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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

it is very hard to be rejected because of one's performance at a reception. Other firms have a more office-intensive style that involves going to the client site only when necessary. To address concerns about raising a family. so do not be shy about asking tough questions concerning the amount and frequency of travel and other lifestyle concerns. many firms have institutionalized Fridays in the office or allow consultants to work from home on Fridays. This limits their being away from family and friends only three nights per week.4 the out-of-town burden. Contrary to popular belief. If you have lifestyle concerns. These receptions are extremely low-risk. some firms have recently instituted part-time programs. . the best time to ask these questions of firms is during the recruiting receptions. Most of these programs only require three days of work per week. It is also possible to ask lifestyle questions of recent alumni or second-years that interned at the firm in question.

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. another quarter come from Europe.3 Just over half of these consultants come from the United States. If the typical consulting firm is small. Such a large. In third place as a specialization is management/strategy consulting. often serving a single client. . for example. In the United States alone.and customer group or industry. while enjoying a more direct career path into line management. the industry has nevertheless grown more than twice as fast as GNP for the last decade. since they lack both the breadth of clients and depth of support of the big firms. such as BCG and Bain. the domain of the accounting firms: six of the ten largest consulting firms in the world are the consulting arms of the big six accounting firms. The third important basis for segmentation in the consulting industry is degree of specialization. most consulting firms generate the majority of their revenue from one type of work. or management education . 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.1. financial services. Whether these firms are attractive starting points for new consultants is debatable. Vol. Collis David J. and ensuring that it matches your interests. downsizing. management information systems (MIS). such as McKinsey. way to segment the consulting industry is to compare large and small firms. many of these small shops exist. Although these firms are ostensibly full-line consultants. and. however. the largest is MIS consulting. The other functional or industry specialists in consulting tend to be small.000 people worldwide work full-time in the management consulting industry. dynamic industry is by no means homogeneous. 7. usually affiliated with a planning department. or government. operations: half of all consulting firms generate less than $500. 2 3 4 Economist survey. Contrary to the prevailing belief.1 Consulting Articles The Management Consulting Industry By David J.4 Internal consulting can be an attractive option. June 1992. many large corporations have their own internal consulting arms. 2. these firms generate over $3 billion in billings annually. A second and often overlooked distinction in consulting is between in-house and external consultants. 1988.000 in annual billings. veteran consultants often end their careers in their own consulting firms. While all firms provide a variety of services. p. clients often find their cost structure uneconomic for consulting on functional activities such as logistics. reflecting their origins as one-person shops run by an executive with a particular skill or industry knowledge. the generalist consultants concentrate on higher value-added consulting for senior management. The two main dimensions of specialization are function-for example. strictly speaking. Approximately 100. Data estimates are from Consultants News.5 billion. 3. with annual billings exceeding $1. Four of the top twelve U. and probably most significant. is therefore a vital first step in considering which firms to approach for a position. Instead. The second largest specialization is compensation and benefits consulting. While management consulting fluctuates with the business cycle. Internal consultants perform essentially the same functions as external consultants. consulting firms fall into this category. Most consulting firms are small. albeit in a more limited number of settings-there are five times as many external consultants as internal consultants. the strategy consultants. Journal of Management Consulting. but most of the 20% annual rate of turnover among consultants is not due to consultants being hired by clients. logistics. Transfers at junior levels are common. organization design. while an estimated three-quarters of all consultants work in firms employing more than 100 professionals. and various earlier issues. However. and one-third employ fewer than four people. Booz Allen. This skewed size distribution reflects the low barriers to entry to this industry: anyone can hang out a shingle bearing the title "Consultant.2 generating about $25 billion in annual revenues. for the most part. Understanding how each consulting firm specializes. 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. While the industry definition. 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.5 2 2. Corporate policies of early retirement. however. health care. covers only outside consultants. Collis is an assistant professor of business administration at the Harvard Business School and faculty adviser to the Management Consulting Club. Of these specializations." and many former executives do just that. and their newer first cousins. Summer 1984. and outsourcing have created both the supply and the demand for independent consultants. which is. February 13.1 Segmentation The first.S. This area includes the generalist management consultants. Professor Collis has extensive experience with consulting firms. often one-person.

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

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

other than knowing why you. Provide concrete examples from your previous experience which demonstrate that you have been a creative problem solver. A good case interview is no more than a discussion about an interesting and challenging business problem. confident and convincing. While it is important to be at your best in framing and communicating your skills. What are the one or two questions that you hope they will not ask? They will. so prepare clear and convincing answers. Keep in mind that they are not looking for a "correct" answer. and provides an opportunity to showcase your knowledge and skills. but a major career change may require some explanation. Look carefully at your resume and identify your weak spots. Be grateful that you figured this out early. but instead are trying to understand how you think and how you . 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. consulting firms are also looking for people who are energetic and have an appetite for new challenges. and it is important to understand how each firm differentiates itself Consider the following issues: • Type of work: Does the firm specialize along functional.8 classmates who worked at particular firms before business school or who went through summer consulting programs with firms. Frame your skills and experience in terms of how you can add value to the firm and its clients. traits often demonstrated by a record of past achievement. it is also important to be honest and to be yourself. There are no experience prerequisites for getting a summer job in consulting. most firms are looking for the same kind of people: smart. Firms will inevitably ask you at the end of the interview if you have any questions. For most firms. 5. They should be designed to demonstrate a strong understanding of the firm and to help you gain further insight into whether the firm is a top choice for you. Good questions are firm-specific and thoughtful. or does it attempt to be strong across a number of areas? What kinds of problems has the firm worked on before. firms differ along a few important dimensions. creative problem solvers whose interpersonal skills will allow them to work well in a team environment. Experience will allow you to become more relaxed. 3. that you are successful working in teams.1 Getting an offer Once you have a good understanding of the various consulting firms. Understand clearly why you want a job in consulting. Save the best interview for last. Identify your weaknesses. and do these engagements sound interesting? Focus on implementation: After developing a set of recommendations. 6. 4.3 Nothing causes more anxiety in first-year students trying to land a summer job in consulting than the prospect of interview cases. and will therefore be ready to begin pursuing a summer position in earnest. Consulting firms hire people from a wide variety of backgrounds. Be yourself and be honest. is not in the best interest of either you or the firm. and how does it support the professional development of its consultants? 2. interviews and cases will make or break your candidacy. and that you have demonstrated leadership abilities. the case interview can become considerably less daunting. While they are clearly a crucial element in evaluating prospective employees. Here are some tips: 1.2. Generally. want it and being able to clearly communicate your conviction. Getting a job at a firm full of people with whom you would not get along. they are not nearly as frightening as one might expect. While understanding the characteristics of each firm will be helpful. 2.2. 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. Firms use cases to evaluate your analytic abilities and problem-solving skills. or where you would not enjoy the type of work being done. 7.2. Understand what consulting firms are looking for. and move on with enthusiasm to the next interview. Given that most students at top business schools possess all of these requirements to some degree. Ask insightful questions. Preparing for the case interview 2. Given the nature of the work. There is a learning curve in this process. and you should schedule your interviews accordingly. Viewed in this way. you should be able to identify those in which you have a sincere interest. successful candidates must communicate their unique strengths clearly and convincingly. 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. You should have.

state them clearly. School career centers/placement offices offer a variety of tools. Listen carefully and take time to think clearly about the problem before formulating a response. If you make assumptions. while others may be much shorter or less quantitative.9 approach problems. whether you are successful or unsuccessful. Adapt your analysis to the problem. 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. Be flexible.2. Develop a framework for approaching the problem. While a consulting job search will require a great deal of time and effort. Think causally and logically. causes.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. 2. so your chances of receiving an offer second year increase. The resounding line eloquently uttered by every recruiter that becomes particularly meaningful as the second-year process draws near is. Harvard Business School First-year interviewing for summer jobs in management consulting can be characterized as an exciting. head-spinning whirlwind of back-to-back meetings. rewarding. You will meet a wide variety of intelligent and interesting people. the cases will require integration of knowledge of a number of subjects and functional areas. Given an understanding of the key issues. and develop hypotheses to explain what is driving the important issues. so don't bother. the interviewing process for second-year candidates is refreshingly slower paced and more manageable than the first-year cyclone. what opportunities does the client have to take actions that will improve their performance? 3. You may be handed pages of data and asked for your impressions. prefabricated and inflexible analytical framework. 4. For many. This is especially important because it is difficult to recover from a hasty start. We extend more offers for permanent positions. you will be challenged to think on your feet to work through complex business problems. the process consists of five or so days crammed with as many as 20 interviews. recruiting. and what impact have they had? Develop a clear and logical chain of reasoning and understand the linkages between key elements of the problem. The last thing you should have to worry about is remembering case facts and numbers. it can also be a challenging. and decision making. and linkages. This often helps you to concentrate on the problem-solving aspect of the case. the interviewer will often interrupt you and provide additional data.2. the recruiters speak the truth. Don't try to force every problem to conform to a generic. 7. encompassing a number of issues and presenting a lot of data. Ask questions. the process of pursuing a permanent position can be broken down into three broad components: investigating consulting firms. Stay calm. This is an important distinction with implications for how you should respond to case situations. Some firms may ask you to analyze an industry you have worked in. 8. 6. and then concentrate on ways of enhancing and demonstrating your problem solving skills. 2. What are the underlying causes of the case situation. Break the problem down into its constituent parts. One good way to do this is to practice a few mock cases with another student. Drive to action. The bottom line is that case interviews have been designed so that you cannot study for them. Most often. while others may rely on knowledge of first-year marketing. and even fun experience. or you may have a situation described to you in a qualitative way. In addition. Identify the most important issues in the case up front. and approach them in a logical way rather than generating random thoughts. brush up on your microeconomics. and develop a framework that is appropriate. 2. Take notes. Each problem is unique and will require a unique approach. while other firms will deliberately ask you about industries with which you are unfamiliar. 5. . so feel free to take notes during the case portion of the interview. as opposed to what is merely interesting. and you will gain a broader understanding of the different firms and of consulting as a career. 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." Fortunately. Review the major frameworks developed in first-year courses.4 Second-Year Recruiting: Looking for the Long-Term By Jim McManus: Class of 1990. Some cases are long and complex. Overall. I suggest keeping the following points in mind: 1. If you are on the wrong track. "Don't be discouraged if things don't work out for the summer. Some cases might require microeconomic analysis. Keep in mind that each firm approaches cases in a different way. Try to determine what is critical.

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

with the final rounds taking place at the firms' offices. In consulting. Rather.2. and moving out is not considered failure by any stretch of the imagination. Since many consulting companies give strategy cases. Most people who leave consulting firms do so of their own will. Unlike the first-year schedule. frequent feedback allows employees to judge their own position within the firm accurately. Receipt of an offer does not allow you to extend your job search indefinitely. who feel they are at the right firm. and employees very rarely get kicked out unexpectedly.2. taking into account differences between the work the firms do. you should be aware that in almost any consulting firm. Make sure that you have met and are comfortable with enough people at all tenure levels of the organization. as it allows fresh ideas to be constantly brought into the firm by new recruits. Furthermore. the use of cases varies widely from firm to firm and even from interviewer to interviewer within the same firm. Though increasingly. In practice. recruiters are under pressure to firm the size of the incoming class in a reasonable period of time. the policy ensures that the environment will be dynamic and that the organization will provide a constant stream of new and challenging opportunities. it is a pretty good idea to review the various strategy frameworks before beginning the interview season. and such consideration is not likely to be forgotten by employees. then. however. the second-year process takes place over a period of several weeks rather than several days. refer to the selection criteria you established at the outset of the entire recruiting process. Promotion decisions tend to be made in the two. The survival of a professional service firm is quite dependent on its ability to remain at the forefront of its field. the policy is very sensitively administered. Although a case should be expected in most interviews. From the employee's point of view. usually administered unofficially through contacts with alumni. being considerate throughout the recruiting process can only enhance your image in the eyes of the recruiting firm. 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. These policies require that you develop certain skills within a defined time frame in order to be allowed to continue with the organization. and if you happen to have plans that evening. such a policy makes a lot of sense. a traditional career path might be to start fairly low down in the organization and to work one's way up the corporate ladder. Many firms have excellent out-placement services. in industry generally. paying particularly close attention to what the junior people are saying. In most firms that have such a policy. step by step. If other variables are relatively equal. the characteristics of the firms. the second-year interviewing normally consists of three or four rounds of interviews. and who are not able to do so because of the up-or-out policy is actually quite small. remember one important word of advice-relax! 2. and the long-term career opportunities.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 many companies employ so-called "up-or-out" policies. the time frame can often be shorter. either because they decide consulting is not for them or because another tremendously exciting opportunity presents itself to them. the number of people who want to continue in consulting. you are going to find it very hard to avoid canceling your plans and going to Timbuktu! My advice about lifestyle is. 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. after all. 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. From the firm's point of view. it is still true that. there are firms that have job rotation schemes and fast tracks to allow them to identify and promote their best people quickly.to three-year time frame. If you do receive offers from more than one firm. However. 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. If you are unable to develop these skills. in practice it is not always so. In industry. 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. When going through case interviews. In general. . Professor Collis's article provides more detailed advice about how to make choices between firms. the issue that should weigh most heavily in the decision should be the people with whom you will be working. but the real fun begins if you have the good fortune of having to decide between two or more firms of similar caliber.11 Like the first-year process. the commitment to the firm and time scale of your progress is still fairly long term. 2.8 Career Paths Career paths in consulting and industry differ considerably. and an up-or-out is one way in which a firm ensures its ability to regenerate itself. 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.

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

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

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

From Wet Feet Press at 1-800-926-4JOB or 1-415-826-1750 (349 Liberty Street. CA 94114-2953). From Wet Feet Press at 1-800-926-4JOB (349 Liberty Street. 1996. San Francisco. edu. Available from the Consultants Bookstore at 1-800-531-0007 or 1-603-585-2200. CA 94114-2953). Templeton Road. Detroit. Management Consulting: Exploring the Field. Finding the Right Job and Landing It! Convergence Multimedia and Harvard Business School Publishing. Kennedy Publications. N. Available from the Consultants Bookstore at 1-800-531-0007 or fax. San Francisco. Directory of Management Consultants. Cost $39. Consultants and Consulting Organizations Directory. hbsp.95. Also try their web site at http://www. On CD-ROM. Gale Research. 603 585-9555.com. Kennedy Publications. 03447. MI. 1997.//www. Harvard Business School Career Guide: Management Consulting 1997. H.weffeet. . harvard. (800) 877-GALE Consultants News. Available from Harvard Business School Publishing. Fitzwilliam. Try their web site at http. Fitzwilliam. So You Want to be a Management Consultant. 03447.15 Ace Your Case! The Essential Management Consulting Case Workbook. Templeton Road. N. H.

2 Effective communicator Tolerance for ambiguity 4.4 5 Both are important.1 4. probe further Pick the second branch .1 3.5 4.1.2. creating a framework to solve the case. if necessary Structure the problem. In a paper. A good approach: 5.3 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.7 Listen to introduction carefully Carefully think through the problem at hand Ask one or two clarifying questions.5 5.3. This is akin to creating an outline before writing a paper. Writing a paper is a good analogy to solving a case. the basis of consulting.4 4.2 3..3 There are two parts to a case: 4.2 4.1 1. probing mind ⇒ candidate to engage in solving the problem Ability to synthesize Basic numerical agility Intuitive business sense Hypothesis generation ⇒ use hypothesis to drive thinking and formulate questions Ability to quickly build working relationships: 4. you first order your thoughts in an outline.enables one to organize the data presented Pick one branch to probe.1 4.1 4. but will vary depending on the topic and your level of comfort with the issue. logical reasoning Curious.1.how you think and solve problems 4. Time management during the interview is the interviewee’s responsibility..1.6 5. Analysis .3 5.2 1.2 Clear. 7 .1.3.3 3.how you structure the case and go through the analysis. Put it all together: try to answer the overall question 6 During the case. Go over the framework at a high level with the interviewer and then plunge into one area at a time.2 Mechanics .1 5. Use interim conclusions to sum up a section of analysis before moving on to another area. possibly with a logic tree .1.1 Ability to think through problems: 4.2 5.4 5.1 The time spent structuring the problem should average about five minutes. develop hypotheses.1. Suggested time allocation for a 20-25 minute interview is as follows: 7.16 3 1 Overview of Cases A case is: 1.3 4.2. ask for relevant facts. What are consulting companies looking for in a candidate? 3.6 4.4 Problem solving skills Personal impact Leadership Drive / Aspirations 4 What are consulting companies looking for in a case answer? 4. you want to communicate explicitly what you want to do with the case. defend/refine hypotheses. Remember that you are trying to lead the interviewer through your problem solving approach.

DO NOT BE AFRAID OF SILENCE! Plan to spend two minutes discussing the issues. 7. the interviewer will state that they are not correct. both during the analysis and the conclusion. Delivery. prioritizing them and possibly eliminating some before you dive into the rest of your analysis. 7. Do not squander time be focusing on issues that will not highlight your abilities or will not lead to a viable solution.2 Timing.1 8.1 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. You must lead him down the path that you are walking. Try to state your assumptions up-front. this can be almost as important as the time spent up front framing the analysis.17 7. Finally. The key to using assumptions are: 8.2 7. Remember that time is the most precious commodity that you have during the interview. you may also chose to spend a minute or two discussing further areas that you would have liked to explore and why. In many ways. . Successful interviewees have taken up to 10 minutes to think through the issues as hand. If the assumptions are invalid.4 8 Assumptions enable one to close quickly an issue. Try to state the assumptions in a non-offensive manner.1.2 7. Summing up: 5 minutes.1. divide the time by the number of issues to be explored based on your perception of the importance of each section.3 Analyze the case: 15 minutes. The interviewer is not a mind reader. Bad phraseology could lead the interviewer to think that you are arrogant. always provide reasons for the conclusion you are presenting. If not all areas were covered during your interview. This is where you can gather all of the information gathered during your analysis and present it in a logical and persuasive fashion. Do not be afraid to take your time and think about how you plan to attack the case.

1 Purpose • • • • 2.1 Purpose • • 1.2 Types • • • • Impact of a consolidating industry on a client company Should a company add capacity? How should a client react to a new competitor? Should a client enter/exit a new/old market? Assess broad functional skills Calibrate big picture perspective 2 Special Cases 2.2 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 1 Frameworks for Cases General Models Financial Frameworks .Cost of Goods Sold (COGS) Labor Materials Overhead Delivery Gross Margin .Depreciation . plant & equipment Intangibles Liabilities Accounts Payables Other Short Term Debt Long-term Debt Other Liabilities.19 5 5.for profitability cases you should explore cost and revenues 1.Interest Expense Earnings Before Taxes (EBT) -Taxes Net Income 1.2 Balance Sheet Assets Cash Investments Accounts Receivables Inventories Property. Reserves Shareholders Equity Common Stock Retained Earnings 2 3 Porter’s Five Forces Suppliers Potential Entrants Buyers Substitutes Industry Competition Complements – the forgotten force Business System 3.1 R&D .Sales General &Administrative (SG&A) Operating Profit .1 Income Statement Net Income .

3 Marketing Pricing Product Place Promotion 3.2.3 4.2 Do not use this framework in an interview without practicing it a few times before hand.5 5 Framework for a Zinger case like “How many golf balls in Albuquerque?” 5. 5. have a strong backing in basic economics so knowing the fundamentals will give the student a strong base from which to work.1 The Four C’s The four C’s stands for customer.4 Distribution Cost Channel 4 Issue Tree 4.2 Economics Students should review the basics of economic theory. The model is difficult to use with diversified companies and interests. cursory step in understanding a given company or industry.2.1.1 Raw Materials there. 4. it may help in defining a business by breaking it down into very basic components and looking for conflicting elements. Break each level down into parts that are more manageable.2 Additional Models 5. Some of the more relevant concepts include: . Many cases.1 Supply chain 5.20 3.2 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. cost and capabilities. The model is more of a backof-the envelope sketch than a detailed analysis.2 Product Development Innovation Responsiveness Manufacturing Cost Quality Speed Supply 3. Filling in these categories can be a first. Top-level identifies the highest level issues that need to be answered to solve the problem. An example of an issue tree is provided with the China Factory case. Use MECE (Mutually Exclusive and Collectively Exhaustive) to ensure that all issues are covered. Focus on most important branches or components first. especially the strategic ones. 5.4 4.1 4. competition. This model is intended to ask the critical questions in understanding the core business of an organization. Although this model is unlikely to produce revolutionary insights.

Conversely.2. (We live in a world with finite resources but infinite demand.2.3 Law of Diminishing Returns This concept suggests that although additional units of labor may contribute to increased productivity in absolute numbers. the higher the price of a product or service. the greater that demand for the quantity consumers will be willing to purchase (i..The lower the price of a product or service. This is based upon the premise that not producing the item in favor of producing another item which offers better production efficiencies will ultimately benefit both countries (see also economies of scale). all other things being equal.e. the greater the quantity of the item that will be produced. a diabetic will probably be . supply). within a given time frame.e.) The Demand Curve . The concept of comparative advantage goes a step farther. a person who seeks to purchase a particular brand and model of automobile may decide to shop competitively from dealer to dealer for the lowest price.2.2.2.2. Price Value of Output Cost of Inputs Quantity 5. each additional unit contributes relatively less than the preceding unit to productivity. the lower the price of a product or service. demand). However.1 Supply & Demand The Supply Curve -The higher the price of a product or service. there are circumstances where the level of demand is not altered by a change in price. 5. Conversely.2.2. the smaller the quantity of goods consumers will be willing to purchase.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.2. all other things being equal. For example. 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.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. 5. the supply of another product will decrease. Supplier will be willing to make more available (i.21 5. Please remember that as the supply of one product increases.2..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. the smaller the quantity producers will be willing to make available. For example. Price Supply Demand Quantity 5. This would characterize demand that is elastic in nature.

the medication that would sustain that individual's life. For example. higher quality and more effective pricing and marketing.2. This implies that for the typical firm. The magnitude of learning benefits is expressed in terms of a "progress ratio. placement (i. It is more customary to define economies of scope in terms of the relative total cost of producing a variety of goods together in one firm.22 willing to pay as much money as he or she has to buy insulin. 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. Whereas economies of scale are usually defined in terms of declining average cost functions. Inc.e. Economies of scale are not limited to manufacturing. The disciplines are: . the demand is inelastic. price.) 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. If AC declines as output increases. 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). A ratio of less than one suggests that some cost savings due to learning is taking place. and promotion. January-February 1993. These are the four critical dimensions in marketing any product (or service). 5.2. R&D. 84-93).2. Marketing. ES = % ∆ QS % ∆P = ∆ QS / QS ∆P / P 5.7 Economies of Scope Economies of scope exist if the firm reduces total production costs by increasing the variety of activities it performs. 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. 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." The ratio is calculated as the unit cost after doubling cumulative production divided by the previous cost (C2/C1).2.2.2..4 Value Disciplines Fred Wiersema and Michael Tracy of CSC Index. and other functions can realize economies of scale. so must the marginal cost (MC). Economies of scope may be achieved by "leveraging core competencies" across multiple business activities. a doubling of cumulative output is associated with a 20% reduction in unit costs. 5. It stands for product. distribution channels).2. The minimum efficient scale (MES) is the minimum level on the average cost curve. (Marginal cost is the cost of the last incremental unit of output. have developed a set of strategic foci called the value disciplines (Harvard Business Review. The median appears to be approximately . pp. In this case.3 4P's Kellogg’s Philip Kotler developed this model.8 Learning Curve The learning curve refers to cost advantages that flow from accumulated experience through lower costs.80.6 Economies of Scale Economies of scale exist when the average cost (AC) declines as output increases. 5. 5. over a range of output.

In addition.2. thereby making rivals' goods obsolete (e. with the goal of leading the industry in price and convenience (e. and buyers believe substitutes have equal or better features. ease of making a profit). when a newcomer can expect to earn an attractive profit. Benefit of Complements – This is considered a sixth force that is not directly captured in Porter’s model.2. Threat of Substitutes . The intensity with which the competitors are jockeying for position and competitive advantages indicates the strength of the influence of this force. Nike). quality.Often. 5. Potential Entrants – This force measures the ease with which new competitors may enter the market and disrupt the position of the other firms. Supplier Power.g. the barriers to entry are diminished.The competitive threat posed by substitute products is strong when policies of substitutes are attractive. The following is a brief discussion of the five components. Buyers gain strength through their sheer size and when the purchase is critical to the seller’s success. 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.e.23 Operational excellence .5 Porter’s Five Forces Michael Porter's Five Forces model analyzes the various competitive pressures at work in a given industry. When the economics are promising for a complementary product. Buyer Power . the most powerful of the five forces is the competitive battle among rival firms which are already present in the industry.. Home Depot). combining customer knowledge with operational flexibility to respond quickly to almost any need (e..g.Segment and target markets precisely and then tailor offerings to match exactly the demands of those niches.g. there is a spillover effect on the primary product. buyers' switching costs are low.Provide customers with reliable products or services at competitive prices and delivered with minimal difficulty or inconvenience. Five Forces Potential Entrants Complement Suppliers Industry Competitors Rivalry among existing firms Buyers Substitutes 5. 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. as well as the strength and influence that each of the competitive pressures have on the firms participating in the industry. The results indicate the overall industry attractiveness (i. 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. Industry Competitors (Internal Rivalry) . service. Strategy determines Structure and Decision Support Systems that .Buyers become a stronger competitive force the more they are able to exercise bargaining leverage over price. This force is the opposite of the Threat of Substitutes.. Product leadership . one should consider all seven components of the organizational unit.. or other terms or conditions of sale. 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. Customer intimacy . Vision should define Strategy.6 "Star" Diagram/Organizational Analysis In doing an organizational analysis.Offer customers leading-edge products and services that consistently enhance the customer's use or application of the product.

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

Value chain analysis is also helpful in determining which value activities are best outsourced and which are best developed internally.8 Value Chain A business manager must understand the internal relatedness of the many activities involved in the production of a product or service. so that it can price its products lower than its competitors and win a large market share. value chain analysis provides a structure that provides great insight into the flow of activities that lead to the creation and distribution of a particular product or service.25 Hi Low Hi Market Share Low Star Problem Child Cash Cow Dog Profitability 5. Finally. as indicated in the exhibit below. Value chain analysis is useful in discerning possible synergies among various units of an organization (e. Michael Porter calls these activities “value activities. not the company as a whole. The value activities are grouped into nine categories. manufacturing.g. Every business unit is a collection of discrete activities ranging from sales to accounting that allow it to compete..” It is at this level. Value Chain Support Activities Company Infrasructure Human Resource Management Information Systems Procurement Primary Activities Inbound Outbound Operations Logistics Logistics Marketing & Sales Services 5. outbound logistics. The problem with this strategy is that other firms will usually emerge with still lower costs (from the Far . human resource management. information systems. purchasing. Primary activities create the product or service. differentiation.g. and physical distribution of the products. The categories are company infrastructure. that the unit achieves competitive advantage. create a demand for the product.2. Firms pursuing this strategy must be good at engineering. and provide after-sale support. operations. What value is added to the manufacture and sale of gasoline at each point in the value chain.2. or focus. shared procurement). Texas Instruments is an excellent implementer of this strategy. and service.9 Generic Strategies (Porter) Michael Porter suggests that business strategies can be classified as pursuing cost leadership.. deliver it to the market. and procurement. (e. marketing and sales. Support activities provide the input and infrastructure that allow the primary activities to take place. Each of these strategies is described as follows: Overall Cost Leadership: Here the business works hard to achieve the lowest production and distribution costs. and by whom?). The categories of primary activities are inbound logistics.

reengineering refers to breaking down business processes and reinventing them to work more efficiently. quality. The firm that carries off that strategy best will make the most profits.” 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.11.2. inspect them carefully. those firms pursuing the same strategy directed to the same market or market segment constitute a strategic group. The firm cultivates those strengths that will give it a competitive advantage in one or more benefits.26 East. Differentiation: Here the business concentrates on achieving superior performance in an important customer benefit area valued by a large part of the market.2." 5. letting others show them the way to success. TQM was initially limited to the manufacturing sector but has more recently been applied effectively to service businesses as well.3 Key Success Factors Essential success factors are those factors that are most critical in determining a firm's ability to survive and prosper. Whereas TQM is more of a philosophy than a specific strategy. 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. Prospector— These firms are the first-movers and the innovators. This is a high-risk strategic avenue to follow. These firms are not necessarily innovators. the style leader. moving to erect as many barriers to entry as possible. Analyzer— Analyzers pick apart the market very carefully looking for niches and demand/supply gaps. but it is hardly possible to be all of these things. but instead concentrate their efforts in very carefully and narrowly defined efforts. They react to changes in the market and moves of their competitors and so must maintain flexibility. and so on. Defender—Those firms that have a leadership share of the market will often concentrate on staving off the competition. the stated objective is often "zero defects" or “six Sigmas. and speed. They are closely related to Porter's Low Cost Producers. cutting out wasted steps and enhancing communication.2. While this strategy may be profitable in the short run.1 Reengineering Popularized as Business Process Reengineering (BPR). and remaining so in the long run.11. A firm can only pursue one of these strategies at a time. the technology leader. 5.“middle-of-the-roaders" -.2 Total Quality Management (TQM) TQM refers to the practice of placing an overriding management objective on improving quality. 5. Porter suggests that firms that do not pursue a clear strategy . leveraging their advanced position along the learning curve and their name recognition to maintain a superior market position. According to Porter. processes are often viewed as discrete tasks. and the industry.10 Strategic Types (Miles & Snow) Miles and Snow have divided strategic options into four categories (in contrast to Porter's three Generic Strategies). the highest quality producer. but those who are successful can change the way the game is played and create very strong competitive advantages. Thus. a habit that prevents management from making frame breaking. Reactor— Such companies are second-movers. It is important to ensure that the added benefit from incrementally increasing quality outweighs the added cost associated with the quality improvement effort. Thus the firm seeking quality leadership must make or buy the best components. Further. 5. Focus: Here the business focuses on one or more narrow market segments rather than going after a large market. for example) and hurt the film that rested its whole future on being the lowest cost producer.2. One example is if the company strives to be the service leader in its industry. service. but it is common for a company to shift from one strategy to another as its situation. Annstrollv Rubber has specialized in making superior tires for farm-equipment vehicles and recreational vehicles and keeps looking for new niches to serve. This strategy is akin to Porter's focused companies.11.do the worst. cohesive change. changes. Business processes are often replete with implicit rules that hamper the way in which work should truly be done. Attributes of essential success factors are the following: . put them together expertly.2. This has been Canon's strategy in the copy-machine field. its long-term value is questionable. Thus. the lowest-cost firm among those pursuing a low-cost strategy will do the best. 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 firm gets to know the needs of these segments and pursues either cost leadership or a form of differentiation within the target segment.11 Other Key Concepts 5.

(Typically. the amount that "contributes" to paying the fixed cost of production. make a significant contribution to the perceived customer benefits. In other words. 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. A firm must supply what customers want and survive competition from other firms Therefore. variable costs. usually called the opportunity cost of capital. and adaptability to changes. 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.2.2. such as the cost of adding new production capacity when Q reaches certain levels. 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. The classic example of a company that has effectively leveraged its core competencies is Honda. (Ct can be negative.5 Vertical Integration In some industries companies find it advantageous to integrate backward (towards their suppliers) or forward (towards their customers). 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. and the price of a product to determine the minimum units of sales necessary to break even or to pay the total costs involved. these are discrete costs. but not directly. Semi-variable Costs: The costs of production that vary with the quantity (Q) produced.11. Net present value is the present value (PV) of all incremental future cash flow streams minus the initial incremental investment. for wood products. or break-even quantity. Prahalad. 5. The contribution margin represents the revenue left after the sale of each unit after paying the variable costs in that unit. This technique is also useful to make go/no-go decisions regarding the purchase of new equipment.6 Just-in-Time (JIT) The goal of JIT production is a zero inventory with 100% quality.27 Management can influence them. 5.2.4 Core Competencies A concept popularized by Professors Gary Hamel and C.) The NPV is calculated as follows: . The necessary sales are called the BEQ. the materials arrive at the customer's factory exactly when needed. 5.11.) Break-even Point: Break-even analysis is a managerial planning technique using fixed costs. Profit = Q x (P-VC) . 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.8 Net Present Value (NPV) The NPV is a project's net contribution to wealth. and are difficult for competitors to imitate. multiply the quantity sold times the contribution margin and subtract the total fixed cost.2.K.11. 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. essential success factors are owning large forests and maximizing the yield of those forests. or hurdle rate. as in the initial investment. core competencies provide potential access to a wide variety of markets.2. productivity.FC 5. For example. Co. 5. Ct represents the cash flow at time t.11.11. To determine profits. which has gained a competitive advantage in numerous product markets through its focus on leveraging its skill at making engines. In other words. Fixed Costs (VC): The costs of production that do not vary with the quantity (Q) produced: these costs generally include overhead costs.7 Fixed vs. The present value is calculated by discounting future cash flows by an appropriate rate (r).

For example.. Typically. . 80% of a company's profits may be generated by 20% of its product lines. a Pareto analysis is conducted to determine the areas on which management should focus its efforts.28 NPV = Co + Cl/(l+r) + C2/(l+r)2 + . 5. Alternatively. 80% of total downtime on a production line is attributed to two out of the ten manufacturing steps.. the firm should invest in the project.9 Pareto Principle (80/20) The Pareto Principle refers to the situation in which a large amount of the total output comes from a small amount of the total input. This phenomenon is typified by the "80/20 rule" which states that 80% of the output comes from 20% of the input.11. + Ct/(l+r)t If the net present value of the project is greater than zero. If the net present value is less than zero.2. the firm should not invest in the project.

This case sounds exactly like what we did in Managerial Accounting.1 2. However. Rather. then order them from the most significant to the least significant.3 2.” . Take your time.2 The goal of the case interview is not to crack the case but to demonstrate “how you think. do not error on the side of being silent either.8 1. Remember that some material may be extraneous.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.6 1. Practice phrasing statements clearly and succinctly. Then say something like this: “Well I have thought of five significant drivers. What are you looking for? Is this a marketing case? I cannot believe this is a real case.1 1. He will not understand your thought process unless you explicitly state to the interviewer. one could say: “I intend to purse. you are trying to confuse me. I would like to concentrate totally on the political implications of this situation. The interviewer is not clairvoyant. This will serve as the structure of your analysis.5 2.10 I need a lot more data. brainstorm to get all your thoughts on paper. the three most important are.” 1.10 2 Top Ten Things not to say during an interview: 2.7 2. The interviewer has probably spent a few months working on the problem and consulting firms are looking for people who enjoy solving problems. During that time. The interviewer will look to see if you build on the information provided.. Better to use the bull’s eye approach to data gathering.4 1. They also want consultants who are dedicated to their client and client’s problem. The interviewer possesses tons of data or will make it up. I do not believe you. DO NOT ANSWER RIGHT AWAY! Think about it and come up with five drivers.. do you believe this is worthwhile. as opposed to the shotgun approach.9 1. This is an area where one can demonstrate teamwork. Thinking aloud leads to rambling. the more confused you could become.6 2. Think then speak. 3 3.. do not answer any question unless you have thought through your answers fully.4 2.8 2.7 1. For example. Do not assume anything! Use questions to clarify issues and to gain a complete understanding of all the problems that need to be addressed.. There is obviously one answer to this case. You can demonstrate this by being engaged. the more you prompt for data without assimilating what you have already been presented with. Do not ask for every piece of data. ask for a few moments and think out your approach.5 1. Do not lock yourself into your answers. Once the problem or case is presented to you.29 6 1 Dos and Don’ts Helpful Hints: 1. Are your clients really that stupid? This case has no answer. Then.9 2. carefully assess them and order them into a logical format. interviewers will drop hints regarding the case throughout the interview process. Individual pieces of data can often be combined to draw a conclusion about part of a problem.” Listen carefully to everything that is said during the interview.3 1. Ensure that you understand the problem at hand.2 2. if need be.. HAVE FUN WITH THE CASE! Engage yourself and get excited about the case. Keep the interviewer informed of where you are going and check to see if you are on track. I cannot solve this case because I have not had Corporate Strategy yet.

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.

Tell us about your weaknesses. Give me an example of where you did something unpopular and had to stand up for yourself at work. . 2.31 8 1. Tell us about your previous industries. If you do not get into consulting what will you do? Give me an example of where “you dropped the ball. Describe a problem you encountered in a work environment and how you handled it.” 10. 7. 5. 11. 9. Describe a situation where you had to present orally to an important group of people. Where do you see yourself in five years? 12. 8. Tell us about your resume. General Interview Questions Why consulting? Why do you want to work for this firm? Tell us about your skills. 4. 6. 3.

our client is number three with a 15% market share. industrial vs.. he wants to know if he should approve a $200 million capital expenditure for new manufacturing facilities.32 9 9.) “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.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.g. The largest competitor has just announced plans for a major modern plant.2 Possible Solutions • Will the planned investment lower operating costs? (Yes.g. The two largest competitors appear to earn a small return.1. our client is break-even. but not substantially.1 Sample Cases China Products Division 9.1.1 Issue The CEO of a large diversified building products company has asked us to help her examine the operations of her china products division.) • Does the company rely on a limited source of raw materials? (No. residential vs. materials are easy to obtain. with other building products)? Is any significant portion of sales to centralized customers (e. toilets and urinals. China products include tubs. What issues must the client consider? 9. The major reason for the investment is that the new process will result in a better finish. commercial)? Are there different price points by market or within markets? “Better answers” • Customer-buying factors: Do customers demand a full-line supplier (e. The company is one of seven producers in the United States. 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: . Specifically.g. the largest producer has a 20 percent share.

profits or costs of other business units? Are there advantages to plants being located in specific places due to high transportation costs? If the competitor’s new plant is built. or with other products such as fittings)? Would exiting the business affect the sales.Increasing prices . Its goal is to double total sales and profits in less than two years.2 Possible Solution: What is the current scope of operations? In what areas of healthcare does the company deal? What is its current market share in these areas? What plans has the company already considered is currently considering? What is the competitive nature of the industry? What would be the effect on sales and profits of reducing prices/margins? What potential is therefor expansion by acquisition? Do they have the financial capability? Do potential targets exist? A suitable solution will depend upon the answers to the above questions.2.1 Issue A large healthcare company has decided it is interested in substantially increasing the size of its operations. A business can increase profits by: .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.Increasing sales .2. 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. what would you do? 9.2 Healthcare Company 9. As a consultant brought in to assist them.

In addition. the capacity of this subsidiary is small and its technology is relatively old.) 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. most of the top ASIC producers are in fact American.34 . In contrast to the commodity-chip manufacturers. some strong alliances already exist in the industry and the possibility of converting old DRAM production facilities into ASIC facilities may well lead to great overcapacity when the next generation of memory chips takes over. the cost of which is growing steadily in many of the company's products. 9. Important demand segments are entertainment electronics and automotive applications. firms whose core business was semiconductors would have significant technology and R&D advantages. In the particular example of this case.1 Issue A large microelectronics manufacturing company is considering participation in a cooperative project which will receive 50% government funding. therefore need to find some way to reduce some of these costs e. considerable effort would be required to find the staff with suitable expertise. 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. Also.g. The company currently uses several hundred millions of dollars worth of microelectronics every year.) 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. It is interested in developing application specific ICs (ASICs). although there are powerful commodity-chip manufacturers. This leaves only sales increases. with whom? 9.) What are the client’s current purchasing habits? . Strong demand has meant that price erosion is not currently an issues in the ASIC industry However. it turned out that only selling new product to new customers via some form of diversification could hope to achieve the company goals.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.3 Electronic Joint Venture 9.3. using CAD to shorten design cycles. The relative benefits of each will depend on financial resources as well as the existence or otherwise of suitable targets. of which only a handful are of any size.Cutting costs However. but development costs are higher. The government project would more or less allow the company to define an individual project within the broad category of process technology. it would seem unlikely that either increasing prices or cutting costs represent feasible methods by which to double sales & profits.) 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. currently about 15% of all ICs are ASICS & this figure is expected to rise above 35% in the next 10-years. decreasing size and weight and increasing speed and reliability.3. if the company's margins are found to be consistent with industry norms. particularly if the company operating in a moderately competitive environment. Although the company already has a subsidiary that does some microchip fabrication. 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. (Typical ASIC production volumes are much lower. You should then consider the potential for increasing sale by means of diversification through acquisition or joint venture. 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'. Assembly costs are reduced. The IC market itself is expected to grow at over 10% per year too.) What is the market outlook for ASICS? (High growth.

The subscriber rate is low due to the high number of competitive stations available to our consumers (supply and demand problem). who delivers high value sub-assemblies. Assumptions: High fixed costs are overwhelming the current revenues The current subscriber rate is too low.1 Issue Three years ago a venture capital company purchased a cable TV system that had access to 2MM households in the southwest. A: Actually they watch more television than the average. You have been hired to determine if they can turn a profit or if they should sell. What options do our consumer have? A: In addition to the three network stations. The current systems is only at 43% capacity (# of subscribers) vs. but not our cable system. there are eleven independent broadcast stations in the area.Analyze the competitive situation/ substitutes . Revenue Subscribers monthly fees Subscribers special services . A: Yes.4.35 (Currently purchase nearly all microelectronics through one subcontractor. Are the stations offered free of charge? A: Yes.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. a 63% industry average.4. Overall Assumptions: The low subscriber rate (revenues) cannot overcome the high fixed costs. The debt and maintenance costs are also higher than systems in major metropolitan areas. Despite their best efforts. Recommendations: . The VC firm was attracted by the extremely large subscriber potential (2MM households) and potential for considerable return.4 Television Cable Company 9.movie channels Is the reception from these independent stations strong? A: Yes. they have failed to turn a profit in the past three years. Does the cable system offer what they enjoy watching. Why? Moreover. Competition: If consumers are watching television. 9.) Do potential joint venture partners exist? 9.2 Possible Solutions . I would assume the population is less likely to watch television perhaps because of income or lifestyle issues. very. can it be fixed? Market Assumptions: Based on the low subscriber rate. there must be a strong competitor in the market.Analyze current revenue and cost structure .Analyze the market potential of the area .

9. printing/paper. A: True Competitive Assumptions: The competitors are deeply entrenched .2 Possible Solutions Can we turn a profit by publishing this supplement? How? -Revenue potential. 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. Displacing a competitive supplement would require costly incentives to the newspapers.5.1 Issue A major magazine publisher (not unlike Time Warner) is thinking about publishing a "Sunday supplement" for insertion in and distribution through metropolitan newspapers. Additional Information: There are currently two major Sunday Supplements: Parade and U. Cost Assumptions: Fixed cost of supplement set-up Editorial.5.S. They have hired you to determine if they should proceed or not. sell. distribution Internal and external sales force . turning a profit would be difficult due to the large upstart costs and the strong competition for advertising revenues and newspaper acceptance. modem day folklore low quality editorial.(gaining ad revenues and newspaper acceptance) Assumption: There are few publishing synergies with our current publications. costs.36 Determine if there are consumer needs not being met by the independents that could be provided by our system and worth paying for. 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. Strategic Fit Assumptions: The poor editorial content associated with these supplements may disparage the publisher’s current product offering. light reading gossip. Key Issues: Based on these assumptions. Current newspapers use the supplements in order to publish low quality editorial without disparaging their product offering.5 Magazine Sunday Supplement 9.90% penetration. we would not recommend proceeding with the supplement until potential advertisers were committed and newspapers demonstrated an interest in . Recommendations: Based on this information and these assumptions. If not. Assumption: Our current advertisers (for Time) would not be interested in this format.

6.250MM x 4% = 10MM current cardholders $50 x 10MM = Annual loss of $500MM by dropping the fee. Make a recommendation Revenue Drivers . we would recommend publishing under an alternate brand name). They are considering dropping the $50 annual fee. 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. (Even then. 9. May want to consider varying the fee (sensitivity vs. Current percentage revenue: 10NM members x $1000 annual purchase (avg. Key issues: If the annual fee is dropped.6. Do not drop the fee. To overcome this loss. Therefore. They would still have to pay off their balance every month.1 Issue You have been hired by the CEO of a department store that has numerous locations in a major metropolitan area.7. increased membership equivalent to 20% of the population is probably not likely. No additional revenue from consumers because they pay-off monthly. (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. population (Just a guess): . She needs to increase the store's earnings over the next year and has requested your help.6 American Express Charge Card 9. What are the "economics" of such a decision and should they drop the fee or not? 9. Evaluate the pros and cons of dropping the annual fee.7 Television Cable Company 9.S.) [10MM x (1000 x 1%)] = $100MM (Estimate of current percentage revenue) Key Question: Can we attract enough new members (without a fee) to offset a $500MM loss? Each new member contributes $10 (1% of $1000 annual purchase). Receive 1 % of the transactions from retailers who honor the AMX card.Assumptions: $50 annual fee multiplied the number of members. . 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.37 accepting the supplement. new members) 9.1 Issue American Express has faced strong competition from new credit cards entering the market. AMX loses ($50 x # of members).2 Possible Solutions Determine how American Express makes money.

What products are less profitable? A: Clothing. minor appliances . product mix. Yes. tools. household items. consumer demographics? A: Yes. The population growth of the city is flat Overall.38 Relevant Information: 20 locations in the metropolitan and surrounding suburban areas (they are present in every shopping mall).big-ticket items. Jewelry . the product mix is the same at all stores. household items . No.2 Possible Solutions Revenues have decreased for a reason The streamlined costs may have caused revenue to falter The revenue per store may differ . 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. so you turn to the individual store level.low ticket items Store by Store Sales/Demo's: Do suburban Stores sell more big-ticket items? A: Yes What do the urban Stores sell? A: Clothing. Questions: Are certain stores more profitable than others are? A. TV. store revenue has declined slightly They recently hired a consulting firm to streamline the back-room costs How can you help? 9. Do the higher performing stores have any common characteristics such as size.7.$$ Frequency Prices Others? You learn there is nothing drastically different (overall). levels Cost of debt Other? # of people shopping Amount of purchase . suburban stores are more profitable than urban stores. the demos are different by store. Stereo.why? Increased competition? Different consumer buying trends? Start with Cost/Revenue Drivers: Costs: Revenues: CGS Personnel/ OH/ SG&A Inventory holding costs. Yes. shoes.

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. You need to analyze the situation and make recommendations. our client believes it can become more profitable. Assessment Due to the identical product mix at each store and the varied profitability by item.Cannot change Other costs – Can not change Key Issues: Cannot affect the cost structure. Competition: Interviewer tells you it is a very competitive environment . theft.5% . points Revenue Annual fee . Hold small debt for short periods of time 3. however. suburban stores are outperforming urban stores. SG&A.Yes. 9. Hence. Only revenue variables available are changes to the annual fee and APR.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.analyze drivers Opportunity to vary the annual percentage rate or the annual fee Benchmark competition for opportunities Analyze cost and revenue drivers: Costs Marketing. etc. there may be different customer segments based on the balance held. therefore have to increase revenues. .1 Issue Our consulting firm has been retained by a major bank to help improve the profitability of their largest credit card offering. 9."move on". Their card (in the same class as a Visa or MasterCard) provides average returns in comparison to the industry. higher income. Hold heavy debt for long periods of time (basically pay-off the interest) . Pay-off in full every month 2. how quickly balances are paid off and the "need" for the card. Personnel – Can not change Bad credit. Assumption: Customers use the card differently. the urban stores are hindering earnings.8.currently $50 (Could change) Annual percentage (Could change) Merchant change) fee = rate = (Can 14% not 1. Case Interviewer suggests there are three distinct categories: 1.2 Possible Solutions Opportunity to decrease costs or increase revenues .39 Are the demographics better suited for the mix in the suburbs? A.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.8 Credit Card Division of Bank 9.

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

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

Location.historical sales patterns.42 Factors: Marketing. Mrs. it turns out that they cannot be raised. 5. 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. The financing terms available to Mrs. Equation = # of seats * # of games * stadium capacity * utilization .50 for baseball games. Pricing. we located in the inner cities to save money A.000 for baseball games. She is indifferent between choosing between the two teams..2 Possible Solution Everything cancels out except that baseball has more seats available. After exploration of this issue. The interviewee should explore other streams of revenue but are irrelevant (important streams are . Which team should she buy? Additional Facts 1. wants to invest in either the Cleveland Cavaliers (a basketball team) or the Cleveland Indians (a baseball team). 4. but would like to maximize the profit from the investment. 10. Utilization on average is 70% for both sporting events. the suburbs. 11. on leases. 12. In new markets. She wants to own a sports team: however. The interviewee must ask for this information to be given credit. 9. but prohibits heavy use of the service center due the distribution of income between the inner city vs. The purchase price is the same for both franchises.Between the inner city and the suburbs (on the Assumptions/ Recommendations: Our location is great for the retail sales business. It is important that interviewees recognize these as possible sources of value to the investment. Neither franchise owns the stadium. Thus. Do not give this information away. Let us say that there is a $100 million price tag. move. Possible sources of data .11. The interviewee must figure out a model to answer this question. 2.000 for basketball games and 54. locate between the lower and upper income areas to attract both segments. 3. The stadium capacity is 20. Ticket Prices on average are $25 for basketball games and $6.1 Issue A wealthy woman. comparable data for other franchises in other cities and overall market demand. or drop the service business and retain the profitable retail portion 9. 8. The Balance Sheets of both teams are the same in terms of liabilities and assets. The key is to figure out whether ticket prices can be raised.11. border) Where is competition located? A: We do the same as the competition A: Identical to competition A: Different. 7. the baseball investment has a potential for greater revenue. respectively. Wentworth. the interviewee must recognize that there are other investments that she should consider. 9.11 Sports Franchise 9. concessions and parking) for purposes of this analysis. In existing markets.licensing of apparel. Examine if 100% utilization can be reached. Wentworth are the same. make the candidate probe for it. 6. who is worth millions.

13. • • • • • Accounting Order Processing Sales Management Finance 9. Problems with this approach? Eliminating sales function and order processing at sub may reduce flexibility and hurt customer service? Maybe.e. • Subsidiaries maintain all functions (were once bought by independent businesses. Parent manufactures all equipment (parent’s manufacturing is not the scope of this case). 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. For example. Plot labor/units on vertical. units on horizontal.1 Issues SETUP A large durable goods manufacturer (i.12 Durable Goods Distribution Case 9. we could determine the number of labor hours for a transaction for the sub and parent..1 Issue .2 Possible Solutions Would it be more efficient to provide central functions from parent. then diversified functional operations? Maybe.12.43 9.e. but how would you measure this problem? Interview clients and determine the importance of flexibility and personalized sales. buy one new every six years).12. the firm cannot create demand pull) Consumer purchase frequency is constant (i. centralize the operations. Consumers buy primarily based on lowest cost product. 9. If parent is higher. then bought by parent).e. but how would you measure that value? Study each subsidiary's functions and determine efficiencies to be realized.13 Business Forms Case 9.

sold primarily in sets and is expensive. supplemented with occasional visits. The system handles over 100 daily orders. • MANUFACTURING: The firm is a “world class” manufacturer. However. Contacts primarily via telephone. The firms should constantly monitor standard costs because of volume fluctuations. multi-copy sales receipts. • SALES FORCE: A two hundred person sales team is in place that focuses on important accounts. Use “Time Based Competition” to increase profitability. a typical customer is a newly wed who places pots & pans on the registry at Hudson’s or Marshall Fields. . The UPS delivers most orders within two days for standard items. Custom orders shipped between one to three weeks depending on complexity and quantity of the order. excellent return policy and its ability to fulfill any order. • PROFIT CENTERS: Manufacturing and sales are profit centers. etc. The company does not own delivery trucks. You have ten minutes to interview the CEO before she leaves for a meeting.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.” The firm is able to deliver larger orders faster than competition when asked for rush delivery. East Coast. but not necessarily to increase market share by lowering price. • DISTRIBUTION: Extensive information system is in place. What will you ask? What do you need to know? What is important? Can you make recommendations? HELPFUL INFORMATION (not to be offered unless asked) • MARKET: Market share in the Business Forms business is 4%. The largest player has 5%. You have ten minutes to interview the CEO before she leaves for a meeting. if possible. The company has four regional plants (Midwest. the materials cost is less than the shipping cost or fees charged for customized work. An internal study indicates that the firm is the low cost producer in the industry. The market share in high-end pots & pans is 35%. Use ABC inventory analysis to get a “better” standard cost and empower the sales force to maximize revenue. The market is fragmented with many small local printers. • COST STRUCTURE: Not important. The sales force is paid on commissions. The product line includes credit card receipts. wide product range. invoice forms. A salesperson receives 25% of all revenue above a standard cost. The CEO has hired you to assess and make business recommendations. The firm has modern facilities and good cost controls already in place. 9.14 “High-End” Pots & Pans Company Case 9. 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. The sales division sets the prices to customer.14. West Coast & Texas). All sales are handled through the sales force. According to the CEO.44 OVERVIEW A manufacturer of business forms wants to increase profitability by using pricing as a competitive weapon. Possible Solution One possible solution is to use price as a competitive weapon. 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%. • MARKETING: The firm only uses direct mail fliers and catalogs. SPC and other cutting edge manufacturing techniques. Transfer prices negotiated between manufacturing and sales are in place. The firm uses JIT. warranty papers.

two in Charleston. This can be confirmed by asking for the annual sales. Your firm uses a sixty-year-old plant in Gary. notebooks.35 a square yard compared with the $.38 a square yard from the current supplier. The company and not customer pay shipping costs. Inventory and outdated inventory would also decrease. • MARKETING: The firm uses little advertising. When you divide this into the $1 million distribution cost you discover that they are pay $100 to deliver a pan to the store.15.45 • 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.000 units.15 Paper Products Manufacturer Case Shipping/Packaging . You are the purchasing agent responsible for buying the white 20lb paper. since they sell so few of these pots and pans hold no inventory and thus require next-day replenishment after a sale. The Brazilian firm is offering to sell at $. you buy from a US company in Oregon.14. The firm has a three person sales staff that works with department store buyers. The firm purchases 100.20% Labor . Repeat sales equal almost 100% of the business.20% 9. the lower the cost (more inventory pools.20% 9. Your client has six warehouses . It turns out that stores. Due to recent developments. 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 . Department store buyers know the company and its products well. Little discussion or negotiation required. Beat this figure and you have earned your exorbitant fee. two in Philadelphia and two in LA from which he services the whole country. the only way they can do this is by shipping overnight at a premium rate. since the closer they are to the stores the cheaper distribution costs will be.2 Possible Solutions The six regional warehouses were setup in the 1950s when long distance delivery times were slow and costs were high. instead. • RETAIL OUTLETS: The product is carried in high-end department stores. the cost of delivering products quickly decreased. The higher the service level. 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). Eliminating warehouses leads to O/H savings that are far greater than the increased shipping costs. Currently. which turns out to be 10. The reason for the low inventory levels is that the product is bulky and expensive to store. Department stores demand quick replacement upon sale.30% Var. Therefore. • COST STRUCTURE: Materials . The next thing you need to know is where the warehouses are located. warehouses and shipments). The firm will consider switching if it can gain a long-term cost advantage. No products are shipped directly from the factory. Each store carries one set of each product line for display and one set for inventory purposes.10% Fixed O/H . With the advent of FedEx. you need to ask where the inventory is being held.1 Issue OVERVIEW Your company makes legal pads. and other standard paper products. A quick way to solve this case is to realize that if stores require next day service from these six warehouses. Indiana that has been producing paper for 60 years. O/H . 9. Distribution is a trade-off between cost and service level.000 tons of white 20lb paper to produce its product lines. you have a new option to buy from Brazil. Your company values long-term supplier relationships.

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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

47
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.

(second largest in industry). • Client used to have a steady 30% market share. Business travel increases as a result of market globalization. • Your client is also using the most sophisticated and quality driven cassette manufacturing techniques.1 Issue You are consulting to a CEO of an airplane manufacturer. In the last couple of years. middle income enthusiasts and high school rock 'n roll stereophiles. Now the firm has a 44% share.19. 9. • Recently your client has been losing younger target market customers. Long-term contracts are pre-emptive. and what recommendations would you make? 9. a comparison: It turns out that the competitor's planes are cheaper to operate because they are more fuel-efficient. • The firm historically targeted two consumer groups -. you are concerned with three essential items: 1. and then provide a possible solution.20 Mysterious Audiocassette Market 9. High concern. . Prevention of a new competitor gaining share: Key: creation of barriers to entry. the firm has recently lost several major accounts due to its inability to move (the firm's) products. Why the firm has lost market share and. safety and service. The consultant should ask as a strategic question whether the firm is interested in the manufacture of more fuel-efficient planes. They have hired you to figure out why they have been experiencing an alarmingly poor sales year.older. The consultant should also consider whether it might be better to try to compete on the basis of price. They want you to determine the problem. • The firm has been losing sales reps yet loyal reps claim that sales are at record high levels for the year. How to prevent the new entrant from stealing market share. • Your client offers a full range of audiocassettes -. another company has announced that it will be entering the business and is presently tooling up its plant. The condition of the airplane manufacturing industry. The answer would depend on the future of oil prices. 9. Information to be divulged gradually • Mature market: 5-6 major players. what are the concerns your client might face? What additional information might you want to find out. Business travelers are primarily insensitive to price. The airplane industry's demand is a function of travel among two classes: business and leisure.1 Issue Your client is the manufacturer of audiocassettes. • The firm has traditionally managed its relationship with retailers well. In addition. 2.2 Possible Answers As a consultant. leisure travelers are very price sensitive.from low bias to high bias/metal. Leisure travel increases with growth of middle and upper classes. 3.20. on the part of purchasers for a proven safety record of accomplishment.19 Airplane Manufacturer 9. As a consultant. you have gone from being number one in market share to number two. The current competitor.49 • The sales force may not be adding the value that the company thought/needs in order to be successful.19. However.

Assessing the value of the benefits of the product is perhaps the next step. The bank has many other commercial accounts that use other companies for their item processing.22 Bank of Luke 9. it received little focus from management. potential substitutes. The firm should target the older customers as well as other segments that are less likely to switch over to CD's. The firm should consider new sources and production necessary to exploit this new demand. verifying the correctness of incoming paperwork and manually sorting. This could be an appropriate start. your older target market is loyal -. etc. The closest substitute to the windmill is probably utility produced electricity. 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. The windmill costs you $10. In fact. Types of items processed include credit card. and supplier/buyer power need to be assessed to determine the market price. You have no idea what this product is worth to anyone.21 Windmill 9. and utility payments (checks). 9. maintenance.000 to manufacture. for example. airlines would process their own tickets) or by bank item processing departments like the Bank of Luke's.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. inquire how the electrical utilities measure and charge for the electricity they provide.21.21. the largest item processor in the U.2 Possible Solutions Porter's five forces dictate that industry rivalry..short-term.) Your client’s historically flat market share suggests brand loyal customers. 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 -. mortgage.g.perhaps less likely to switch to the new technology in the short run. Historically. airline tickets. for the long-term. To narrow it down. Moreover.. in addition to handling of retail lock box transactions.5 million of fee revenue processing retail credit card and mortgage payments ("items") for 15 commercial accounts. Hence. these items were usually processed by the issuing company (e. . 9. At banks.1 Issue You produce a windmill with an accompanying electric generator (generator harnesses the power produced by the windmill). let us assume competition and demand/supply levels are far beyond your capacity. The Retail Lock Box Department consists of 100 clerks and eight managers and Supervisors. a medium-sized Midwestern bank. the Department generates $1. Other considerations upon which to discount the value might be reliability. The $10m cost is irrelevant. and coupons. The item processing industry has undergone dramatic changes in recent years.1 Issue Mr. and totaling the items was performed by only the largest banks which were highly automated. Check is the Director of Retail Lock Box Services for the Bank of Luke. the processing of payment items was done more as a service to bank customers rather than as a profit-making endeavor. the Bank recently lost the item processing business of one of its largest accounts to Vader Inc. Each year. We must therefore examine other components. Therefore. The firm should also explore the opportunities and constraints of developing or acquiring the new technology. filing.S. In the past. How much are your customers willing to pay for it? 9.22.

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

What can you recommend? 9.1 Issue Your company is a rather successful producer of candy. However. makes the problem worse).) Controlling schedules manufacturing which is rather efficient already but not packaging.23 Candy Company 9. Labor and fixed capital has increased per unit over-proportionally compared with ten years ago. 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. Upon further examination. retailers) are willing to accept the reduced product line. The firm should consider reducing the number of product lines and introducing controlling/scheduling measures for packaging. cost exercise. The firm has also expanded its sales through product line extensions.24 Skyscraper . creativity and sensitivity to the real issues should be the goals of your probe. high setup times). Check feel his unit should be generating? (After all. Raw materials are commodities with cyclical prices that have fallen in recent years but are expected to swing up (as you have guessed.e.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. $15. cutting 25 percent of the staff is too obvious and too easy. Revenue killers: Concentration of retailers. The firm should streamline product lines. Again. The production process consists of two basic activities: manufacturing and packaging. retailers demanding large introductory discounts for new products and high failure rate of new products. 9.23. (Candy is candy and the product line extension is primarily an issue of different packaging.52 • • What is the strategic plan for the bank and how does this unit fit into those plans? What does Mr. labor and fixed cost.23. we still need to consider whether the company's customers (i. It originally started as a single product line.2 Possible Solution This is a revenue vs.. Margins are shrinking. reduce low margin trade brand production. 9. trade brands. thus causing slack in labor and fixed capital (small batch sizes. and reduce introduction rate for new products. Management is concerned that sales are growing but profits are not increasing at the same rate. emphasize pull marketing. Find the critical components of cost: raw material.

Assuming your concern is valid. raiding IT practices of other firms for a few key consultants. 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.1 Issue Your client is going to build a skyscraper. the firm should stop adding stories to the building. So far.25.1 Issue Your are the managing director in a large international consulting firm. The traditional strengths of your firm have been solving strategy and organizational issues. but is not sure how tall it should be.25 Consulting Firm (I) 9. Recently. The building will house tenants. 9. When marginal revenue equals marginal cost. Nonetheless. building capacity by training current consultants in IT practice skills and establishing a strategic alliance with a IT boutique firm. Good answers will focus on various methods to build expertise. you have noticed an increasing number of your firm's proposals are rejected because of a lack of information technology expertise in your firm. building capacity through recruitment of IT experts and training them to be consultants. your firm's growth has been strong enough that proposals lost have not hurt annual earnings.2 Possible Answers Good answers focus on the value of IT to clients. The methods may include buying expertise by acquiring another firm. Better answers focus on the costs of losing clients to competitors. How should he decide how tall to make the building? 9. 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. who will pay to reside there.24.24. strategic value of information and information loss. Discussion topics should include the increasing importance of information in business. Clearly. you do not want to lose money on the deal. . what steps would you take to rapidly build IT capacity in this area? What are the major risks in executing an IT capacity-expansion? 9.2 Possible Solution This is an economic supply/demand mind teaser. 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. the importance of information systems for implementing new organizational structures and management control systems.25. you are becoming increasingly concerned about the need to develop the firm’s capabilities in information technology.53 9.

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

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

1 Issue Your rich uncle has just passed away and left you with three small oil tankers in the Persian Gulf.56 9. only large and medium tankers are put into service. Competitive moves by major airlines included the innovative use of information technology for yield management and differential pricing. The larger airlines priced every seat individually based on continuously monitoring of demand/supply.28. The larger airlines stole the discounters' market and forced them out of business.29 Oil Tanker 9. In effect. Years later. What are you going to do? Possible Solutions . In a price-competitive industry. 9. Their market share and profits are declining and they cannot figure out what is happening.29.28. why is it that the higher-cost carriers were able to survive and the low-cost ones were not? 9. the discounters have gone out of business.1 Issue You have been hired by a fertilizer manufacturer to help them out of a difficult situation.29. and large) in the industry and the cost-related prices associated with employing each type. They wooed leisure customers with fares lower than discounters and charged more from business travelers (indifferent to price but sensitive to service and frequency). discount carriers like People Express sprang up.2 Possible Solutions This problem involves the interplay of supply and demand forces to determine the value of the tankers. Characteristics of major carriers: • • • Higher fares but better coverage and service Hub systems Full service capabilities with larger volume base.2 Possible Solutions Characteristics of discounters: • • Low fares Limited service.1 Issue Historically low returns and stiff competition characterize the airline industry. The nature of tanker supply will be revealed by defining the different tanker types (in layman’s terms: small. In the early years after deregulation. Demand for the services of tankers is assumed inelastic due to refinery economics dominating the purchase decision. This renders your late uncle's small tankers suitable only for scrap at the present time. medium.30 Fertilizer 9. It will turn out (by carefully drafting the supply/demand curves) that at the given level of demand.28 Airline Industry 9.30. 9. How do you determine how much they are worth? 9. a step-function supply curve rsults for the industry with each step representing a different tanker type.

g. corporate pressure to improve bottom-line results has led to steep advertising price increases. The Japanese market is much bigger than the Australian market. He also wants to make a big splash by presenting a new "strategic pricing methodology" aimed at achieving "value-based differentiated pricing.31. you will have to flush this out with your questions and approach.1 Issue You are the new retail-advertising manager of a large daily newspaper. has over the last few years under-performed relative to its competitors as measured by profitability.2 Possible Solutions The interviewee must first find out the corporate profitability objectives.e. he does not explain why. size. 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. breadth of product line..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.32. Use difference in needs of customers to implement prices based on appropriate advertising service needed. (The candidate will discover that revenues have gone up steadily over the past few years. Looks like you would try to explore the possibility of competing on a scale basis. Assess gap between actual departmental performance and assigned targets. (Naturally. This morning you received a call from the advertising director (your boss). So." 9. You also do not have any scale advantages.31 Retail Advertising Pricing 9.31. 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. costs have not risen significantly. discounting. frequency. 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). All three company’s current car models are "badged" Japanese designed cars (i. Again. 9.. Further. etc. price-point. 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). What are your alternatives? (If you got this far. A classic demand-curve scenario has led to greatly decreased cumulative ad volume with potentially serious long-term consequences.). they are products of joint ventures with one of the smaller Japanese automobile manufactures). color.32 Automobile Industry 9. etc. Examine competitor pricing and customer price sensitivity. . you are probably doing fine!). Examine both revenue and cost issues.1 Issue Your client. What do you look at to analyze the issue? 9. The candidate must understand advertising attributes of importance to different segments (e. Discuss heterogeneity in advertising customers based on business size. He sounded extremely worried about the retail advertising division's performance. why worry?) Apparently. one of the big three automakers in Australia.

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

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

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

Hence. 9. transportation costs and competition have not changed dramatically. the only other alternative is the price of your product.000.000 20 500. You can estimate that the top income cluster tunes their pianos once a year. Thus: Income quarter 1st 100.000 0 With 175.36. and 0% of fourth.000/3 + 25. There is no right answer.167 or approximately 120. profits have steadily declined despite the fact that sales are growing. In addition.000 2nd 50. By looking at the suppliers.000 each).000 4th 0 Population % w/Pianos #of Pianos 500. In analyzing the internal rivalry. owns a meat packing plant in Spain. 10% of second quarter.1 Issue How many piano tuners are there in Chicago? Possible Solutions This is a brain teaser case. you will know that they are independent farmers with little power against your client. .000/10) = 119. the second quarter once every three years and third quarter once every 10 years.1 Issue Your client.2 Possible Solutions Porter's five forces is a useful starting model in this case.000 households.61 9.000 3rd 25. Next. your production costs have remained stable.000 + 50. and you will discover the buyer link.000 10 500. You need to start by asking questions about the critical factors. you can break the income of the households into four quarters (500. You have been hired to figure out why.36 Piano Tuners 9. One way to solve it is to estimate the number of households in the Chicago area. 9. Since there are stable costs and strong sales. a US firm.000.000 pianos to tune. Investigate this avenue. This gives you (100.000 5 500. Therefore. 5% of third.35. you can estimate how often these pianos are tuned. Your margins are being squeezed due to the increasing concentration and buying power of your customers. Over the last few periods. the costs of your raw material cannot be the issue. Its purpose is to test your logical and quick mathematical thinking. you will discover the market is regional. The test is to see if you can come up with an answer based on information that you provide during the case using estimates. You can then make an estimate of 20% of highest income quarter have pianos.35. You will also discover that there has been no introduction of a substitute product. The interviewer gave this piece of information at 2.

250 days a year.62 We can estimate that a piano tuner can do four pianos a day. . By the way. there are 46 piano tuners listed in the Chicago Yellow pages. 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. How could you check this? Look in the yellow pages.

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

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

The corn is grown in the Ohio area and the feed is sold to the East Coast.65 A corn feed company has eight manufacturing plants located in the Midwest. 9. The capacity utilization is 65%.2 Possible Solutions There are two issues to this decision. The current customers buy from all four manufacturers in order to guarantee supply. advertisers can .2. Build a larger plant at the current location 3. Cost analysis of the transportation cost of feed versus raw material should be completed.38.1 Location of Plant Transportation cost and perishability are the main issues with location.39 Selective Binding Case 9.our company is the second largest. The company has four possible options: 1.38. 9. In this way. For example. Currently demand is being met and there are no alternative uses for corn fed. There are four main competitors in the industry .1. consider the demand for the product.1. Build a larger plant at a new location Which is the best option for this plant? 9.1. Included in this analysis could be the rate of spoilage through longer transportation of corn stock. 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. Their plant in Ohio is in need of refurbishing. The transportation cost per ton of corn stock (raw material) is much higher than the cost of transporting the actual feed. Size of Plant First.39.1 °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. Conclusion The current plant is located close to the cornfields and this is the best location for the plant from the cost/benefit analysis. These plants service the entire United States. The proposed largest plant will not have economies of scales that are not already present in the existing plant. All four competitors have similar manufacturing processes and similar cost structure. The raw material is perishable where as the corn feed can be stored for any length of time and is easier to transport. Corn feed is a commodity product. Build a similar size plant at a new location 4. The plant size and the plant location should he considered separate. Refurbish the existing plant 2. which is industry standard. Pricing on the product is dependent on current corn prices as opposed to the manufacturing process.

What proportion of the client's advertisers target each demographic category of readers'? A. Effectively. 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 readers. Of course. What is the total readership. 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. Presumably. The client's closest direct competitor has 500. The same mix applies to the newsstand buyers according to readership audits. There are 1 million readers. The only breakdown possible on your database is between subscribers who make under $50. What demographic breakdowns are possible to make in the magazine's database? A. revenue associated with a single inserted page (front and back) in an issue is 100 per thousand. What does the client's closest direct competitor charge for ads and what is their readership like? A. .000 of who are subscribers. the proportion of readers who are subscribers (as opposed to newsstand buyers). Since the printing cost to the client of selective binding is zero. Assume that all advertisers continue to advertise in 100% of the newsstand copies. The 75% of the advertisers targeting the high-income segment will advertise only to the high-income subscribers (75% of subscribers). 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. Q. Q. Q. 80% of who are subscribers. They charge $70 per thousand for their full one-page ads. all of their readers make over $50. 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. 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. Would you advise your client to take advantage of this new process and offer selective binding to its advertisers? 9.000.000.2 Possible Solutions This is a straightforward cost/benefit analysis. Most advertisers are selling high-end fashion products. instead of 100% of advertisers paying the full $50/thousand per page. and the proportion of subscribers in each demographic category? A. so 75% of them are targeting the highincome group.000 and those who make over $50. Q. Therefore.66 focus their communications on the demographic segment they are targeting. The client charges $50 per thousand per full-page ad (selective binding can only be offered on full-page ads).000 and 75% make over $50. Q. 100.39. the 25% of advertisers targeting the lower income segment will choose to target only that 25% of subscribers.000. Twenty-five percent of subscribers make under $50.

there are other issues which interviewees might want to mention such as the possibility of price discriminating between high . 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. To mention these other possibilities and areas for further investigation is certainly wise. Any higher cost and the advertisers would switch to their competitor. Assume you and I are at the first team meeting.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.67 If the client charged $70/thousand for selectively bound ads.67 New ad revenue per page = $50 X [(25% X 25%) + (75% X 75%)] at old rate = $31. Of course. For example. The cost per thousand high-income readers with the competitor magazine is: (Page rate X total readership)/ (portion of readers who are high income) = ($70 X 500. our client's ad rates must be looked at from the perspective of their advertisers. $70 is the maximum price per thousand the client can charge its advertisers for selectively targeted ads. You are a member of the consulting team assigned to this project.000)/500.000 = $70 Thus.75 Since $43.75 is less than the $50 that advertisers are currently paying. it is important at the end of the interview to have reached a recommendation regarding the initial question posed by the interviewer.2 Possible Solutions . their alternative to advertising in your client's magazine is to put their ad dollars toward the 100% high-income readership competitor. the average revenue per thousand to the client would he: $70 X [(255 X 25%) + (75% X 75%)] = $43.40 Video Games 9. However. diversified entertainment corporation has asked a consulting team to examine the operations of a subsidiary of his corporation that manufactures video games. If you consider the advertisers targeting the high-income group. the potential for and cost of expanding the advertising base using selective binding as a selling tool. he needs to know if he should approve a $200 million capital request for tripling the division's capacity. 9. 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.1 Issue The CEO of a large.and low-income advertisers. To answer this question. 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)/750.40.000 = $66. the magazine should not often advertisers the selective binding service. Specifically.40.

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

In this situation. but better answers would address: Market Potential Recognize that there is a relationship between market penetration and growth in new users which.) Software Recognize industry leaders set technology standards. The client is third of eight industry participants. (i. the division as a secondary player and will have to follow these standards.. yields an industry volume estimate. How would you structure an analysis aimed at restoring profitability? Where do you expect to be able to save in costs? 9. when combined.41.e. from hardware (player units) to software (videocassettes). hardware versus software).69 3. Recognize that different distribution needs may exist for different products (in this case. 9.1 Issue The firm was asked by a diversified manufacturing client to help turn around the steam boiler hose division. Background information on the client and industry includes: Boiler hoses are sold both with original equipment and as replacements.41 Steam Boiler Hoses 9. "fad" potential of product. -Seek to understand the reason for poor profit performance of division.41. Explore the cost position of the client division relative to that of other competitors. Address the shitting mix of product purchases. Company ability to Compete Should ask what the capacity expansion is designed to do. In this case. Seek to look at buyer behavior in critical buyer segments. 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. What will be the price/volume relationship in the future? Issues of prices need to be considered. There are no bounds on creativity.2 Possible Solutions The following information is also available in response to questions asked by the candidate: .

Allocation of overhead (no cash savings and provides little savings potential) 4.70 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. MINIMUM REOUIREMENTS The candidate should avoid being bogged down in the following areas: 1.42 Merger Candidate in Chemical Industry . Are there other areas in the company where similar problems exist? 9. Drop the product line (apparently not possible because hoses are necessary for boiler sales). 2. SG&A (standard industry fee paid for independent installers). How is our product engineering operation wired into the marketplace? (There is little contact between the engineering and marketing/sales organizations. Production technology (client has a modern plant) Labor costs (wages rates and productivity are average for the industry) 4.) 2. requiring excess raw material. The answer should address the following organizational implication: 1. Scale economies (client is big enough to achieve scale production). Raw material purchasing practices (material are purchased through long term contracts with prices based on the spot market minus a discount). Raw material prices (they are the same as everyone else's) 3. At least two of the other companies in the industry are making moderate profits. 2. BETTER ANSWERS Better answers will move beyond the previous answers to consider: 1. What kind of comments are we receiving form our sales force? (Customers are delighted with our hoses but require all the product features. 3.) 3. OUTSTANDING ANSWERS The best answers follow a logical progression and should not stumble upon the actual answer: The product has been over-designed.

2 Possible Solutions MINIMUM REOUIRENENTS 1. Prices have declined rapidly. What is nature of operational improvements that target company could make? (Lots) 4.42.) 2. How rational is pricing in the market? (The industry is prone to self-destructive cuts to gain temporary share points.) 5.) . 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.) 3. Does the chemical have a major by-product or is it a by-product? (Not of significance in this case. We have been asked to begin our work by analyzing the future prospects of the target company's major product line. age of plant. How is the product sold and distributed? (Economies of scale in marketing and transportation are critical. How often have companies entered/exited. • The two largest competitors earn a small return.) 3. Reasons for announced capacity expansion. our target company has 15 percent and the rest is divided among the other competitors. Essential facts included: • • Production of this chemical has slowly declined over the last five years. Is there synergy between our client and target? (Not really. number two has 20 percent. How would you structure an analysis of the target company's future prospects in this product line? 9. • The largest competitor has just announced construction plans for a major new plant. The target company is probably at breakeven and the rest are operating at break-even or loss.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.) 5.) 4. What has been the relative capacity utilization of competitors in the industry? (60 to 70 percent for last three years). Is regulation important? (Yes: all competitors have installed pollution control equipment. The target company has reasonably "good" position. exit cheap mostly because older plants are fully depreciated.42. Both companies are bulk commodity chemical producers. • There are 7 to 8 major producers: the largest producer has a 30 percent share. a bulk chemical used in the production of plastics.) OUTSTANDING ANSWERS 1.1 Issue One major chemical producer has retained the consulting firm to evaluate another major participant in the industry.) 3. and how expensive is entry/exit'' (Entrance is expensive. (It is a bluff to try to encourage smaller competitors to shut down. 4.) BETTER ANSWERS 1.) 2. How much overall capacity exists now? (Far too much. What are relative cost positions of competitors? (Related to size/efficiency.) 2.

Our client estimates he has less than 1 percent of' the total market. etc. How would you go about determining the optimal mix of potential products? 9. Are there market limitations to the potential production of any one material'? 2. No competitor has more than three percent of the total market. Price: Each product has a different price dependent on both the client's cost to manufacture as well as the market for the product. The candidate could cover differences for each product in the fixed and variable manufacturing. weight. Each material is used for packaging but differs in physical properties in terms of costs. Are there differences in costs in the manufacturing of these materials? For example. Each machine is capable of running any one of the various materials and/or coating combinations. vapor. Products: Our client's machinery can produce hundreds of different products.2 Possible Solutions Market Share: The industry is highly fragmented. light. do some coatings cost more than others do? Do some materials have inherent cost differences? 4. All of the machines on which these materials are made are housed in one enormous factory location.72 9. The interviewee should also address the market demand for each product (to ensure what is produced can be sold at an acceptable price). Cost: Each product has a different cost to manufacture dependent on materials used and the manufacturing process. All products can be obtained from a number of sources. Some are unique to meet specific customer requirements while others are used by a variety of customers. selling cost and prices.1 Issue A client produces a range of synthetic materials in varying widths and lengths. Is there flexibility in pricing of' these products? . 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. and general performance. Customers: Our client's customers are primarily consumers or industrial product manufacturers who use the synthetic materials in packaging their own products.43. Is there competition for these products? 3. NOTE TO THE INTERVIEWER The primary issue of the case is to determine that the profits of the plant will be maximized when the most profitable product mix is produced and sold. flexibility. Suppliers: Our client uses primarily commodity products in the manufacturing process.43 TYPE PURPOSE Machine-Loading Case Macroeconomic To determine problem whether the candidate can dissect a general economic 9. The client does not wish to invest in additional equipment at this time. water. These areas must be determined to understand the profitability of each product. MINIMUM REQUIREMENTS 1. A variety of' small manufacturers supply similar products to a wide range of customers.43.

how much does each cost to build. You generate $4M annually in revenues through the machinery division of the company.45 Agricultural Equipment Manufacturer 9. how long they last (actual life. one can estimate what the industry spends per year on machinery can.operating status" . competitor #2: 15%. What is your client's market share relative to their competitors (your client has 40% of the market. 1. not dependent life) and what the machinery replacement costs are. farming tractors. Divide the above mentioned $4M into this and the refining division's market share can be assessed. Is there unlimited market demand for these products? 5.2 Possible Solutions It is unlikely that there are too many players in this market.2 Possible Solutions Define "assess.44. The way to do this is to ask how many oil refineries there are.73 BETTER AN'SWERS 1. is losing money. This % can then be compared to the 25% share of the parent..44. What questions would you ask of your client to help them solve their profitability problem? 9.) .. 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. An estimate of the market size is therefore needs to be done. Suppose the answer is that there are two direct competitors. Are the machines truly interchangeable or are some better suited to one product or another? 4. the potential substantial differences in volume produced per product-hour and/or the price obtainable in the market demand and competitive actions. 9. Assume this is unknown.44 Oil Refining Industry 9. From this. Their primary product line. An outstanding answer must include recognition of the asset costs and capital implied in that as well as income or profit contribution.45. Are there differences in setup time and cost for various materials or coatings? 2.1 Issue Your company has 25% world-wide market share of the oil industry. competitor #1: 30%. 9.45. You might want to start off by asking how many competitors there are. Machine-hour capacity is a surrogate for fixed costs per unit of volume. The guide is to request what % of the market $4M represents. Profit contribution is (unit volume) times (unit price minus variable cost). 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. In addition. with the remaining 15% belonging to many small manufacturers. The best algorithm is to maximize the profit contribution per machine hour.1 Issue Your client is a large agricultural equipment manufacturer. Do these materials move at different speeds through the machines? 3. which supplies machinery to refineries (not owned by your company) around the world. 3. 2.most likely in comparison two dissimilar pieces of information: 25% market share and $4M (but no idea what % of the market this represents).

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

Recently. since the closer they are to the stores the cheaper the distribution costs. 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.1 Issue A manufacturing company based in Charleston..2 Solution $22 per share 9. It turns out that stores. and long-term t-bills are yielding 8 percent.1 Issue Your client is the treasurer in a significantly privately held corporation.46 Insurance Company 9.no wonder they're spending so much).000 units.2 Possible Solutions Distribution is basically a trade-off between cost and service level.47. You are called in because they feel that the $ l million that they spent on distribution last year was way too high. The treasurer's investment analyst predicts that the stock will pay a dividend of $1.. Having set up by definition. they are motivated to issue a policy to anyone at as high a price as possible. She is in charge of managing a portfolio of investments in addition to her treasury responsibilities. you must define what the "right way is". Which is the right way to pay the sales agents? 9." is applicable.one in Charleston. since they sell so few of these pots and pans.25 for the foreseeable future. They are not motivated to give consideration to the riskiness of the insured party. the higher the cost (more inventory pools.75 9. she has asked your advice about the purchase of a large position in company 456.from which they cover the whole country.46.47.46. A quick way to solve this case is to realize that if stores require next day service from these three warehouses. in specialty and department stores. The next thing you need to know is where the warehouses are located. depending on how risky (costly) an insured party proves to be. in case you have not already surmised. is an organizational behavior scenario. one in Philadelphia and one in LA . SC makes high quality pots and pans which are sold throughout the U. A more efficient compensation structure might pay the agent on a sliding scale. Beat this figure and you've earned your exorbitant fee. The treasurer is contemplating the purchase of 5000 shares of company 456 and wants your help in determining a fair market price. The only factor determining how much the agents paid is their sales $. How can you show your client money that he can save money. hold no inventory and thus require next-day replenishment after a sale. The absence of such a consideration (for example) would be detrimental to the company in the long run.48. This can be confirmed by asking for the annual sales which turns out to be 10. In essence. Your client has three warehouses .48 Pots & Pans (2) 9. So you need to ask where the inventory is being held.48. How would you go about determining a fair price for company 456? 9.1 Issue An insurance company pays its sales people a base salary of monthly wages and commission of 25% of new policy sales (2% of renewal). Company 456 is currently selling for $22 per share. the results achieved by the above mentioned composed system are examined.47 Consulting Firm (2) 9. 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).S. The higher the service level. . Short-term treasury bills are yielding 7 percent. When you divide this into the $1 million distribution cost you discover that they are pay $100 to deliver a pan to the store. 9.2 Possible Solutions This. 9. warehouses and shipments). whose stock is listed on the NYSE. the only way they can do this is by shipping overnight at a premium rate (UPS . Again.

The penetration rate in Tucson has only rised by 2% in the past three years in Tucson. and the company has been losing money. These programs have been modeled after the other three markets. 9. What would you advise that she do? To be divulged gradually: .49 Diapers 9. maitenence. such as free Disney programming for one month. wait until after the interview for that). This is strictly a mathematical. administration and marketing.50. These rates have been steady over the past three years in the Northeast.49. etc. 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.76 9. Despite every effort of management. Figures on garbage tonnage (denominator) are probably available in some obscure federal report. The penetration rate in Tucson is 20%.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. The Tucson company has attempted marketing efforts in the past. She has received a proposal from upper management to sell the chilled juices business. juice boxes. The chilled segment represents $120 million in sales per year. Philadelphia and Stamford. 9. but larger than Rochester and Stamford. which is a function of physical area covered. Cable penetration rates in the three Northeastern markets average 45%. Arizona a little over a year ago. due to the larger land area serviced.2 Solution The real error of management results from their failure to recognize another “substitute” good: no cable television at all. many communities are enacting legislation that limits their usage in Tucson. Let's assume this will be done in pounds. However. Per capita income is higher than in Philadelphia and the same as in Rochester and in Stamford. Fixed costs relate to the cable lines. and each has been experiencing steadily growing sales over the past few years. The lower penetration rate is most likely a result of different climate conditions and lower interference in Arizona. The cost of programming is based on number of subscribers and is equal across the nation. Each of these three companies is profitable. and frozen concentrate.2 Possible Solution Wet your pants/skirts. (No. For diapers you could take the total $ sales of disposable diapers and divide by the average price per total unit (box: etc. However. You need a numerator (diapers) and a denominator (total US household garbage). 9.49. the Tucson company’s sales have been stagnant. There is only one real substitute good for cable television: satellite dishes.50 Cable Television Company (2) 9. CT. The entire company has sales of over $20 billion. 9. television reception is far better in the desert Southwest than in Northeastern cities. free HBO for one month. Her division produces fruit juices in three forms.50. They are also prohibitively expensive for most people. free hookup. Tucson is also growing at 12% per year on average. all marketed under the same name: chilled (found in the milk section of the supermarket. acquired another cable television company in Tucson. and.1 Issue Q: Your client is a small holding company that owns three cable television companies in the Northeast: Rochester. How would you analyze this situation. chilled juices are only breaking even in good quarters and losing money in bad quarters. yielding the estimate of total diaper weight (numerator). usually). Operating costs in Tucson are essentially the same as in the other markets. Multiply this number by the average weight per unit.51 Chilled Beverages You are consulting for the manager of a division of a large consumer products company. While juice boxes and frozen concentrate are profitable.). therefore. Operating costs are composed of variable items: sales staff. This division has sales of $600 million per year. Only maintenance is higher that in the other markets. number crunching exercise. the management feels that th e Northeast is not the fastest growing area of the country. NY.

etc. This would. makes her third in the industry. The market for chilled juices is essentially mothers with school age children. 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.1 Issue You are consulting for a major United States producer of distilled spirits. 9. There are two large players that have 40% and 25% of the market. Their primary products are a line of mid-priced vodkas and two brands of mid-range rum. affect the juice bix and frozen concentrate businesses. The selling prices of the two lines are essentially the same. trade and couponing that your client. (the other 5% of the inputs). Sell all of the juice business. One plant in California produces all of the product. the brand premium must be in line with other branded products. the business has become less and less profitable. where alcohol is sold in privately managed supermarkets and liquor stores. bananas.52. but the other flavorings cost about twice as much. 12%. “open” states. In 27 states. respectively. The two market leaders are able to fund more advertising and more promotion. It would be difficult to find another use for the plant without a major conversion. which . Your product uses more elaborate blends of juices. mangoes. The selling price is likely to be low. This may be more feasible. as in juice boxes and frozen concentrate. usually with a base of pear or peach juice (95% of the inputs) and flavored with cranberries. Your client’s market share. Brand name is important in this market.77 Chilled beverages is a $5 billion dollar industry nationwide.52 Distilled Spirits 9.1 Solution: There are three choices: Sell the chilled juice business. chilled. Therefore. as evidenced by the success of the competitors. The best available information indicates that the two market leaders are profitable. Such stores are alsom becoming less and less willing to hold inventory. Overall sales are growing at about 3 to 5% per year. shelf space is extremely expensive and trade promotions are critical. What could be causing this: Other information: The split of product sold has consistently been 60% vodka / 40% run over the past few years. Keep the chilled juice business and rework the ingredients and costs. The market leaders produce pure orange juice and blends that are based on citrus juices. Over the past few years. etc. all branded juices tend to sell in the same price range. as mothers tend to prefer highly reliable products for their children. However. however. juice boxes and frozen. as the buyer could capture the synergies. Pear and peach juice are about the same price as orange juice. 9. the same as the idustry average for these product lines.51. as there are both advertising and manufacturing synergies. This turns out to be the most feasible option. promotions. This is a highly price sensitive market that loves coupons. but would not be too likely to turn the business around.

how would you analyze the pizza delivery market? 9.500 million packs. This could be obtained by knowing the population of Paris (6 million) and making some educated guesses about factors that determine pizza market size. How do you go about answering these questions? . Also. To check for reasonableness. How will you defend your position if Spizza decides to fight for market share? 9. annual sales would be $2. number of stores. more profitable. what is the cost structure of their business and what products are most profitable.78 is increasing distribution costs by requiring more frequent deliveries. advertising spending is lower. and therefore. you sit on the plane wondering what is the annual market size for golfballs inthe U.54 French Pizza Market Pizza Hut has recently entered the home pizza delivery business in Paris. Advertising of alcohol is much more tightly regulated. for a total of 45 million.53 Chewing Gum Market 9. a reasonable figure. with sales in these states increasing at about 10% per year. Sales in the regulated states are actually decreasing. 9. chewing gum market? Check your answer for reasonableness. and proportion of Paris that is currently served by Spizza. or 210 million) estimate a usage rate of one half pack per week. Total packs per year is 9. and understand if your client could profitably serve this market. 15% are between the ages of 10 and 20.55. Your plane lands in fifteen minutes. Distribution costs in these states is much lower. market segments that are neglected by Spizza. the heaviest users. and therefore. as there are far fewer outlets to service and central warehouses for the state-run stores. 9.1 Issue You are visiting a client who sells golfballs in the United States. Pizza Hut has asked your consulting firm to help it analyze issues that will determine its likelihood of success in the Parisian Pizza market. Other useful information: market segments targeted and served by Spizza.55 Golfball Market Entry 9. including sales. 9.54. figure the dollar sales that these packs represent: at 25 cents per pack.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. Determine what are the needs of any neglected market. You may also want to know the size of Spizza. In the other 23 states. Because the regulated states are less expensive to serve. 9. Estimate that these people chew two packs per week.53. for annual sales of 4.1 Issue How would you estimate the size of the annual U. (70% of the 300 million population. Having had no time to do background research.S. For the other users over age 20. what do they charge for thier product.4 billion. what information would you need and second.S. try to understand the likely competitive response of Spizza to your client’s entry. First.52. 9.750. the current competitor.53. The market for home delivery is currently dominated by Spizza Pizza. for a total of 5.2 Solution: A greater and greater share of the volume is being sold in the “open” states. liquor is only sold through state regulated liquor stores.2 A typical approach: Estimate the number of people who chew gum: of the 300 million population.54. what type of product do they offer. and what factors drive demand.1 Possible Information Needs: An estimate of the size of the Parisian home pizza delivery market.250 packs per year. the fact that they represent a shrinking portion of the total has caused total profits to decline.

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

Don’t forget the external factors. incremental costs for landing rights. 9. last but not least. etc. 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. analyze the factors that go into revenue and the factors that comprise cost to come to a conclusion. Thus. also. Compare the indicence of kidney disorder in the country with other countries. Is there room for any type of preventative program for these groups? 9. perhaps by updating their own technology. rather than a shole industry. How can it determine if the route is a good idea? Suggested frameworks: Profitability analysis looks like the best approach. It is also very important to estimate the cost of cannibalization on existing Tokyo-LA. the elderly) have a higher incidence of kidney problems. Then. And. that may play role. LA-New York routes.58 Airline Expansion A major airline is considering acquiring an existing route from Tokyo to New York. build a model (regression. Interviewer Notes: Revenues will be determined by occupancy rates and expected prices. the future is extremely bleak for your client. such as corruption or government regulation. can public policy ofr efforts to increase awareness help reduce it? If incidence is indeed higher for the U. Operating costs will depend on expected fuel costs. perhaps) that will somehow determine the factors that are most related to kidney treatment. Both of these will be determined by expected demand. Since this is a procedure. Simply determine if revenue less costs equals a positive profit. 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. and they should be advised to respond to the competitive threat.60 Local Banking Demand . Therefore. Perhaps those who are typically covered by public funds (the poor.S.S.Fixed + Variable). 9.80 The competitor has used their new technology to produce a lower price product. 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 . As evidenced in the Philadelphia / New Jersey market. 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.59 Health Care Costs Bill Clinton has just fired Hillary Clinton as Chief of Health Reforms and has appointed you to fill the position. the competitive invironment and the extent to which our client could win over passengers from competitor routes. is ours higher? If so. while in his office. it is mostly a variable costs. the sum of which is measured by cost per unit x # of units.

should be compared with those of historically successful branches. maybe a cash machine would suffice. They have asked you to help them identify the problem. etc. each 100 catalogs mailed results in 2. however. The premium frozen yogurts use more exotic flavorings such as mangoes.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.) The client will have to match competitors’ incentives to customers and should estimate the cost of doing so. business concentration. (Ice cream and similar products). pineapple and raspberries. The ingredients are different. pecans. 25% of customers who order product . In recent years.62 Direct Mail Retailer You are consulting for a direct mail retailer that sells ladies clothing. Competitor reactions could easily make this benture unprofitable. Ice cream uses locally available milk and cream. frozen yogurt has begun to outsell ice cream. The client must examine if the new branch would complement their existing competence and strategy (retail or commercial. Though sales have been increasing. or possibly even negative. and currently represents 55% of product sold. share. etc. Population. 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%. as Americans jump on the fitness bandwagon. In other words. such as the 4 P’s. kiwis.61 Frozen Desserts You are consulting for a small. Additional information: The client sells a complete line of product (ice cream and frozen yogurt) in major supermarket chains in the Northeast. the business is barely making a profit and the management is unsure that they will able to pay their usual dividend this year. All other costs are equal for the two lines. Interviewer Notes: The demographics of the area surrounding the prospective branch should be examined. In addition. vanilla and coffee. 9. These will depend on the importance of the area to competitiors (in terms of profit. and flavorings such as chocolate. income levels. regional maker of high quality premium priced frozen desserts. high growth or high profitability.) and what purpose it would serve. If the need focuses on deposits and withdrawls only. Therefore. 9. one should consider a marketing framework. the shift of sales from ice cream into frozen yogurt is causing the company as a whole to be less profitable. due to the higher ingredient costs. Your client’s catalog printing and postage costs have just increased to thirty-two cents per catalog. so it is essential to anticipate them. The selling price per pint is the same for frozen yogurt and ice cream. The average order size is $80.5 orders place. Solution: Margins on frozen yogurt products must be lower than for ice cream. etc.

The fully allocated profit margin (excluding mailing Solution: For each 100 catalogs mailed. 9.5 additional reorders. 2. The largest two customers (75% of your sales) are two worldwide beverage companies. the client should reject the printing arrangement at 32 cents per copy. Therefore. or $200 in sales. The costs to manufacture the product are extremely low (about 20% of the price of the product). Therefore. 9. At a profit margin of fifteen percent. The brand name of the product has slowly become a common household word. Solution: This is a classic customer analysis problem. You have been asked to predict what might happen to the profitability of this product when the product comes off patent. printing and postage costs are $32. While most products that come off patent quickly drop in price (e. The $30 profit is not sufficient to cover the printing and mailing costs of $32. The chemical will come off patent in one year. and because the chemical represents such a small portion of their total costs. Information to be divulged gradually: This is the only product of its kind. In addition. for a total of 2. this product will be able to retain some of its premium due to the strong brand name.63 Chemical Sweetener Manufacturer Your client manufactures a chemical sweetener used in beverages and other food products.5 orders will result in 2. Would you recommend that they do so? Suggested frameworks: . They are considering entering the market for electronic home security systems. Because the major two customers feature the chemical name on their product. The companies feature the brand name of your client’s chemical on their product. or .5 x 80. they can be expected to be willing to continue to pay the premium into the future. the margins on this chemical are almost 40%. pharmaceuticals). costs) on catalog orders is 15%.g.64 Telecommunications Diversification A Baby Bell company is interested in diversifying into other areas besides telecommunications. Currently. plus 2 x 25%.5% of their total costs. and consider it a sign of quality. these sales will return a total profit of $30. the cost of the chemical sweetener represents 1. (100 x 32 cents). the outlook for the product is good even after the patent expires. Each 100 catalogs will result in 2 orders.82 can be expected to reorder within six months. in terms of taste and safety (lack of harmful health effects) as proven in lab tests.5 orders placed per 100 catalogs mailed.

83 Use an industry attractiveness framework. The economics are: Item Retail Price Cost / Margin Equipment and Installation $500 . The conclusion is that this business is a reasonably good fit for the company. The number two player in the market has about 30% of the market and the rest is shared by many small competitors. Also. The firm can either use a penetration strategy or price skimming strategy. As a result. The home security business is highly fragmented.500 Monthly Service 0-10% margin $5 / month $20 / month What strengths / competencies of the Baby Bell company are useful in this market? Installation expertise. determine if the core competencies of the Baby Bell are likely to match the demands of the home security markets. How can the manufacturer best exploit this cost advantage? Suggested frameworks: Remember basic economics.$1. The top five players in the industry generate less than 4% of the total industry revenues. It turns out that the client is the leader in its market with a 40% share and supplies directly to major beverage manufacturers. use the value chain to look at where value is added in the home security business. such as Porter’s Five Forces. Price sensitivity is unknown in “moderate-priced home” segment. the client should either drop price or reap additional profits. . This is is some sense a razor and razor blade sort of business. This implies that the industry largely consists of small. Consider the impact of either strategy on the company and its competitors. 9.89 to $0.65 Aluminium Can Manufacturer An aluminum can manufacturer has discovered a way to improve its manufacturing process. but that more market research needs to be done to assess the growth and profit potential of each segment of the market. operator services. transmission system (phone lines) Consider: It turns out that the “expensive home” segment of this market is saturated. then. or at least to determine what kind of returns you can expect to achieve. Interviewer Notes: Clearly. Growth has been slow in recent years. regional companies. once you feel you understand the market. They have previously made unsuccessful forays into software and into real estate. finally.79 cents. its manufacturing cost has been reduced from $0. 10% of all residences currently own an electronic security systems. to determine whether this is a business you want to be in. Interviewer Notes: The company is a holding company. don’t forget to think about any substitutes for aluminum cans.

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

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

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

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. Furthermore. She has massive amounts of historical data for sales volumes through these outlets and a well constructed internal accounting system. A detailed discussion of the application of these concepts from basic microeconomics and statistics may be necessary.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 you to propose going with the new method. for instance) is being purchased per unit time per inhabitant of the world. you need to establish not only that it will cost less. with an appropriate confidence interval. The probability of sale. In order to refine our appraisal. The marginal costs could be obtained from the internal accounting data.73 Cement Manufacturer Capacity Addition .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. 9. 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. marginal revenues whould be set equal to marginal costs. we may segment the inhabitants of our planet per level of personal wealth. Note that this may not be a linear relationship. It should be observed immediately that to maximize profits. you may need to consider other factors: The current level of the ratio: amount of cloth manufactured per working year / number of machines The expected usable life of an average machine The existence of substitues for knitting machines and the consequences of this on our expected demand 9. 9. but also that all the affected players can be persuaded to buy into it. could be established in some manner from the historical data. In order to evaluate the world demand for cloth. The marginal revenue for a magazine would be its cover price times the probability that it will be sold.

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

indicating a missed opportunity for new products in the market. The largest competitors are two multinational consumer products companies that feature complete lines of snack foods. from a high of 20% to the current level of 18%. In addition. the interviewee’s conclusion should be that the client’s total dollar sales have actually grown. The products are mostly sold through large grocery store chains and convenience stores. however. the product line has not changed in the past two years in a product category where new products and line extensions are routine. these two companies have 55% of the market. Lastly. Solution: The data show that the greatest change is in the sales force numbers. Promotions usually occur at the end of each quarter. Grocery stores and convenience stores require some type of promotion to grant valuable end of aisle displays or advertising space. which has directly led to the decrease in market share. but not kept pace with the market.75 Beverage Company Cost Structure . The reduction in trade promotions brought about a loss of shelf space. though the same number of outlets are still covered by this sales force. The marketing expenditure was also decreased. The sales force generally visits each customer at least once per quarter.89 9. The changes in the marketing budget come from reduced trade promotions. What could be causing this? Additional Information to be divulged gradually: The size of the total salted snack food market has grown from $15 billion to $17 billion during these two years. the increase in profitability has resulted from the lower costs. the market has been growing. have been growing. The product is sold through the same channels as previously: large grocery chains and convenience stores. The product line of the client has not changed over this period. Also. Profits as a percent of sales. Their sales forces are regarded as the best in the industry. The sales force was drastically cut and the commission scheme was reworked. 9. Together.74 Snack Food Company A large salted snack food company has steadily been losing market share over that past two years. but may not be sustainable. 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. Most of the reduction came from trade promotions. These channels are traditionally driven by periodic trade promotions. It turns out that the company went on a cost-cutting spree over the past two years.

In the case of Coca Cola. it is conceivable that one truckload may be deliver to just one customer. Also. but more loyal customers. for which costs would RC Cola be higher. Administration / Overhead: lower for RC Cola as they are more of a “one-product” company than is Coca Cola. Marketing: is lower for RC Cola as they are not a frequent advertiser like Coca Cola. however.76 Permanent Light Bulbs A small R&D lab in the Swiss Alps has developed a super-durable filament for light bulbs. Sales Costs: could be lower for RC. Therefore. as there are fewer. thereby drying up the industry. and customers would shift to the permanent light bulb. If that were to happen. all customers will eventually switch over to the permanent light bulb. 9. the average truck driver will be driving more miles and spending more time to deliver a truckload of RC that the Coca Cola driver. 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. What will be the effect on the light bulb industry? Additional Information: The light bulb industry is dominated by two multinational producers. putting the competitor out of business and greatly reducing their own business. RC is not distributed in as many outlets as Coca Cola. Their cost structures are vastly different. There are a several small local players in various regions of the world who produce local brands and some private store brand light bulbs. 9.90 RC Cola and Coca Cola both compete in the same industry. In other words. making the industry more competitive and wiping out industry profits. Possible solutions: One outcome is that one of the two major players purchases the technology. the price for this product would decline to the normal industry profit level.77 Super Regional Bank . for which would they be lower. estimate the likely cost structure for RC Cola. the light bulb will never burn out. with this filament. the typical order size for RC Cola would be smaller. Using Coca Cola as a benchmark. this player may enjoy an advantage for a limited time. There have been no technological innovations in light bulbs for many years. A possible analysis. all bulbs would be permanent and the industry volume would greatly decrease. who will have several stops within an immediate area. Another solution is that all of the players obtain some version of this technology. If the producer makes enough bulbs at a low enough cost. The lab is ready to licence this product to a light bulb manufacturer. meaning that more stops would have to be made. 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. Over time. Distribution: would be higher for RC Cola for two reasons. If the technology is patented and exclusively licenced. The two companies sell their products side by side for essentially the same price in similar outlets internationally.

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

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

Profitability Analysis 9. This comes out to $360. This would generate total revenues of $600. lets say 50% subsrcibe (120.000 X 12 or $7. Similarly.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.50-$5. Land is leased to .000 customers. In this case it helps to work logically through both the fixed and variable costs to see if there are any major items. Finally. the hospital bed division is located in the East German manufacturing operation.000. Over the past two years the company’s profits have declined by 20% while revenues have been relatively flat. You have been asked to find out what is happening and suggest a course of action to reverse these trends. 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. Information to be divulged slowly: The company operates in three divisions: 50% of sales are to hospital bed manufacturers. Lets say $3/magazine at the news stand and $2/magazine for a subscription. For simplicity assume that all target customers buy a magazine every month. profits are down 10% for both the mop bucket and chair divisions but are down 30% for the hospital bed division. 9. We have already been told that revenues are flat which should be a clue to explore the cost side of the income statement. wages in the formerly state regulated East Germany have skyrocketed. In this case given the CEO’s stated goal of $10 million in circulation revenues. 25% are to mop bucket manufacturers. this is a monthly magazine.000). This is what is driving most of the increased costs. Further investigation shows that labor is the major component of cost in manufacturing castors.000) and 50% buy at the news stand (120. A: This is a typical revenue/cost case. The logging industry in Canada is regulated by the government. In the past two years. it would not make sense to launch the magazine. Revenues Based on what other magazines sell for ($2.000 + $240. and 25% are to chair manufacturers. 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. Sometimes the interviewer will provide you with an income statement that will break out the major cost components by percentage.93 Share As a new magazine assume that you can generate a 5% share of the men’s magazine market in year one or 240.000 or $600. Now make some assumptions on how many customers will buy on the news stand versus subscription.2 million.00) assume a cover price. Similarly.81 Logging Company Background: You are hired by a Canadian logging company to analyze its current operations and provide advice on future operations. The hospital bed and mop bucket divisions are located in the West German manufacturing operation.

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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.

• •

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:

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

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

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