relatively equal. remember one important word of advice-relax! 2. you should be aware that in almost any consulting firm. and an up-or-out is one way in which a firm ensures its ability to regenerate itself. usually administered unofficially through contacts with alumni. In most firms that have such a policy. it is still true that. Promotion decisions tend to be made in the two. In practice. 2. In industry. the number of people who want to continue in consulting.2.2. and moving out is not considered failure by any stretch of the imagination. the second-year process takes place over a period of several weeks rather than several days. Since many consulting companies give strategy cases. frequent feedback allows employees to judge their own position within the firm accurately. These policies require that you develop certain skills within a defined time frame in order to be allowed to continue with the organization. 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. From the employee's point of view. and if you happen to have plans that evening. Receipt of an offer does not allow you to extend your job search indefinitely. 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. with the final rounds taking place at the firms' offices. the commitment to the firm and time scale of your progress is still fairly long term. paying particularly close attention to what the junior people are saying. However.to three-year time frame.

Even some large traditional Midwest manufacturing corporations are responding to increasing competitive pressures by becoming more aggressive in recruiting bright young management talent. its why the big IT consulting shops. It is a tough choice. how should you conduct your job search? A careful examination of your own skills.9 Remuneration Until relatively recently. the other option available is to work for a firm which provides a wide variety of advice designed to make enterprises run faster. if so. who was being recruited by a major manufacturing firm. consulting firms were very much the leaders in MBA remuneration.3 Is Consulting the Right Field for You? By Tim Opler Consulting is hot! Salaries are up. Small. she received a blank look and the reply. cheaper. While it is still true that on average most larger firms in industry pay less than most consulting firms.2. sales force automation. But is consulting really the right field for you? And. This is technical stuff that offers strong productivity improvements to countless businesses in areas like client/server. offers have been continuing to increase (several firms are offering packages well into six figure territory after a few investment banks upped their ante). It's absolutely vital that you not let this happen. And more MBA students have entered the field within the last few years than any other area. Coopers and Lybrand. meaner and more efficiently. you will have to spend more time and effort searching out the best opportunities.12 As a potential employee. McKinsey. Mercer and Monitor plus a growing list of mid-sized consultancies and smaller boutiques. Another classmate of mine. some industry salaries are rapidly approaching those offered by consulting firms. some of the Big Six accounting firms have made tremendous inroads into the strategy consulting business. This can often be a difficult subject to raise. you should not rule out a career in industry. too.3. Not surprisingly. found that when she asked about the possibility of a signing bonus. Without doubt. These placement numbers have caught many business schools by surprise and. given that in the words of a classmate of mine. will continue to experience meteoric growth. the hottest area in consulting today is informational technology. CICS/VBASIC/UNIX. specialists apply specialized process and functional knowledge to real organizations with real problems. and have fun! 2. Salary offers at top MBA schools in 1996 for consultants averaged $80. The more convincingly and honestly you can answer questions about why you are across the table from the interviewer. Good luck. better. Whatever decision you come to. To say nothing of long-term personal happiness. so getting a high-paying job tends to be less work for the recruit. many of you are giving management consulting a hard look. like Andersen Consulting. Speaking of generalist. the better you will do. making a difference in a career that you enjoy is an important part of life. often with significant signing bonuses or tuition relief. I understand why! Work in consulting is stimulating and the pay can be excellent. Generalist firms include well-known names such as Bain & Company. 2. challenging experience. However. high technology companies are increasingly recognizing the value that MBA students can add within their firms. In this process. even if your objective is to pay back your MBA debt in as few years as possible. As of December 1996. and if remuneration is particularly important to you (and there is every reason that it should be. More people work for Andersen today than do for the top five generalist firms combined. 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. we are all "mini-LBOs" by the time we finish our MBAs). I recommend that you commit to an ongoing and serious process of introspection and skill inventorying before marching into your next job interview. Booz Alien & Hamilton. deans and administrators are scrambling to ensure that their MBA programs offer the right type of courses for prospective consultants. And. BCG. today. Certainly. you can be assured of an exciting. 2. has a very high quality strategic . 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. Generalist or specialist. After all. At the same time. the number of exceptions to this particular rule is increasing every year. and in each individual situation there will be many other personal factors involved. values and interests is an excellent idea. then. consulting companies tend on the whole to have very well-oiled. It's great work that offers clear value to many organizations. particularly given the wide range of available career options.1 The Options There are basically two career options in consulting. for example.000 per year. effective recruiting machines. if you really do want to work in industry. These. are some of the issues involved in making the consulting versus industry decision. "What's that?" It is by no means all industrial firms that are approaching remuneration parity with consulting firms! Moreover. you should inquire about the consulting firm's promotion policies. At the same time. It's very easy to see the time you're planning to spend exploring careers get taken up with other more immediate priorities.

of course. A good consultant has to be a great thinker with a passion for ideas. You need to enjoy problem -diagnosis. This isn't to say that you must be the ultimate extrovert. law. These relationships are what can make the long hours. not the reverse. it is well-worth asking where you might fit into the industry. the MBA degree itself need not be necessary. However you accomplish this. but instead because he had built life-long. Pedigree can neither guarantee one success nor condemn one to failure. knowing that they you can generate more value for them than you are being paid. a case question and questions about your past behavior (the much dreaded behavioral interview approach). the partners and their teammates. Your ability to serve clients will determine your success and the prospects of your employer. in particular. Just over half of these consultants come from the United States. disliking writing. and tend to set the pace for their teams.13 consulting unit and is managing to attract some of the very brightest students from institutions like NYU and Wharton. over 300. many undergraduate students enter consulting. Through their intellectual leadership they gain respect from the clients. For that matter. But the bottom line is that firms are screening for skills that match their needs. Ultimately. They typically become engagement managers sooner. but you do have to connect. 2. Those who achieve excellence feel great about themselves and are more likely to find the consulting experience a path to fulfillment. getting stuck on cases. it's vital that you enjoy. whether you want to fit in. they have numerous options to choose from. I guess sheepskin is sheepskin.. In all.3. 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. another quarter come from Europe. Given the scope and size of this career opportunity." Skill #3: A Passion for People. You can't smell it. And. These individuals are in such demand that. humor. This intellectual focus of consulting is clearly important in deciding whether you would do well in the field. The result is that the institution needs the individual. The product is an idea. As a consultant you will always be working to help others.g. an insight. lasting partnerships with a number of clients through repeated contact and hard work. The most rapid growth is currently being seen in developing economies such as Brazil and Indonesia. Consultants who enjoy talking to people do well. After all is said and done. stressful travel and corporate frustrations encountered by consultants worthwhile. listening or hard-work. many different approaches to interviewing and. While intangible. human interaction or entrepreneurialism) you probably should not be a consultant. for that matter. whether it be by charm. consulting firms are nothing more than repositories of pure human capital. Skill #1: A Passion for Ideas. medicine). It is vitally important that you make every effort to understand what these skills are before you step into the interview room. There are. Let's start by asking what skills are in demand among consulting organizations. Firms may hire you opportunistically. a personal commitment to excel in meeting the needs of your clients is vital to enjoying the profession. In a recent letter published by Mitchell Madison Group. 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. A number of firms are hiring persons with other degree backgrounds (e.g. Hence the frenzy to hire the best and the brightest of America's business schools.. This means that their most important asset has to be the ability to generate relevant ideas through rigorous thinking and careful research. You can't eat what a consulting firm makes. Skill #2: A Passion for Client Service. But advancing and leading may be a different matter altogether. I have observed that unfriendly clients become attentive when listening to people of excellence because their contribution is unique. It's a field where the gregarious do well with their teammates and their clients. You need to be the type that does well in school and likes it. the individual needs to excel and generate his or her own marketability. to being interviewed. generating more than $30 billion in annual revenues. public administration. of course.000 people work full-time in the management consulting industry. You can't drive it. engineering. With all of the money being thrown around by the consulting firms these days. In a business world where institutional loyalty is rare. a suggestion. The financial rewards become window dressing and the high of the experience becomes the drug of first choice. problem-framing and problem-solving.. And. but excelling along other dimensions (e. of course. You may very well get a job offer anyway. often in two or three year programs which are expected to be followed by a stint at business school. consulting is a service profession and most firms screen carefully for commitment to others and ability to excel in meeting client needs. understand and . If you find yourself struggling with the academic-side of business school. Not because he didn't cherish his spouse and family. a way of thinking. McKinsey.. it can be easy to get into the profession for the wrong reason. at any point in time. PhDs and the like. A consultant once told me that some of the most fulfilling relationships of his life were with clients. has recently been aggressive in its pursuit of attorneys. Those who demonstrate superior skills gain personal control early in their careers. Common skills on interviewer check lists include.2 The Skills in Demand Consulting firm interviews typically involve a combination of general background questions. I would add that firms aren't nearly as pedigree-sensitive as some seem to think. a seasoned ex-McKinsey consultant put it this way: "It is only through personal excellence that this profession becomes truly enjoyable. Over the years.

So. it's an odd admixture in demand at the consulting firms. you will need to strike out on your own. can vary widely and many firms are looking for a unique traits.14 communicate with clients. Networking: The key to landing a consulting position is to network. Making The Phone Call: The networking phone call is the single most valuable weapon in your job search arsenal. It is very helpful to know the histories of the various firms. there is no good substitute for meeting someone. keep trying. If you indicate in an interview that you already know someone at a firm your chances of landing a position will go up dramatically. tolerance for absolutely abusive hours. ask for a meeting. logical thinking skills. solid schooling." If your contact is not available. it's vital to have access to current contact information and to be able to locate the firms.g. many networking phone calls end up with one of two negative outcomes: (1) "the person is not available". Most people will be willing to help you if you give them the chance. Most students who land positions in the consulting profession do so by scrambling. the work and the life. willingness to travel and facility with languages. Not bad since a consultant has to be a natural networker.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. ask for voice mail and leave a voice mail introducing yourself and explaining why you are calling. some relevant functional expertise (e. A dirty. The Resume: The resume is a necessary evil in your job search. If you are on the job market now. alternatively. Anne Harris. Face Time: Ultimately.4 Recommended Resources A big part of getting started on a consulting career is to survey the profession. "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. likable people who are good at helping others. The firms are typically tolerant of "career changers" but will be looking for you to provide a coherent story about why you are changing. networking in the profession and getting "face time". or (2) "sorry but we are not looking. let's assume that you don't yet have offers from the three firms that you truly want to work for. If you don't hear back. Smart. Instead of being pushy or hanging up. 2. Head of MBA Career Services. polite. . superb IT skills. There are lots of good ways to network. "I'll be in New York (or wherever) next week and would love to ask you a few questions over breakfast. even if only for ten minutes or so. the values that they hold and the practices they are in. engineering or finance) and a track record of successful experience.3. If you go to school outside of a major metropolitan area. It's only human. but it's almost always worth it. friendly and very interested in the person you are calling on. On a more practical level. Other characteristics in demand including understanding of specific business issues. 2. 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. It's human nature to favor those whom we know and like in the hiring process. Consulting firm interviewers are looking for people that they'd like to work with themselves. you will need to visit people at the firms that interest you. personal appearance. of course. 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. I have listed a number of resources that might be helpful in this regard. Below. The screening process. One of the most helpful things you can do is to get personally acquainted with consultants at firms that interest you.3." Unfortunately. At some institutions." More likely. It's not particularly important to worry about font choice and paragraph formatting. the ability to work quickly in spreadsheets. not the rule. Moreover. 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. Or. you might ask for help with an upcoming interview. A good interviewer is looking for experience. writing skills. all the big firms show up and will talk to you. This is a great opportunity to get a conversation started. is to call the office in the evening. What then is your next step? This all depends on where you are going to school. You want to call a consultant and let them know that you are a student with a specific interest in their work or firm. It's not as hard as many seem to think. Not necessarily a natural combination of abilities you might say. 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. You pick them and they pick you. The best way to get acquainted is over the telephone. It really helps to have others batting for you and educating you about the profession. be direct and ask for help with your job search. Consulting firms are looking for organized resumes that convey the skills they are looking for. enthusiasm and skill. 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. It's important to be sincere. You can overcome the "intimidation factor" by practicing this technique with a colleague or your friendly career services director. Better yet. But this practice is the exception. hustling and working hard in the job search process. 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. This may be costly. Now. a tolerance for ambiguity. but effective trick.

hbsp. Consultants and Consulting Organizations Directory. San Francisco. Detroit. From Wet Feet Press at 1-800-926-4JOB (349 Liberty Street. Harvard Business School Career Guide: Management Consulting 1997.15 Ace Your Case! The Essential Management Consulting Case Workbook. Fitzwilliam. Directory of Management Consultants. CA 94114-2953). 03447. Cost $39. Available from the Consultants Bookstore at 1-800-531-0007 or 1-603-585-2200. On CD-ROM. Also try their web site at http://www. 1996. H. Available from the Consultants Bookstore at 1-800-531-0007 or fax. . edu. harvard. San Francisco. (800) 877-GALE Consultants News. Templeton Road. So You Want to be a Management Consultant.weffeet. Kennedy Publications. Management Consulting: Exploring the Field. From Wet Feet Press at 1-800-926-4JOB or 1-415-826-1750 (349 Liberty Street. Finding the Right Job and Landing It! Convergence Multimedia and Harvard Business School Publishing. N. Templeton Road. CA 94114-2953).com. 03447. H. MI. 1997.//www. Available from Harvard Business School Publishing. Kennedy Publications. 603 585-9555. Fitzwilliam.95. Try their web site at http. N. Gale Research.

how you think and solve problems 4.how you structure the case and go through the analysis.5 4.3.2 5. A good approach: 5.3. Suggested time allocation for a 20-25 minute interview is as follows: 7.1 4. Time management during the interview is the interviewee’s responsibility.1. What are consulting companies looking for in a candidate? 3.2 3. creating a framework to solve the case. the basis of consulting. Use interim conclusions to sum up a section of analysis before moving on to another area.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. Analysis .2.6 4. possibly with a logic tree . This is akin to creating an outline before writing a paper.4 4.2 4.4 5. develop hypotheses. you first order your thoughts in an outline.6 5.enables one to organize the data presented Pick one branch to probe. 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: 4.3 4.1.1 4. you want to communicate explicitly what you want to do with the case. Writing a paper is a good analogy to solving a case. defend/refine hypotheses. but will vary depending on the topic and your level of comfort with the issue. if necessary Structure the problem. In a paper.4 5 Both are important.2.1 3.2 Mechanics .3 There are two parts to a case: 4.1.2 1.1 Ability to think through problems: 4..3 5. probe further Pick the second branch . logical reasoning Curious. Go over the framework at a high level with the interviewer and then plunge into one area at a time.4 Problem solving skills Personal impact Leadership Drive / Aspirations 4 What are consulting companies looking for in a case answer? 4.2 Effective communicator Tolerance for ambiguity 4.5 5.1 1.2 Clear.. Remember that you are trying to lead the interviewer through your problem solving approach.1 The time spent structuring the problem should average about five minutes.1 4. ask for relevant facts.1.16 3 1 Overview of Cases A case is: 1. Put it all together: try to answer the overall question 6 During the case.1 5.1.7 Listen to introduction carefully Carefully think through the problem at hand Ask one or two clarifying questions.1.3 3. 7 .

You must lead him down the path that you are walking. The interviewer is not a mind reader.2 7. Finally.1.2 7.1 8. Remember that time is the most precious commodity that you have during the interview.1. DO NOT BE AFRAID OF SILENCE! Plan to spend two minutes discussing the issues. 7. Try to state your assumptions up-front. Bad phraseology could lead the interviewer to think that you are arrogant.3 Analyze the case: 15 minutes. always provide reasons for the conclusion you are presenting. divide the time by the number of issues to be explored based on your perception of the importance of each section.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. the interviewer will state that they are not correct. 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. Successful interviewees have taken up to 10 minutes to think through the issues as hand. Try to state the assumptions in a non-offensive manner. The key to using assumptions are: 8. Do not squander time be focusing on issues that will not highlight your abilities or will not lead to a viable solution. prioritizing them and possibly eliminating some before you dive into the rest of your analysis. Delivery. this can be almost as important as the time spent up front framing the analysis.17 7. In many ways. both during the analysis and the conclusion.2 Timing. Summing up: 5 minutes.4 8 Assumptions enable one to close quickly an issue. 7. If the assumptions are invalid. Do not be afraid to take your time and think about how you plan to attack the case. . you may also chose to spend a minute or two discussing further areas that you would have liked to explore and why.

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 2.1 Purpose • • 1.2 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 .18 4 1 Different Types of Cases Classic Cases 1.1 Purpose • • • • 2.

Sales General &Administrative (SG&A) Operating Profit .2 Balance Sheet Assets Cash Investments Accounts Receivables Inventories Property.Cost of Goods Sold (COGS) Labor Materials Overhead Delivery Gross Margin . 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 3.19 5 5.1 1 Frameworks for Cases General Models Financial Frameworks .1 Income Statement Net Income .Interest Expense Earnings Before Taxes (EBT) -Taxes Net Income 1.for profitability cases you should explore cost and revenues 1.1 R&D .Depreciation . plant & equipment Intangibles Liabilities Accounts Payables Other Short Term Debt Long-term Debt Other Liabilities.

4 Distribution Cost Channel 4 Issue Tree 4. cost and capabilities. Some of the more relevant concepts include: .2 Additional Models 5. especially the strategic ones.1 4. Top-level identifies the highest level issues that need to be answered to solve the problem. 5.5 5 Framework for a Zinger case like “How many golf balls in Albuquerque?” 5.2 Economics Students should review the basics of economic theory.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.1 The Four C’s The four C’s stands for customer. it may help in defining a business by breaking it down into very basic components and looking for conflicting elements. 4. Although this model is unlikely to produce revolutionary insights. An example of an issue tree is provided with the China Factory case.2 Do not use this framework in an interview without practicing it a few times before hand. cursory step in understanding a given company or industry.3 Marketing Pricing Product Place Promotion 3. have a strong backing in basic economics so knowing the fundamentals will give the student a strong base from which to work.1 Raw Materials there. Focus on most important branches or components first. Many cases.20 3. Filling in these categories can be a first.4 4.2 Demand side Who purchases golf balls? How many golf balls do they need each year? Who makes the plastic needed for golf balls? Obtain an estimate of quantity of material supplied and work from 5. 5. competition.2. The model is more of a backof-the envelope sketch than a detailed analysis.1. Use MECE (Mutually Exclusive and Collectively Exhaustive) to ensure that all issues are covered.1 Supply chain 5.2.3 4. The model is difficult to use with diversified companies and interests. Break each level down into parts that are more manageable.

2. the lower the price of a product or service. The concept of comparative advantage goes a step farther.21 5.2.2. the greater that demand for the quantity consumers will be willing to purchase (i.2.e. within a given time frame.. the supply of another product will decrease. 5.2. For example. 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. 5.2. the higher the price of a product or service. the greater the quantity of the item that will be produced.2.) The Demand Curve . Price Value of Output Cost of Inputs Quantity 5. This is based upon the premise that not producing the item in favor of producing another item which offers better production efficiencies will ultimately benefit both countries (see also economies of scale).2 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. the smaller the quantity producers will be willing to make available. a diabetic will probably be . there are circumstances where the level of demand is not altered by a change in price. all other things being equal. However.The lower the price of a product or service.3 Law of Diminishing Returns This concept suggests that although additional units of labor may contribute to increased productivity in absolute numbers.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. Please remember that as the supply of one product increases. each additional unit contributes relatively less than the preceding unit to productivity. (We live in a world with finite resources but infinite demand. Supplier will be willing to make more available (i.2.e.. all other things being equal. For example. Conversely. contending that it may be to a country's advantage to import goods from other nations even though they may be able to produce the goods less expensively at home. Price Supply Demand Quantity 5. Conversely.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.1 Supply & Demand The Supply Curve -The higher the price of a product or service. demand). the smaller the quantity of goods consumers will be willing to purchase. This would characterize demand that is elastic in nature.2.2. supply).

have developed a set of strategic foci called the value disciplines (Harvard Business Review. the demand is inelastic. This implies that for the typical firm. Marketing.3 4P's Kellogg’s Philip Kotler developed this model." The ratio is calculated as the unit cost after doubling cumulative production divided by the previous cost (C2/C1). The disciplines are: . 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. price. the medication that would sustain that individual's life.4 Value Disciplines Fred Wiersema and Michael Tracy of CSC Index. 5. 5.80. The magnitude of learning benefits is expressed in terms of a "progress ratio. (Marginal cost is the cost of the last incremental unit of output.2. January-February 1993. These are the four critical dimensions in marketing any product (or service). so must the marginal cost (MC). 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). 84-93).2.2. R&D. For example. 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. a doubling of cumulative output is associated with a 20% reduction in unit costs. It stands for product. 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.8 Learning Curve The learning curve refers to cost advantages that flow from accumulated experience through lower costs. The minimum efficient scale (MES) is the minimum level on the average cost curve.2.2. higher quality and more effective pricing and marketing.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. If AC declines as output increases.7 Economies of Scope Economies of scope exist if the firm reduces total production costs by increasing the variety of activities it performs. over a range of output. distribution channels). Cross Elasticity: Percentage change in quantity demanded of one good in response to a 1 percent change in the price of a related good.2. 5.6 Economies of Scale Economies of scale exist when the average cost (AC) declines as output increases.. Inc. Whereas economies of scale are usually defined in terms of declining average cost functions. and other functions can realize economies of scale.e. placement (i. A ratio of less than one suggests that some cost savings due to learning is taking place.2. The median appears to be approximately . 5. Economies of scope may be achieved by "leveraging core competencies" across multiple business activities. pp. ES = % ∆ QS % ∆P = ∆ QS / QS ∆P / P 5. In this case.22 willing to pay as much money as he or she has to buy insulin. Economies of scale are not limited to manufacturing.

. Threat of Substitutes . 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. The intensity with which the competitors are jockeying for position and competitive advantages indicates the strength of the influence of this force. combining customer knowledge with operational flexibility to respond quickly to almost any need (e. 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.6 "Star" Diagram/Organizational Analysis In doing an organizational analysis.Often. Strategy determines Structure and Decision Support Systems that . This force is the opposite of the Threat of Substitutes.. with the goal of leading the industry in price and convenience (e. and buyers believe substitutes have equal or better features. Potential Entrants – This force measures the ease with which new competitors may enter the market and disrupt the position of the other firms. Benefit of Complements – This is considered a sixth force that is not directly captured in Porter’s model. there is a spillover effect on the primary product.g. the most powerful of the five forces is the competitive battle among rival firms which are already present in the industry. buyers' switching costs are low. Buyer Power .5 Porter’s Five Forces Michael Porter's Five Forces model analyzes the various competitive pressures at work in a given industry.Buyers become a stronger competitive force the more they are able to exercise bargaining leverage over price.2. The results indicate the overall industry attractiveness (i.e. Product leadership .Offer customers leading-edge products and services that consistently enhance the customer's use or application of the product. Dell Computer).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. Nike). ease of making a profit). Industry Competitors (Internal Rivalry) . Customer intimacy .g. Buyers gain strength through their sheer size and when the purchase is critical to the seller’s success. the barriers to entry are diminished. Five Forces Potential Entrants Complement Suppliers Industry Competitors Rivalry among existing firms Buyers Substitutes 5.2.23 Operational excellence . one should consider all seven components of the organizational unit. quality. when a newcomer can expect to earn an attractive profit.The competitive threat posed by substitute products is strong when policies of substitutes are attractive. or other terms or conditions of sale. Supplier Power.g. 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. In addition. service. Home Depot).. thereby making rivals' goods obsolete (e. Vision should define Strategy. as well as the strength and influence that each of the competitive pressures have on the firms participating in the industry. The following is a brief discussion of the five components. When the economics are promising for a complementary product.. 5.Segment and target markets precisely and then tailor offerings to match exactly the demands of those niches.Provide customers with reliable products or services at competitive prices and delivered with minimal difficulty or inconvenience.

If one component is changed.e. Since the cow is generating milk (i.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. recruit and develop the personnel the organization needs to accomplish its objectives. Corporate Culture must reinforce all seven components." Rather. is expanding or contracting. something that is defective or undesirable). every mother's prayer. something that fails miserably) or to a "lemon" (i.. all seven components must be considered. it is analogous to a "bomb" (i. Dog — A product with low market share in a low-growth market.. mother is concerned because her child is not growing as anticipated. accelerating cash flow and. 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. 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.e. The Reward Systems must reinforce what you are trying to accomplish strategically and the Human Resource Systems must select.2. Problem Child (also called "Question Marks") — A product with low market share in a high-growth market.. Cash Cow — A product with high market share in a low-growth market. unless there are some extremely important overriding issues that outweigh the products market performance. . For example.24 are required to make the organization function. it is most likely that the other components will have to be changed to be consistent with each other. 5. the product life cycle. managers will have trouble if they are in a decentralized structure while information and planning systems are centralized." so to speak. as a whole. In this sense. When considering change. not coincidentally.e. Products or categories businesses are as follows: Star — A product with high market share in a high-growth market. maybe slow yet consistent growth isn't so bad. the marketer may elect to "milk the cow dry. The model can also be utilized to analyze a portfolio of companies held by a single organization by classifying them within the matrix. Therefore an astute business manager would want to drop a “dog” from the product line. cash). "dog" is certainly not "man's best friend. each as independently held businesses.

or focus. Michael Porter calls these activities “value activities. Every business unit is a collection of discrete activities ranging from sales to accounting that allow it to compete. Texas Instruments is an excellent implementer of this strategy. Support activities provide the input and infrastructure that allow the primary activities to take place. The problem with this strategy is that other firms will usually emerge with still lower costs (from the Far .2.25 Hi Low Hi Market Share Low Star Problem Child Cash Cow Dog Profitability 5. purchasing. What value is added to the manufacture and sale of gasoline at each point in the value chain.g. Firms pursuing this strategy must be good at engineering. not the company as a whole.g. (e. and provide after-sale support. manufacturing. and procurement. human resource management. as indicated in the exhibit below.. The value activities are grouped into nine categories. and by whom?). The categories are company infrastructure. and service.2. that the unit achieves competitive advantage. Finally. marketing and sales. Value Chain Support Activities Company Infrasructure Human Resource Management Information Systems Procurement Primary Activities Inbound Outbound Operations Logistics Logistics Marketing & Sales Services 5.9 Generic Strategies (Porter) Michael Porter suggests that business strategies can be classified as pursuing cost leadership. Value chain analysis is useful in discerning possible synergies among various units of an organization (e. The categories of primary activities are inbound logistics. information systems. shared procurement)..” It is at this level. 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. deliver it to the market. Each of these strategies is described as follows: Overall Cost Leadership: Here the business works hard to achieve the lowest production and distribution costs. outbound logistics.8 Value Chain A business manager must understand the internal relatedness of the many activities involved in the production of a product or service. and physical distribution of the products. Primary activities create the product or service. operations. create a demand for the product. Value chain analysis is also helpful in determining which value activities are best outsourced and which are best developed internally. so that it can price its products lower than its competitors and win a large market share. differentiation.

" 5. the technology leader. quality. Focus: Here the business focuses on one or more narrow market segments rather than going after a large market. service.11. cohesive change. Porter suggests that firms that do not pursue a clear strategy .2. a habit that prevents management from making frame breaking. and so on. The firm gets to know the needs of these segments and pursues either cost leadership or a form of differentiation within the target segment. Business processes are often replete with implicit rules that hamper the way in which work should truly be done. They are closely related to Porter's Low Cost Producers. TQM was initially limited to the manufacturing sector but has more recently been applied effectively to service businesses as well. A firm can only pursue one of these strategies at a time. and the industry. processes are often viewed as discrete tasks. Whereas TQM is more of a philosophy than a specific strategy. and remaining so in the long run. Annstrollv Rubber has specialized in making superior tires for farm-equipment vehicles and recreational vehicles and keeps looking for new niches to serve. but those who are successful can change the way the game is played and create very strong competitive advantages. letting others show them the way to success. Thus.11. Thus the firm seeking quality leadership must make or buy the best components.2. This has been Canon's strategy in the copy-machine field.” A higher level of quality is linked to increased customer satisfaction and thus leads to the ability to charge a higher price at what is often a lower cost.2.10 Strategic Types (Miles & Snow) Miles and Snow have divided strategic options into four categories (in contrast to Porter's three Generic Strategies). Further. the style leader.2. and speed. cutting out wasted steps and enhancing communication.26 East. the stated objective is often "zero defects" or “six Sigmas. its long-term value is questionable.2 Total Quality Management (TQM) TQM refers to the practice of placing an overriding management objective on improving quality. It is important to ensure that the added benefit from incrementally increasing quality outweighs the added cost associated with the quality improvement effort. Analyzer— Analyzers pick apart the market very carefully looking for niches and demand/supply gaps. They react to changes in the market and moves of their competitors and so must maintain flexibility. The firm cultivates those strengths that will give it a competitive advantage in one or more benefits. The firm that carries off that strategy best will make the most profits. Differentiation: Here the business concentrates on achieving superior performance in an important customer benefit area valued by a large part of the market. 5. Attributes of essential success factors are the following: .11 Other Key Concepts 5. those firms pursuing the same strategy directed to the same market or market segment constitute a strategic group. inspect them carefully. Prospector— These firms are the first-movers and the innovators. but it is hardly possible to be all of these things.11. changes. leveraging their advanced position along the learning curve and their name recognition to maintain a superior market position. for example) and hurt the film that rested its whole future on being the lowest cost producer.“middle-of-the-roaders" -.do the worst.3 Key Success Factors Essential success factors are those factors that are most critical in determining a firm's ability to survive and prosper.2. but instead concentrate their efforts in very carefully and narrowly defined efforts. the lowest-cost firm among those pursuing a low-cost strategy will do the best. Defender—Those firms that have a leadership share of the market will often concentrate on staving off the competition. but it is common for a company to shift from one strategy to another as its situation. 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. 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. While this strategy may be profitable in the short run. the highest quality producer. put them together expertly. moving to erect as many barriers to entry as possible. 5. This strategy is akin to Porter's focused companies.1 Reengineering Popularized as Business Process Reengineering (BPR). Thus. According to Porter. Reactor— Such companies are second-movers. reengineering refers to breaking down business processes and reinventing them to work more efficiently. This is a high-risk strategic avenue to follow. 5. One example is if the company strives to be the service leader in its industry. These firms are not necessarily innovators.

The classic example of a company that has effectively leveraged its core competencies is Honda. multiply the quantity sold times the contribution margin and subtract the total fixed cost. core competencies provide potential access to a wide variety of markets. To determine profits.K. and the price of a product to determine the minimum units of sales necessary to break even or to pay the total costs involved. for wood products. Co. 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.8 Net Present Value (NPV) The NPV is a project's net contribution to wealth. Fixed Costs (VC): The costs of production that do not vary with the quantity (Q) produced: these costs generally include overhead costs. variable costs. Semi-variable Costs: The costs of production that vary with the quantity (Q) produced.2. Profit = Q x (P-VC) .) Break-even Point: Break-even analysis is a managerial planning technique using fixed costs. 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. and adaptability to changes.5 Vertical Integration In some industries companies find it advantageous to integrate backward (towards their suppliers) or forward (towards their customers). A firm must supply what customers want and survive competition from other firms Therefore. Effective implementation of JIT should result in reduced inventory and increased quality. JIT calls for synchronization between suppliers and customer production schedules so that inventory buffers become unnecessary.FC 5.6 Just-in-Time (JIT) The goal of JIT production is a zero inventory with 100% quality. In other words. 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. make a significant contribution to the perceived customer benefits. 5.4 Core Competencies A concept popularized by Professors Gary Hamel and C.11. 5.) The NPV is calculated as follows: . (Ct can be negative. 5. or hurdle rate.2. 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. Net present value is the present value (PV) of all incremental future cash flow streams minus the initial incremental investment.11.2. In other words.11. The necessary sales are called the BEQ. but not directly. 5.2.11. The present value is calculated by discounting future cash flows by an appropriate rate (r). the materials arrive at the customer's factory exactly when needed. and are difficult for competitors to imitate. the amount that "contributes" to paying the fixed cost of production. essential success factors are owning large forests and maximizing the yield of those forests. 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. productivity.11. Ct represents the cash flow at time t. these are discrete costs. or break-even quantity. This technique is also useful to make go/no-go decisions regarding the purchase of new equipment. usually called the opportunity cost of capital. such as the cost of adding new production capacity when Q reaches certain levels.2. which has gained a competitive advantage in numerous product markets through its focus on leveraging its skill at making engines.7 Fixed vs. (Typically. For example. Prahalad.27 Management can influence them. The contribution margin represents the revenue left after the sale of each unit after paying the variable costs in that unit.

Typically. 80% of total downtime on a production line is attributed to two out of the ten manufacturing steps.28 NPV = Co + Cl/(l+r) + C2/(l+r)2 + . the firm should not invest in the project. a Pareto analysis is conducted to determine the areas on which management should focus its efforts. If the net present value is less than zero. Alternatively.11. + Ct/(l+r)t If the net present value of the project is greater than zero.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.. the firm should invest in the project. This phenomenon is typified by the "80/20 rule" which states that 80% of the output comes from 20% of the input. For example. 80% of a company's profits may be generated by 20% of its product lines.2.. . 5.

as opposed to the shotgun approach. interviewers will drop hints regarding the case throughout the interview process. do not answer any question unless you have thought through your answers fully. During that time.9 2. For example.10 2 Top Ten Things not to say during an interview: 2. HAVE FUN WITH THE CASE! Engage yourself and get excited about the case.8 2.10 I need a lot more data. one could say: “I intend to purse.7 2. He will not understand your thought process unless you explicitly state to the interviewer. Take your time.1 Don’ts If the interviewer suddenly asks you to name the three critical drivers to the industry. do not feel compelled to answer immediately. Remember that some material may be extraneous. Do not ask for every piece of data. Thinking aloud leads to rambling.” 1.. Once the problem or case is presented to you. There is obviously one answer to this case. Ensure that you understand the problem at hand. Individual pieces of data can often be combined to draw a conclusion about part of a problem. The interviewer is not clairvoyant.. I would like to concentrate totally on the political implications of this situation. This case sounds exactly like what we did in Managerial Accounting. 3 3. Then. ask for a few moments and think out your approach. What are you looking for? Is this a marketing case? I cannot believe this is a real case.3 2. Do not lock yourself into your answers. Do not assume anything! Use questions to clarify issues and to gain a complete understanding of all the problems that need to be addressed. Are your clients really that stupid? This case has no answer. Practice phrasing statements clearly and succinctly. This is an area where one can demonstrate teamwork. This will serve as the structure of your analysis.3 1. DO NOT ANSWER RIGHT AWAY! Think about it and come up with five drivers. I cannot solve this case because I have not had Corporate Strategy yet.1 1.5 2.8 1.. then order them from the most significant to the least significant.1 2.2 The goal of the case interview is not to crack the case but to demonstrate “how you think. They also want consultants who are dedicated to their client and client’s problem.7 1..4 1. do you believe this is worthwhile. you are trying to confuse me. brainstorm to get all your thoughts on paper. Keep the interviewer informed of where you are going and check to see if you are on track.. The interviewer possesses tons of data or will make it up. the three most important are.2 2.6 1. Then say something like this: “Well I have thought of five significant drivers. I do not believe you. the more confused you could become. The interviewer will look to see if you build on the information provided. The interviewer has probably spent a few months working on the problem and consulting firms are looking for people who enjoy solving problems.5 1. if need be.4 2.9 1. carefully assess them and order them into a logical format. Think then speak.29 6 1 Dos and Don’ts Helpful Hints: 1. Rather.6 2. You can demonstrate this by being engaged. the more you prompt for data without assimilating what you have already been presented with. However. Better to use the bull’s eye approach to data gathering.” . do not error on the side of being silent either.” Listen carefully to everything that is said during the interview.

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.

If you do not get into consulting what will you do? Give me an example of where “you dropped the ball. General Interview Questions Why consulting? Why do you want to work for this firm? Tell us about your skills. 4. 9. 7.31 8 1. Tell us about your weaknesses. Where do you see yourself in five years? 12. . 3. Describe a situation where you had to present orally to an important group of people. Give me an example of where you did something unpopular and had to stand up for yourself at work. Describe a problem you encountered in a work environment and how you handled it. Tell us about your resume. 11. 5. 6. 2.” 10. Tell us about your previous industries. 8.

g.g.) • Does the company rely on a limited source of raw materials? (No. residential vs. materials are easy to obtain.) “Minimum” . Sears)? • Barriers to entry/exit: What is the minimum-size for a new plant? Are most plants fully depreciated? Generally. • • • Prices for the client’s products have been flat in the recent past. The largest competitor has just announced plans for a major modern plant. industrial vs.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. our client is break-even.. The company is one of seven producers in the United States.1 Sample Cases China Products Division 9. but not substantially. the largest producer has a 20 percent share.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. our client is number three with a 15% market share.2 Possible Solutions • Will the planned investment lower operating costs? (Yes.1. The two largest competitors appear to earn a small return.32 9 9. Specifically.1. commercial)? Are there different price points by market or within markets? “Better answers” • Customer-buying factors: Do customers demand a full-line supplier (e. China products include tubs..g. What issues must the client consider? 9.. with other building products)? Is any significant portion of sales to centralized customers (e. 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: . he wants to know if he should approve a $200 million capital expenditure for new manufacturing facilities. toilets and urinals.

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. Its goal is to double total sales and profits in less than two years. 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? 9.2 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. or with other products such as fittings)? Would exiting the business affect the sales. As a consultant brought in to assist them.2.2. A business can increase profits by: . what would you do? 9.Increasing sales .1 Issue A large healthcare company has decided it is interested in substantially increasing the size of its operations.2 Healthcare Company 9.Increasing prices .

Cutting costs However. In contrast to the commodity-chip manufacturers. (Typical ASIC production volumes are much lower.g.) 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. firms whose core business was semiconductors would have significant technology and R&D advantages. particularly if the company operating in a moderately competitive environment. The government project would more or less allow the company to define an individual project within the broad category of process technology. This leaves only sales increases. it turned out that only selling new product to new customers via some form of diversification could hope to achieve the company goals. of which only a handful are of any size. considerable effort would be required to find the staff with suitable expertise. 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. CAD tool and equipment development What are the important considerations to making this decision? What factors are important for success in the ASIC business? Should the company get involved? If so'. The company currently uses several hundred millions of dollars worth of microelectronics every year. the capacity of this subsidiary is small and its technology is relatively old. therefore need to find some way to reduce some of these costs e.3. You should then consider the potential for increasing sale by means of diversification through acquisition or joint venture. most of the top ASIC producers are in fact American. although there are powerful commodity-chip manufacturers.) 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. using CAD to shorten design cycles. Also. In the particular example of this case.34 . the cost of which is growing steadily in many of the company's products. The IC market itself is expected to grow at over 10% per year too.3 Electronic Joint Venture 9. Although the company already has a subsidiary that does some microchip fabrication. The relative benefits of each will depend on financial resources as well as the existence or otherwise of suitable targets.1 Issue A large microelectronics manufacturing company is considering participation in a cooperative project which will receive 50% government funding. it would seem unlikely that either increasing prices or cutting costs represent feasible methods by which to double sales & profits. Strong demand has meant that price erosion is not currently an issues in the ASIC industry However. decreasing size and weight and increasing speed and reliability. Assembly costs are reduced.) What are the client’s current purchasing habits? . Important demand segments are entertainment electronics and automotive applications. In addition. but development costs are higher. It is interested in developing application specific ICs (ASICs). 9. which could be achieved by: selling more of the current products to current customers selling new products to current customers selling current products to new customers selling new products to new customers The suitability of these options will again depend on the particular environment. if the company's margins are found to be consistent with industry norms.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. 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.) What is the market outlook for ASICS? (High growth.3. with whom? 9. currently about 15% of all ICs are ASICS & this figure is expected to rise above 35% in the next 10-years.) 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.

I would assume the population is less likely to watch television perhaps because of income or lifestyle issues.Analyze the competitive situation/ substitutes . who delivers high value sub-assemblies.1 Issue Three years ago a venture capital company purchased a cable TV system that had access to 2MM households in the southwest. The subscriber rate is low due to the high number of competitive stations available to our consumers (supply and demand problem). A: Actually they watch more television than the average. The debt and maintenance costs are also higher than systems in major metropolitan areas. Does the cable system offer what they enjoy watching.) Do potential joint venture partners exist? 9. 9. Competition: If consumers are watching television.35 (Currently purchase nearly all microelectronics through one subcontractor. Why? Moreover. Revenue Subscribers monthly fees Subscribers special services .Provide recommendations Cost Fixed costs associated with lying cable Debt associated with fixed costs Maintenance of the cable system Information provided as soon as these cost/revenue drivers are uncovered: The fixed costs are extremely high due to the distance between cities in the system.Analyze the market potential of the area . there are eleven independent broadcast stations in the area. You have been hired to determine if they can turn a profit or if they should sell. Despite their best efforts. there must be a strong competitor in the market. Assumptions: High fixed costs are overwhelming the current revenues The current subscriber rate is too low. but not our cable system. a 63% industry average.movie channels Is the reception from these independent stations strong? A: Yes. A: Yes. The VC firm was attracted by the extremely large subscriber potential (2MM households) and potential for considerable return.4.2 Possible Solutions . Recommendations: . Overall Assumptions: The low subscriber rate (revenues) cannot overcome the high fixed costs.Analyze current revenue and cost structure .4 Television Cable Company 9. The current systems is only at 43% capacity (# of subscribers) vs.4. What options do our consumer have? A: In addition to the three network stations. Are the stations offered free of charge? A: Yes. can it be fixed? Market Assumptions: Based on the low subscriber rate. they have failed to turn a profit in the past three years. very.

Key Issues: Based on these assumptions.36 Determine if there are consumer needs not being met by the independents that could be provided by our system and worth paying for.5. Recommendations: Based on this information and these assumptions. A: True Competitive Assumptions: The competitors are deeply entrenched . modem day folklore low quality editorial. sell.90% penetration.5 Magazine Sunday Supplement 9. Additional Information: There are currently two major Sunday Supplements: Parade and U. 9.S. They have hired you to determine if they should proceed or not. light reading gossip.5. If not. turning a profit would be difficult due to the large upstart costs and the strong competition for advertising revenues and newspaper acceptance. Assumption: Our current advertisers (for Time) would not be interested in this format. competitive response Does it fit with our current publishing strategy? Can we turn a profit? Revenue Potential (Assumptions): Major sources of revenue is the advertising revenue Question: Can we expect to gain revenues from our existing advertisers? A: You tell meCan you explain the format of the supplement? A: Typically cheap paper.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. 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 . Displacing a competitive supplement would require costly incentives to the newspapers. we would not recommend proceeding with the supplement until potential advertisers were committed and newspapers demonstrated an interest in . costs.(gaining ad revenues and newspaper acceptance) Assumption: There are few publishing synergies with our current publications.2 Possible Solutions Can we turn a profit by publishing this supplement? How? -Revenue potential. Current newspapers use the supplements in order to publish low quality editorial without disparaging their product offering. printing/paper. 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. Cost Assumptions: Fixed cost of supplement set-up Editorial.

9. No additional revenue from consumers because they pay-off monthly.250MM x 4% = 10MM current cardholders $50 x 10MM = Annual loss of $500MM by dropping the fee.6. increased membership equivalent to 20% of the population is probably not likely.6. They would still have to pay off their balance every month. AMX loses ($50 x # of members).S. new members) 9.1 Issue American Express has faced strong competition from new credit cards entering the market. .1 Issue You have been hired by the CEO of a department store that has numerous locations in a major metropolitan area. 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. (Even then. Current percentage revenue: 10NM members x $1000 annual purchase (avg. What are the "economics" of such a decision and should they drop the fee or not? 9. 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. Make a recommendation Revenue Drivers . population (Just a guess): .7.37 accepting the supplement.) [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). To overcome this loss. Receive 1 % of the transactions from retailers who honor the AMX card. Evaluate the pros and cons of dropping the annual fee. May want to consider varying the fee (sensitivity vs. Therefore. She needs to increase the store's earnings over the next year and has requested your help.2 Possible Solutions Determine how American Express makes money. Do not drop the fee.7 Television Cable Company 9. (500MM/$10) = 50MM new members are needed 50MM new members is equivalent to 20% of the population (gut check) Assessment/ Recommendation: Based on these assumptions. Key issues: If the annual fee is dropped.6 American Express Charge Card 9. we would recommend publishing under an alternate brand name). They are considering dropping the $50 annual fee.Assumptions: $50 annual fee multiplied the number of members.

tools.big-ticket items. No. Questions: Are certain stores more profitable than others are? A. product mix. TV. Yes.2 Possible Solutions Revenues have decreased for a reason The streamlined costs may have caused revenue to falter The revenue per store may differ . Yes. consumer demographics? A: Yes. The population growth of the city is flat Overall. Do the higher performing stores have any common characteristics such as size. the demos are different by store.$$ Frequency Prices Others? You learn there is nothing drastically different (overall). Jewelry . 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. What products are less profitable? A: Clothing. the product mix is the same at all stores. minor appliances .why? Increased competition? Different consumer buying trends? Start with Cost/Revenue Drivers: Costs: Revenues: CGS Personnel/ OH/ SG&A Inventory holding costs. household items. store revenue has declined slightly They recently hired a consulting firm to streamline the back-room costs How can you help? 9.7. so you turn to the individual store level. shoes. household items . Stereo.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. levels Cost of debt Other? # of people shopping Amount of purchase . suburban stores are more profitable than urban stores.38 Relevant Information: 20 locations in the metropolitan and surrounding suburban areas (they are present in every shopping mall).

9. how quickly balances are paid off and the "need" for the card. SG&A. our client believes it can become more profitable.2 Possible Solutions Opportunity to decrease costs or increase revenues . 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. points Revenue Annual fee . Hold small debt for short periods of time 3.1 Issue Our consulting firm has been retained by a major bank to help improve the profitability of their largest credit card offering. Case Interviewer suggests there are three distinct categories: 1. the urban stores are hindering earnings.8. therefore have to increase revenues. higher income. Competition: Interviewer tells you it is a very competitive environment . Personnel – Can not change Bad credit. Assessment Due to the identical product mix at each store and the varied profitability by item. Assumption: Customers use the card differently. Their card (in the same class as a Visa or MasterCard) provides average returns in comparison to the industry."move on". .analyze drivers Opportunity to vary the annual percentage rate or the annual fee Benchmark competition for opportunities Analyze cost and revenue drivers: Costs Marketing.Cannot change Other costs – Can not change Key Issues: Cannot affect the cost structure. Hold heavy debt for long periods of time (basically pay-off the interest) . there may be different customer segments based on the balance held. Only revenue variables available are changes to the annual fee and APR.8. 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. Hence. Pay-off in full every month 2. You need to analyze the situation and make recommendations. etc.8 Credit Card Division of Bank 9.80% 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. 9. theft. suburban stores are outperforming urban stores.5% .39 Are the demographics better suited for the mix in the suburbs? A.currently $50 (Could change) Annual percentage (Could change) Merchant change) fee = rate = (Can 14% not 1. however.Yes.

pick-up/delivery Develop pricing/bundling formats combining new releases with existing movies .9. You have been brought in by the CEO to assess the situation and provide recommendations. During the late '80's and early '90's this division had a great run -opening 4.costs) structure Analyze the competitive situation Analyze the "substitution" factor .1 Issue Our client is a major entertainment company on the West Coast.2 Possible Solutions Start with a simple: (Profit = revenue .9 Movie Rental Business 9. This is mainly due to the sale of these same releases through alternate channels.000 stores and realizing considerable profits. more convenient locations . The majority of their business is in movie rental with a much smaller portion in sales. 9.9.how else are consumers getting movies? Costs: Revenues: Cost of the new movies: (Actually decreased) # of rentals: (decreased. With fewer new stores opening. Background: Our client's division is not unlike a chain of Blockbuster video stores. In the last two years. it is imperative to get them to sign up for the card (no annual fee). it could buy excess numbers of the new releases to satisfy customer demand. both growth and profit have declined substantially. 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. they quite often rented an existing tape from the library (additional lost revenue) Based on this industry outlook.40 Access to case advances. etc. One of their divisions is a leading home video retailer. Later. use the card (cash back. but not enough to offset the decreased store traffic. other: (No change) Key Learnings: Costs have actually decreased. Recently. 2.kiosks. point systems) and run up debt (automatic credit limit increases). traffic down) Overhead: (No change) SG&A: (No change) Leases.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. Thus. the interviewer describes the changing industry. Key Issues: These heavy debt card holders are the key to our profitability. When division was growing. they would send the excess copies to the new stores as part of their "library" of existing tapes. 9. what would you recommend for the division? Provide a recap: It appears as though the major issue facing the division is a reduction in store traffic for new releases. the focus of the case was shifted to customer segmentation and tailored services for each segment. Competitive Assessment/ Substitutes: New movie stores: New In-home sources . this is no longer an option therefore fewer new releases have been ordered. How can we regain store traffic or offset the rental loses? Recommendations (these are just a few of the options considered): Develop new. Note to Case Interviewer As soon as the interviewee had identified the important drivers of revenue and cost. when customers rented a new release.] I. many of our customers are purchasing rather than renting. In addition.

markets. Market/ Customers: Autoland provides two services. the service center is much more expensive to operate.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. Retail sales of auto parts for customers who prefer to perform their own maintenance.no. Autoland has experienced $50MM in revenue with loses of $20MM. Assumptions: Due to size. The stores offer two services: 1. we have the same cost structure due to our presence in Canada.S. We attract the wrong consumer. 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.10. The customers who utilize the service center have higher incomes and no interest in fixing their own car.10. Are the costs associated with each side of the business different? A: Yes. in the U. They are very profitable in all cities including our U.S? A: Yes Do we have strong competition in the U. Autoland Capabilities: Assumption: We actually have two businesses under one roof. You have been hired to determine if they can improve their performance or if they should exit the market.41 Offer "rent to buy" programs . but losing in service. are the customers for each service different? A: Yes. is one more profitable than the other? A: In Canada . then have option to purchase 9. a national chain of stores in the exact format as Autoland exists in the U.10 Auto Service Stores 9.. Assumption: The market has potential due to the competitor's performance. Key is to determine why they are outperforming Autoland. They copied our Canadian format and have about 10 locations in every major city. Since entering the U. A service center for fixing any automobile problem. from an oil change to new transmission. 2. 9. we have to pay mechanics and have high fixed costs Assumption: We are profitable in retail.rent the first time.S. However. Are we doing this successfully? A: We are not sure. I would guess they have superior buying power over Autoland in the U.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. Assumption: We are attempting to attract two distinct customer segments.S. how would you help us determine if we are? . we are profitable in retail sales and losing heavily on the service center. Is this true? A: No.S? A: Yes.S. The owner is considering pulling out of the United States.

The interviewee must ask for this information to be given credit. Wentworth. The key is to figure out whether ticket prices can be raised.Between the inner city and the suburbs (on the Assumptions/ Recommendations: Our location is great for the retail sales business. 5. Which team should she buy? Additional Facts 1. locate between the lower and upper income areas to attract both segments. Neither franchise owns the stadium. concessions and parking) for purposes of this analysis. 12. the suburbs. In new markets. Mrs. After exploration of this issue. The interviewee must figure out a model to answer this question. comparable data for other franchises in other cities and overall market demand. respectively. The purchase price is the same for both franchises. Do not give this information away. Location. it turns out that they cannot be raised. Utilization on average is 70% for both sporting events. Ticket Prices on average are $25 for basketball games and $6. we located in the inner cities to save money A. 2. the baseball investment has a potential for greater revenue. 11.2 Possible Solution Everything cancels out except that baseball has more seats available..historical sales patterns. wants to invest in either the Cleveland Cavaliers (a basketball team) or the Cleveland Indians (a baseball team).000 for baseball games. Let us say that there is a $100 million price tag. Examine if 100% utilization can be reached. who is worth millions. border) Where is competition located? A: We do the same as the competition A: Identical to competition A: Different. on leases.licensing of apparel. Possible sources of data . 9. 10. Pricing. The financing terms available to Mrs. The interviewee should explore other streams of revenue but are irrelevant (important streams are . Thus. make the candidate probe for it.11. The stadium capacity is 20. 3.50 for baseball games.11. the interviewee must recognize that there are other investments that she should consider. Research shows that Cleveland residents are indifferent. regardless of the team she chooses. The number of basketball and baseball home games is 41 and 81.42 Factors: Marketing. She is indifferent between choosing between the two teams. In existing markets. The Balance Sheets of both teams are the same in terms of liabilities and assets. 4. 7. 6. 8. Wentworth are the same. or drop the service business and retain the profitable retail portion 9. Equation = # of seats * # of games * stadium capacity * utilization .1 Issue A wealthy woman. It is important that interviewees recognize these as possible sources of value to the investment. move. but prohibits heavy use of the service center due the distribution of income between the inner city vs. She wants to own a sports team: however.11 Sports Franchise 9. 9.000 for basketball games and 54. but would like to maximize the profit from the investment.

• Subsidiaries maintain all functions (were once bought by independent businesses. Plot labor/units on vertical.43 9.13 Business Forms Case 9. the firm cannot create demand pull) Consumer purchase frequency is constant (i.e. then diversified functional operations? Maybe.2 Possible Solutions Would it be more efficient to provide central functions from parent.12.13. we could determine the number of labor hours for a transaction for the sub and parent. then bought by parent). Problems with this approach? Eliminating sales function and order processing at sub may reduce flexibility and hurt customer service? Maybe. buy one new every six years). but how would you measure that value? Study each subsidiary's functions and determine efficiencies to be realized. but how would you measure this problem? Interview clients and determine the importance of flexibility and personalized sales. • • • • • Accounting Order Processing Sales Management Finance 9.12. For example. units on horizontal.e. Consumers buy primarily based on lowest cost product. If parent is higher.1 Issue . Parent manufactures all equipment (parent’s manufacturing is not the scope of this case).. 9.1 Issues SETUP A large durable goods manufacturer (i. 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.12 Durable Goods Distribution Case 9.e. centralize the operations.

The company has four regional plants (Midwest. However. the materials cost is less than the shipping cost or fees charged for customized work. Use “Time Based Competition” to increase profitability. • DISTRIBUTION: Extensive information system is in place. • MARKETING: The firm only uses direct mail fliers and catalogs. Custom orders shipped between one to three weeks depending on complexity and quantity of the order. • SALES FORCE: A two hundred person sales team is in place that focuses on important accounts. if possible. The market share in high-end pots & pans is 35%. A salesperson receives 25% of all revenue above a standard cost. but not necessarily to increase market share by lowering price. The firms should constantly monitor standard costs because of volume fluctuations. The company does not own delivery trucks. invoice forms. The firm uses JIT. 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%. excellent return policy and its ability to fulfill any order. The market is fragmented with many small local printers.44 OVERVIEW A manufacturer of business forms wants to increase profitability by using pricing as a competitive weapon. etc. a typical customer is a newly wed who places pots & pans on the registry at Hudson’s or Marshall Fields. The product line includes credit card receipts. The UPS delivers most orders within two days for standard items. The firm has modern facilities and good cost controls already in place. supplemented with occasional visits. The sales force is paid on commissions. warranty papers. The system handles over 100 daily orders. • PROFIT CENTERS: Manufacturing and sales are profit centers. . According to the CEO.14 “High-End” Pots & Pans Company Case 9. Possible Solution One possible solution is to use price as a competitive weapon.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. • COST STRUCTURE: Not important.14. SPC and other cutting edge manufacturing techniques. You have ten minutes to interview the CEO before she leaves for a meeting. Contacts primarily via telephone. Use ABC inventory analysis to get a “better” standard cost and empower the sales force to maximize revenue. wide product range. 9. An internal study indicates that the firm is the low cost producer in the industry. The sales division sets the prices to customer. You have ten minutes to interview the CEO before she leaves for a meeting. The CEO has hired you to assess and make business recommendations. 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%. Client survey reveals that the company is known for the “high quality. The firm should exploit rush order customers by raising prices on less price sensitive customers. Transfer prices negotiated between manufacturing and sales are in place. multi-copy sales receipts. • MANUFACTURING: The firm is a “world class” manufacturer. All sales are handled through the sales force. East Coast. West Coast & Texas). The largest player has 5%. sold primarily in sets and is expensive.” The firm is able to deliver larger orders faster than competition when asked for rush delivery.

since they sell so few of these pots and pans hold no inventory and thus require next-day replenishment after a sale. The reason for the low inventory levels is that the product is bulky and expensive to store. Inventory and outdated inventory would also decrease. Each store carries one set of each product line for display and one set for inventory purposes. instead. you buy from a US company in Oregon. It turns out that stores. notebooks. The next thing you need to know is where the warehouses are located. the cost of delivering products quickly decreased. This can be confirmed by asking for the annual sales. • MARKETING: The firm uses little advertising. Department stores demand quick replacement upon sale. which turns out to be 10. • COST STRUCTURE: Materials . Currently. • RETAIL OUTLETS: The product is carried in high-end department stores.14. Therefore. The higher the service level. A quick way to solve this case is to realize that if stores require next day service from these six warehouses. since the closer they are to the stores the cheaper distribution costs will be.15. The firm will consider switching if it can gain a long-term cost advantage.000 units. The Brazilian firm is offering to sell at $. you have a new option to buy from Brazil. Little discussion or negotiation required. Your client has six warehouses . The firm has a three person sales staff that works with department store buyers.20% 9. Beat this figure and you have earned your exorbitant fee. Eliminating warehouses leads to O/H savings that are far greater than the increased shipping costs. two in Philadelphia and two in LA from which he services the whole country.20% Labor . O/H .35 a square yard compared with the $. 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). Department store buyers know the company and its products well. Your company values long-term supplier relationships. warehouses and shipments). 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 .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.10% Fixed O/H . and other standard paper products.15 Paper Products Manufacturer Case Shipping/Packaging . No products are shipped directly from the factory. Your firm uses a sixty-year-old plant in Gary.1 Issue OVERVIEW Your company makes legal pads.38 a square yard from the current supplier.two in Charleston. When you divide this into the $1 million distribution cost you discover that they are pay $100 to deliver a pan to the store.000 tons of white 20lb paper to produce its product lines. the only way they can do this is by shipping overnight at a premium rate. Indiana that has been producing paper for 60 years. You are the purchasing agent responsible for buying the white 20lb paper. Distribution is a trade-off between cost and service level. The company and not customer pay shipping costs. Repeat sales equal almost 100% of the business. Due to recent developments. the lower the cost (more inventory pools.20% 9. you need to ask where the inventory is being held. With the advent of FedEx.30% Var. 9.2 Possible Solutions The six regional warehouses were setup in the 1950s when long distance delivery times were slow and costs were high. The firm purchases 100.

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• • • • • • • • • • • 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.

1.

Split the population (~250 million) into households. Make an assumption about the “average household,” say three, and come up to about 84 million households.

2.

Now, split the number of households into income quartiles.

Quartile Upper

# Households 21 million

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Mid-Upper Mid-Lower Lower 21 million 21 million 21 million

3.

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

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

48
9.17.2 Possible Solutions One approach to solve the problem would be to start at the end of the value chain with the price of RC. The interviewee may want to start here because this may be a “known” element (been shopping lately?). Now that the easy part is over, the next step is to assign percentages of the price to each portion of the value chain. For this part, the interviewee is expected to look at the percentage that Coca-Cola applies, and make reasonable inferences as to how Coca-Cola differs from RC and what effect this will have on the weighting for RC’s value chain. Reasonable assumptions might be made about the following issues: • Can RC afford to fund as much R&D (as a percentage of price) as Coca-Cola? Is RC a company which wants to be first in with a new product or a fast follower? • Are in-house syrup production and bottling costs (%) really going to be different between companies? • What type of distribution system would RC have compared to Coca-Cola? RC is a local brand so the assumption might be made that RC can deal only through the local DCs and do not have a large “base” DC. • Does RC really do a lot of marketing by themselves or does it simply “ride the coattails” of Coca-Cola’s marketing? • If RC has similar machinery requirements, do they have to spread their OHD over fewer products / less volume? RC’s percentage could very well be higher than Coca-Cola. The candidate should follow this line of “assumption and inferences” until the percentages are in place. Then the interviewee can simply apply the percentages to each portion to arrive at a cost. The interviewer can now ask if anything looks strange about the value chain or if you would suggest a different way for RC to be doing business. (The interviewer can then judge whether the assumptions are reasonable or whether the candidate sounds like he has never even seen a bottle of Coca-Cola before.) One possible answer to this (think back to Crown Cork & Seal) is for RC to start their value chain at a later stage in the process. If the syrup production and bottling costs are too large of proportion of their costs, they could consider buying syrup from someone else and use an outside bottler. Again, this case, like most others, has no “right” answer. The interviewer will just be looking for the reasonableness of your approach and assumptions. Good luck! 9.18 Fertilizer

Issue Your client is an agricultural chemical company. They produce fertilizer, which is a cyclical industry that is currently in a downward cycle. Lately, Russia has been selling fertilizer at a very low price. The firm’s plant in Louisiana blew up costing them $600 million in damages. The plant produced $2 billion of product revenue with $100 million in profits per year. The CEO resigned in shock and the new CEO has called you in to determine what they should do. HELPFUL INFORMATION (not to be offered unless asked) • • • • • • Fertilizer uses a simple manufacturing process -- perfect commodity product Farmers are the primary customer of the product International markets are growing at a high rate relative to domestic demand The firm is the low cost producer in the industry They have a strong sales force in place Transportation costs are in line with the industry average

• Customers say it is cheaper to buy their fertilizer in LA and ship it themselves. In other words, the final price charged to the farmers is very high compare to the industry Possible Solution • Transfer pricing (from manufacturing/production to distribution to sales) is adding significant additional costs to the product. Therefore, the product is becoming less competitive in the market. • Although they are the low cost producers, they are being priced out of the market by this additional cost structure.

the firm has recently lost several major accounts due to its inability to move (the firm's) products. High concern. Business travel increases as a result of market globalization. on the part of purchasers for a proven safety record of accomplishment. The consultant should also consider whether it might be better to try to compete on the basis of price. Business travelers are primarily insensitive to price.49 • The sales force may not be adding the value that the company thought/needs in order to be successful. Information to be divulged gradually • Mature market: 5-6 major players.1 Issue You are consulting to a CEO of an airplane manufacturer. 3.from low bias to high bias/metal. you have gone from being number one in market share to number two.older. As a consultant. • Recently your client has been losing younger target market customers. The condition of the airplane manufacturing industry. The consultant should ask as a strategic question whether the firm is interested in the manufacture of more fuel-efficient planes. Now the firm has a 44% share. • Client used to have a steady 30% market share. and then provide a possible solution. 2. • The firm has traditionally managed its relationship with retailers well. • The firm has been losing sales reps yet loyal reps claim that sales are at record high levels for the year. However. safety and service. They want you to determine the problem. middle income enthusiasts and high school rock 'n roll stereophiles. 9. Prevention of a new competitor gaining share: Key: creation of barriers to entry. • The firm historically targeted two consumer groups -. In the last couple of years. Long-term contracts are pre-emptive.1 Issue Your client is the manufacturer of audiocassettes. The airplane industry's demand is a function of travel among two classes: business and leisure.20. .19. The current competitor. a comparison: It turns out that the competitor's planes are cheaper to operate because they are more fuel-efficient. you are concerned with three essential items: 1. • Your client offers a full range of audiocassettes -.19. 9. Why the firm has lost market share and. what are the concerns your client might face? What additional information might you want to find out. Leisure travel increases with growth of middle and upper classes. • Your client is also using the most sophisticated and quality driven cassette manufacturing techniques.2 Possible Answers As a consultant. How to prevent the new entrant from stealing market share. The answer would depend on the future of oil prices. (second largest in industry).20 Mysterious Audiocassette Market 9. In addition. They have hired you to figure out why they have been experiencing an alarmingly poor sales year. another company has announced that it will be entering the business and is presently tooling up its plant.19 Airplane Manufacturer 9. and what recommendations would you make? 9. leisure travelers are very price sensitive.

filing.. Types of items processed include credit card. The bank has many other commercial accounts that use other companies for their item processing. The windmill costs you $10.) Your client’s historically flat market share suggests brand loyal customers. Therefore. the Department generates $1. You have no idea what this product is worth to anyone. and utility payments (checks).1 Issue You produce a windmill with an accompanying electric generator (generator harnesses the power produced by the windmill). We must therefore examine other components. for the long-term. The firm should also explore the opportunities and constraints of developing or acquiring the new technology. Moreover.21. Assessing the value of the benefits of the product is perhaps the next step.S. 9.50 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. Check is the Director of Retail Lock Box Services for the Bank of Luke. Hence. inquire how the electrical utilities measure and charge for the electricity they provide. The $10m cost is irrelevant.22. The item processing industry has undergone dramatic changes in recent years. airlines would process their own tickets) or by bank item processing departments like the Bank of Luke's. 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 -. your older target market is loyal -. maintenance. a medium-sized Midwestern bank. 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. In the past. The Retail Lock Box Department consists of 100 clerks and eight managers and Supervisors. these items were usually processed by the issuing company (e. Other considerations upon which to discount the value might be reliability. in addition to handling of retail lock box transactions. This could be an appropriate start. To narrow it down.perhaps less likely to switch to the new technology in the short run. Each year.000 to manufacture. and supplier/buyer power need to be assessed to determine the market price.5 million of fee revenue processing retail credit card and mortgage payments ("items") for 15 commercial accounts. etc. the processing of payment items was done more as a service to bank customers rather than as a profit-making endeavor. At banks.short-term. Historically. the Bank recently lost the item processing business of one of its largest accounts to Vader Inc.21. mortgage. for example. and coupons.2 Possible Solutions Porter's five forces dictate that industry rivalry. In fact. it received little focus from management. airline tickets. the largest item processor in the U.21 Windmill 9. 9. verifying the correctness of incoming paperwork and manually sorting..1 Issue Mr. let us assume competition and demand/supply levels are far beyond your capacity. How much are your customers willing to pay for it? 9. .g.22 Bank of Luke 9. The firm should target the older customers as well as other segments that are less likely to switch over to CD's. and totaling the items was performed by only the largest banks which were highly automated. potential substitutes. The firm should consider new sources and production necessary to exploit this new demand. The closest substitute to the windmill is probably utility produced electricity.

the parent bank is beginning to profit from the float of checks processed. the President has given Mr. Airline tickets have few peaks and valleys. 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. Vader uses high-speed processing equipment and is highly automated. because of the great economies of scale they gain from processing such volumes of items. Mr. because of this speed advantage. a majority of the items are still processed by the issuing company or by small processors. Processing time is rapid and processing costs are low. Check a budget to be used to hire a consulting firm. Check says so. and not simply believe that the business is necessary just because Mr. Vader benefits from a more constant workload by processing both airline tickets and retail lock box receipts.2 Possible Solutions In this case. We purposely leave the case rather vague by not suggesting any particular actions and by not offering much data. In fact. Mr. Within five years. It is expected that Vader and the other large processors will dominate this market. Mr. 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? .000 last year.. such as the Bank of Luke. Inc. Check's officer. The candidates should challenge the general premise of the case. Check has asked you to visit his office to discuss the proposed engagement. While walking to his office. you note a picture showing the Department's staff in 1965. what are the problems facing the item processing service and what recommendations would have the greatest impact on the performance of the Bank of Luke and the item processing service? 9. Vader has a significant cost advantage over smaller operations. Vader. Kenobi. We also want to test creativity with this case. the service lost $100. The President of the Bank. Recognizing that outside expertise is needed. In addition. Mr. most of who are not customers of its parent bank. 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. the largest such company is a subsidiary of a small bank in Georgia. Check was a supervising clerk at that time. 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 to evaluate how the retail lock box service can be made profitable. Mr. and it must price the service to be competitive with companies such as Vader. has asked Mr.51 Companies specializing in item processing have emerged in the past ten years. Check believes that the bank must offer retail lock box services. Each year Vader processes millions of airline tickets and retail payments for hundreds of companies. Once in Mr.22. high-speed equipment and methods. with limited use of modern. whereas mortgage payments always peak early in the month with very low volumes the rest of the month. Mr. you observe that the Bank's retail lock box operations remains primarily a manual system. After reviewing some background information with you. Although industry-wide. it is expected that most of the business will continue to migrate to Vader and other large processors.

Margins are shrinking. cutting 25 percent of the staff is too obvious and too easy. However.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. and reduce introduction rate for new products. The firm has also expanded its sales through product line extensions.23. Find the critical components of cost: raw material. high setup times). makes the problem worse). The production process consists of two basic activities: manufacturing and packaging. creativity and sensitivity to the real issues should be the goals of your probe.2 Possible Solution This is a revenue vs. Raw materials are commodities with cyclical prices that have fallen in recent years but are expected to swing up (as you have guessed. reduce low margin trade brand production..e. Revenue killers: Concentration of retailers.23. you will find out that the company's controlling system is still focusing on the manufacturing part of production and the cost explosion occurs in packaging. thus causing slack in labor and fixed capital (small batch sizes. we still need to consider whether the company's customers (i. Upon further examination. 9. labor and fixed cost. $15. Check feel his unit should be generating? (After all. 9. The firm should streamline product lines. Labor and fixed capital has increased per unit over-proportionally compared with ten years ago. What can you recommend? 9. cost exercise.23 Candy Company 9. (Candy is candy and the product line extension is primarily an issue of different packaging. Management is concerned that sales are growing but profits are not increasing at the same rate. emphasize pull marketing.1 Issue Your company is a rather successful producer of candy.24 Skyscraper . retailers) are willing to accept the reduced product line. retailers demanding large introductory discounts for new products and high failure rate of new products. It originally started as a single product line. Again.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. trade brands. The firm should consider reducing the number of product lines and introducing controlling/scheduling measures for packaging.

When marginal revenue equals marginal cost. Discussion topics should include the increasing importance of information in business. but is not sure how tall it should be. 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. you do not want to lose money on the deal. strategic value of information and information loss.25. the firm should stop adding stories to the building.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. building capacity through recruitment of IT experts and training them to be consultants. Nonetheless.2 Possible Answers Good answers focus on the value of IT to clients. the importance of information systems for implementing new organizational structures and management control systems.25 Consulting Firm (I) 9. Discussion topics should included the incremental costs of having clients talking with competitors about IT problems and the risk of losing new clients by not being able to solve a problem. raiding IT practices of other firms for a few key consultants. Good answers will focus on various methods to build expertise. 9. The methods may include buying expertise by acquiring another firm. . How should he decide how tall to make the building? 9.24. So far. The costs of building and maintaining the structure (both fixed and incremental by story) needs to compared to the revenue generating capacity of the project.2 Possible Solution This is an economic supply/demand mind teaser. Clearly.24. building capacity by training current consultants in IT practice skills and establishing a strategic alliance with a IT boutique firm. you have noticed an increasing number of your firm's proposals are rejected because of a lack of information technology expertise in your firm. your firm's growth has been strong enough that proposals lost have not hurt annual earnings.53 9. The building will house tenants. you are becoming increasingly concerned about the need to develop the firm’s capabilities in information technology. The traditional strengths of your firm have been solving strategy and organizational issues. Assuming your concern is valid. who will pay to reside there.25. Recently. Better answers focus on the costs of losing clients to competitors.1 Issue Your client is going to build a skyscraper.

Good answers depend on the expansion methods discussed.. strategic studies in IT areas.No Separate the commodity aspect of the product from fragmenting aspect -.26. Possible Solutions What is the structure of the industry? -. the cost to the firm and the time needed to build expertise. tariffs. rapid technological changes in the IT industry require significant ongoing training and development costs. 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. however profits have been shrinking in recent years.. Eurocos produces all products in all countries Transportation costs are small (see operational part). produces and sells various cosmetics products in several European countries.). new practice cultures may be significantly different from current culture. • High product differentiation (many ways of differentiation). Many small to medium size brands. 9. The various products are quite similar in terms of raw material and production. articles. The company's different brands are well established in the markets. thinks he should change his strategy. The company has been doing very well in the past. Better answers will focus on the difficulty of implementation in IT. • Diverse markets.1 Issue Eurocos Inc.Yes Changing environment: reduced tariffs . Discussion points should address the impact on firm's current culture.26 Cosmetic Company in Europe 9. He asks you if this is a good idea and what he should do next. customs exist between geographical markets How can fragmentation be overcome and is the strategy feasible for Eurocos? Learning curves present -.. customer needs (language. complexions). Better answers will realize the importance of stimulating client demand as capacity builds through seminars.Yes Standardize market needs -. • High barriers.. These issues could be intensified if "external experts" are brought into the organization. The CEO of Eurocos Inc.54 Candidates should discuss the pros and cons of each method. Additional information: • • • • • The industry has many small to medium size companies.Highly fragmented industry with the following characteristics: • Low entry barriers (small setup costs.

roughly 250m in research and 600m for each plant. Negligible variable costs. 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. Therefore.marginal cost of an additional chip is minimal.55 The firm should consider consolidating production while keeping the marketing and branding nationally decentralized. quality) Optimizes locations (interest rates.27. Finally. Raise pros/cons/issues of government participation in this issue.S. 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. fixed costs are high..1 Issue The domestic semiconductor industry is beleaguered .2 Possible Solutions What are the cost drivers in the industry? (e. longer runs. Cut-rate volume-oriented pricing . This increases exponentially for each succeeding generation of memory chip. Semiconductor firms need access to huge amounts of capital on a continuous basis to survive for the long term. accusations of "dumping” against the Japanese. wages. Domestic semiconductor manufacturers are clamoring for protection from Washington. 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. You are a consultant at a major firm.) The basic issue to be determined is that it costs huge amounts of money to be a player . what will shared research accomplish? . You know that each generation of memory chips lasts only four to five years. etc. The split between fixed and variable costs involved. and some of the public policy solutions being proposed are research consortium sponsored by the government.brutal price competition from the Japanese.g. Is government involvement even feasible? What will be the priorities for the scarce government resources? Will the relaxation of antitrust laws help? The candidate will also need to consider foreigner's access to cheaper capital.27 Semiconductors 9. trade restraints. etc. manufacturers? 9.27.

In a price-competitive industry. medium. How do you determine how much they are worth? 9. In effect. the discounters have gone out of business.2 Possible Solutions This problem involves the interplay of supply and demand forces to determine the value of the tankers. Years later.28. why is it that the higher-cost carriers were able to survive and the low-cost ones were not? 9.1 Issue You have been hired by a fertilizer manufacturer to help them out of a difficult situation.30 Fertilizer 9. discount carriers like People Express sprang up. 9. The nature of tanker supply will be revealed by defining the different tanker types (in layman’s terms: small.28. The larger airlines priced every seat individually based on continuously monitoring of demand/supply. Their market share and profits are declining and they cannot figure out what is happening. only large and medium tankers are put into service.2 Possible Solutions Characteristics of discounters: • • Low fares Limited service.29 Oil Tanker 9. 9. The larger airlines stole the discounters' market and forced them out of business. Characteristics of major carriers: • • • Higher fares but better coverage and service Hub systems Full service capabilities with larger volume base.56 9.29. In the early years after deregulation. a step-function supply curve rsults for the industry with each step representing a different tanker type.29. Demand for the services of tankers is assumed inelastic due to refinery economics dominating the purchase decision. It will turn out (by carefully drafting the supply/demand curves) that at the given level of demand. This renders your late uncle's small tankers suitable only for scrap at the present time.28 Airline Industry 9. 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. What are you going to do? Possible Solutions . Competitive moves by major airlines included the innovative use of information technology for yield management and differential pricing.1 Issue Your rich uncle has just passed away and left you with three small oil tankers in the Persian Gulf.1 Issue Historically low returns and stiff competition characterize the airline industry.30.

All three company’s current car models are "badged" Japanese designed cars (i. discounting. frequency. Use difference in needs of customers to implement prices based on appropriate advertising service needed.g. 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).1 Issue Your client. What are your alternatives? (If you got this far. Examine competitor pricing and customer price sensitivity.31. (The candidate will discover that revenues have gone up steadily over the past few years.. one of the big three automakers in Australia. you are probably doing fine!). He sounded extremely worried about the retail advertising division's performance.e. 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. has over the last few years under-performed relative to its competitors as measured by profitability. 9.57 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. corporate pressure to improve bottom-line results has led to steep advertising price increases. A classic demand-curve scenario has led to greatly decreased cumulative ad volume with potentially serious long-term consequences.31. You also do not have any scale advantages.2 Possible Solutions The interviewee must first find out the corporate profitability objectives. ..1 Issue You are the new retail-advertising manager of a large daily newspaper. etc. they are products of joint ventures with one of the smaller Japanese automobile manufactures). Again.32. Examine both revenue and cost issues. Discuss heterogeneity in advertising customers based on business size. This morning you received a call from the advertising director (your boss)." 9. 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). Assess gap between actual departmental performance and assigned targets. price-point.31 Retail Advertising Pricing 9. The candidate must understand advertising attributes of importance to different segments (e.32 Automobile Industry 9. So. The Japanese market is much bigger than the Australian market. Further. why worry?) Apparently.). Looks like you would try to explore the possibility of competing on a scale basis. size. he does not explain why. breadth of product line. costs have not risen significantly. Examine critical issues relating to your disadvantage in raw material supplies? Why is it that you are at a disadvantage? It turns out that you probably cannot overcome this disadvantage. etc. color. you will have to flush this out with your questions and approach. He also wants to make a big splash by presenting a new "strategic pricing methodology" aimed at achieving "value-based differentiated pricing. What do you look at to analyze the issue? 9. (Naturally.

You have been asked to establish why your client has performed poorly relative to the competition.Different market segments? .1 Issue A manufacturer of scientific instruments. 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. the only difference being the place of manufacture and the model names (i.High cost of production? Given that the reason for under-performance is the high cost of production.Design.Published financial accounts.2 Possible Solutions Explore possible reasons for the under-performance .e. The key lies in your discovery that design costs are pro-rated.Raw materials.. 9. .. Given that design costs are by far the most important component of costs. . Why? . Data from your American holding company. the candidate should establish the sources of high costs relative to the (other auto makers. badges).Interior product? . etc. your client sells a similar product.58 These cars are then sold in both Japan and Australia.Are the terms of out joint venture different from our competitors? . 9.Labor costs. 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.33. determine what makes up the costs and their relative importance? .Manufacturing overhead.Poor sales/ distribution? .High general expenses (admin. NONE OF THE ABOVE HELPS! Don't panic.dissimilar products or production leading to the under-performance? . To recap. Your Japanese partner incurred similar design costs (in absolute costs). marketing. Reverse engineering.is experiencing declining sales in its major product line. explore the relevance of the Japanese connection? .)? . in similar amounts and to similar markets in Australia. . using: .What are the terms of the joint venture? respectively? Share of design costs pro-rated between the parties based on number of cars sold .Does our car cost more to design than our competitors? Although the answer to the last set of questions are negative.Management accounts.32. you know the solution of the problem has something to do with cost so.33 Scientific Industry 9.It turns out that the terms are all similar? . . the solution is at hand..

2.What is the current percentage? (Goal: determine whether this could be a cause of the sales decline). Response: Yes. Y is an accessory for larger and much more expensive instrument that functions almost exactly like a microscope. and they have begun producing an unrelated product. call it Y. Response: Our client's product is regarded as one of the best in the market. Two years ago.primarily semiconductor manufacturers. Describe the instrument and what it does. shrinking or flat? (Goal: a shrinking market could be a good explanation for declining company sales). Y is rarely sold individually.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). Response: They recently began manufacturing X. Response: It is currently around 5%. What other products does our client manufacture? (Goal: gather background information on the client). In fact. and academia. in research labs.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). our X does compete directly with other Ys and our client introduced the product about one and a half years ago. (You have discovered a significant portion of the sales decline). Who uses X and Y? (Goal: determine market segments). Response: There are two basic user groups: industry . Response: The instrument.59 9. over 30 percent of our clients sales were generated by a manufacturer of X. 5. 1. which we will call X. but Y is essentially dependent on X for its operation. (Goal: gather background information on the product). What we have noticed lately is that the specific users in each of these . 4. except for replacement sales.33. X's sales force will frequently recommend that a buyer purchase a certain Y while buying an X. it is able to determine the specific composition of material placed in the chamber for observation. that is.2 Possible Solutions Here are some questions that may help isolate the important issues: l. 3. Response: X can be used by itself.How does our product compare to other Y's? (Goal: determine whether others are beating us in technological or other product features). 2. Is the market for X and Y growing. Consequently. Response: Both markets are flat. is able to perform elemental mapping. 8.

for various plant-to-market combinations. we happened to do so at a time when relationships became even more important. Perfect competition. 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.34. (There are many combinations!) . Given perfect competition. How to simulate the market mechanism? Determine what kind of market structure exists . As part of a strategic review.Linear programming approach. you have been asked to construct an industry cost curve (cost/kg of aluminum produces vs.1 Issue Your client is a leading manufacturer in the aluminum industry. relative cost position is the primary source of competitive advantage. 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.35 Meat Packing Industry . These buyers have become even more dependent on the sales forces. In other words. they are hired just to run the instruments and therefore know less about their technical qualities. 9. who also happen to be the primary buyers have become relatively less sophisticated. 9. In addition to ruining our relationship with a manufacturer of X by producing our own. which market segment is most likely to be affected? What will the equilibrium price be in the future? 9. supplying six major geographic market segments.2 Possible Solutions How to estimate competitors cost management? Financial accounts.60 groups. Indirect estimates by client management. Because aluminum is a commodity. Your model should be flexible enough to enable various future scenarios to be run. Direct estimates by client management.34. (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.perhaps an oligopoly. industry supply). There are five major players in the industry.34 Aluminum Industry 9.) This is the second part of the main reason for our clients declining sales. how do you simulate demand? Back of the envelope approach. The buyers are relying more and more on the X sales force who is typically called well in advance of' the Y sales force.

In addition.61 9.1 Issue How many piano tuners are there in Chicago? Possible Solutions This is a brain teaser case.000 4th 0 Population % w/Pianos #of Pianos 500.36 Piano Tuners 9. Since there are stable costs and strong sales. There is no right answer.000 + 50. This gives you (100. Thus: Income quarter 1st 100. Investigate this avenue. profits have steadily declined despite the fact that sales are growing. Next. and 0% of fourth.000 3rd 25. 10% of second quarter. you can break the income of the households into four quarters (500.000 0 With 175. transportation costs and competition have not changed dramatically. you will discover the market is regional. You can then make an estimate of 20% of highest income quarter have pianos. You have been hired to figure out why. Its purpose is to test your logical and quick mathematical thinking.000 10 500. a US firm. . you can estimate how often these pianos are tuned. your production costs have remained stable. you will know that they are independent farmers with little power against your client. 5% of third. 9.000.000 20 500.35.2 Possible Solutions Porter's five forces is a useful starting model in this case.36.000 5 500.167 or approximately 120. 9. Over the last few periods. In analyzing the internal rivalry. Therefore. The test is to see if you can come up with an answer based on information that you provide during the case using estimates.000 households.35. You can estimate that the top income cluster tunes their pianos once a year.000. owns a meat packing plant in Spain.000/3 + 25. By looking at the suppliers.000/10) = 119. and you will discover the buyer link. Your margins are being squeezed due to the increasing concentration and buying power of your customers. the second quarter once every three years and third quarter once every 10 years.1 Issue Your client. Hence.000 2nd 50. You will also discover that there has been no introduction of a substitute product. The interviewer gave this piece of information at 2. the only other alternative is the price of your product. You need to start by asking questions about the critical factors. One way to solve it is to estimate the number of households in the Chicago area.000 pianos to tune.000 each). the costs of your raw material cannot be the issue.

. How could you check this? Look in the yellow pages. there are 46 piano tuners listed in the Chicago Yellow pages. By the way. therefore: 120000/250=480 pianos a day to tune 4 = 120 pianos tuners needed. Would all the piano turners be in there? You could guess that at least half would be. 250 days a year.62 We can estimate that a piano tuner can do four pianos a day.

however.63 9. with many players each holding relatively small concentration of total market. Many companies are relationship-driven with their customers. such as Porter’s five forces. Its possible new firms would enter if the industry were earning positive economic profits. The following is an abbreviated analysis.1 Issue You are the newest member on the management committee of a well-known top-tier strategyconsulting firm. which limits competition and keeps prices high. Substitutes (moderate): Companies can move the consulting process in-house by hiring exconsultants and bright MBAs. This is also an interesting case since the salience is likely to be high. Potential Entry (moderate): There are no great barriers to entry into the consulting industry. not necessarily the answer. Firms must pay market price or risk losing suppliers. Rivalry (low to moderate): The management consulting industry is fragmented. Firms act as competitive monopolists and differentiate themselves by specialty. and the resources they employ (no MBAs versus all MBAs). ask the interviewee to develop his or her own hypotheses. you should feel free to add information on an as-needed basis. 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.37 Consulting Firm Strategy 9. reputation (McKinsey versus accounting firms). As you leave the meeting. which you will present to the committee at its next meeting. type of customer (Fortune 100 versus Fortune 1000 companies). you begin to realize the enormous task to which you have committed yourself. you volunteer to study the industry and propose a firm strategy for next millenium.g. it is appropriate to question the effect a recession might have on industry.. When information is not available. .37. A good place to begin is to evaluate the industry from a competitive analysis perspective. which would reduce demand. Buyer Bargaining (moderate-high): In the last decade. Supplier Bargaining (low-moderate): Major suppliers are the intellectual capital employed by firm (e. and push prices lower. However. Its possible demand may decrease as companies quit expanding. Eager to be accepted by your more senior peers. give buyers more bargaining power. which lowers buyer power. What matters here is the thinking process. it is primarily the established firms that compete in the top tier of the industry. As an interviewer. Top tier firms in particular are able to have high price points. experienced consultants who bring in sales and new consultants who provide analytic). the consulting market supply generally following demand.

Information can be broken into two groups: secondary and primarily. Hypotheses are often created from the secondary information. 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. so the interviewee may balk. investment bank research. Specifically. specialized studies. etc. However. etc. 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. 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. associations. Information gathering is a critical reason companies use consultants.) 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. An interviewee should have an understanding of business information sources and how information is gathered. in-person interviews. books.64 Other interesting points might explore the critical success factors in the consulting industry. Primary research is then used to focus in on the critical issues. such as leveraging through technology? Given your firm's competitive strengths and core competencies. laboratory experiments. cost-cutting studies rather than market expansion studies. how could you get a better handle on There is no right answer here. a complete review of published literature (a "lit search") pertaining to the study (e.g.1 Issue . the thought process is more important here than actual answers.g. government sources. etc. 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. mailed questionnaires. focus groups. what is the best strategic route? 9.38 Corn Feed Company 9. Usually one begins with secondary material. industry experts.38.). journal and newspaper articles.g.). This often points towards other good sources (e. This research includes telephone interviews. Most answers will depend upon the material covered in the first two sections of the interview. major competitors.

The transportation cost per ton of corn stock (raw material) is much higher than the cost of transporting the actual feed.65 A corn feed company has eight manufacturing plants located in the Midwest.2 Possible Solutions There are two issues to this decision. These plants service the entire United States.1.39 Selective Binding Case 9. Cost analysis of the transportation cost of feed versus raw material should be completed.38. For example.1.38. advertisers can . Build a larger plant at the current location 3. In this way.1 Location of Plant Transportation cost and perishability are the main issues with location. The plant size and the plant location should he considered separate. All four competitors have similar manufacturing processes and similar cost structure. The current customers buy from all four manufacturers in order to guarantee supply. The raw material is perishable where as the corn feed can be stored for any length of time and is easier to transport. The capacity utilization is 65%. which is industry standard.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.2. consider the demand for the product. 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. Conclusion The current plant is located close to the cornfields and this is the best location for the plant from the cost/benefit analysis. The corn is grown in the Ohio area and the feed is sold to the East Coast. Size of Plant First. Their plant in Ohio is in need of refurbishing. Included in this analysis could be the rate of spoilage through longer transportation of corn stock. The company has four possible options: 1.our company is the second largest.1.39. 9. 9. Build a similar size plant at a new location 4. Refurbish the existing plant 2. There are four main competitors in the industry . Currently demand is being met and there are no alternative uses for corn fed. The proposed largest plant will not have economies of scales that are not already present in the existing plant. Corn feed is a commodity product. Pricing on the product is dependent on current corn prices as opposed to the manufacturing process. Build a larger plant at a new location Which is the best option for this plant? 9.

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.66 focus their communications on the demographic segment they are targeting.000. What demographic breakdowns are possible to make in the magazine's database? A.2 Possible Solutions This is a straightforward cost/benefit analysis. What does the client's closest direct competitor charge for ads and what is their readership like? A. Assume that all advertisers continue to advertise in 100% of the newsstand copies. Since the printing cost to the client of selective binding is zero. Of course.000. The 75% of the advertisers targeting the high-income segment will advertise only to the high-income subscribers (75% of subscribers). Effectively. Therefore. There are 1 million readers. 80% of who are subscribers. 100. Q. the client simply needs to evaluate cost on the basis of revenue per thousand gained or lost as their advertiser base uses the service to better target. revenue associated with a single inserted page (front and back) in an issue is 100 per thousand. The same mix applies to the newsstand buyers according to readership audits. the proportion of readers who are subscribers (as opposed to newsstand buyers). What is the total readership. The client's closest direct competitor has 500. the 25% of advertisers targeting the lower income segment will choose to target only that 25% of subscribers. . all of their readers make over $50. They charge $70 per thousand for their full one-page ads. Q. What proportion of the client's advertisers target each demographic category of readers'? A. Q. Q. Would you advise your client to take advantage of this new process and offer selective binding to its advertisers? 9. The only breakdown possible on your database is between subscribers who make under $50. Twenty-five percent of subscribers make under $50. The client charges $50 per thousand per full-page ad (selective binding can only be offered on full-page ads). Q.000 and 75% make over $50.000 readers. 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.000 of who are subscribers. and the proportion of subscribers in each demographic category? A.000. Most advertisers are selling high-end fashion products.000 and those who make over $50. so 75% of them are targeting the highincome group. 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. Presumably.39. instead of 100% of advertisers paying the full $50/thousand per page. 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.

If you consider the advertisers targeting the high-income group.67 New ad revenue per page = $50 X [(25% X 25%) + (75% X 75%)] at old rate = $31. the potential for and cost of expanding the advertising base using selective binding as a selling tool. 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. $70 is the maximum price per thousand the client can charge its advertisers for selectively targeted ads. diversified entertainment corporation has asked a consulting team to examine the operations of a subsidiary of his corporation that manufactures video games. Of course. To mention these other possibilities and areas for further investigation is certainly wise.and low-income advertisers. it is important at the end of the interview to have reached a recommendation regarding the initial question posed by the interviewer. 9. Specifically.000)/500. Any higher cost and the advertisers would switch to their competitor.67 If the client charged $70/thousand for selectively bound ads. the average revenue per thousand to the client would he: $70 X [(255 X 25%) + (75% X 75%)] = $43. 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'? 9.40 Video Games 9.75 Since $43.2 Possible Solutions . However.000 = $66.1 Issue The CEO of a large. 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. To answer this question. their alternative to advertising in your client's magazine is to put their ad dollars toward the 100% high-income readership competitor.40.40.25 < $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. 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. he needs to know if he should approve a $200 million capital request for tripling the division's capacity.75 is less than the $50 that advertisers are currently paying. For example. You are a member of the consulting team assigned to this project. the magazine should not often advertisers the selective binding service. our client's ad rates must be looked at from the perspective of their advertisers. there are other issues which interviewees might want to mention such as the possibility of price discriminating between high .000 = $70 Thus. Assume you and I are at the first team meeting.

respectively. Our competitors are estimated to have a 10 to 15 percent cost advantage currently. new remote joystick) to appeal to market segments. . competitive products (home computers).000. 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. manufacture and sell software/games though our division sells only licensed software. The main costs are assembly components and labor. but should not be expected to solve the problem. What is the future market potential? The candidate needs to question the continuation of overall industry growth. and declining "per capita" usage. ask. The following issues would need to be covered for the candidate to have done an acceptable job: 1. Product features are constantly being developed (e. The primary issue of the case is to determine if the industry is attractive and especially. She/he might ask about the saturation of markets. Industry growth has been strong though over last few months sales growth has slowed. Costs: The division estimates current cost is $30 fully loaded.000 units. The division’s sales remain less than 20 percent of parent company sales. No other large segments have been identified. The top two competitors also develop. yet. Sales: The division sales have increased rapidly over last year from a relatively small base. margins have recently been falling.g. etc. however. The division’s current sales price for the basic unit is $45 per unit. 2.. Current estimated annual sales of 500. Customers: The division estimates that much of the initial target market (young families) have now purchased video game hardware. The requested expansion should reduce the cost by 5 to 7 percent and triple production capacity of the hardware units. Profitability: The division currently exceeds corporate return requirements. if our client's position in that industry is sustainable. Issue areas might include: concentration of market shares. Product: the industry leaders have established hardware standards. The current estimate of industry hardware sales is 5. Distribution: The primarily outlets of distribution are top retailers and electronics stores. control of retail channels and R&D capabilities (rate of new product introductions.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. per se. It the candidate begins to discuss too deeply a specific issue before having covered the key issues overall. The top two producers have 30 and 25 percent market share.000 units annually. "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. The candidate should identify issues that are necessary for assessing both the industry and our client's position.). What is the competitive outlook? The candidate should at least recognize the need to examine the competitive dynamics. The remainder is divided among small producers. Industry growth of software continues to increase. Market Share: The division is the third largest manufacturer of hardware in the industry with 10 percent market share. The division sells to great range of consumers.

"fad" potential of product. The client is third of eight industry participants. -Seek to understand the reason for poor profit performance of division.41 Steam Boiler Hoses 9. Address the shitting mix of product purchases. How would you structure an analysis aimed at restoring profitability? Where do you expect to be able to save in costs? 9.. There has been increasing price pressure in the industry. This steam hose division provides boiler hoses for both external customers and the client's boiler division. when combined. Company ability to Compete Should ask what the capacity expansion is designed to do. but better answers would address: Market Potential Recognize that there is a relationship between market penetration and growth in new users which. from hardware (player units) to software (videocassettes). (i. hardware versus software). Recognize that different distribution needs may exist for different products (in this case. What will be the price/volume relationship in the future? Issues of prices need to be considered. In this situation.41. Explore the cost position of the client division relative to that of other competitors. In this case.69 3. 9.41.e.) Software Recognize industry leaders set technology standards.1 Issue The firm was asked by a diversified manufacturing client to help turn around the steam boiler hose division. Seek to look at buyer behavior in critical buyer segments.2 Possible Solutions The following information is also available in response to questions asked by the candidate: . Background information on the client and industry includes: Boiler hoses are sold both with original equipment and as replacements. yields an industry volume estimate. the division as a secondary player and will have to follow these standards. There are no bounds on creativity.

What kind of comments are we receiving form our sales force? (Customers are delighted with our hoses but require all the product features. Drop the product line (apparently not possible because hoses are necessary for boiler sales). 3. 2. Scale economies (client is big enough to achieve scale production). The answer should address the following organizational implication: 1.) 3. Raw material prices (they are the same as everyone else's) 3. Allocation of overhead (no cash savings and provides little savings potential) 4.42 Merger Candidate in Chemical Industry . BETTER ANSWERS Better answers will move beyond the previous answers to consider: 1. SG&A (standard industry fee paid for independent installers). MINIMUM REOUIREMENTS The candidate should avoid being bogged down in the following areas: 1.) 2.70 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. OUTSTANDING ANSWERS The best answers follow a logical progression and should not stumble upon the actual answer: The product has been over-designed. 2. Production technology (client has a modern plant) Labor costs (wages rates and productivity are average for the industry) 4. Are there other areas in the company where similar problems exist? 9. How is our product engineering operation wired into the marketplace? (There is little contact between the engineering and marketing/sales organizations. At least two of the other companies in the industry are making moderate profits. Raw material purchasing practices (material are purchased through long term contracts with prices based on the spot market minus a discount). requiring excess raw material.

Both companies are bulk commodity chemical producers. How rational is pricing in the market? (The industry is prone to self-destructive cuts to gain temporary share points. The target company is probably at breakeven and the rest are operating at break-even or loss.) OUTSTANDING ANSWERS 1.) 5.) 3.) 2.42. (It is a bluff to try to encourage smaller competitors to shut down. The target company has reasonably "good" position.71 9. What markets use this chemical and what has been the nature of the growth in these markets? (The end users of this product are largely automotive-related. How important is this product line to each of the competitors? (Most producers are fully diversified. Are there niche or value-added uses for chemical? (Not really.) BETTER ANSWERS 1. Is regulation important? (Yes: all competitors have installed pollution control equipment.) 3. How would you structure an analysis of the target company's future prospects in this product line? 9.2 Possible Solutions MINIMUM REOUIRENENTS 1. and how expensive is entry/exit'' (Entrance is expensive. What are relative cost positions of competitors? (Related to size/efficiency. How is the product sold and distributed? (Economies of scale in marketing and transportation are critical. • There are 7 to 8 major producers: the largest producer has a 30 percent share. We have been asked to begin our work by analyzing the future prospects of the target company's major product line. How often have companies entered/exited. What is nature of operational improvements that target company could make? (Lots) 4. number two has 20 percent.) 2. our target company has 15 percent and the rest is divided among the other competitors. a bulk chemical used in the production of plastics. age of plant.) 5. What has been the relative capacity utilization of competitors in the industry? (60 to 70 percent for last three years). Does the chemical have a major by-product or is it a by-product? (Not of significance in this case. Reasons for announced capacity expansion.) 3.) . Essential facts included: • • Production of this chemical has slowly declined over the last five years.) 4. Is there synergy between our client and target? (Not really. • The largest competitor has just announced construction plans for a major new plant.1 Issue One major chemical producer has retained the consulting firm to evaluate another major participant in the industry. • The two largest competitors earn a small return. 4.42. Prices have declined rapidly. How much overall capacity exists now? (Far too much. exit cheap mostly because older plants are fully depreciated.) 2.

72 9.2 Possible Solutions Market Share: The industry is highly fragmented. Are there market limitations to the potential production of any one material'? 2. do some coatings cost more than others do? Do some materials have inherent cost differences? 4. and general performance. The client does not wish to invest in additional equipment at this time. vapor. These areas must be determined to understand the profitability of each product. water. How would you go about determining the optimal mix of potential products? 9. No competitor has more than three percent of the total market. All products can be obtained from a number of sources. MINIMUM REQUIREMENTS 1.43. Each material is used for packaging but differs in physical properties in terms of costs. flexibility. A variety of' small manufacturers supply similar products to a wide range of customers. The client has asked us what combination of products he should ran to increase the profitability of the plant. 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. Cost: Each product has a different cost to manufacture dependent on materials used and the manufacturing process. Products: Our client's machinery can produce hundreds of different products. Customers: Our client's customers are primarily consumers or industrial product manufacturers who use the synthetic materials in packaging their own products.1 Issue A client produces a range of synthetic materials in varying widths and lengths. selling cost and prices. light. Each machine is capable of running any one of the various materials and/or coating combinations. Are there differences in costs in the manufacturing of these materials? For example. 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. All of the machines on which these materials are made are housed in one enormous factory location.43 TYPE PURPOSE Machine-Loading Case Macroeconomic To determine problem whether the candidate can dissect a general economic 9. Price: Each product has a different price dependent on both the client's cost to manufacture as well as the market for the product. etc. weight. The interviewee should also address the market demand for each product (to ensure what is produced can be sold at an acceptable price). Is there competition for these products? 3.43. Our client estimates he has less than 1 percent of' the total market. Suppliers: Our client uses primarily commodity products in the manufacturing process. Is there flexibility in pricing of' these products? . The candidate could cover differences for each product in the fixed and variable manufacturing.

how long they last (actual life. Profit contribution is (unit volume) times (unit price minus variable cost). From this. The way to do this is to ask how many oil refineries there are. Machine-hour capacity is a surrogate for fixed costs per unit of volume. one can estimate what the industry spends per year on machinery can. Is there unlimited market demand for these products? 5. The guide is to request what % of the market $4M represents.44 Oil Refining Industry 9. 9.73 BETTER AN'SWERS 1. An estimate of the market size is therefore needs to be done. how much does each cost to build. You generate $4M annually in revenues through the machinery division of the company. 9. Assume this is unknown. An outstanding answer must include recognition of the asset costs and capital implied in that as well as income or profit contribution. Are there differences in setup time and cost for various materials or coatings? 2.) .1 Issue Your client is a large agricultural equipment manufacturer.. competitor #1: 30%.most likely in comparison two dissimilar pieces of information: 25% market share and $4M (but no idea what % of the market this represents).operating status" .45.2 Possible Solutions It is unlikely that there are too many players in this market. competitor #2: 15%.44. What questions would you ask of your client to help them solve their profitability problem? 9.45 Agricultural Equipment Manufacturer 9. Their primary product line. What is your client's market share relative to their competitors (your client has 40% of the market. The best algorithm is to maximize the profit contribution per machine hour. In addition. 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. Divide the above mentioned $4M into this and the refining division's market share can be assessed.2 Possible Solutions Define "assess. with the remaining 15% belonging to many small manufacturers. Suppose the answer is that there are two direct competitors. 1..45. which supplies machinery to refineries (not owned by your company) around the world. 2.44. Are there technological displacement or replacement products on the horizon? OUTSTANDIN'G ANSWERS The best candidates will formulate a profit maximization algorithm. How do you asses the current operating status of this division? 9. This % can then be compared to the 25% share of the parent. the potential substantial differences in volume produced per product-hour and/or the price obtainable in the market demand and competitive actions. You might want to start off by asking how many competitors there are. farming tractors. is losing money. not dependent life) and what the machinery replacement costs are. 3. Do these materials move at different speeds through the machines? 3.1 Issue Your company has 25% world-wide market share of the oil industry. Are the machines truly interchangeable or are some better suited to one product or another? 4.

. 10%. The client needs to incorporate a cost/benefit analysis procedure into its product improvement process. We've tightened tolerances and improved the durability of our component parts. and the client has no answer as to why material prices have gone up so staggeringly.) Has this always been the case? (Yes) Are the products the same? (Essentially yes. in fact both the price and costs are up. I guess we assume that they will.) 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.) Have fixed costs increased? (`No. 15%. but customers do not value these improvements unless they are essentially free --so sales are down. This can be critical for some farmers because they cannot afford to have a piece of equipment break down at a critical time. the prices have increased as a result of our product improvement efforts. and competitor #2. Don't forget though. they're not. competitor #l.) 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.. material costs.) have gone up out of sight. (variable costs.) Are your customers willing to pay for these product improvements? (What do you mean. your client had 60% of the market.) Why do you make these improvements? (Because we strive to continue to sell the best tractors in the world.) Are sales revenues down? Are sales quantities down? (Yes) Is the price down? All costs the same? (No.74 What-are the market share trends in the industry? (Five years ago.) Do you manufacture your tractor or just assemble it? (Primarily an assembly operation.) 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. that you must consider the long-term effects of these decisions. Of course. they all have the same basic features. your client has lost significant market share to its two competitors over the last few years.) 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. . Obviously. tractors are not commodity items and a few differences do exist.

The only factor determining how much the agents paid is their sales $.2 Possible Solutions Distribution is basically a trade-off between cost and service level.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).48. How would you go about determining a fair price for company 456? 9. Company 456 is currently selling for $22 per share.2 Possible Solutions This. They are not motivated to give consideration to the riskiness of the insured party. The treasurer's investment analyst predicts that the stock will pay a dividend of $1. depending on how risky (costly) an insured party proves to be. So you need to ask where the inventory is being held. warehouses and shipments).1 Issue Your client is the treasurer in a significantly privately held corporation.48 Pots & Pans (2) 9. When you divide this into the $1 million distribution cost you discover that they are pay $100 to deliver a pan to the store.47. How can you show your client money that he can save money. 9. Having set up by definition. The higher the service level. is an organizational behavior scenario. The absence of such a consideration (for example) would be detrimental to the company in the long run.1 Issue A manufacturing company based in Charleston. Recently. one in Philadelphia and one in LA .25 for the foreseeable future. .from which they cover the whole country.." is applicable. 9. Again.47. Which is the right way to pay the sales agents? 9.. in specialty and department stores. Your client has three warehouses .46.47 Consulting Firm (2) 9.000 units. A quick way to solve this case is to realize that if stores require next day service from these three warehouses. the only way they can do this is by shipping overnight at a premium rate (UPS .S. the higher the cost (more inventory pools. 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). since the closer they are to the stores the cheaper the distribution costs. She is in charge of managing a portfolio of investments in addition to her treasury responsibilities. 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. A more efficient compensation structure might pay the agent on a sliding scale.46 Insurance Company 9. This can be confirmed by asking for the annual sales which turns out to be 10.one in Charleston. whose stock is listed on the NYSE.48. she has asked your advice about the purchase of a large position in company 456. since they sell so few of these pots and pans.no wonder they're spending so much).2 Solution $22 per share 9. Beat this figure and you've earned your exorbitant fee. you must define what the "right way is". Short-term treasury bills are yielding 7 percent. You are called in because they feel that the $ l million that they spent on distribution last year was way too high. they are motivated to issue a policy to anyone at as high a price as possible. and long-term t-bills are yielding 8 percent. The treasurer is contemplating the purchase of 5000 shares of company 456 and wants your help in determining a fair market price. SC makes high quality pots and pans which are sold throughout the U. in case you have not already surmised. In essence. It turns out that stores.75 9. the results achieved by the above mentioned composed system are examined.46. hold no inventory and thus require next-day replenishment after a sale. The next thing you need to know is where the warehouses are located.

This division has sales of $600 million per year.50. Each of these three companies is profitable. Operating costs in Tucson are essentially the same as in the other markets. Figures on garbage tonnage (denominator) are probably available in some obscure federal report. You need a numerator (diapers) and a denominator (total US household garbage). 9. and the company has been losing money. However. Her division produces fruit juices in three forms. NY. These programs have been modeled after the other three markets. Philadelphia and Stamford. Fixed costs relate to the cable lines.2 Possible Solution Wet your pants/skirts. While juice boxes and frozen concentrate are profitable. chilled juices are only breaking even in good quarters and losing money in bad quarters. Despite every effort of management. Only maintenance is higher that in the other markets. and each has been experiencing steadily growing sales over the past few years.). (No. Arizona a little over a year ago. The entire company has sales of over $20 billion. However. Cable penetration rates in the three Northeastern markets average 45%. television reception is far better in the desert Southwest than in Northeastern cities. acquired another cable television company in Tucson. etc.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. and frozen concentrate. free HBO for one month.1 Issue Q: Your client is a small holding company that owns three cable television companies in the Northeast: Rochester. These rates have been steady over the past three years in the Northeast. They are also prohibitively expensive for most people. The penetration rate in Tucson has only rised by 2% in the past three years in Tucson. the management feels that th e Northeast is not the fastest growing area of the country. the Tucson company’s sales have been stagnant. maitenence.50 Cable Television Company (2) 9. therefore. usually). The Tucson company has attempted marketing efforts in the past. Tucson is also growing at 12% per year on average.49. Operating costs are composed of variable items: sales staff. 9.76 9. For diapers you could take the total $ sales of disposable diapers and divide by the average price per total unit (box: etc. The cost of programming is based on number of subscribers and is equal across the nation. juice boxes. She has received a proposal from upper management to sell the chilled juices business. What would you advise that she do? To be divulged gradually: .49. 9. Let's assume this will be done in pounds. administration and marketing. Multiply this number by the average weight per unit. 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. but larger than Rochester and Stamford.49 Diapers 9. The chilled segment represents $120 million in sales per year. The lower penetration rate is most likely a result of different climate conditions and lower interference in Arizona. There is only one real substitute good for cable television: satellite dishes.2 Solution The real error of management results from their failure to recognize another “substitute” good: no cable television at all. number crunching exercise. Per capita income is higher than in Philadelphia and the same as in Rochester and in Stamford. due to the larger land area serviced. such as free Disney programming for one month. free hookup. The penetration rate in Tucson is 20%.51 Chilled Beverages You are consulting for the manager of a division of a large consumer products company. and. all marketed under the same name: chilled (found in the milk section of the supermarket. CT.50. 9. which is a function of physical area covered. many communities are enacting legislation that limits their usage in Tucson. This is strictly a mathematical. How would you analyze this situation. yielding the estimate of total diaper weight (numerator). wait until after the interview for that).

Pear and peach juice are about the same price as orange juice. 9. all branded juices tend to sell in the same price range. This is a highly price sensitive market that loves coupons. The best available information indicates that the two market leaders are profitable. respectively. The selling prices of the two lines are essentially the same.52. Their primary products are a line of mid-priced vodkas and two brands of mid-range rum. Your client’s market share. Keep the chilled juice business and rework the ingredients and costs. as evidenced by the success of the competitors. “open” states. bananas. Overall sales are growing at about 3 to 5% per year. Brand name is important in this market. This turns out to be the most feasible option. where alcohol is sold in privately managed supermarkets and liquor stores. The market leaders produce pure orange juice and blends that are based on citrus juices. the same as the idustry average for these product lines. 12%. Over the past few years. 9. This may be more feasible. chilled. The two market leaders are able to fund more advertising and more promotion. however. the business has become less and less profitable. etc. There are two large players that have 40% and 25% of the market. promotions. but would not be too likely to turn the business around.77 Chilled beverages is a $5 billion dollar industry nationwide. shelf space is extremely expensive and trade promotions are critical.51. which . as the buyer could capture the synergies. Such stores are alsom becoming less and less willing to hold inventory. as in juice boxes and frozen concentrate. It would be difficult to find another use for the plant without a major conversion. The market for chilled juices is essentially mothers with school age children. mangoes. juice boxes and frozen. makes her third in the industry. Sell all of the juice business. Therefore. trade and couponing that your client. as there are both advertising and manufacturing synergies. What could be causing this: Other information: The split of product sold has consistently been 60% vodka / 40% run over the past few years. However.1 Solution: There are three choices: Sell the chilled juice business. affect the juice bix and frozen concentrate businesses.1 Issue You are consulting for a major United States producer of distilled spirits. The selling price is likely to be low. This would. (the other 5% of the inputs).52 Distilled Spirits 9. as mothers tend to prefer highly reliable products for their children. In 27 states. but the other flavorings cost about twice as much. 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. the brand premium must be in line with other branded products. etc. One plant in California produces all of the product. usually with a base of pear or peach juice (95% of the inputs) and flavored with cranberries. Your product uses more elaborate blends of juices.

Having had no time to do background research. You may also want to know the size of Spizza. Your plane lands in fifteen minutes. annual sales would be $2. market segments that are neglected by Spizza.53. How will you defend your position if Spizza decides to fight for market share? 9.52.S. Pizza Hut has asked your consulting firm to help it analyze issues that will determine its likelihood of success in the Parisian Pizza market. a reasonable figure. Estimate that these people chew two packs per week. the fact that they represent a shrinking portion of the total has caused total profits to decline.S. Also. and what factors drive demand. including sales.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.55 Golfball Market Entry 9.55. for annual sales of 4. with sales in these states increasing at about 10% per year.750. more profitable.1 Issue How would you estimate the size of the annual U.1 Issue You are visiting a client who sells golfballs in the United States. advertising spending is lower. and proportion of Paris that is currently served by Spizza. 9. for a total of 45 million. Advertising of alcohol is much more tightly regulated.250 packs per year.54 French Pizza Market Pizza Hut has recently entered the home pizza delivery business in Paris. 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. Distribution costs in these states is much lower. Because the regulated states are less expensive to serve. and understand if your client could profitably serve this market. for a total of 5. what do they charge for thier product. number of stores. what information would you need and second. Determine what are the needs of any neglected market. what type of product do they offer. To check for reasonableness. Sales in the regulated states are actually decreasing. 9. and therefore.53. 9. try to understand the likely competitive response of Spizza to your client’s entry. what is the cost structure of their business and what products are most profitable.1 Possible Information Needs: An estimate of the size of the Parisian home pizza delivery market.2 Solution: A greater and greater share of the volume is being sold in the “open” states. how would you analyze the pizza delivery market? 9.78 is increasing distribution costs by requiring more frequent deliveries. the current competitor. 15% are between the ages of 10 and 20. the heaviest users. you sit on the plane wondering what is the annual market size for golfballs inthe U. In the other 23 states. First. How do you go about answering these questions? . 9.500 million packs. Other useful information: market segments targeted and served by Spizza. and therefore. For the other users over age 20. or 210 million) estimate a usage rate of one half pack per week.2 A typical approach: Estimate the number of people who chew gum: of the 300 million population.53 Chewing Gum Market 9. chewing gum market? Check your answer for reasonableness. The market for home delivery is currently dominated by Spizza Pizza. Total packs per year is 9.4 billion.54. liquor is only sold through state regulated liquor stores. figure the dollar sales that these packs represent: at 25 cents per pack. as there are far fewer outlets to service and central warehouses for the state-run stores. 9. (70% of the 300 million population.

but it appears that their factory is extremely efficient. 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. for example.79 9.56. including allocated fixed costs. hazardous waste) Access to distribution channels 9. Your client does not have much information about this competitor. regional market. a localized upstart company has appeared in the Philadelphia / New Jersey market and has captured nearly all of that market. Currently.56. the company has 80% of the market.S. Multipy that times the 50 million. 35% conversion costs.2 Typical solution: Golfball sales are driven by end-users. Poyethylene is a commodity chemical. 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. estimate the frequentcy of purchase. and the technology used is the same as when the factory opened. and requires two balls per time.3 Possible Solution Diversification could be effected through joint ventures or through acquisition. Now. 15% marketing and overhead. that’s forty balls per person.57 Packaging Material Manufacturer Your client is the largest North American producer of a certain kind of bubble-pack packaging material.55. Profit margins are 20%. 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. This factory has purchased technology from a German company. The factory is thriry years old. Other critical factors would include: The existence of a distinct sustainable competitive advantage.1 Issue An overseas construction firm wants to expand by estamblishing a presence in a growing U. resulting in a 2 billion ball market.56. How would you begin to assess the future for this client. Since that time. assume that people between 20 and 70 play golf (about 2/3 of the population. labor and energy costs 10% distribution and storage. The number of end users: take the population of 300 million. However. If the average golfer plays twenty times per year. and has asked your firm to assess the strategic outlook for this company. a plastic chemical. The client had 100% of the market until two years ago. 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. Solution: . They have also been undercutting your client on price. the success of the venture would depend notonly upon the means of entry. How should it go about doing this? What factors are critical for its success? 9. 9.2 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? 9.56 Overseas Construction 9.

etc. perhaps) that will somehow determine the factors that are most related to kidney treatment. And. 9. is ours higher? If so. analyze the factors that go into revenue and the factors that comprise cost to come to a conclusion. Both of these will be determined by expected demand. Don’t forget the external factors.58 Airline Expansion A major airline is considering acquiring an existing route from Tokyo to New York. LA-New York routes.S. perhaps by updating their own technology. Simply determine if revenue less costs equals a positive profit. How can it determine if the route is a good idea? Suggested frameworks: Profitability analysis looks like the best approach. Operating costs will depend on expected fuel costs.Fixed + Variable). Is there room for any type of preventative program for these groups? 9. nearly all customers prefer this product to your client’s. it is important to note that losing passengers to cannibalization is better than losing them to competitors.60 Local Banking Demand . it is mostly a variable costs.80 The competitor has used their new technology to produce a lower price product. last but not least.S. such as corruption or government regulation. It is also very important to estimate the cost of cannibalization on existing Tokyo-LA. 9.59 Health Care Costs Bill Clinton has just fired Hillary Clinton as Chief of Health Reforms and has appointed you to fill the position. Therefore. 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. As evidenced in the Philadelphia / New Jersey market. the elderly) have a higher incidence of kidney problems. Perhaps those who are typically covered by public funds (the poor. rather than a shole industry. Thus. Compare the indicence of kidney disorder in the country with other countries. also. can public policy ofr efforts to increase awareness help reduce it? If incidence is indeed higher for the U. incremental costs for landing rights. that may play role. 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 . Then. build a model (regression. the future is extremely bleak for your client. and they should be advised to respond to the competitive threat. 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. you discover that kidney dialysis is a major portion of public health care expenditures. while in his office. the sum of which is measured by cost per unit x # of units. Interviewer Notes: Revenues will be determined by occupancy rates and expected prices. Since this is a procedure. the competitive invironment and the extent to which our client could win over passengers from competitor routes.

etc. The ingredients are different. should be compared with those of historically successful branches. due to the higher ingredient costs. Ice cream uses locally available milk and cream. one should consider a marketing framework. Competitor reactions could easily make this benture unprofitable. All other costs are equal for the two lines. Population.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. In addition. the shift of sales from ice cream into frozen yogurt is causing the company as a whole to be less profitable. 9. The average order size is $80. such as the 4 P’s. Solution: Margins on frozen yogurt products must be lower than for ice cream. pecans. vanilla and coffee. each 100 catalogs mailed results in 2.) The client will have to match competitors’ incentives to customers and should estimate the cost of doing so. 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%. share. kiwis. and flavorings such as chocolate. The premium frozen yogurts use more exotic flavorings such as mangoes. The client must examine if the new branch would complement their existing competence and strategy (retail or commercial. as Americans jump on the fitness bandwagon. In recent years. income levels. maybe a cash machine would suffice. If the need focuses on deposits and withdrawls only. Additional information: The client sells a complete line of product (ice cream and frozen yogurt) in major supermarket chains in the Northeast. and currently represents 55% of product sold. Though sales have been increasing. They have asked you to help them identify the problem. etc. business concentration. Interviewer Notes: The demographics of the area surrounding the prospective branch should be examined. (Ice cream and similar products). high growth or high profitability. however. In other words. regional maker of high quality premium priced frozen desserts. Therefore. Your client’s catalog printing and postage costs have just increased to thirty-two cents per catalog. or possibly even negative. etc.62 Direct Mail Retailer You are consulting for a direct mail retailer that sells ladies clothing. so it is essential to anticipate them. 9. These will depend on the importance of the area to competitiors (in terms of profit.61 Frozen Desserts You are consulting for a small. frozen yogurt has begun to outsell ice cream. 25% of customers who order product . The selling price per pint is the same for frozen yogurt and ice cream. the business is barely making a profit and the management is unsure that they will able to pay their usual dividend this year.) and what purpose it would serve.5 orders place. pineapple and raspberries.

they can be expected to be willing to continue to pay the premium into the future.5% of their total costs.63 Chemical Sweetener Manufacturer Your client manufactures a chemical sweetener used in beverages and other food products. costs) on catalog orders is 15%. 9. Therefore. The costs to manufacture the product are extremely low (about 20% of the price of the product). in terms of taste and safety (lack of harmful health effects) as proven in lab tests.5 x 80.64 Telecommunications Diversification A Baby Bell company is interested in diversifying into other areas besides telecommunications. printing and postage costs are $32. Would you recommend that they do so? Suggested frameworks: . The brand name of the product has slowly become a common household word. or . The largest two customers (75% of your sales) are two worldwide beverage companies.5 additional reorders. 2. these sales will return a total profit of $30. The $30 profit is not sufficient to cover the printing and mailing costs of $32. Because the major two customers feature the chemical name on their product. Currently. The companies feature the brand name of your client’s chemical on their product. this product will be able to retain some of its premium due to the strong brand name. (100 x 32 cents). or $200 in sales. Information to be divulged gradually: This is the only product of its kind. They are considering entering the market for electronic home security systems. the margins on this chemical are almost 40%. Each 100 catalogs will result in 2 orders.g. The fully allocated profit margin (excluding mailing Solution: For each 100 catalogs mailed. At a profit margin of fifteen percent. You have been asked to predict what might happen to the profitability of this product when the product comes off patent. pharmaceuticals). In addition. Solution: This is a classic customer analysis problem. 9. The chemical will come off patent in one year. plus 2 x 25%. the client should reject the printing arrangement at 32 cents per copy. for a total of 2. the cost of the chemical sweetener represents 1.5 orders will result in 2. Therefore. While most products that come off patent quickly drop in price (e. the outlook for the product is good even after the patent expires. and because the chemical represents such a small portion of their total costs.5 orders placed per 100 catalogs mailed.82 can be expected to reorder within six months. and consider it a sign of quality.

the client should either drop price or reap additional profits. The home security business is highly fragmented. transmission system (phone lines) Consider: It turns out that the “expensive home” segment of this market is saturated.$1. don’t forget to think about any substitutes for aluminum cans. Consider the impact of either strategy on the company and its competitors. then. The conclusion is that this business is a reasonably good fit for the company. Interviewer Notes: Clearly. This is is some sense a razor and razor blade sort of business. or at least to determine what kind of returns you can expect to achieve. regional companies. The number two player in the market has about 30% of the market and the rest is shared by many small competitors. its manufacturing cost has been reduced from $0. Growth has been slow in recent years. It turns out that the client is the leader in its market with a 40% share and supplies directly to major beverage manufacturers. They have previously made unsuccessful forays into software and into real estate. Also. to determine whether this is a business you want to be in. How can the manufacturer best exploit this cost advantage? Suggested frameworks: Remember basic economics.89 to $0. The top five players in the industry generate less than 4% of the total industry revenues. The firm can either use a penetration strategy or price skimming strategy. operator services. finally. 10% of all residences currently own an electronic security systems. but that more market research needs to be done to assess the growth and profit potential of each segment of the market. As a result.65 Aluminium Can Manufacturer An aluminum can manufacturer has discovered a way to improve its manufacturing process. 9.79 cents. . use the value chain to look at where value is added in the home security business. such as Porter’s Five Forces.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. The economics are: Item Retail Price Cost / Margin Equipment and Installation $500 . once you feel you understand the market. determine if the core competencies of the Baby Bell are likely to match the demands of the home security markets. This implies that the industry largely consists of small. Interviewer Notes: The company is a holding company. Price sensitivity is unknown in “moderate-priced home” segment.83 Use an industry attractiveness framework.

analyze competitive response. other competitors will have to follow since this is a commodity market and not following would mean a quick demise. etc. This makes the business tough to enter. Your client’s margin is 15%. with margins of 5%. steel can users sill start switching to aluminum cans. What would your approach be? Suggested frameworks: This is and industry entry question. This company ended up establishing a “store within a store” concept with Wal-Mart. it is best to retain prices and generate extra profits for now. What factors should be considered? After considering these factors. The lowering of prices might increase the client’s market share marginally. (Swimming pool installation firms. patio builders. Since some steel can manufacturers have deep pockets and a strong backing. 9. a concrete manufacturer is considering acquiring a small local firm. thus hurting manufacturers in that market.S. look at industry attractiveness with Porter’s five forces analysis. Your client’s customers are large construction firms and contractors generally in the office and commercial building construction business. This is a scale economy business in the back-office. If the client drops prices. Your client attributes its higher profit margin to economies of scale in trucking and mixing. Finally. steel cans. which have inferior printing and stamping characteristics. and a stable labor force. Major discout stores sell the service.66 Film Processing The CEO of the largest domestic manufacturer of photo film want to enter the film developing business. the Southeastern U. these new entrants could pose a future threat to our client.84 Aluminum cans have a lower priced substitute. The smaller firm sells mainly to other small businesses and contractors.) . think about what part of the marketing mix (4 P’s) would be best for film developing. He needs your advice on how to go about evaluation this idea. Both companies compete in the geographical market. Interviewer Notes: Distribution chanels are the key factor in this business. The cost advantage may help another day during a price war.67 Concrete Manufacturer Your client. In conclusion. would you recommend the acquisition? Additional Information to be divulged gradually: The target firm is currently profitable. Then. The resulting growth in the aluminum can market will attract steel can manufacturers to enter it. so profits are easier with high volume. 9. 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. At the same time. Steel cans are used by customers who do not want to pay the premium for aluminum cans.

Profits are only 5% of sales.g. What issues might you examine? Suggessted Issues: Sales and cost issues: The growth of the shipping container market. manufacturing costs. It is reasonable to expect that synergies would arise from economies of scale in trucking and mixing. or 30% of annual sales. growth of the largest customer industries. the acquisition is not attractive if there are no synergies between the firms. customer power. new technology in shipping containers.85 Additional research shows that the smaller customers for concrete are growing. Shippers can lease the containers one-way or roundtrip. ignores the tax shields. while the major office building construction market is stagnant. of course. the acquisition would be advisable.) However. customs and trade agreement trends. Environmental Issues: chemicals. (Acquisition price = 3 x sales. a steel shell and an insulation and waterproofing material that uses a hazardous chemical. This analysis.69 Production and disposal of the insulation chemicals. but could obtain bank financing at a rate of 10%. The client has asked you to do an assessment of their strategy. if your client were able to use some of its competitive advantages to improve the financial outlook of the target firm. and make the acquisition more attractive. Your client is not able to fund the acquisition internally. 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. The smaller firm has strong contacts with many local customers. 9. steel prices. Market issues: changes in the worldwide shipping market (e. The container consists of a steel frame. Similar acquisitions generally are made for two to three times current sales of the target firm. With profit margins of only 5%. Its goal is to double total sales and profits in less than two years. does the growth of an area like Southeast Asia imply many more one-way contracts than round-trip?). 9. the income generated by the smaller firm will not cover the capital charges (interest due to the bank) on the acquisition price. 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 . trends in the leasing terms in the industry.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. As a consultant brought in to assis them. Solution: From a financial point of view. which could raise the profit level of the target firm. and is often the preferred supplier due to their customer responsiveness. your client’s share in that market. The containers are leased by the company to worldwide shipping companies.

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.70 Regional Grocery Store Chain A regional chain of grocery stores currently receives its stock on a decentralized basis.e. . A business can increase profits by: Increasing sales Increasing prices Decreasing costs However.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. the flexibility of delivery times and quantities. it would seem unlikely that either increasing prices or cutting costs represent feasible methods by which to double sales & profits. 9. Will the stores prefer delivery direct from the supplier or from the warehouse? Consider the time tied up in order processing. and competition for suitable targets. particularly if the company is operating in a moderately competitive environment. The relative benefits of each will depend on financial resources as well as the existence of. You should then consider the potential for increasing sales by means of diversification through acquisition or joint venture. In the particular example of this case. if the company’s margins are found to be consistent with industry norms. This leaves only sales increases. 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.e. i. What are the key consideration to making this decision? Issues to consider: Would the savings from bulk purhcasing more than compensate for the cost of: Building and maintaining the warehouse Employing additional personnel and trucks Opportunity cost of capital tied up in inventory for additional periods Do the stores buy similar products? (i. it turned out that only selling new products to new customers via some form of diversification could hope to achieve the company goals. 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. each store deals directly with the vairous suppliers. a suitable solution will depend upon the answers to the above questions.

you need to establish not only that it will cost less. In order to evaluate the world demand for cloth.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. 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. The marginal revenue for a magazine would be its cover price times the probability that it will be sold. 9. Note that this may not be a linear relationship. marginal revenues whould be set equal to marginal costs. A detailed discussion of the application of these concepts from basic microeconomics and statistics may be necessary. Furthermore. but also that all the affected players can be persuaded to buy into it.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. we need to know how much cloth (measured in square meters. In order to refine our appraisal. with an appropriate confidence interval.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. for instance) is being purchased per unit time per inhabitant of the world. For you to propose going with the new method. we may segment the inhabitants of our planet per level of personal wealth. The marginal costs could be obtained from the internal accounting data.73 Cement Manufacturer Capacity Addition . 9. The probability of sale. 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. It should be observed immediately that to maximize profits. 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.

From the data. and transport all product directly to the customers throughout the country. Therefore.88 You are consulting for the number-one producer of cement in Portugal. about 200 miles to the north. location of the plant in the north may increase sales in the north by reducing delivery costs to these customers. located near Lisbon. it makes sense to minimize distribution costs in choosing the site of the next facility. and prices are set by a yearly contract with the government. Approximately 80% of the customers are within 100 miles of the current plant. and feel it could have more. . The fixed cost of plant additions is roughly the same as the cost of a new plant of the same capacity. Customers pay for trucking by the mile. 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. it is safe to assume customers that are further away are less inclined to buy due to the increased trucking costs. Solution: As distribution is the second-largest cost item. The CEO has asked you to help him decide if they should build another plant or expand the current plant. in Southern Portugal. and extra shifts are not possible. Raw materials are purchased from a government-owned company. but is running at 100% capacity of their one plant. there is also a suitable site near Porto. The plant is unionized. This company currently has 45% of the market. The trucks are owned by the company.

though the same number of outlets are still covered by this sales force. the market has been growing. but not kept pace with the market. Solution: The data show that the greatest change is in the sales force numbers. these two companies have 55% of the market. Promotions usually occur at the end of each quarter. Most of the reduction came from trade promotions. In addition. Profits as a percent of sales.74 Snack Food Company A large salted snack food company has steadily been losing market share over that past two years. 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. 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. The reduction in trade promotions brought about a loss of shelf space. Together. The largest competitors are two multinational consumer products companies that feature complete lines of snack foods. It turns out that the company went on a cost-cutting spree over the past two years. Lastly. The changes in the marketing budget come from reduced trade promotions. from a high of 20% to the current level of 18%.89 9. The products are mostly sold through large grocery store chains and convenience stores. the interviewee’s conclusion should be that the client’s total dollar sales have actually grown. the product line has not changed in the past two years in a product category where new products and line extensions are routine. The marketing expenditure was also decreased. however. 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. but may not be sustainable. These channels are traditionally driven by periodic trade promotions. the increase in profitability has resulted from the lower costs.75 Beverage Company Cost Structure . Also. Their sales forces are regarded as the best in the industry. Grocery stores and convenience stores require some type of promotion to grant valuable end of aisle displays or advertising space. The sales force was drastically cut and the commission scheme was reworked. 9. indicating a missed opportunity for new products in the market. The product line of the client has not changed over this period. The sales force generally visits each customer at least once per quarter. have been growing.

Sales Costs: could be lower for RC.76 Permanent Light Bulbs A small R&D lab in the Swiss Alps has developed a super-durable filament for light bulbs. putting the competitor out of business and greatly reducing their own business. but more loyal customers. Another solution is that all of the players obtain some version of this technology. for which costs would RC Cola be higher. Distribution: would be higher for RC Cola for two reasons. all bulbs would be permanent and the industry volume would greatly decrease. the light bulb will never burn out.77 Super Regional Bank . If the producer makes enough bulbs at a low enough cost. 9. estimate the likely cost structure for RC Cola. If the technology is patented and exclusively licenced. Using Coca Cola as a benchmark. Therefore. In other words. In the case of Coca Cola. A possible analysis. 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. Possible solutions: One outcome is that one of the two major players purchases the technology. all customers will eventually switch over to the permanent light bulb. the average truck driver will be driving more miles and spending more time to deliver a truckload of RC that the Coca Cola driver. line item by line item: Cost of goods sold: RC Cola would be higher due to their lesser power in negotiating price breaks from suppliers. The lab is ready to licence this product to a light bulb manufacturer. The two companies sell their products side by side for essentially the same price in similar outlets internationally. Marketing: is lower for RC Cola as they are not a frequent advertiser like Coca Cola. meaning that more stops would have to be made. this player may enjoy an advantage for a limited time. Also. making the industry more competitive and wiping out industry profits. There are a several small local players in various regions of the world who produce local brands and some private store brand light bulbs. There have been no technological innovations in light bulbs for many years. Over time. with this filament. it is conceivable that one truckload may be deliver to just one customer. as there are fewer. however. If that were to happen. Administration / Overhead: lower for RC Cola as they are more of a “one-product” company than is Coca Cola. the price for this product would decline to the normal industry profit level. who will have several stops within an immediate area. RC is not distributed in as many outlets as Coca Cola. Their cost structures are vastly different. the typical order size for RC Cola would be smaller. What will be the effect on the light bulb industry? Additional Information: The light bulb industry is dominated by two multinational producers.90 RC Cola and Coca Cola both compete in the same industry. and customers would shift to the permanent light bulb. 9. for which would they be lower. thereby drying up the industry.

. Like most banks in its class it has branches in 8 geographically contiguous states. what kinds of things would you investigate? and what hypothesis would you form? Possible Solution: This is a very open broad-brushed case. There appeared to be 30 customers already there. 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.thus requiring less tellers? Summary: It probably is best setup as a cost benefit analysis. The question to you is: how would you go about setting up the engagement to determine the viability of this new concept? Specifically. There certainly is no right answer. The bank is one of the top 10 largest retail banks in the country. 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 . this bank has canvassed its territory with small free-standing branches. The new Centers would offer virtually all of the services currently offered through local branches plus some additional things. While enjoying one of the bar’s finest stogies and sipping a cognac.91 You have a have recently been assigned to a project with one of the nation’s super regional banks. however. They are considering replacing many branches with Calling Centers. Fund transfer. 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. how would you go about determining the value of this bar? Issues to consider We arrived at the bar around 8:30pm. 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. I would estimate the maximum capacity to be close to 100. By 11pm the place had at least 70 customers. etc.78 Cigar Bar I was sitting in one of Chicago’s new specialty “Cigar Bars” around the end of August with a friend. Typically. I asked my friend how much he thought the bar was worth. however this type of case occurs frequently. Your client has recently concluded that the old “local branch” way of business is no longer viable. It was a Saturday night and the weather was fair. On the back of an envelope. 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. 9.

You now have the annual cash flows generated from the bar. approximately 2/3 of the population falls between 30-50 or about 160 million people. general maintenance. 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). The key here is to clearly define your assumptions. The bar is located on one of Chicago’s trendier streets with a lot of foot traffic. The discount rate should be a rate representative of WACC’s of similar businesses with the same risk. GQ Magazine) His stated goal is to generate circulation revenues of $10 million in the first year. Under fixed costs you might consider: rent. a waiter and a waitresses. and possibly employees.2 + CF2/(1. + Cfn/(1. 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. He want’s to start a third monthly magazine in the US targeted at 30-50 year old men (eg. Costs: There are two components to costs: fixed costs and variable costs. All three were there the entire evening. assume that at least 1/2 would read a magazine or 40 million. Perhaps 20%.2)n 9. The bar is open Tuesday thru Sunday from 5 pm until 2 am.. 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. For example Target Customers The total US population is approximately 240 million. Valuation: Subtract the costs from the revenues and adjust for taxes. The only real variable cost is the cost of goods sold. management.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. Of the 80 million 30-50 year old men in the country. This gives you a value of: Value = CF1/1. There was one bar tender. The average cost of a cigar is $8 and the average cost of a drink is $7. the specific anwser is not important as long as you are making reasonable assumptions. insurance. Possible Solution: This is a straight forward valuation. How long do you anticipate this bar being around? Cigar bars are a trend. Possible Solution: This is an estimation case. .. liquor license. 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.2)2 + . In any case pick some number for the expected life (4-5 years). Approximately 1/2 are male or 80 million. He has hired you to figure out whether this is possible.92 The bar sells two things: liquor and cigars. Based on a normal distribution with the average life span of 80 years. Both businesses are profitable but are not growing quickly.

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. Information to be divulged slowly: The company operates in three divisions: 50% of sales are to hospital bed manufacturers. The logging industry in Canada is regulated by the government. Revenues Based on what other magazines sell for ($2.00) assume a cover price. A: This is a typical revenue/cost case. In this case given the CEO’s stated goal of $10 million in circulation revenues.81 Logging Company Background: You are hired by a Canadian logging company to analyze its current operations and provide advice on future operations.000 or $600.000.50-$5. Similarly. and 25% are to chair manufacturers. 9. 25% are to mop bucket manufacturers.000 + $240. This comes out to $360. it would not make sense to launch the magazine.000 customers. the hospital bed division is located in the East German manufacturing operation.2 million. Lets say $3/magazine at the news stand and $2/magazine for a subscription. profits are down 10% for both the mop bucket and chair divisions but are down 30% for the hospital bed division. You have been asked to find out what is happening and suggest a course of action to reverse these trends. Further investigation shows that labor is the major component of cost in manufacturing castors. Profitability Analysis 9. 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. Case Type: Industry Analysis. Land is leased to .000) and 50% buy at the news stand (120. We have already been told that revenues are flat which should be a clue to explore the cost side of the income statement. Breaking out each division as a separate profit center shows that revenues are up 10% for both mop bucket and chair divisions but down 10% for the hospital bed division. 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. The hospital bed and mop bucket divisions are located in the West German manufacturing operation. Similarly.000). wages in the formerly state regulated East Germany have skyrocketed. lets say 50% subsrcibe (120. this is a monthly magazine.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. Now make some assumptions on how many customers will buy on the news stand versus subscription.000 X 12 or $7. Sometimes the interviewer will provide you with an income statement that will break out the major cost components by percentage. In the past two years. Finally. For simplicity assume that all target customers buy a magazine every month. This would generate total revenues of $600. In this case it helps to work logically through both the fixed and variable costs to see if there are any major items.

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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.

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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

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9.82

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

Competitive Features

Public

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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

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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.

9.84

Auto Manufacturer

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?

Additional Details:

a manufacturer could go after a niche play if it were to develop an advantaged cost structure or superior product. Details: • The Company: . However. slim margins/very high volume $2B • • GM Sales • Growth Rates: The table below provides the basic facts about each market segment’s growth rate. Fram. its brand names are respected and are valuable to merchandisers in maintaining margins. Competitors: While Ford and Chrysler make parts for their own cars. filters. and full range of products to go after the most lucrative market -. Also. engines Sold through dealers under warranty. Thus its variable costs must be below sales revenue. hoses. AC Delco. These advantages combined with the high growth rates for the non-dealer merchandisers should motivate GM to expand it business in this segment. 9. 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. There are hundreds of small parts manufacturers which tend to focus on commodity-like auto parts (e. and premium). batteries Sold through many outlets. GM should use its cost advantage. 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.. The market share loss is primarily in the premium category. brand names. The client would like an action plan for resolving the cause of this decrease. oil filters). strong competition. 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. The deli meats carry a well-known brand label. Brand names (e.g. Power of Suppliers is not a significant factor because inputs are commodity raw metal and rubber. transmissions.g.the mass merchandisers.97 • Company Economics: There are tremendous fixed costs in the auto business (including labor). • • • • GM’s Position: GM may have a cost advantage due to its fully depreciated plants and excess capacity in a fixed-cost environment.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. All of GM’s parts manufacturing facilities are fully depreciated and they currently have excess capacity. midrange. Industry Rivalry is important for the mass merchandiser category because margins are slim (meaning price wars are more prevalent). Platform-specific Parts Types of Parts Market Characteristics Body panels. AutoLite) are important to many consumers. high turnover. high margins/low volume $8B Universal Parts Spark plugs. they are not nearly as integrated as GM and tend to focus in specific parts categories. Switching costs among consumers is very low. brakes. GM’s ability to produce a full-range of products is also an advantage. Products: GM produces a full spectrum of parts classified as either platform-specific or universal.Product: The firm produces plastic-wrapped packages of sliced deli meats at all price points (generic. .

sometimes not. The impact of the first proposal will depend on the relationship with the supplier. The premium deli meats are made from a mix of the three bins with the majority coming from the 90-rated bin. Each of these competitors has about 20% of the market share. the client has 40% of the market share.? The second option will add cost to the production process and reduce margins.98 . 70. • The Competition: There are three other competitors in the deli meat industry. Individual chunks within a bin may vary from this average.Price: Products in the premium category carry a higher price and have slightly higher margins.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. • Solution: • Production Process: The client receives chunk meat in bins which meet a certain average quality measurement. 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). midrange and premium) is growing. This was causing customers to change to the competition. Meat is rated on a scale of 1 to 100 (100 being best). a survey of the customers indicated a variability in the quality of the product produced by the client. Sometimes the product was better than the competition. and 90. the competitors have maintained prices during the recent loss in market share. The competition uses the same channels to sell its products. That is. • . . how much longer is the contract set to run. The client is in a long-term contract with a supplier for bins at three quality ratings: 40. The variability in the quality of the premium product is being driven by the variability within a 90-rated bin. To reduce the variability. 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. Meat in the 90-rated bin ranges from 80-95 while meat in the 70-rated bin ranges from 55-80. Overall the market (generic. Although price decreases will garner market share. The Customer: Although the customer buying premium deli meats has not changed. -Place (Distribution): The product is sold in grocery stores and delis. is the client a major buyer.

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