General Models for Case Solving

1.1 Estimation Cases

Population World: 6 Billion
Adults: 3/4
Below Poverty Line: 1/3

US
Population US: 300 million
No of households in US: 105 million
Number of adults in US: 210 Million (18+ yrs) (70%)
200 million (21+ yrs)
Number of Cars per household: 2.5
Minimum Wage: $5 per hour
Average Life Expectancy: 80 Yrs.
In USA fraction of adults is high : 4/5

INDIA
Population India: 1000 million
No of households in India: 180 million
Number of adults in India: 530 Million (18+ yrs) (53 %)
440 million (21+ yrs)
Number of Cars per household: 0.02
Minimum Wage: Rs. 15 per hour
Average Life Expectancy: 70 Yrs.

Assume uniform distribution of Age and Salary among people

Upper Class
Upper Middle Class
Lower Middle Class
Lower Class
 • For estimation cases general guidelines:
Supply side:
o See who the suppliers are.
o What raw materials to be used
o An estimate of materials supplied and work from there.
Demand Side
o Who purchases the commodity?
o How many commodities do they need each year?

1.2 Strategy Cases

Three Types: Cost, Revenue and Marketing

1.3 The 4 P Model

1) Product
What product do you want to sell?
What product are you able to produce?
What advantages does your product offer?
2) Price
What price must you charge to make a profit?
What price are consumers willing to pay?
What price are your competitors charging?
3) Place
Where is there a demand for your product?
Where are your suppliers located?
What distribution channels are being used?
4) Promotion
Who is your target audience?
How do you reach them?
How much do you want to spend on promotions and advertising?
1.4 The 4 C Model
1) Customer
What do the customers want and need?
How will you satisfy those needs?
What is most important to the customers?
How much will they pay for it?
2) Competitors
What are your competitors doing?
What are their strengths and weaknesses?
How are they meeting the customer's demand?
What is their cost structure?
3) Capacity
What are your company's capacities?
Financial
Organizational
Production
Marketing?
What are your strengths and weaknesses?
4) Costs
What is your cost structure?
• fixed costs
• variable costs
How have your costs changed over time?

1.5 Marketing Strategy Model

1) Consumer Analysis
• What is the relevant market?
• Who is buying and who is using the product? (see if your
customer are individual or families) (Ex. Cassettes)
• What is the buying process? (direct buyers v/s subscribers…
your product is used directly or not)
• How can I segment the market? (different kinds of buyers)
• Is the market growing? (Miles and Snow Model)
2) Competition
 • What are your company's strengths and weaknesses?
• What are your competitor's strengths and weaknesses?
• What is your relative size and position in the market?
• How do your resources differ from those of your competitors?
3) Distribution
• How can my product reach the consumer?
• How much do the players in each distribution channel profit?
• Who holds the power in each distribution channel available?

4) Marketing Mix
• How does my product fit with my other products? (For ex does
sales of one effect other … do they sell together etc.) (ex
medicines and pots etc.)
• How will I differentiate my product? (low cost leadership or
differentiation leadership)
• How does the product life cycle affect my plans?

5) Economics
• What are the costs and revenue structure?
• What is the break even?
• How long is the payback on my investment or how much
market I need to penetrate? Is it possible?

TIPS

• Whenever problem is of declining profitability it means it is either revenue

problem or cost problem or both. Analyze business and revenue structure.
Do industry analysis (market growth and future potential … decline in
sales etc.) and profitability analysis (by cost revenue analysis … decline in
profit due to stress of lowering price due to competition or increased cost)
• How many products to make to not go into loss? Break even problem!!
When Cost equals revenue generating capability, you close the case.
• If in an industry new entrants cannot survive, implies that majors had a
competitive advantage. Think What!!! Even if high cost majors survive
implies that they had Competitive Advantage in terms of their services and
proper segmentation of their markets.
• A business can increase profits by:
- Increasing sales
- Increasing prices
- Cutting costs (Raw Material Purchasing Practices)

• Costs include: Labor, Materials (Purchase practices also important),

Manufacturing costs, OH, SG&A, Advertisement cost (Marketing),
Distribution costs (Low inventory practices by shopkeepers implies that
distribution costs go up because of need of frequent delivery), sales force
(sales personnel)
• When question is of expansion see if expansion helps in anyway.
Improving quality or quantity. See if market has scope to absorb increased
production. Expansion is by new plants or by acquisition? If by acquisition.
Are there enough funds and targets? See if joint venture or government
involvement will be of any help. If yes, how?
• Changing mode of services of a firm: See what customer u drive away
… How profitable they were … how many new customers you attract ...
any new service you can provide... how many new customers because of
new service. To see viability... do cost/benefit analysis… 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. (Example: New bank calling centers case; Airline
rerouting its flight)
• Assessing future of a firm:
1. If you are manufacturer of a commodity which is used by some other
industry then to see your future; see future of that industry. Also
consider cost of various materials likely to be in near future.
2. To assess future look into past. Is there any competition? How has it
affected you over the years? What competitive advantage your
competitor enjoys?
3. Use Porters Five force model. (Ex. Case 84)
• Market Entry (factors to be considered):
1. First of all estimate the size of total market.
2. See size of current leaders in market, their market share
(proportion of market served by each), sales, no of stores etc.
3. Look for market segments targeted by your competitor and see if u
can provide better services in that segment. Estimate how much
your services would be valued by customers against an established
brand.
 4. Look for market segments neglected by the leader. Determine
what are the needs of any neglected market, and understand if your
client could profitably serve this market.
5. See cost structure of leader and compare it with yours. See sales
force, distribution channel of leader. Do you have advantage in
any of these areas? DO u have any edge in any of the related
factors (say installation, after-sales service.. etc)
6. See which products are most profitable in the industry. You must
start up with those and then slowly expand the business.
7. What would be the possible competitive barriers to your entry likely
to be posed by the current market leader?
• To create entry barrier of new players: Pay stress on loyal customers.
Promise new and better service. Entry barrier is high if high cost of entry
... industry requires high initial setup cost. Commodity product in general
have a slow growth and unattractive industry (Ex: pipelines). Such
industries have very high exit barriers. Do extensive marketing. Have
better segmentation of your market. Search out for neglected segments.
• Exit Barriers: Plant fully depreciated then low exit costs
• If a firm plans to diversify it should consider following options: (remember
market entry is a separate thing, expansion or diversification is another
thing. This is done by joint venture or acquisition.)
1. What are the diversifying firm’s distinct competitive advantages?
2. What is its capacity for funding an acquisition?
3. What is the competitive environment like in the proposed region?
4. How does this environment differ from the current markets of the
diversifying firm? Is the firm likely to enjoy same levels of sales
force and distribution channel, supplies as in original market?
5. The firm should have a distinct competitive advantage.
6. Is there any other way in which company can better use the money
used for diversification.
• If a company is trying to acquire a target firm it should consider following
options: (Ex. Concrete Manufacturer Case)
1. Current market of its own and target firm ... are there synergies? Do
they serve different segments? What is the future of your market
and target firms market!!!
2. What is the margin of target firm? Can you improve that
3. What is the cost involved in acquisition? Do u have funds? If u are
taking this from bank what is rate of interest annually? Does the
target firm has potential of returning that much interest in terms of
its own profit?
• If question is simply assess the strategy of a firm consider:
1. Cost/Sales issue
2. Market issues (growth, competition, new technologies… whether
your client has it or not, laws concerning your client.)
3. Environmental issues (Ex hazardous chemical producing industry)
4. Use porter’s five forces.
• If sales of a company goes down over years implies that there is a better
player in the industry who manufactures what industry wants. Your
products might now be obsolete for the industry. Ask for market share
trends. It might reveal that over the years your client’s market share is
being eaten up by competitors. (even if it might enjoy 80% share today)
• Also if sales go down (market share decreases) but profit goes up …
implies that market is growing but your client is not keeping pace with it …
in its cost structure see what critical factors it has neglected like marketing
or sales force. (Decrease in sales force and marketing can lead to lower
promotion due to which product might loose shelf space … also to have a
sustained advantage the industry must produce competitive products and
new technologies) (Ex. Snack Food Industry.)
• Specific Industry: Insurance Industry: Sales personnel should be paid
based on price of policy sold and also risk involved should be minimum.
• Specific Industry: Bars and recreational centers: More public on Fridays,
Saturdays and Sundays and more in summers than in winters.
• If a product comes off patent still it can continue to get premium if it has
loyal customers and has already established its brand name.
• If a company finds ways to reduce its cost. It can either lower price or
continue to make profit due to increased margin. See substitutes and
competitor’s reaction to this. (Ex Aluminum can case)
• Specific Industry: Airlines: Cost involves fuel cost, planes cost and
landing rights cost, air route cost. If it closes one route, then cost also of
cannibalization of that route’s customers. It is better to leave customers to
cannibalization to that to competitors.
• MYSTERIOUS MARKET:
1. If the sales goes down but market share increases implies that major
players in the industry are closing down.
2. If sales increase, profit made increase, but market share goes down
implies that Market is growing but client is not keeping pace with it.
• Revenue killers: Concentration of retailers, trade brands, retailers
demanding large introductory discounts for new products and high failure
rate of new products. (E.g. Candy Case). Reduce production of low
margin products.
• To estimate the prices of a commodity follow Porter’s five forces. Industry
Rivals, Supplier/Buyer Power (Supply/Demand Level), Threat of
Substitutes need to be assessed to determine the market price of the
commodity. See what closest substitute is present and what cost it incurs
on users. What cost if you quote would motivate buyers to buy your
product. See if your product has any advantage over the other (Ex.
Windmill Case, Oil Tanker Case)
• Sales can be increased 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. (Key is diversification). The suitability of these options will
again depend on the particular environment.
• Suppose to decrease your cost you cannot help with one aspect, think and
hit upon another ☺
• Profit per unit = Price – Variable costs. To maximize profit maximize this.
• A new product or a recently launched product’s expansion: See
following conditions:
o Market Growth
o Market share
o Competition
o Any barriers to entry?
o Customer buying habits (all products from same dealer or different)
• Credit Cards Cost Revenue Structure
Costs Revenue
Marketing, SG&A, Personnel Annual fee - currently $50
(Cannot change) (Could change)
Bad credit, theft, etc. Annual % rate = 14%
(Cannot change) (Could change)
Other costs Merchant fee = 1.5%
(Cannot change) (Cannot change)

• Credit Cards have different kinds of users :

o Pay off on full each month:
Charge high monthly fee
Provide numerous services
(Detailed reports, little kudos)
o Hold Small Debt for Short Term
 Increase the APR slightly
Decrease the annual fee
o Hold heavy debt for long term
Waive the annual fee
Increase their credit limits
Cash back programs, points
Access to Cash Advances, etc.

1.6 Supply & Demand

The Supply Curve -The higher the price of a product or service, the greater the
quantity of the item that will be produced, all other things being equal. Supplier
will be willing to make more available (i.e., supply). Conversely, the lower the
price of a product or service, the smaller the quantity producers will be willing to
make available. Please remember that as the supply of one product increases,
the supply of another product will decrease. (We live in a world with finite
resources but infinite demand.).
The Demand Curve - The lower the price of a product or service, the greater that
demand for the quantity consumers will be willing to purchase (i.e., demand), all
other things being equal. Conversely, the higher the price of a product or service,
the smaller the quantity of goods consumers will be willing to purchase.

Price

Supply

Demand

Quantity

1.7 Porter’s Five Forces

Michael Porter's Five Forces model analyzes the various competitive pressures
at work in a given industry. The results indicate the overall industry attractiveness
(i.e.. ease of making a profit), as well as the strength and influence that each of
the competitive pressures have on the firms participating in the industry. The
following is a brief discussion of the five components.
Industry Competitors (Internal Rivalry) - Often, the most powerful of the five
forces is the competitive battle among rival firms which are already present in the
industry. The intensity with which the competitors are jockeying for position and
competitive advantages indicates the strength of the influence of this force.
Potential Entrants – This force measures the ease with which new competitors
may enter the market and disrupt the position of the other firms. 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. In addition, when a newcomer can expect to earn an attractive profit,
the barriers to entry are diminished.
Threat of Substitutes - The competitive threat posed by substitute products is
strong when policies of substitutes are attractive, buyers' switching costs are low,
and buyers believe substitutes have equal or better features.
Supplier Power- 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. 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.
Buyer Power - Buyers become a stronger competitive force the more they are
able to exercise bargaining leverage over price, quality, service, or other terms or
conditions of sale. Buyers gain strength through their sheer size and when the
purchase is critical to the seller’s success.
Also see Cost- Pricing Structure in addition to this.
Benefit of Complements – This is considered a sixth force that is not directly
captured in Porter’s model. This force is the opposite of the Threat of Substitutes.
When the economics are promising for a complementary product, there is a
spillover effect on the primary product.

Five Forces Potential

Entrants Complement

Industry
Suppliers Competitors Buyers
Rivalry among
existing firms

Substitutes
1.8 "Star" Diagram/Organizational Analysis
In doing an organizational analysis, one should consider all seven components of
the organizational unit. Vision should define Strategy. Strategy determines
Structure and Decision Support Systems that are required to make the
organization function. The Reward Systems must reinforce what you are trying to
accomplish strategically and the Human Resource Systems must select, recruit
and develop the personnel the organization needs to accomplish its objectives.
Corporate Culture must reinforce all seven components.

Vision

Strategy

Decision
Structure Support
Systems

Reward Human
Systems Resource
Systems

Organization
Culture

Performance

Problems arise when these seven components do not reinforce one another. For
example, managers will have trouble if they are in a decentralized structure while
information and planning systems are centralized. When considering change, all
seven components must be considered. If one component is changed, it is most
likely that the other components will have to be changed to be consistent with
each other.

1.9 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, as a whole, is expanding or contracting. The model
can also be utilized to analyze a portfolio of companies held by a single
organization by classifying them within the matrix; each as independently held
businesses.
Products or categories businesses are as follows:
Star — A product with high market share in a high-growth market; every mother's
prayer.
Problem Child (also called "Question Marks") — A product with low market share
in a high-growth market; mother is concerned because her child is not growing as
anticipated. 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; maybe slow yet consistent growth isn't so bad.
Cash Cow — A product with high market share in a low-growth market. Since the
cow is generating milk (i.e., cash), the marketer may elect to "milk the cow dry,"
so to speak, accelerating cash flow and, not coincidentally, the product life cycle.
Dog — A product with low market share in a low-growth market. In this sense,
"dog" is certainly not "man's best friend." Rather, it is analogous to a "bomb" (i.e.,
something that fails miserably) or to a "lemon" (i.e., something that is defective or
undesirable). Therefore an astute business manager would want to drop a “dog”
from the product line, unless there are some extremely important overriding
issues that outweigh the products market performance.
Hi Low

Hi Problem
Star Child

Market
Share

Cash Cow Dog

Low

Profitability

1.10 Value Chain

A business manager must understand the internal relatedness of the many
activities involved in the production of a product or service. Every business unit is
a collection of discrete activities ranging from sales to accounting that allow it to
compete. Michael Porter calls these activities “value activities.” It is at this level,
not the company as a whole, that the unit achieves competitive advantage.
The value activities are grouped into nine categories, as indicated in the exhibit
below.
Primary activities create the product or service, deliver it to the market, create a
demand for the product, and provide after-sale support. The categories of
primary activities are inbound logistics, operations, outbound logistics, marketing
and sales, and service.
Support activities provide the input and infrastructure that allow the primary
activities to take place. The categories are company infrastructure, human
resource management, information systems, and procurement.
Value chain analysis is useful in discerning possible synergies among various
units of an organization (e.g., shared procurement). Value chain analysis is also
helpful in determining which value activities are best outsourced and which are
best developed internally. Finally, 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. (e.g., What value is added to the
manufacture and sale of gasoline at each point in the value chain, and by
whom?).

Value Chain

Company Infrasructure
Support Human Resource Management
Activities Information Systems
Procurement

Marketing
Primary Inbound Outbound
Operations & Services
Activities Logistics Logistics
Sales

1.11 Generic Strategies (Porter)

Michael Porter suggests that business strategies can be classified as pursuing
cost leadership, differentiation, or focus. Each of these strategies is described as
follows:
Overall Cost Leadership: Here the business works hard to achieve the lowest
production and distribution costs, so that it can price its products lower than its
competitors and win a large market share. Firms pursuing this strategy must be
good at engineering, purchasing, manufacturing, and physical distribution of the
products. Texas Instruments is an excellent implementer of this strategy. The
problem with this strategy is that other firms will usually emerge with still lower
costs (from the Far East, for example) and hurt the film that rested its whole
future on being the lowest cost producer. 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, and remaining so in the long run.
Differentiation: Here the business concentrates on achieving superior
performance in an important customer benefit area valued by a large part of the
market. One example is if the company strives to be the service leader in its
industry, the highest quality producer, the style leader, the technology leader,
and so on; but it is hardly possible to be all of these things. The firm cultivates
those strengths that will give it a competitive advantage in one or more benefits.
Thus the firm seeking quality leadership must make or buy the best components,
put them together expertly, inspect them carefully. This has been Canon's
strategy in the copy-machine field.
Focus: Here the business focuses on one or more narrow market segments
rather than going after a large market. The firm gets to know the needs of these
segments and pursues either cost leadership or a form of differentiation within
the target segment. Thus, Annstrollv Rubber has specialized in making superior
tires for farm-equipment vehicles and recreational vehicles and keeps looking for
new niches to serve.
According to Porter, those firms pursuing the same strategy directed to the same
market or market segment constitute a strategic group. The firm that carries off
that strategy best will make the most profits. Thus, the lowest-cost firm among
those pursuing a low-cost strategy will do the best. Porter suggests that firms that
do not pursue a clear strategy - “middle-of-the-roaders" -- do the worst.

1.12 Strategic Types (Miles & Snow)

Miles and Snow have divided strategic options into four categories (in contrast to
Porter's three Generic Strategies). A firm can only pursue one of these strategies
at a time, but it is common for a company to shift from one strategy to another as
its situation, and the industry, changes.
Defender—those firms that have a leadership share of the market will often
concentrate on staving off the competition, moving to erect as many barriers to
entry as possible. They are closely related to Porter's Low Cost Producers,
leveraging their advanced position along the learning curve and their name
recognition to maintain a superior market position.
Reactor— Such companies are second-movers, letting others show them the
way to success. They react to changes in the market and moves of their
competitors and so must maintain flexibility. While this strategy may be profitable
in the short run, its long-term value is questionable.
Analyzer— Analyzers pick apart the market very carefully looking for niches and
demand/supply gaps. This strategy is akin to Porter's focused companies. These
firms are not necessarily innovators, but instead concentrate their efforts in very
carefully and narrowly defined efforts.
Prospector— These firms are the first-movers and the innovators. This is a high-
risk strategic avenue to follow, but those who are successful can change the way
the game is played and create very strong competitive advantages.
1.13 Just-in-Time (JIT)

(Very Important in reducing costs. Inventory costs tend to zero)

The goal of JIT production is a zero inventory with 100% quality. In other
words, the materials arrive at the customer's factory exactly when needed. JIT
calls for synchronization between suppliers and customer production schedules
so that inventory buffers become unnecessary. Effective implementation of JIT
should result in reduced inventory and increased quality, productivity, and
adaptability to changes.

1.14 Fixed vs. 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.
Fixed Costs (FC): The costs of production that do not vary with the quantity (Q)
produced: these costs generally include overhead costs.
Semi-variable Costs: The costs of production that vary with the quantity (Q)
produced, but not directly. (Typically, these are discrete costs, such as the cost
of adding new production capacity when Q reaches certain levels.)
Break-even Point: Break-even analysis is a managerial planning technique using
fixed costs, variable costs, and the price of a product to determine the minimum
units of sales necessary to break even or to pay the total costs involved. The
necessary sales are called the BEQ, or break-even quantity. This technique is
also useful to make go/no-go decisions regarding the purchase of new
equipment. 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
contribution margin represents the revenue left after the sale of each unit after
paying the variable costs in that unit. In other words, the amount that
"contributes" to paying the fixed cost of production. To determine profits, multiply
the quantity sold times the contribution margin and subtract the total fixed cost.
Profit = Q x (P-VC) - FC

1.15 General Models

1. Financial Frameworks - For profitability cases you should explore cost and
revenues
1.1 Income Statement
Net Income
- Cost of Goods Sold (COGS)
Labor
Materials
 Overhead
Delivery
Gross Margin
- Depreciation
- Sales General &Administrative (SG&A)
Operating Profit
- Interest Expense
Earnings before Taxes (EBT)
-Taxes
Net Income
1.2 Balance Sheet
Assets
Cash
Investments
Accounts Receivables
Inventories
Property, plant & equipment
Intangibles
Liabilities
Accounts Payables
Other Short Term Debt
Long-term Debt
Other Liabilities, Reserves
Shareholders Equity
- Common Stock
- Retained Earnings
2. Porter’s Five Forces
- Suppliers
- Potential Entrants
- Buyers
- Substitutes
- Industry Competition
- Complements – the forgotten force
3. Business System
3.1 R&D
- Product Development
- Innovation
- Responsiveness
3.2 Manufacturing
- Cost
- Quality
- Speed
- Supply
3.3 Marketing
- Pricing
- Product
- Place
- Promotion
3.4 Distribution
- Cost
- Channel
4. Issue Tree
4.1 Do not use this framework in an interview without practicing it a few
times before hand.
4.2 Top-level identifies the highest level issues that need to be
answered to solve the problem. Use MECE (Mutually Exclusive
and Collectively Exhaustive) to ensure that all issues are covered.
4.3 Break each level down into parts that are more manageable.
4.4 Focus on most important branches or components first.
4.5 An example of an issue tree is provided with China Factory case.
5. Framework for a Zinger case like “How many golf balls in Albuquerque?”
5.1 Supply chain
5.1.1 Raw Materials
o Who makes the plastic needed for golf balls?
o Obtain the quantity of material supplied and work from there.
5.2 Demand side
- Who purchases golf balls?
- How many golf balls do they need each year?