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DMCC 2012-2013

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Editors Note

Welcome students

The Duke MBA Consulting Club (DMCC) is proud to present the official 2012-2013 DMCC Casebook. This year we have
included over 20 brand new cases. The objective of this book is to help you prepare for your upcoming consulting case
interviews. Case interviews are an integral part of the hiring process for consulting firms. These interviews give you the
opportunity to showcase your communication, client, creative and analytical skills to your interviewer. This book was
developed to complement the Duke MBA Consulting Roadmap curriculum. We hope that using both will help lead you to
success during the upcoming recruiting season.

This casebook could not have been completed without Francisco Arruda and Kaberi Chowdhury and the valuable
contributions of Ganesh Subramanian, James Dagonas, Jorge Mendes, Laura Newman, Liz Carroll, Lluis Vivas, Mike
Simone, Oi Yen Lam, Sam Mason, Shashi Kejriwal, Thomas Doerdelmann, Tony Toussaint, Whitney Arnold and the
DMCC Cabinet Officers. We would also like to thank our friends at other MBA programs for sharing with us their old
casebooks in order for us to continue to harvest new material.

We wish you luck with your preparation and would like you to remember that your fellow DMCC members are here to
help! Please reach out to anyone on the cabinet if you feel that you are not cracking the case. Lastly, to the students
of other top MBA programs using this case book during their preparation, we warmly welcome you to Team Fuqua.

Good luck!

Laura Newman, Stani Grozdeva and the DMCC Class of 2013 Officers
www.fuquaconsulting.com

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Case material table of contents
Case # Type Name Page
1 Market Sizing Car Leasing 16
2 Market Sizing Penguins?!? 22
3 Market Sizing Pianos 30
4 Valuation US Pharma 35
5 Valuation Satellite Co. 42
6 Profitability Elevator manufacturer 47
7 Profitability Global Bank Corp. 53
8 Profitability Milk & Cheese, Inc. 62
9 Profitability American Airlines 70
10 Profitability Piedmont Health 77
11 Profitability Volunteers Abroad 82
12 Market Entry Walmart 92
13 Strategy Euro Logistics 101
14 Strategy ATM Company 108
15 Strategy Pharma Corp 114
16 Strategy Blackouts in Uganda 121
17 Strategy Contract Manufacturer Co. 130
18 Strategy Online Automotive Marketplace 139
19 Strategy Russian Shipbuilding 150
20 Strategy Online University 162
21 Operations Beta Peaks 170
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Industry Overviews

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Airlines
Overview / Products & Airlines provide air transport services for passengers and/or freight
Services

Consolidation - multiple high-profile mergers


Key Trends Fare competition airlines compete to undercut one another on competitive routes
Low-cost carriers - recent entrance by smaller carriers trying to replicate Southwest Airlines
low-cost model

Established legacy carriers (e.g., Delta, American, United) compete with each other and with
Competitive Landscape low-cost operators on multiple domestic routes; price is usually the major competitive factor.
Some domestic carriers also operate international routes, placing them in competition with
overseas airlines

Individual consumers
Customers Corporations/small businesses
Travel web sites/resellers

Internet airline websites, online ticket resellers


Channels Telephone airline call center agents
Travel agents
Over-the-counter walkups at airports

Revenue: Ticket revenues, excess/oversize baggage fees, food and beverage sales
Profit Summary Costs: VC: fuel, food and beverage, ground crew/hourly employees FC: aircraft leases,
airport gate leases, IT/admin costs, salaried employees (i.e., pilots)

6
Consumer Packaged Goods (CPG)
CPG companies provide consumers with a range of household products (soaps, pet
Overview / Products & supplies, snack foods, etc.)
Services

Lifestyle/consumer behavior: e.g. aging population, social networks, online advertising, go


Key Trends green, economic downturn
New products critical to success
Completely new, slightly improved, product line extensions
In addition, companies driving outside-in product innovation (from outside of R&D division)
Product mix and brand management are critical to CPG companies
Emerging markets India & China seen as important source of future growth

Proctor and Gamble (P&G), Unilever, Clorox, Kelloggs, Campbells, Frito Lay, ConAgra Foods,
Competitive Landscape
Colgate-Palmolive
LOreal, Estee Lauder

Individual customers
Customers Discount wholesalers (Sams Club, Costco)
Large box retail (Wal-mart ,Target, Safeway)
Convenience retail (7-11, Rite-Aid)

Retail
Channels Wholesale
Direct (web and mail order)

Revenue: Volume of goods sold; Price premium on branded goods


Profit Summary Costs: Branding, Sales and Marketing, COGS (commodity costs raw & packaging material)

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Financial Services: Consumer Banking
Provide deposit-based services, credit cards, consumer loans, payments etc.
Overview / Products & Range of financial products are sold by banks whose main function is to collect money from
Services those who have savings and lend money to those who need it

Credit crisis / financial meltdown threatened solvency of industry due to illiquid assets
Key Trends difficult to value
Consolidated, mature industry with primary growth through acquisitions
Baby boomer aging creating large market for retirement products
Off-shoring of various functions to reduce expenses (e.g. call centers, back office functions)

Large national players (Bank of America, Citi) compete with regional banks
Competitive Landscape Largest players services extend well beyond commercial banking to investment banking,
securitization, proprietary trading, with services that are increasingly opaque

Individual consumers
Customers High net worth consumers (priority segment)
Small/medium businesses without sufficient size for larger investment banking financing
services

Still large face-to-face presence with bank branches, tellers, etc.


Increasing use of ATM services, online banking
Channels
Banks increasingly offer credit cards, home loans, etc. as means to increase asset base

Revenue: Net revenue is the spread between banks borrowing cost and the rates charged to
Profit Summary borrowers; fees
Costs: Overhead (branches, administration, compliance); salaries; bad debt expense

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Financial Services: Insurance
Insurance is fundamentally about underwriting various types of risks. Customers make
Overview / Products & regular payments (premiums) to the insurer for coverage when unforeseen events, e.g. car
Services crash; fire damage; death; credit default) occur
The insurer invests premiums to generate sufficient income to match future assets with future
liabilities

Credit crisis / financial meltdown threatened solvency of industry due to illiquid assets
Key Trends difficult to value
US national healthcare policy changes could completely change the landscape of the health
insurance market
Companies focused on managing risk and controlling costs

Several large, integrated players operating across multiple parts of the industry (AIG,
Competitive Landscape Prudential, etc.)
Some niche players focusing in a particular segment (Geico)

Small/medium/large businesses seeking to manage risks of property damage, liability, etc


Customers Individual consumers seeking to manage risk at home /on the road

Insurance agents (sales force) still manage much of the front-end sales process to
Channels businesses/individuals
Online sales becoming easier with better websites and aggressive marketing
Direct marketing to employees via in-office demonstrations

Revenue: Net revenue is the spread between premiums collected and claims/payments
Profit Summary made over time
Costs: Overhead (administration, compliance); Salaries; Sales Commissions; Marketing

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Manufacturing
Manufacturing sector includes companies that are in the business of mechanical, physical, or
Overview / Products & chemical transformation of materials/substances into new products
Services Subsectors include: textile, paper, chemical, computer/electronics, transportation equipment,
machinery

Manufacturing is highly cyclical in most sectors


Key Trends US manufacturing, traditional strength of US economic growth, has suffered due to higher
cost structure (labor in many cases) as companies outsource manufacturing to lower-cost
regions of the world

General Motors, Chrysler, Ford, Toyota, Honda


Competitive Landscape Boeing, Airbus
GE, Phillips, Siemens
Honeywell, Dow, Corning

Varies by industry, can be end-consumer, OEM (original equipment manufacturer) B2B


Customers (business to business)
Automotive: Primarily end consumer; Metal: airplane, automotive, tool/die manufacturing;
Apparel: end consumer; Plastics: medical industry, machinery manufacturing

Retail (Automotive, Apparel industries where end-consumer is primary customer)


Channels Wholesale B2B (Plastics, Chemicals, Pharmaceuticals, Metal, Machinery)

Revenue: diversity of customers, volume (automotive: high, airplane mfg: low), emerging markets,
Profit Summary adjacent industries, new technologies, end-consumer demands
Cost: outsourcing (potential quality), process efficiency, supply chain management (inventory
turns), labor (unions), raw materials/commodities, channel management (i.e. auto dealers),
marketing, capital investment
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Media
The media sector includes print, audio and video content generation and dissemination. The
Overview / Products & various subsectors are unique yet have overlapping attributes. Primarily an advertising-
Services supported industry, the media space faces unprecedented challenges as online media continues
to disrupt traditional business models.

The digitization of media has required considerable capital investment by media content
Key Trends generators. The rapidly improving speed of wireless devices creates questions about how
media will ultimately be consumed via internet, via cable, via mobile? Service providers
may converge. The proliferation of free content has harmed content generators but created
opportunities for new channels.

Landscape is very competitive with a few major players owning integrated portfolios across the
Competitive Landscape entire media universe (Disney, Viacom, News Corp, etc.)

While individual consumers seem to be the customers, in reality consumers are part of the
Customers product. Audience reach, ratings, circulation measures are utilized to sell advertising. Potential
advertisers are the real customers in traditional models although individual consumers may be the
customers for some subscription models.

Print: traditional paper product & online/mobile


Channels Television: traditional broadcast/cable/satellite & online/mobile
Movies: traditional theatres, rentals & online (to a growing extent)

Revenue Drivers: advertising, subscriptions in some cases (there is talk about moving to higher
Profit Summary subscription model for premium content)
Cost Drivers: VC: production costs (salaries of staff, technology); FC: capital costs (studios,
printing presses); overhead, marketing & advertising

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Pharmaceuticals
Branded/Ethical/Originator drug producers produce original patent-protected (for a certain
Overview / Products & period of time) drugs for human and animal diseases
Services Generic drug producers produce copy-cat drugs (with the same medical result) at a lower
development cost until the originator drugs patent expires

Price competition from generic drug manufacturers


Key Trends Increasing pressure from health insurance companies and hospital chains to reduce prices
R&D challenge of finding high revenue drugs (Blockbusters have annual sales > $1B)
Loss of patent on key drugs for many large Pharma Cos. during 2010-2016

Key success factor comes down to one thing: products


Competitive Landscape Products target various treatment areas (TA): cancer, cardiovascular, psychology
US, Europe and Japan are largest markets although emerging market opportunity (e.g. China)
is growing

Doctors who prescribe these medicines


Insurance companies that pay for them
Customers
Patients/consumers who need these drugs/medicines

Over the counter (OTC, can be sold without prescription): Retail outlets CVS,
Channels Walgreens; Mail order
Prescription drugs: Hospitals, pharmacies
B2B: Distributors/intermediaries, hospitals, pharmacies

Revenue Drivers: Size of specific treatment area / level of competition; Buy-in from doctors;
Profit Summary
Speed to market/ expertise in difficult products (for generics)
Cost Drivers: VC: sales and marketing (doctor visits, sponsored studies);
FC: R&D (drug discovery, formulation, clinical trials)

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Technology
The technology industry broadly consists of the systems (PCs, servers), semiconductors,
Overview / Products & communications equipment, software, internet and IT services subsectors
Services

Increasing M&A Activity: As growth has slowed in certain subsectors (systems, software),
Key Trends leading vendors have utilized M&A for growth, offering customers a one stop shop proposition
(i.e. HP/Compaq, Oracle/Peoplesoft)
Co-opetition: Leading vendors co-exist as competitors and collaborators. Examples include:
Microsoft/Intel, Oracle/IBM
Cloud Computing: Offering IT as outsourced utility

Systems: IBM, Hewlett-Packard, Dell


Competitive Landscape Semiconductors: Intel, Samsung, Toshiba, Texas Instruments
Communications Equipment: Cisco, Nokia, Samsung
Software: Microsoft, IBM, Oracle / Internet Software: Google, Yahoo!, Microsoft
IT Services: Accenture, IBM, HP/EDS

By size: Enterprise, SMB (small/medium businesses), Retail


Customers By type: Business vs. consumer

Varies by customer focus. Business/Enterprise-focused players tend to rely on direct sales


Channels force. SMB/Retail/Consumer tend to rely Channels on indirect channels.

Software: license/maintenance versus subscription service model; renewal rates; high gross
Profit Summary margins, but high R&D expenses
IT Services: staff utilization; revenue per employee
Internet: revenue per click
Semiconductors: High fixed costs and highly cyclical; manufacturing utilization 13
Telecommunications / Mobile
Telecommunications is a mammoth industry, comprising companies that make hardware,
Overview / Products & produce software, and provide services. Hardware includes a vast range of products that enable
Services communication across the globe

The industry has grown and evolved at an incredible pace for the last 20 years. Mobile
Key Trends phone penetration approaching 50% globally; Mobile broadband subscribership has topped
210 million worldwide; rollout of 3G networks in emerging markets causing mobile broadband
subscribers to outnumber fixed-line broadband subscribers
Many households are giving up their landline, preferring to use a cell phone

Landscape is very competitive and wireless carriers have undergone a wave of consolidation:
Competitive Landscape In recent times, Cingular acquired AT&T Wireless; Sprint joined Nextel; and ALLTEL acquired
Western Wireless
Big 4 cellular players are AT&T, Verizon, T-Mobile and Sprint Nextel
Cable companies attempting to capture wireless customers through wireless service offerings
of their own

Individuals, companies and governments


Customers

Carrier-owned stores and leading retailers like Wal-Mart, RadioShack and Best Buy are
Channels significant channels for mobile phone sales and service
Major carriers have online stores for phone and service purchases

Revenue Drivers: Subscriptions, data services (SMS, email and internet access on cell phones),
Profit Summary mobile advertising, app stores
Cost Drivers: VC: marketing & advertising, salaries; FC: capital costs (equipment, infrastructure
cell towers, network maintenance, stores); overhead
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Market Sizing

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Case 1: Car Leasing
Market Sizing Bain & Company

Our client is a large car manufacturer that has been facing financial stress for the past few years.

To overcome this crisis, they bought a small bank and started offering a lease at a lower rate than
the other car manufactures. This move has positioned our client strategically in the market and has
helped them regain market share.

However, the problem they are facing now is that the costumers are complaining of poor customer
Prompt service in the banking division.

The client reached us to help them improve their banking division customer service. In particular,
they want to create a call center to provide support to all lease customers, but they dont know how
big this call center should be.

How many employees do they need to hire for this call center?

The goal of this case is to calculate how many employees the call center must have. To do so, the
candidate will have to calculate how many cars are sold in US, ask the clients market share, the
percentage of customers that sign the lease and the length of the lease.

Provide the following information upon request:


Guidance
Company: The bank offers the lease only for cars from its parent company. Call center: The call
center is focused only on clients that have already signed the lease contract. It does not attend to
prospective customers.

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Case 1: Car Leasing
Market Sizing Bain & Company
Drive the candidate to calculate the number of cars the client sell per year and how many customers
uses the lease. The other points of his/her framework will be touched upon later.

Information to be given upon request:

Population in USA: 300 Million


Age range that buy new cars: from 20 to 60 years
The life expectancy in US is 80 years and the population is uniformly distributed among all ages.
With the current crisis, only 50% of the population is willing to buy new cars. The remainder prefers to
buy used cars
Average lifetime of a car: 5 years
The client has 10% of Market Share
Guidance 40% of the clients customers uses the Lease to acquire the car.
Length of the lease: 3 years

Calculation:

Number of cars sold in US:


(Population x People in the Age Range x People that buy new cars) / Lifetime of a car
Number of cars sold in US = (300 M x 50% x 50%) / 5 = 15 M cars per year

Clients Market Share: 10% Cars sold by the client = 15 M x 10% = 1.5 M cars per year

Customers that signs the lease = 1.5 M x 40% = 0.6 M customers per year

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Case 1: Car Leasing
Market Sizing Bain & Company
Now that the candidate calculated the number of clients that signs the lease per year, he/she will have to
calculate the number of employees that the client needs to hire. Note that the call center must service
every call.

Information to be given upon request:


The client expects that the customers will call the call center only once a year until the end of the
lease contract
The candidate can assume that all calls will be uniformly distributed throughout the year and during
the day (there will be no peak of calls)
Union contract states that employees can only work 6 hours per day, 6 days per week
The call center will receive calls only from 8am to 8pm, Monday to Sunday
On average, each call will be 5 minutes long
Days in a year = 360 days
Holidays can be ignored
Guidance
Calculation:
Calls per year = Customers per Year x Length of the Contract = 0.6 M x 3 = 1.8 M calls
Calls per day = 1.8 M / 360 = 5,000
Demand per day (in minutes) = 5,000 calls x 5 minutes = 25,000 minutes

# of employees to answer all calls on a day = (25,000 / 360) 70 employees (exactly 69.44 employees)

Remember that the employees work only 6 days per week, but the call center is open for 7 days and that
adjusting the number of employees: 70 + 70 x 1/6 82 employees

Since the employees can work only for 6 days per week, the client will need to hire an additional 1/6 to
compensate the day-offs

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Case 1: Car Leasing
Market Sizing Bain & Company

The client does not have enough money in their budget to hire all the 82 employees. What
Prompt would you suggest to reduce the number of employees?

This is a regular what else question. To reduce the number of employees, the client will have to
reduce the number of calls they receive and/or decrease the average length of each call

Some ideas:

Reducing the number of call:


Develop a customer website that easily provides information directly
Guidance Map the most common questions and provide a FAQ on the customers website
Offer another communication channel (e.g. chat)

Reducing the length of the calls:


Invest in technology such as voice recognition to faster identify the customers problem before
he/she is directed to an operator
Train the employees to faster solve the customers problem

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Case 1: Car Leasing
Market Sizing Bain & Company
Expected:
Correctly calculates the number of cars sold by the client
Calculates the number of employees needed, but not considering the days off
Provides some ideas for reducing the number of employees needed

Good:
Completes all Expected requirements
Performance Does not need much assistance from the interviewer to solve the case
Evaluation Needs assistance to perform the days off adjust

Excellent:
Completes all Good requirements
Realizes by him/herself that the number of employees must be adjusted to consider the days off
and correctly perform this adjust
Provides creative ideas to reduce the number of employees needed

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Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 21
10%
Case 2: Penguins?!?
Market Sizing Bain & Company
Important: Try not to laugh This is a real case from Bain & Company. Its a hard case. The candidate
will have to think out of the box to solve it. Therefore, its not a case for beginners.
Guidance
Before the candidate start his/her framework, ask him/her what he/she knows about penguins.

Penguins have evolved. Now they can talk and they are organized as an advanced society.

The ambassador of Penguinland (former Antarctica) has reached out to Bain & Company because he is
worried about the growing population growth of penguins. Currently, there are about 23 million penguins
Prompt and the population is growing 32% per year.

How many penguins can live at Penguinland and what is the best way to accommodate
everyone?

The candidate must calculate how many penguins can live in Antarctica. That means, the candidate
should be thinking on what the penguins eat (fish), how far can they be from the ocean, etc.
Guidance The penguins are not involved in commercial activities. They still act as penguins.

Orient the candidate to think out of the box.

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Case 2: Penguins?!?
Market Sizing Bain & Company
The candidate should present a framework touching on food habits, predators, space for building their
nests, etc. The key driver in this case is how far they can live from the ocean.

Information to be given upon request:


Predators: the penguins negotiated with all predators. The polar bears now live in a Zoo in San Diego
and the whales lives at Sea World.
Food: There are a lot all over the ocean. Its more than enough to feed every penguin.
Penguin habits:
Guidance They are all married and have a baby penguin
They need space for both penguins to live and a nest for the baby
Penguins do not need space for leisure. They need space just to sleep
Penguins must eat everyday
Penguinland (Antarctica) area: Provide exhibit 1. Allow the candidate to approximate the map to a
square.

If the candidate does not realize that he needs to calculate the Antarctica area, ask him to do so.

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Case 2: Penguins?!?
Market Sizing Bain & Company

Exhibit 1: Penguinland Map

4,000 Km

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Case 2: Penguins?!?
Market Sizing Bain & Company
Calculation:
Approximating the map to a square:
Area = 4,000 x 4,000 = 16,0000,000 km2

Now that the candidate has calculated the Antarctica area, he needs to calculate how far can a penguin
live from the ocean. He/she will need to calculate how fast can a penguin walk and how many hours per
day can a penguin walk.

Information to be given:
Penguins only walk and eat during the day. They must sleep the whole night
Penguins must eat every day or they will die
Even if a penguin stays in the ocean for only 1 second, its enough to eat one fish
The longest day of the year has 22 hours of sunlight
Guidance The average size of penguin leg is 20cm. The average size of a human leg is 1m
Humans can walk at an average of 5km per hour

The candidate must realize that the walking speed can be written as a function of the leg length.
Therefore, if a penguin has a leg that is 1/5 of a humans, the penguin speed will also be 1/5 of the
humans speed. In this case: 1 km per hour.

Since the longest day of the year has 22 hours of sun light (and 2 hours of night), the shortest day of the
year has only 2 hours of sunlight.

Since the penguins must walk from their nest to the sea and from the sea to their nest, they cannot live
from more than 1 hour (1km) from the sea.

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Case 2: Penguins?!?
Market Sizing Bain & Company
Now that the candidate figured that the penguins can live only 1km away from the sea, he/she needs to
calculate the total habitable area and how many penguins can be fit in this area.

The total habitable area can be approximated* to 4 rectangles of 1km by 4,000km.


Area = (1 x 4,000) x 4 = 16,000 km2 1 km

4,000 km

Guidance
*Note: The correct area calculation is (4,000 km x 1 km) + (4,000 km x 1 km) + (3,998 km x 1 km) +
(3,998 km x 1 km) = 15,996 km2, but is ok to round to 16,000 km2

Orient the candidate to estimate the number of penguins. He/she will need to know the size of the
penguins.

Information to be given upon request:


Penguin size = 1 m2
Nest size = 1 m2

Remember the candidate that the penguins need space to move from their nests to the sea. Therefore,
they will need roads.

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Case 2: Penguins?!?
Market Sizing Bain & Company
Tip: the penguins will need roads. Ideally, they will need 2 roads, so some penguins can go to the sea
while others are coming back the their nests.

The optimum solution is to allocate the penguin as follow:

1 meter 1 meter 1 meter 1 meter 1 meter

Male Female Nest & Road 1 Road 2 1 meter


Penguin Penguin Baby

Guidance
According to this layout, its possible to accommodate 3 penguins (1 male, 1 female and 1 baby) for each
5 square meters.

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Case 2: Penguins?!?
Market Sizing Bain & Company
Expected:
Correctly calculates the number of penguins
Needed some help to understand the drivers to calculate the maximum penguin population

Good:
Completes all Expected requirements
Suggests that the map can be approximated to a square or circle
Performance Develops a framework that contains important issues such as Predators, Feeding Habits, etc.
Understands that the penguins must walk 1km to reach the sea and then they need to come
Evaluation back

Excellent:
Completes all Good requirements
Understands that the calculations must consider the shortest day of the year
Suggests the same allocation layout
Could solve the case without much help from the interviewer

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Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 29
10%
Case 3: Pianos
Market Sizing
What is the 2012 market size of acoustic pianos in the state of New Hampshire?
Prompt
This is a market estimation case. The suggested analysis is one way that it could be solved, and the
information may be provided if requested. It is also acceptable for the candidate to make many of
these assumptions for his/herself , as long as you find them reasonable.

Either way, ask the candidate to walk you through his/her thought process for solving the problem
before embarking on the calculations. Once you are comfortable with his/her approach, ask him/her
to find the answer, explaining as he/she goes.

In this case, it is safe to estimate the residential market size for acoustic pianos (i.e. ignoring concert
halls, inventory in retail stores, etc.).

Definition: Acoustic piano includes upright, grand, and baby grand pianos. Digital keyboards are
Guidance out of scope.

The candidate should generate the following calculation. If he/she is stuck, assist him/her in arriving
at this equation.

Market size = (Population of NH / Average Household size) *% Owning Piano *Average Piano Price
*Replacement Rate of Pianos

Population of NH
Population of the United States: 300 million
The US has 50 states; therefore, the average population per state is 6 million. The candidate
should reason that NH is one of the smallest states. A reasonable population estimate is 1-2M.

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Case 3: Pianos
Market Sizing
Average Household Size:
Reasonable estimate = US average of ~2.5 is acceptable (or 2-3 if candidate chooses to round)

% of Households with an acoustic piano:


Here you should have the candidate talk through what the factors are in piano ownership:
Average wealth of households in NH (relatively higher than other states in the US)
Mix of electric keyboards vs. acoustic pianos
Macroeconomic impacts on piano purchases (e.g. elastic demand for pianos)
Reasonable estimate: likely under 5% of all US households. Acceptable answers from candidates
range from 3-10% of households, given reasons listed above

Average price of piano:


Prices of pianos vary by piano type (i.e. upright pianos are less expensive than grand pianos)
Guidance Reasonable estimate: $5,000-$10,000

Replacement rate of pianos:


Candidate should reason that households will not purchase a piano each year and should divide
the number they have arrived at thus far by the average life of a piano (or multiply by the
replacement rate)
Candidate should further reason that pianos are on the more durable side of musical instruments
Reasonable estimate: pianos should last 30-50 years

Calculation:
(1.5 Million People / 2.5 People per HH) = 600,000 HH * 5% Piano Ownership =
30,000 Piano HH * $7,500 per piano = $225,000,000 Total Market Size / 40 years =
$5.6 MM / Year

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Case 3: Pianos
Market Sizing
Expected:
Candidate develops a structured approach to finding a solution
Clarifies assumptions that he/she makes based on reasonable logic

Good:
Completes all Expected requirements
Performance Picks easy numbers or rounds appropriately to simplify calculations
Evaluation Clearly walk the interviewer through the calculations

Excellent:
Completes all Excellent requirements
Arrives confidently at the final number
Provides an explanation as to how changes to assumptions would affect the estimation

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Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 33
10%
Valuation

34
Case 4: US Pharma
Valuation McKinsey & Company

Your client is pharmaceutical company called US Pharma. They just got FDA approval for a new
anti-depressant drug that is expected to become a big hit for the company.

A previous market study shows that the demand will be very high for this new drug. Therefore, US
Prompt Pharma will have to either expand its current factory in Texas or build a new one in Virginia, closer to
the port.

How will you approach this problem and help your client make a decision?

This a investment decision case and the company wants to invest in the higher NPV option. Provide
the following information upon request:

The company sells many kind of drugs in US and Europe, their second largest market
The new drug is also approved to be sold in Europe
Guidance
Orient the candidate to focus only on the new anti-depressant drug. The other drugs are not
important in this case. Ask the candidate to present his/her framework first before providing any
information from the following page.

35
Case 4: US Pharma
Valuation McKinsey & Company
Investment:
Expand facility in Texas: $ 36 M
Build a new facility in Virginia: $ 50 M

Demand:
10,000,000 pills in US and 5,000,000 pills in Europe
Price: Average price per pill: $ 2 in US and $ 3 in Europe

Costs:
Labor cost:
Texas: $50,000 per year per employee
Virginia: It is expected that in Virginia, the labor cost will be 10% lower
Both plants will need 100 employees
SG&A: $250,000 per year for each option
Guidance Raw materials: to produce the drug, US Pharma needs 3 compounds: A, B and C
Compound A: $ 0.1 per pill
Compound B: $ 0.7 per pill
Compound C: $ 0.2 per pill
Production cost: $ 0.5 per pill (same for both options)
Inbound transportation Cost (transportation from the supplier to the factory):
Texas: 10% of the compound cost
Virginia: 5% (all the compounds are imported and enter the US throughout the port in Virginia)
Outbound transportation cost (transportation from the factory to the distributors): Not relevant
Depreciation: Straight line depreciation. The total investment will be fully depreciated in 10 years
Taxes: 33% for both options
Cost of capital: 10% per year

There is no change in the working capital and capital expenditure. The candidate can assume that the
earnings of this year will repeat in a perpetuity.
36
Case 4: US Pharma
Valuation McKinsey & Company

Revenue = Revenue in US + Revenue in Europe = $2 x 10M + $3 x 5M = 35M (for both options)

Costs:
Labor cost in Texas= $50,000 x 100 = $5 M
Labor cost in Virginia = $5 M x 90% = $4.5 M
Compounds cost = (0.1 + 0.7 + 0.2) x 15 M pills = $15 M (for both options)
Production cost = $0.5 x 15 M pills = $7.5 M (for both options)
Logistics cost in Texas = 10% x $15 M = $1.5 M
Logistics cost in Virginia = 5% x $15 M = $0.75 M
Depreciation in Texas = $36 M x 10% = $3.6 M
Depreciation in Virginia = $50 M x 10% = $5 M
Guidance SG&A = $0.25 K (for both options)

Total cost in Texas = $5 M + $15 M + $7.5 M + $1.5M + $3.6 M + $0.25 M = $ 32.85 M


Operational profit in Texas = $35M - $32.85 = $2.15 M
Taxes in Texas = $2.15 M x 33% = $0.71 M
Net earnings in Texas = $2.15 M - $0.71 M = $1.44 M

Total cost in Virginia = $4.5 M + $15 M + $7.5 M + $0.75M + $5 M + $0.25 M = $ 33.00 M


Operational profit in Virginia = $35M - $33.00 = $2 M
Taxes in Virginia = $2 M x 33% = $0.66 M
Net earnings in Virginia = $2 M - $0.66 M = $1.34 M

37
Case 4: US Pharma
Valuation McKinsey & Company

Calculating free cash flow:


Free cash flow = Net earnings + Depreciation Change in working capital CAPEX
Free cash flow in Texas = $1.44 M + $3.6 M + $0 + $0 = $5.04 M
Free cash flow in Virginia = $1.34 M + $5 M + $0 + $0 = $6.34 M

Calculating the NPV:


NPV = (Free cash flow/Cost of capital) - Investment
Guidance NPV in Texas = ($5.04 M / 10%) $36 M = $50.4 M - $36 M = $14.4 M
NPV in Virginia = ($6.34 M / 10%) $50 M = $63.4 M - $50 M = $ 13.4 M

Note: if the candidate forgets to add back the depreciation, both options will have a negative NPV.

Eventually, he/she should conclude that US Pharma should expand the facility in Texas, because
thats the option with the highest NPV.

38
Case 4: US Pharma
Valuation McKinsey & Company

Besides the fact that expanding the factory in Texas has the highest NPV, what other benefits
Prompt may US Pharma get by choosing this option?

This is a brain storming question (the what else part). One good approach for this question is use
the Profit formula: Profit = Revenues Cost. The candidate can provide ideas to increase revenues
and reduce costs.

Revenue side:
Time to market: expanding the factory may be faster than building a new facility
Introducing the drug faster may guarantee a faster costumer fidelization, avoiding the
entrance of new competitors
Guidance
Cost side:
US Pharma can reduce some distribution costs, by using the same companies that already
distributes the other drugs to distribute this new anti-depressant drug
Reduction in production cost: there may be some sinergies between the production of this
new drug and the other drugs
Economies of scale: US Pharma may be able to buy from the same suppliers that provides
compounds for the other drugs, which lead to reduced COGS

39
Case 4: US Pharma
Valuation McKinsey & Company

Expected:
Correctly calculates the net earnings
Correctly recommends the expansion in Texas
Provides some benefits for expanding the factory in Texas

Good:
Completes all Expected requirements
Performance Correctly calculates the free cash flow
Evaluation Provides most corrective actions listed with minimal prompting

Excellent:
Completes all Good requirements
Provides an organized earnings statement
On the final recommendation, provides some risks of expanding the facility in Texas and
proposes some next steps

40
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 41
10%
Case 5: Satellite Co.
Valuation
Your client is a U.S. telecom provider with $30B in revenues. The firm is considering moving into
the television business by acquiring a satellite television operator that operates in the U.S. They
have hired our firm to determine whether this is an attractive target. Your firm has determined that
the acquisition is attractive if the value of the company exceeds $3B.
Prompt
The opportunity to bid on this target closes shortly, and you need to advise the client on
whether they should proceed with the acquisition.

This case can be broken into 2 parts; a short market/competitive analysis and a valuation. Provide
the following information upon request:

Market/competitive analysis:
Customers are any residential household in the U.S
No option to expand internationally at this time
Target competes with 2 other satellite operators, national and regional cable companies, and
telecom providers that offer television services
The market is crowded and high barriers to entry means there is not threat of competitive entry
Target offers three tiers of service; basic, premium, ultra premium
Guidance
Valuation:
Need to calculate total revenues and total costs
Revenues from three tiers of service and DVR box rental. All customers rent the DVR box
Costs include programming cost, service cost, and other costs
Utilize profitability to drive valuation
Profit is growing at 5% annually
U.S. population is 300 million and on average 3 people/household = 100 million households
The company has 2% penetration across all U.S. households = 2 million households

42
Case 5: Satellite Co.
Valuation

Ultra
Tier Basic Premium Premium Total
Customer % 20% 75% 5%
Customers (million) 0.4 1.5 0.1
Monthly service price $20 $50 $100

revenue revenue
Service
Annual service price $240 $600 $1,200
Annual service revenue
(millions) $96 $900 $120 $1,116
Monthly DVR price $20 $30 $40
DVR

Annual DVR price $240 $360 $480


Annual DVR revenue $96 $540 $48 $684
Total annual
revenue $192 $1,440 $168 $1,800
Monthly service
Guidance cost/customer $5 $10 $10
variable
costs

Annual service cost/customer $60 $120 $120


Annual service costs
(millions) $24 $180 $12 $216
Programming costs (% of
revenue) 50%
Total program costs (millions) $900
Other costs (% of revenue) 20%
Total other costs (millions) $360
Total costs
(millions) $1,476
Total profit
(millions) $324
43
Case 5: Satellite Co.
Valuation
For the valuation part, the candidate must estimate the cash flows from the business and discount
them back using a perpetuity formula. The discount rate that should be used is 15%. When the
candidate inquires about growth rates, say the companys profit is growing at 5%, above the rate of
inflation. Therefore, whatever numerator the candidate arrives at should be divided by 0.15 - 0.05 =
.10, an easy calculation. Use the CF / (r g) formula for a perpetuity. In this case, the answer is
Guidance around $324m / 0.10, or $3.24 billion.

After the value of the company is obtained, ask the candidate what other types of analyses should be
done before giving the client the recommendation.

Expected:
Completes all math accurately
Proceeds through the process to the answer with some prompting

Good:
Completes all Expected requirements
Is able to drive the process forward, covering the necessary points with minimal prompting
Performance Walks the interviewer clearly through the math

Evaluation Excellent:
Completes all Good requirements
Drives the process forward while recognizing that they need to figure out a stream of cash flows to
go forward
Performs an accurate valuation given assumptions
Thoughtfully discusses other types of analyses that should be completed before making a
recommendation to the client

44
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 45
10%
Profitability

46
Case 6: Elevator manufacturer
Profitability
Your client builds elevators for both residential and commercial buildings. The CEO is worried because in
the last couple of months they have been losing money even though total sales have remained almost at
the same level.
Prompt
What is wrong and how can it be rectified?

Provide the following information upon request:


The client is the largest residential elevator manufacturer in the U.S. It also recently grew to become
the second largest commercial elevator manufacturer
Originally, they sold mainly to residential buildings. Due to the downturn, residential building sales
have dropped. On the other hand, they have sold more elevators to commercial buildings

After the candidate presents his/her framework and asks about the cost structure and revenue
distribution, provide Exhibit 1.

Exhibit 1: Cost structure and sales distribution


Guidance
Costs (as % of sales): Residential Commercial
Material 20% 24%
Manufacture 20% 29%
Labor 30% 30% Current Sales:
Plant 19% 19% Residential: 24%
Sales commissions 7% 7% Commercial: 55%

47
Case 6: Elevator manufacturer
Profitability
How would you get profits from commercial elevators and what would the margin goal be?
Prompt
From Exhibit 1, the candidate should realize the following:
Commercial elevators have a negative margin of -9% and commercial sales account for 55% of total
Commercial elevators have a higher material and manufacture costs when compared to residential
elevators (material cost is 20% higher and manufacture cost is 45% higher)
Therefore, the client should think of ways costs can reduced:
Guidance Negotiating with suppliers
Reducing labor
Investing in different or more equipment
Since the residential elevators have a margin of 4%, the commercial elevators margin should be at
least 4%, if not more

48
Case 6: Elevator manufacturer
Profitability
A new customer arrives with a draft of a new commercial skyscraper and wants your services at
Prompt current prices. Would you advise your client to sell to them?

The answer here should be it depends. The current prices results in a loss of 9% for each commercial
elevator sold. Therefore, the client will lose money with this deal.

However, selling a elevator to an important project such as this skyscraper may be a good marketing
Guidance strategy and result in future contracts at a higher margin.

Therefore, the client should sell the elevator only if they can use it as a marketing strategy to leverage
their brand and gain a recognition that permits them to sell the elevators at a higher price.

49
Case 6: Elevator manufacturer
Profitability
The CEO will come into the room in a minute and wants you to give him a summary of progress
Prompt to date.

The candidate should briefly summarize all questions and come up with insights derived from the case:
Currently, the profit coming from the residential sector is not high enough to compensate the losses
from the commercial sector
The client should invest to decrease material and manufacturing costs from the commercial elevator.
Guidance By doing so, the client may achieve in the commercial sector the same profit margin as in the
residential sector
Regarding the skyscraper sale, they should analyze if this deal will increase their brand awareness
and will allow the client to sell at higher margins

50
Case 6: Elevator manufacturer
Profitability

Expected:
Correctly answer all questions on the case
Provide a MECE framework

Good:
Completes all Expected requirements
Performance Ask relevant clarification questions regarding the client and the market before working on the
framework
Evaluation Provide a direct recommendation based on the facts analyzed during the case

Excellent:
Completes all Good requirements
Keep the interviewer engaged and demonstrate great communication skills

51
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 52
10%
Case 7: Global Bank Corp.
Profitability
Your client is a large multi-national financial services company. A drop in financial activity as well as
increasing regulation has caused its profitability to drop for 2 years in a row
Prompt
How would you recommend that the client reverse this trend?

If the candidate asks for more information on the type of financial institution, mention that it focuses
mainly on asset servicing and asset management.

The candidate should outline a standard profitability framework (P*Q- (FC+VC*Q)) and mention that
he/she wants to dig deeper into current revenues and costs. The candidate may also bring up other
factors, such as looking at ways to decrease regulation, or the potential of exploring M&A. Steer them
towards exploring revenues and costs and show them Exhibit 1, then ask how he/she would like to
proceed.
Guidance Exhibit 1: Client Revenues and Expenses
2010 2011
Total Revenue $1200 MM $1205 MM
Total Expenses $890 MM $910 MM

53
Case 7: Global Bank Corp.
Profitability
If the candidate asks to start with revenues, mention that the client believes it has already exhausted all
possible avenues of increase. When the candidate asks about the major costs, ask him/her to brainstorm
the major types, then show them Exhibit 2.

Exhibit 2: Costs as a Percentage of Total Expenses (2011)

50%
42%
40%
40%
30%
30% 27%
22%
20% 16%
Guidance
8% 8%
10%
3% 4% Client
0% Industry Average

54
Case 7: Global Bank Corp.
Profitability
The candidate should focus on IT Hardware and Software and note that there is a significant gap
between the clients costs and the industry average.

Note: The candidate may ask to focus on labor before IT hardware and software, since it is by far the
largest cost. Mention that the company recently laid off about 5% of its staff and has capped
compensation and does not believe it can reduce labor expense any further.
Guidance If the candidate doesnt automatically calculate the potential savings that would result from bringing IT
costs down to the industry average, prompt them to. Savings at 2011 expense levels are equal to:
(27%*910 MM)-(16%*910 MM) = 100.1 MM

If the candidate does not also calculate what percent increase in profit that would mean, ask them to.
Increase in Profit = 100.1 MM/(1205 MM - 910 MM) = 33.9%

55
Case 7: Global Bank Corp.
Profitability
Could you provide some reasons as to why your clients costs might be higher than competitors
Prompt and what the client can do to bring costs down?

Possible reasons include:

The client is paying higher prices than its competitors on the same hardware and software
The client is buying higher performance hardware and therefore paying more (perhaps opening up an
Guidance opportunity to reduce specifications)
The client is buying more hardware or softwareperhaps they give employees multiple computers or
have not maximized utilization of their servers

56
Case 7: Global Bank Corp.
Profitability
The client completed a major merger in 2005, following which, it renegotiated many of its contracts, and
it has not renegotiated any major contract since then.
Prompt How much would the client save if they renegotiate the IT hardware contracts to the industry
average level?

Provide the candidate with Exhibit 3 for them to do calculations:

Exhibit 3: IT Hardware Costs (2011)


Annual
Industry
Category Client Quantity
Average
Purchased
Desktops $883 $826 14,500
Guidance
Laptops $1,225 $1,173 6,000

Servers $7,201 $6,760 5,500

Routers $7,527 $7,200 900

Switches $3,068 $2,705 1,300

57
Case 7: Global Bank Corp.
Profitability
The candidate should perform the following calculations (if they ask to round, thats ok unless youd like
to challenge their math):

Exhibit 3: IT Hardware Costs (2011)


Annual Savings at
Difference Annual
Industry industry average
Category Client (Client Quantity
Average (Difference x
Industry Avg) Purchased
Annual Purchases)
Desktops 883 826 883826 = 57 14,500 57x14,500=826,500
Guidance Laptops 1,225 1,173 52 6,000 312,000

Servers 7,201 6,760 441 5,500 2,425,500

Routers 7,527 7,200 327 900 294,300

Switches 3,068 2,705 363 1,300 471,900

Total Savings 4,330,200

58
Case 7: Global Bank Corp.
Profitability
Please wrap up the case and make your final recommendations to the client.
Prompt
The recommendation should include the following:
The pricing of IT hardware contracts should meet the industry average
The client should investigate the possibility of reducing specifications on the equipment for further
Guidance savings
Next steps should include looking at other types of contracts they may be able to renegotiate, as other
savings are possible

59
Case 7: Global Bank Corp.
Profitability

Expected:
Provides a MECE framework
Correctly answers all questions
Analyzes the exhibits with minimum assistance

Good:
Performance Completes all Expected requirements
Correctly calculates the potential cost savings
Evaluation Provides a direct recommendation based on the facts analyzed during the case

Excellent:
Completes all Good requirements
After the second prompt, quickly draws a framework to support the brainstorming part
Keeps the interviewer engaged and demonstrates great communication skills

60
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 61
10%
Case 8: Milk & Cheese, Inc.
Profitability BCG
Milk & Cheese, Inc. (MCI) is a leading producer of dairy, ham and sausages in the US. Currently, it
produces more than 1,000 products. MCI and two competitors dominate this market.
Prompt MCI wants to increase its profits. It has hired your firm to help on this matter. How would you
approach the problem?

The main idea in this case is to bring the graph into discussion and analyze it. Do not share this
information with the candidate. The case should be a fast paced conversation and he/she must structure
the case like any profitability case:
Revenue Streams
Respective COGS
Guidance SG&A

Considering market trends, the economic environment and competitors moves are not wrong, but the
candidate must include the abovementioned topics. It is a profitability case. If asked, tell the candidate
that MCI is not interested in acquiring a competitor or expanding overseas.

62
Case 8: Milk & Cheese, Inc.
Profitability BCG
Another team in your firm is already working on costs and expenses. Your team is focusing on MCI
portfolio.
Prompt Your role is to analyze which, if any, products MCI should stop producing/selling. How would you
do that?

The candidate must consider that MCI has a portfolio of 1,000+ products.

That being said, the candidate should understand that, in the real world, it would be spreadsheet with
1,000+ lines, and columns describing the product and one of the following options:
Revenue and COGS
Price, Cost/unit and Volume
Guidance Margin and Volume
Margin and Revenue

The last one is easier to work in this case, but we will use margin vs. volume, and considering that there
is no relevant difference in prices among the products. Therefore, a scatter plot is the best option. Once
the candidate asks for it, show him/her the graph on the next page.

63
Case 8: Milk & Cheese, Inc.
Profitability BCG

64
Case 8: Milk & Cheese, Inc.
Profitability BCG
If the candidate asks, provide the following information:
SG&A is not affected by the potential changes
Average volume is 35k tons
Average Margin is 16%
Guidance
The candidate must do his/her own graphs: Pareto (80/20) or dividing the prior graph in four squares,
using the averages as axis. If the candidate does not realize it, show him/her the next page.

65
Case 8: Milk & Cheese, Inc.
Profitability BCG

Profit
(Cumulative)
I
A B
80% II

D
20% C
Products

66
Case 8: Milk & Cheese, Inc.
Profitability BCG
In the first graph, the idea is all the products in the category I is important for the company. The
problematic products will be in the category II. There are ~200 products in category II.

In the second graph, consider that there are at least 200 products in each zone. The idea is: the
products in the zone D should be considered our targets to be no longer in MCI portfolio.
Guidance
Finally the candidate should arrive at a conclusion along the lines of: Based on our analysis, there are at
least 200 products that are not bringing relevant contribution to MCI profit. MCI should consider selling
these products to minor competitors or simply stop its production, if selling these products to competitors
represents a major risk.

67
Case 8: Milk & Cheese, Inc.
Profitability BCG
Expected:
Structures a sound profitability framework
Figures out the graph analysis is the best method
Suggests the scatter plot or the 80/20 chart

Good:
Complete all Expected requirements
Suggests both analyses methods
Performance Quickly asks for information to understand the goals of the company (desired/undesired margins)
Evaluation Excellent:
Complete all Good requirements
Suggests more than one alternative to deal with the problematic products (stopping, selling,
empowering, analyzing potential growth, etc.)
Analyzes risks of suggested solutions (e.g., selling to major or minor competitors may jeopardize
MCI businesses)
Could solve the case without much help from the interviewer

68
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 69
10%
Case 9: American Airlines
Profitability McKinsey & Company

As a part of its recovery plan, American Airlines (AA) has asked your firm to propose a plan to
increase the number of passengers per flight.
Prompt How would you approach figuring out the bottom line of increasing one passenger per
aircraft in their domestic flights?

This case has a lot of calculations and information that may mislead the candidate. This information
is included on purpose and the candidate should know what he/she have to use and what can be
ignored.

Guidance The goal here is to calculate the additional profit of adding one passenger per flight (domestic flights
only). After the candidate presents the framework and ask questions about cost and fares, provide
Exhibit 1. If you want to make this case harder, do not provide the exhibit. Give the exhibits
information upon request.

70
Case 9: American Airlines
Profitability McKinsey & Company

Exhibit 1:

Table 1: Aircraft models and capacity


Capacity
Aircraft Model # of aircrafts Type of Routes Fixed Cost1
(# Passengers)
Boeing 737-800 180 160 Domestic $10,000
Boeing 757-200 125 190 Domestic $9,750
Boeing 767 73 300 International $9,200
Boeing 777-200ER 47 370 International $9,000
McDonnell Douglas MD-80 series 195 140 Domestic $10,500

1:Fixed cost per 1000 mile flight distance

Table 2: Average load factor, fares and time per flight


Type of Flight Avg. Load Factor Avg. Round trip fare Avg. time in air Avg. time on land
Domestic 80% $200 2 hours 30 minutes
International 70% $900 7 hours 1 hour

Table 3: Variable costs2


Domestic International
Travel agency commission 10% 10%
Airport fees 10% 10%
Inboard and check-in services 5% 12%

2: Variable costs are represented as a percentage of the round trip fare 71


Case 9: American Airlines
Profitability McKinsey & Company

Table 1:
# of aircrafts: how many aircrafts AA has in its fleet
Capacity: number of passengers that each aircraft can fly
Fixed cost: fuel, maintenance and flight crew

Table 2:
Avg. load factor: avg. number of passengers/aircraft capacity
Avg. round trip fare: this average includes first, business and coach classes
Avg. time on air: time that the aircraft is actually flying
Avg. time on land: avg. time to clean, refuel, and board the passengers
Note that the total time per flight is the avg. time on air + avg. time on land

Guidance Table 3:
All variable costs are a % of the round trip fare. That is, the variable cost for a domestic flight is
25% x $200 = $50 variable cost per flight = $50 / 2 = $25

There is some useless information. The candidate should ignore:


All data regarding International flights the case is about domestic flights
Fixed Cost the plane is flying anyway so the profit of an extra passenger should not consider
the fixed cost

The candidate should calculate the additional profit in dollars. Therefore, he/she may also ignore the
aircraft capacity, and load factor. He/she can solve this case by using only the number of domestic
aircrafts, avg. time on air, avg. time on land, variable costs, and round trip fares.

72
Case 9: American Airlines
Profitability McKinsey & Company

Assumption: the company operates 24 hours a day, and 360 days per year.

The easiest way to calculate the additional profit is calculating how many domestic flights AA
operates per year and the profit per flight that the additional passenger brings.

Calculating the number of flights per year:


# of aircrafts (domestic only): 180 + 125 + 195 = 500
Avg. time per flight = avg. time on air + avg. time on land = 2 + 0.5 = 2.5 hours
Avg. flights per day per aircraft = 24 hours / 2.5 hours = 9.6 (can be rounded to 10 per day)
Total flights per year = # of aircrafts x avg. flights per day x 360 = 500 x 10 x 360 = 1,800,000 flights
Guidance
Calculating the additional profit per flight that an additional passenger brings:
Avg. fare per flight = round trip fare / 2 = $200 / 2 = $100
Variable Cost = (10% + 10% + 5%) x $100 = $25
Additional Profit per passenger = Revenue Variable Cost = $100 - $25 = $75

Additional profit per year = $75 x 1,800,000 = $135,000,000 = $135 M

There are other ways to reach the same result. The calculations above show the easiest way. Help
the candidate only if he/she gets stuck with the numbers.

73
Case 9: American Airlines
Profitability McKinsey & Company

Now that we know the impact of adding one passenger per flight, what can we do to achieve
Prompt this goal? What else can be done to increase AAs profitability?

This is a regular what else question. The candidate should mention some of the ideas bellow:
Increase the # of passengers:
Change pricing strategy
Offer a better customer service
Offer a better frequent flyer program (AA Advantage program)

Increase overall profitability:


Guidance Negotiate fuel prices (fuel represents 30% of the operational cost)
Negotiate with labor unions to reduce salaries/benefits for new hires
Focus on the most profitable routes
Discontinue unprofitable routes

This case does not require a final recommendation.

74
Case 9: American Airlines
Profitability McKinsey & Company
Expected:
Had a good structure/action plan to calculate the additional profit
Correctly calculates the additional profit, but needed some assistance

Good:
Completes all Expected requirements
Correctly identifies the irrelevant data
Could list at least 3 ideas to increase the number of passengers and 3 to increase the overall
Performance profitability
Evaluation Could keep the interviewer engaged during the calculations

Excellent:
Completes all Good requirements
Showed some knowledge of this market
Could list at least 5 ideas to increase the number of passengers and 5 to increase the overall
profitability
Could drive the case and solve it without much help

75
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 76
10%
Case 10: Piedmont Health
Profitability-Healthcare Accenture

It is summer 2012 and your client is a healthcare delivery system in North Carolina that is currently
in a strong financial situation but anticipates a 30% decline in revenue over the next few years.
Prompt
How can you help them protect their margins in the future?

This is a profitability case focused on a health care delivery system. The objective of this case is to
test knowledge about the healthcare industry and current events, think creatively about problems
current hospital and care providers face and test the candidates ability to present solutions to
overcome these challenges.

Ideally, before the candidate starts her framework, he/she should ask clarifying questions to get a
better understanding of the clients situation and see that they are not interested in top line growth,
product mix or different revenue streams, but rather in capturing typically lost revenue & improving
their cost structure.

Provide the following information upon request:


Guidance Piedmont Health: a network of affiliate hospitals, specialty care centers, medical foundations
(groups of physicians), university and research centers in NC only. The health care delivery
system is not-for-profit and primarily serves low-income communities. No one is ever turned away
from services by Piedmont Heath. Piedmont Health has grown significantly in size over the past
20 years by acquiring affiliates
Revenue: last years revenue was $20 B
Revenue Write-offs: currently, Piedmont Health has to write-off $5 B in uncollected payments for
provided care
Payer Mix: 80% of Payers are on Medicare
Reasons for expected revenue decline: With the recent passing of the Affordable Care Act and
other anticipated federal and state legislation, not-for-profit hospitals can expect to see an
increase in uncompensated care and a decrease in the reimbursement amounts by Medicare
77
Case 10: Piedmont Health
Profitability-Healthcare Accenture
The ideal recommendations should touch upon some of the points given below. Use the information
provided to engage in a discussion with the candidate about certain areas if they do not mention
them.

The key to unlocking the revenue capture and cost savings for this client is noting that they are a
network of unique affiliates that have been cobbled together over the past 20 years, each with their
own way of doing business from processing vendor bills, to billing patients, to ordering medical
supplies. These redundant and overlapping business processes result in higher costs due to a
greater number of employees than needed and in less captured revenue and higher costs due to
inefficiencies.

Prevent losses in revenue:


Billing: can they standardize and clarify their billing processes to prevent denials from
Guidance Medicare and other providers? Can they reduce the amount of time it takes from date of
care to date a bill is sent to get money in more quickly?
Collections & financial counseling: can they expand their collections office to include more
financial counselors to provide advice, guidance and help setup payment plans for low-
income patients?
Cut costs:
Energy-efficiency: can they reduce utility costs by reducing energy usage?
Look at when computer and medical equipment is turned on, but not being used.
Putting in sleep mode or turning off could save $
Examine facility lighting. Many lighting fixtures have multiple florescent bulbs. If one
was removed, there would still be adequate light with lower electricity and blub costs
Are utilities in the state regulated? If de-regulated, PH could investigate different
purchasing plans (fixed vs. variable rates) to decrease costs

78
Case 10: Piedmont Health
Profitability-Healthcare Accenture
Biomedical assets:
Loss prevention: how do they track equipment such as wheelchairs to prevent theft
or accidental disposal?
Equipment purchasing strategy & utilization: how do they think about purchasing
equipment such as IV pumps? Do they consider utilization rates or do they base
decisions on patient bed count (if there are 300 beds, we need 300 machines)?
Suggestions: invest in small GPS trackers to see where equipment is throughout the
day & alert client if leaving the premises. Wheelchairs cost a couple thousand
dollars and this hospital system loses a couple every month. Tracking system
would also give data for a utilization analysis to inform future purchasing decisions

Guidance Improve supply chain:


Consolidate strategic sourcing & purchasing: do they purchase by each hospital or care
center or do they have a centralized sourcing and purchasing department to procure goods
for the entire health care delivery system?
Suggestions: by consolidating their supply chain processes, they can negotiate favorable
rates and discounts with suppliers by leveraging their size and buying power

Workforce analysis:
Eliminate redundancies: since Piedmonts affiliates operate as separate business units, is it
possible to consolidate support functions such as Finance and HR across the system and
reduce the number of employees without an impact on the business?

79
Case 10: Piedmont Health
Profitability-Healthcare Accenture
Expected:
Identifies some areas to explore cost savings
Recommends some solutions listed to protect margins

Good:
Completes all Expected requirements
Asks some clarifying questions to narrow the focus of their framework
Provides more of the solutions listed with minimal prompting
Reaches a conclusion with minimal prompting
Performance
Evaluation Excellent:
Completes all Good requirements
Identifies without asking why Piedmonts revenues may be expected to decline
Provides most or all of the suggested solutions listed
Clearly states the overarching problem of lack of standardization and consolidation as the key
cost driver
Suggests some creative solutions not mentioned in the case
Provides a high-level of next steps the client should take to implement some of the suggestions
and risk-mitigation

80
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 81
10%
Case 11: Volunteers Abroad
Profitability

Your client is Volunteers Abroad (VA), a US-based company that provides volunteering abroad
programs to university students, professionals and retirees. VA programs are known for safety,
customer service and cultural immersion opportunities. VAs revenues have been decreasing, and
Prompt they have reached us to put an end to this downward trend.

How will you start thinking about the problem?

Client overview: VAs offerings consist of programs that last 16 months, whereby customers travel to
a different country, live in a local community and engage in various volunteering activities of their
Guidance choice, e.g. environmental conservation, teaching English, building houses, etc. Your client is one of
the top four largest competitors in the market.

82
Case 11: Volunteers Abroad
Profitability

This is a revenue related question. The interviewee should understand that cost isnt an issue here.
When the candidate asks for revenue information (number of volunteers and price), provide Exhibit
1. Ask the candidate what he/she can conclude from this exhibit.

The candidate should conclude that since VA has been decreasing its prices, but not gaining market
Guidance share, this price reduction strategy is not working. The number of volunteers in the market is
increasing even though the average prices had also increased year by year. This shows that the
demand is actually inelastic. Therefore, if VA increase their prices, they will also increase revenues
and profit.

83
Case 11: Volunteers Abroad
Profitability

Now that we know that VA should increase its prices, VAs CEO wants us to help her develop a
growth plan. VA is interested in achieving a 30% share of the market for volunteer abroad programs.
Prompt
Using the information in Exhibit 2, how many years would it take them to achieve their goal?

Note: There are a few ways to solve this problem. Here well present 2 methods.

There is some useless information in Exhibit 2. The easiest way to solve the problem is to do the
following:

Step 1: calculate VAs revenue growth rate (Increase in Price) X (Increase in Customers)
[(1 + 5%) x (1 + 20%)] - 1 = 1.26 - 1 = 26%

Guidance Step 2: Calculate the VAs market share net growth VAs growth Market growth
26% - 10% = 16%

Step 3: Calculate VAs absolute market share growth Current MKT Share x Net growth
20% x 16% = 3.2%

In absolute terms, VAs market share will increase 3.2% (in absolute values) each year. Therefore, it
will take about 3 years to VA achieve a 30% market share.

84
Case 11: Volunteers Abroad
Profitability

The second way to do this is by calculating market share year by year.

Year 1 Year 2 Year 3


Market Size in the previous
year 100 110 121
Market Growth rate 10% 10% 10%
Market Size 110 121 133.1

Guidance VA market in the previous


year 20 25.2 31.75
VA's Growth Rate 26% 26% 26%
VA Size 25.2 31.75 40.01

VA Market Share 22.9% 26.2% 30.1%

VA will reach the 30% market share by Year 3.

85
Case 11: Volunteers Abroad
Profitability

Besides increasing prices, what other options can they explore?


Prompt
A good interviewee will explain the pros and cons of each idea. Some ideas include:

Current revenue streams:


Broaden program offerings with multiple program lengths, activities, destinations, starting
and ending dates
Recruit customers from new domestic and international geographical markets
Widen marketing channels, e.g. social media, traditional media
Strengthen VAs brand to differentiate itself from competitors
Guidance Partner with like-minded organizations, e.g. religious organizations, international
development organizations, embassies, universities, corporate CSR programs

New revenue streams:


Acquire a smaller competitor
Expand into new brands and product lines, e.g. study abroad, language learning, eco-
tourism

86
Case 11: Volunteers Abroad
Profitability

Exhibit 1: Volunteering Market

Average Prices
Volunteers Competitor Competitor Competitor
Year Volunteers in the market (per year)
Abroad 1 2 3

# of volunteers in the
25,000
2006 $5,000 $4,750 $5,250 $5,000
2007 $5,250 $5,000 $5,500 $5,250 20,000

Market
2008 $5,000 $5,000 $5,500 $5,250 15,000
2009 $4,750 $5,000 $5,250 $5,300 10,000
2010 $4,600 $5,100 $5,350 $5,400 5,000
2011 $4,600 $5,250 $5,500 $5,600 0
2006 2007 2008 2009 2010 2011
Market Share (% of volunteers) Year

Volunteers Competitor Competitor Competitor


Year
Abroad 1 2 3
2006 23% 30% 25% 22%
2007 24% 28% 24% 24%
2008 25% 28% 25% 22%
2009 24% 30% 23% 23%
2010 26% 27% 24% 23%
2011 25% 27% 26% 22%

87
Case 11: Volunteers Abroad
Profitability

Exhibit 2:

Market information

Total market size for volunteer abroad programs: $100mn


VA market share: 20%
The market is undergoing 10% compounded annual growth

Client information

New average program price: $5000


Current customer volume: 4000
Program prices are subjected to a 5% compounded annual growth rate due to inflation and rising costs
The client is optimistic about market demand, and expects customer volume to increase 20%, compounded annually

88
Case 11: Volunteers Abroad
Profitability

Expected:
Correctly answers all questions
Provides a MECE framework and uses it to brainstorm the potential reasons of the declining
revenues

Good:
Completes all Expected requirements
Performance Quickly realizes that the demand is inelastic and that the client should raise prices
Evaluation Correctly calculates the number of years the client should take to achieve 30% market share

Excellent:
Completes all Good requirements
Correctly ignores the useless information in Exhibit 2 and use approximations to quickly calculate
the required time to achieve the 30% market share
Keeps the interviewer engaged and demonstrates great communication skills

89
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 90
10%
Market Entry

91
Case 12: Walmart
Market Entry Bain & Company

Walmart wants to start an operation in France.


Prompt How should they do it?

Provide the following information upon request:

The decision has already been made. Walmarts board will enter the French market
Walmart wants to open only Hypermarket Stores
Guidance The candidate should present a framework that touches on how should Walmart entry this market,
some synergies it may have and some risks. There are 2 options:
buy an existing player or
start from scratch

92
Case 12: Walmart
Market Entry Bain & Company
After analyzing both options (buy an existing player or start from scratch), Walmart decided that buying
an existing player would be the best option.

Carrefour, the largest retailer in France, is facing financial difficulties and its board members are
considering the hypothesis to sell its hypermarket division in France.
Prompt
This is a competitive bid. Target, K-mart and other large international retailers have also expressed their
interest in this deal.

How much should Walmart bid? Is this a good deal to Walmart?

93
Case 12: Walmart
Market Entry Bain & Company
Information to be given upon request:
Carrefour has over 5 thousand stores in France. The hypermarket division has only 200 stores.
Hypermarket Sales: 6 billion
Cost of Goods Sold: 4 billion
SG&A: 0.2 billion
Marketing: 0.5 billion
Salaries & Other Compensations: 0.3 billion
Assume depreciation = 0
Taxes = 33%
Cost of Capital: 10% per year

Calculations expected:
Guidance Gross Profit = Sales COGS Gross Profit = 6 B - 4 B = 2 B

Expenses = SG&A + Marketing + Salaries Expenses = 0.5 B + 0.2 B + 0.3 Expenses = 1 B

Operational Profit = Gross Profit Expenses = 2 B 1 B Operational Profit = 1 B

Net Earnings = Operational Profit x (1 taxes) = 1 B x (1 0.33) Net Earnings = 0.67 B

Free Cash Flow (FCF) = Net Earnings + Depreciation Change in Working Capital CAPEX
FCF = 0.67 B + 0 0 0 FCF = 0.67 B

Carrefours value = FCF / Cost of Capital = 0.67 B / 10% Carrefours value = 6.7 B

94
Case 12: Walmart
Market Entry Bain & Company

Is Walmart willing to pay 6.7 B?


Prompt
The 6.7 B calculated is how much Carrefour values its operations. This value is not how much
Walmart is willing to pay. Walmarts willingness to pay must consider synergies and additional costs
that Walmart will have in this venture. The candidate should realize this.

Provide the following information upon request:


French people do not like much American brands. To keep the sales unchanged, Walmart will
Guidance have to increase the marketing expenses to 700 million
Walmart negotiates aggressively with its suppliers. The COGS is expected to drop by 10%
SG&A and Salaries should not change
Walmarts cost of capital is also 10%
Walmart will allow customers to pay with the Carrefours credit card. Therefore, customers will still
be paying within 45 days. Assume the same number of days for receivable

95
Case 12: Walmart
Market Entry Bain & Company
COGS = 4 B x 90% COGS = 3.6 B

Gross Profit = Sales COGS Gross Profit = 6 B - 3.6 B Gross Profit = 2.4 B

Expenses = SG&A + Marketing + Salaries Expenses= 0.7 B + 0.2 B + 0.3 Expenses = 1.2 B

Operational Profit = Gross Profit Expenses = 2.4 B 1.2 B Operational Profit = 1.2 B

Guidance Net Earnings= Operational Profit x(1taxes) = 1.2 B x (1 0.33) = 1.2 B x 2/3 Net Earnings= 0.8 B

Present Value = 0.8 B / 10% = 8 B

Carrefours value to Walmart = 8 B

The candidate must arrive at the conclusion that Walmart maximum willingness to pay for Carrefour
is 8 B.

96
Case 12: Walmart
Market Entry Bain & Company

A Walmart analyst proposes to reduce prices by 10%. According to his studies, this discount will
increase the volume of sales by 20%.
Prompt
Should Walmart provide this discount in France?

Effect on revenue:
Revenue = Price x Volume New Revenue = 0.9 x Price x 1.2 x Volume = 1.08 x Price x Volume
The New Revenue will be 8% higher New Revenue = 1.08 x 6 B = 6.48 B

Effect on COGS:
Since the volume will increase by 20%, the COGS will also increase by this amount.
New COGS = 1.2 x 3.6 B = 4.32 B

Effect on gross profit:


New Gross Profit = New Revenue New COGS = 6.48 B 4.32 B
New Gross Profit = 2.16 B
Guidance
The candidate should arrive at the conclusion that, since the new gross profit is lower than the
original gross profit, Walmart should not reduce its prices.

The candidates final conclusion should touch upon the following points:
Walmart should access all synergies it may have by acquiring Carrefour
Walmart should place a bid between 6.4 B and 8 B. Since its a competitive bid, Walmart
should place a bid closer to 8 B to increase its chances of acquiring Carrefour
If Walmart wins the bid, it should not reduce the prices, because it will reduce the business
profitability

97
Case 12: Walmart
Market Entry Bain & Company

Expected:
Provides a MECE framework, mentioning that there are at least 2 options to enter the French
market: start from scratch or buying an existing competitor (extra credit if the candidate mention
that Walmart can partner up with a local company)
Framework includes potential synergies Walmart may have with this acquisition
Correctly ask for the necessary information to calculate Carrefours net value

Performance Good:
Completes all Expected requirements
Evaluation Correctly calculates all sessions of the case, but needs some assistance from the interviewer

Excellent:
Completes all Good requirements
Correctly calculates all parts of this case with minimum assistance from the interviewer
Keeps the interviewer engaged during the calculations and brainstorm sessions, demonstrating
strong communication skills

98
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 99
10%
Strategy

100
Case 13: Euro Logistics
Strategy McKinsey & Company

Euro Logistics is a big logistic company. It wants to improve its customer satisfaction index.
Prompt What should they do?

Provide the following information upon request:

The company is a large logistic company (such as Maersk). They provide the logistic services
only in Europe
Guidance They have many trucks, sea port terminals all around Europe and cargo ships
The logistic market is very competitive and Euro Logistic understands that offering a better
customer service is a good way to differentiate themselves in this market

101
Case 13: Euro Logistics
Strategy McKinsey & Company
The candidate should provide a framework that touches the value chain of the company.

When he/she talks about customer satisfaction, he/she should consider that the customer evaluates the
Guidance company based on contact with the service, from the start to the end of the experience.

When the candidate asks how the customers evaluate the Euro Logistics service level, provide Exhibit 1.

What can you conclude from this table? Is there a particular measure or country that Euro
Prompt Logistics should pay a special attention?

102
Case 13: Euro Logistics
Strategy McKinsey & Company

Exhibit 1: Customer Satisfaction Survey


The tables below represent a survey filled by over 250 companies. The charts shows in order of what is most important
for the companies in each country. Scores above 75 are considered good.

Germany England Norway

Customer Service 90 Customer Service 80 Delivery Time 85


Billing 80 Delivery time 70 Billing 70
Delivery Time 68 Billing 65 Order Tracking 69
0 50 100 0 50 100 0 20 40 60 80 100

Ireland Netherlands Sweden

Order Tracking 73 Delivery Time 80 Delivery time 90


Customer Service 67 Customer Service 75 Customer Service 80
Billing 65 Billing 65 Billing 70
0 50 100 0 50 100 0 50 100

Scotland France Italy

Delivery Time 85 Customer Service 85 Customer Service 83


Billing 70 Delivery Time 80 Delivery time 75
Order tracking 65 Order Tracking 60 Order Tracking 67
0 20 40 60 80 100 0 50 100 0 50 100

103
Case 13: Euro Logistics
Strategy McKinsey & Company
Provide the following information to accompany Exhibit 1:

Billing: bills should be provided within 30 days before its due date without any billing mistake.
Mistakes or delays reduces the score of this point
Customer Service: all orders are received through a call center. The call center is also used to
answer any questions that the customers might have. Delays to pick-up the calls and/or failing to
give the right answer reduces the score for this point
Order Tracking: an online tool that allows the customer to track the shipment in real time. Lagged
information or lack of detailed information reduces the score for this point
Guidance Delivery Time: delivering the shipment on schedule, without any delay. Delays reduces the score

The candidate should realize that following:


Billing and Order Tracking are the points that has the lowest average scores and they are
considered important by most countries
Customer Service is very important and highly rated
Delivery Times have some bad rates, but the delays are caused because of delays in customs. The
only thing Euro Logistics can do is provide a more realistic delivery deadline

104
Case 13: Euro Logistics
Strategy McKinsey & Company

Euro Logistics wants to improve its Billing and Tracking Order systems. Our team estimates that it
will cost then 5 M Euros to buy each of these new systems, but we estimate that the new systems
will reduce the churn rate (% of customers lost per year) by 20%.
Prompt
Should they do it? Whats the payback period of this investment?

Provide the following information upon request:


Current Yearly Revenues = 150 M euros
Current Churn Rate: 25%
Net Margin = 30%
Goal: payback in less than 2 years

Revenues lost per year = $ 150 M x 25% = 37.5 M euros


Guidance
Savings provided by the new system = $ 37.5 M x 20% = 7.5 M euros

Payback period = Investment / Savings = 10 / 7.5 = 1.3333 years = 1 year and 4 months

The candidate should recommend investing.

105
Case 13: Euro Logistics
Strategy McKinsey & Company

Expected:
Provide a MECE framework
Understands the charts on the exhibit and correctly recommends that the client focus on Billing
and Tracking Orders
Correctly calculates the payback period

Performance Good:
Evaluation Completes all Expected requirements
Asks relevant questions right after the first prompt is read

Excellent:
Completes all Good requirements
Provides a framework that touches at least 4 points of the companys value chain

106
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 107
10%
Case 14: ATM Company
Strategy Bain & Company

Our client is a big ATM provider in U.S. For the past 2 years, the number of clients had increased,
but the companies profits declined. The client reached us to understand what might be happening
and what can they do to grow revenue again.
Prompt
How would you approach this problem?

This a basic revenue/profitability increase case. Provide the following information upon request:
The client actually provides the ATM service to banks
They install ATM machines in various gas stations, convenience stores, and grocery stores
The banks pay a fixed commission to ATM Company every time that the banks customers
Guidance withdraw cash or check their account balance
The ATM Company is nearly a monopoly in the South (North Carolina, South Carolina, and
Virginia). Therefore, direct competition is not an issue
The ATM Company has 3 types of clients: Big, Medium, and Small Banks

108
Case 14: ATM Company
Strategy Bain & Company
The candidate should use a profit framework, touching on revenues and costs. With costs, nothing has
changed in the past.

Ask the candidate to list some important costs in this business (see some cost ideas below).
Rent (the ATM Company must pay for the space where they install the ATMs)
Sales force (responsible to find good places to install the ATM Machines)
Cost of capital (there are a lot of money inside the ATMs)
Logistics
Insurance

When the candidate asks for revenue information, provide Exhibit 1. Ask the candidate to calculate the
revenues in 2011.
Guidance Calculations:

Allow the candidate to round.


Average revenue p/ transaction (without rounding): 78% x $0.20 + 16% x $0.25 + 6% x $0.30 = $0.214
Average revenue p/ transaction (rounding): 80% x $0.20 + 16% x $0.25 + 6% x $0.30 = $0.2125

The revenue per transaction can be further rounded to $0.20

Total revenue = Average Revenue per transaction x # of transactions

Total revenue = $0.20 x 245M = $49M Total Revenue can be rounded to $50M.
Total revenue (un-rounded) = $0.214*245M = $52.43M

109
Case 14: ATM Company
Strategy Bain & Company

Exhibit 1: Summary of transactions in 2011

Revenue per
Type of Client Number of Clients % of transactions
Transaction
Large $0.20 3 78%

Medium $0.25 5 16%

Small $0.30 13 6%

* The number of transactions in 2011 was 245M

110
Case 14: ATM Company
Strategy Bain & Company

After analyzing the competition landscape, your team has realized that the large banks are now
offering their own ATM machines in similar locations as ATM Company does.
Prompt What risks does this fact bring to ATM Company? How can ATM company increase its
revenues?

The candidate should realize that the large banks are now both competitor and customer. This is the
reason why revenues and profits have declined.

A major risk that the candidate should bring up is that large banks account for over 70% of ATM
Companys revenue. Competing direct with them might result in bigger losses if one of the large
banks break the contract with ATM Company. Large Banks competes fiercely with each other.
Therefore, they may install even more ATMs to increase their presence in the region and provide a
better service to their clients
Guidance
Potential solutions:
Focus on medium and small banks
Renegotiate prices (decrease the price to large banks to avoid them installing new ATMs)
Propose exclusivity agreements with top stores, avoiding the entrance of competition
Develop a demographic study to understand where the small and medium bank customers live
and install ATMs in those areas

111
Case 14: ATM Company
Strategy Bain & Company
Expected:
Provides a MECE framework
Correctly calculates revenue
Lists some cost drivers
Answers every question of the case

Good:
Performance Completes all Expected requirements
Evaluation Quickly identifies the competitive landscape as the main problem
Provides most corrective actions listed with minimal prompting

Excellent:
Completes all Good requirements
Before the second prompt, identifies that most of the revenues comes from only 3 clients
Suggests some creative solutions not mentioned in the case

112
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 113
10%
Case 15: Pharma Corp
Strategy McKinsey & Company

A small pharmaceutical company with $5B in annual revenues and lean operations is looking to
invest $2B in its business.
Prompt
What investment opportunities should they be looking at?

Provide the following information upon request:

The candidate should ask what the business objective of the investment is. They are looking to
grow immediately, but sustainably
The company currently sells approximately 10 FDA regulated products across a number of
different therapeutic areas. Their geographic focus is the US. Steer the candidate to focus on US
opportunities only
If the candidate asks about in-house drug development capabilities or interest to expand outside
of pharmaceutical products (or anything else really), suggest that the CEO is open-minded and
wants to hear from you what opportunities may exist for its company
Guidance The candidate should provide a framework that touches the different investment opportunities that
may exist for this company. Possible options include, but may not be limited to:
Acquisition of a competitor
Acquisition of a new portfolio compound
Licensing of a new portfolio compound
JV for a new portfolio compound
In-house development of a new compound
Entering the generic market
Entering the diagnostic market or companion diagnostic market
Utilizing capital to increase operational efficiencies and cut costs

114
Case 15: Pharma Corp
Strategy McKinsey & Company
Lets take a closer look at the acquisition of a competitor and the acquisition of a new portfolio
Prompt compound. Could you provide me a table of pros/cons of each option?

Pros Cons

Opportunity to increase margins due Inflates lean operations /


Competitor to reduced competition backbone, potentially lowering
Acquisition Potential for access to a drug overall margins
portfolio and pipeline Integration of products and
Corporate customer database people required
Talent pool access

Opportunity to select compound(s) New customers and sales reps


Guidance New Drug
that best balance will need to be groomed and
growth/risk/company position and trained
Acquisition
overall company portfolio Potentially no in-house
composition expertise in disease area
No or limited overhead associated
with purchase

Numerous other valid arguments can be made here in favor or against each option. A
candidate can distinguish himself here, by proactively pointing out trade-offs, keeping the
companys lean operating model in mind, thinking high-level ($2B investment is 40% of
current revenues) and structuring thoughts clearly and easy to follow for the interviewer.

115
Case 15: Pharma Corp
Strategy McKinsey & Company

Pharma Corp.s CEO thinks that the acquisition a specific new drug could really strengthen the
companies overall portfolio. He has already done some research and is fairly positive that they could
buy this drug for $2B.
Prompt
How would you go about valuing this drug?

Let the candidate brainstorm a bit (NPV, competitive valuation, etc.) before you provide information,
if he/she starts mentioning data that would allow him to value the company, begin to provide the
following information. Provide the following information:
Patient base: 150,000 (assume that is steady)
Patient dose: Twice daily, for life (irrelevant, just to add confusion)
For the 30-day supply, patient Co-Pay is $30 and equals 10% of total drug price (health insurance
covers the remainder 90%)
Net Margin: 75%
Guidance Competition: theres only one competitor with a marginally inferior product
Expected market-share: since the competitors drug is only marginally inferior, the CEO expect to
acquire 50% of the market

Tell the candidate to calculate expected profits in year 1. If the candidate asks for sales beyond year
1, tell them that patent life of 10 years remaining, expecting similar sales. For simplicitys sake, no
discounting is assumed.

116
Case 15: Pharma Corp
Strategy McKinsey & Company

Monthly revenues: 150,000 patients x $300 cost per patient = $45,000,000 per month
Since you have there is competitor whose drug is marginally inferior, you can capture half the
market: $22,500,000 per month

Yearly revenues: $22.5M *12 = $270M


Guidance
Yearly profit: $270M*0.75 = $202.5M

10- year profit = ~$2B

117
Case 15: Pharma Corp
Strategy McKinsey & Company

Prompt Do you think this is a good investment opportunity?

The candidate is expected to bring up the following:

Pros: This could be a profitable business if the client can achieve significantly more than 50%
market penetration, increases the margin or finds additional indications that widen the patient pool
Guidance Cons: Under current assumptions, the full investment is returned after 10 years when discounting
is ignored. In reality the NPV would be significantly below $2B and profits would decline rapidly
after patent expiration

118
Case 15: Pharma Corp
Strategy McKinsey & Company

Expected:
Provides a MECE framework, mentioning some growth options (investing within the company,
acquire a competitor, expand internationally, partner with another company, etc.)
Correctly answer all questions

Good:
Completes all Expected requirements
Performance Quickly identifies that acquiring a competitor will not be a good deal for the client
Evaluation Asks relevant clarifying questions right after the prompt is given

Excellent:
Completes all Good requirements
Correctly calculates all parts of this case with minimum assistance from the interviewer
Keeps the interviewer engaged during the calculations and brainstorm sessions, demonstrating
strong communication skills

119
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 120
10%
Case 16: Blackouts in Uganda
Strategy BCG

This is a multi-step case which will encourage the student to think creatively through several stages
of a case that they likely have little background in. Encourage candidates that formal frameworks
are not really required for this case (as is the case in many BCG interviews) but can be used if they
Guidance think it would be helpful. Additional time should not be allowed for a candidate to build a framework
for any of these prompts.

Many non-OECD countries suffer from frequent blackouts and shortages in electricity. This is a
known fact.
Prompt A List at least 3 reasons for why electricity shortages occur and may be more frequent in non-
OECD countries.

Encourage the candidate to think through and list as many reasons as they can think of. Feel free
to ask them to elaborate or explain any reason further. Note: OECD countries include all wealthy
European and North American countries as well as Australia and New Zealand.

Possible answers:
Poor infrastructure
Inefficient electrical grids
Guidance Lack of adequate funding available to finance investment in electrical infrastructure (build power
plants, etc.)
Large population growth
Rapid industrialization
High GDP growth that has outpaced investment in the electricity infrastructure
Natural disasters
Old power plants unable to meet current demand or may require frequent maintenance

121
Case 16: Blackouts in Uganda
Strategy BCG

Why is the lack of electricity such a serious problem?


Prompt B
Encourage the candidate to think beyond the basic answer that no power = no television, no light
etc. Ideally, the candidate will delve deeper into the so what here and recognize some of the
deeper implications of power outages.

No power will result in:


Lower productivity
Poorer education, healthcare, quality of life
Limited access to information
Political instability (see below)

Guidance Further clarification: Access to electricity has essentially become a right and a necessity for the
current generation. People living anywhere except maybe the poorest countries in the world are
demanding access to not only food, water and shelter but also electricity. For example, much of
Africa gained access to cellular phones before landlines and as such the massive increase in the
use of electrical products (phones, computers, TVs, radios) has been a primary driver for the
shortage in electricity worldwide. Perhaps more dangerous is that blackouts and shortages have the
potential to create significant instability for a government. Access to electricity means access to
information and limiting a populations access to information can spur revolt. As a result of these
implications, rental power providers have seen their industry grow massively over the last decade
with projects of the industry doubling every 3-4 years.

122
Case 16: Blackouts in Uganda
Strategy BCG

Following the massive earthquake in Japan in 2011, there were significant power shortages in the
country as a result of the TEPCO nuclear reactors going offline due to significant damage. In fact,
Japan was left with a deficit of nearly 2 gigawatts due to this disaster (1 GW = 1000 MW). To bridge
this gap, Japan turned to rental power providers which were able to provide 2000MW of temporary
power within 3 months. Similarly, many rapidly developing countries utilize the same rental power
providers to help bridge the gap in their own electrical infrastructures. Due to many of the reasons
Prompt C in prompt A, the demand for power is high and while rental power providers have been extremely
successful and profitable in providing power to electrical utilities in these countries, it is estimated
that the market is as much as 10x larger than initially expected.

List 5 or more data points that you would require to determine which countries a rental
power provider should prioritize.

If necessary, clarify the question by rephrasing: How would you decide which countries would be the
most profitable for a rental power provider? There are a number of variables that are useful for this
analysis and the candidate should get at least 5.

Basic: population, population growth, per capita GDP, GDP, GDP growth

Guidance Intermediate: fossil fuel production, energy generation/consumption, power outages per year

Advanced: % of electrical production from hydroelectric power plants (see next prompts for clarity),
electrical grid utilization rates (high grid utilization means a greater likelihood of blackouts during
peak loading periods), political and financial risk levels (many international organizations rank
countries by this), corruption levels (many international organizations rank countries by this).

123
Case 16: Blackouts in Uganda
Strategy BCG

The Uganda Electricity Transmission Company (UETCL) is suffering from severe electrical
Prompt D shortages due to recent droughts. Why might this be?

It is not expected of the candidate to figure this out without any guidance. If the candidate is
struggling, or asks inform them that Uganda produces 99% of their electricity through hydroelectric
power. Clearly, Uganda is heavily reliant upon hydroelectric power. In times of drought, water levels
Guidance are lower, rivers flow more slowly, etc. and as a result the amount of electricity that can be
generated is significantly lower.

124
Case 16: Blackouts in Uganda
Strategy BCG

Is it possible to forecast how much power the UETCL will require during a drought? If
Prompt E yes/no, please explain why.

Yes. We can forecast the energy production by examining water levels, power plant efficiency and
electrical production over time. Specifically, the amount of water held in a hydroelectric dams
reservoir will be the most telling indicator. These variables can determine how much electricity is
typically available during normal periods and in droughts.

From these variables, the water level is the one that varies the most. Therefore, we can estimate the
power production using rainfall forecasts and knowledge of the hydroelectric grid.
Guidance
The power consumption varies according to the economy. When the GDP grows, the power
consumption is also expected to grow in the same proportion.

In conclusion, we can predict the power production using rainfall forecasts and consumption data
using economic forecasts, such as the GDP, all of which are typically publically available.

125
Case 16: Blackouts in Uganda
Strategy BCG

Assume the 250MW Bujagali hydroelectric plant in Uganda typically produces about 1 million MWh
(megawatt hours) annually assuming there are no droughts and the water level of the dams
reservoir is at least 100 ft deep. Due to recent droughts, the water level in the reservoir has fallen to
76 ft and is expected to stay around that level for the next 6 months before returning to normal (100
ft). If the reservoir falls below 50ft no power can be produced.
Prompt F
Please calculate what the electricity shortage will be for the next 12 months.

Note: the production capacity decreases proportionally when the water level is bellow 100ft,
reaching 0% when the water level is at 50 feet.

The candidate should recognize that the 250MW installed capacity of the power plant is extraneous
information. If asked, briefly explain that power plants are MW are units of power and MWh are units
of energy or rather the amount of energy used over time.

Assume a linear function of depth vs. power producing capacity. Also assume even power
production for every month of the year with the only varying factor being a drought.

Solution 1: If 50ft = 0% production and 100ft = 100%, 76ft = 52% production (26ft*2%/ft)
Guidance 6 months normal production = 500,000 MWh
6 months low production = 52% of 500,000 MWh = 260,000 MWh
Therefore, the shortage will be 1,000,000 500,000 260,000 = 240,000 MWh

Solution 2: 100ft = 1,000,000 MWh annually, 50ft = 0 MWh 1ft = 20,000 MWh/yr
(100ft 76ft) x 20,000 = 580,000 MWh/yr shortage
580,000/2 = 240,000 MWh shortage annual since the drought only lasted 6 months.

126
Case 16: Blackouts in Uganda
Strategy BCG

Based on your answer from Prompt F, calculate how many Ugandans will be without
electricity during the next 6 months. Please provide the actual number and the percentage.
Prompt G Assume even power distribution across the country.

Wait for the candidate to ask for the additional data before supplying it:
Uganda annual power consumption: 2,000,000 MWh
Population in Uganda: 34,500,000
Population in Uganda without any access to electricity: 28%
Note: it is extremely rare (especially outside OECD countries) to have 100% electrification rates

Solution:
Population already without power: 34,500,000 * 28% = 9,660,000 (round to 10,000,000)
Population with power: ~25,000,000
Shortage over 6 months: 240,000 MWh

Guidance Calculate per capita power semi-annual power consumption:


=2,000,000/25,000,000/2 = 0.08/2 = 0.04 MWh /person

Calculate number of Ugandans without power due to drought:


=240,000/0.04 = 6,000,000

Calculate total number of Ugandans without power:


=6,000,000 + 10,000,000 = 16,000,000

Percentage of Ugandans that will be without power over the next 6 months:
=16,000,000/34,500,000 = ~ 46%

127
Case 16: Blackouts in Uganda
Strategy BCG

Expected:
Prompts A, B and C answered with little or no guidance
Prompts D, E attempted but only completed with significant guidance
Prompts F and G completed with some guidance

Good:
Prompts A, B, C, F and G completed with little or no guidance
Performance Prompts D, E attempted but only completed with significant guidance
Evaluation Excellent:
Completes Expected and Good requirements
Completes all prompts without significant guidance
Added their own additional insights about the case. For example, they elaborated on why it would
be fairly risky for a rental power provider to do business in certain countries due to the significant
risks of doing business there (i.e. Syria)

128
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 129
10%
Case 17: Contract Manufacturer Co.
Strategy Bain & Company

Your client is Contract Manufacturer Co., which produces components for a number of diverse
products. They have grown quickly and had 2011 revenues of $17 billion. They now serve 350
customers across nearly 20 industries, including consumer electronics, mobile phones, healthcare,
and defense. They are dependent on their end-markets, e.g. how many consumers buy mobile
phones next year, but they only see this demand through their customers, e.g. Apple and RIM.
They are therefore very vulnerable to changes in market demand but find it difficult to estimate this
demand. Third party sources, e.g. financial analysts and market research organizations who follow
the space, are also very inaccurate.
Prompt
The CEO of Contract Manufacturer Co. has become increasingly frustrated by their vulnerability to
the market and their inaccuracy in predicting end-market demand. He wonders whether they should
be better able to identify market trends and in particular, whether they could better utilize data they
have accessible via their customer relationships.

How would you go about advising the CEO? Should Contract Manufacturer Co. be able to
develop a proprietary view of their markets?

This is a high-level, strategy case that should lead to an interesting, open-ended discussion rather
than a focused analysis. The objective is to test the candidates ability to quickly understand an
industry that is not often discussed and think creatively and holistically about a business problem.
The candidate should have most of the information needed in the prompt but may ask clarifying
questions before beginning his/her framework.
Guidance
Provide the following information upon request:
Services: customers turn to Contract Manufacturer Co. or their competitors to provide parts
quickly and cheaply. They are involved in some design and after-market services but most of their
business (revenue) comes from simply manufacturing the parts requested. Customers will
generally request parts 3-months in advance
130
Case 17: Contract Manufacturer Co.
Strategy Bain & Company

Competitor landscape: Contract Manufacturer Co. is in a competitive space. Contract


Manufacturer Co. is one of the leading players, with about 10% market share. Their largest
competitors are Chinese and Taiwanese
Organizational structure: Contract Manufacturer Co. is structured by industry verticals, which it
terms sectors, e.g. mobile phones or healthcare would be sectors. They have sales and
account teams dedicated to customers in these sectors and a VP leads each sector. They have a
strategic planning group at the corporate level, but it is quite new and not very mature
Profitability: Contract Manufacturer Co. is a profitable business but their margins are only 3-5% so
they depend on volume
Geographic scope: Contract Manufacturer Co. is based in the US but has operations worldwide.
Their customers are also global
Costs: Contract Manufacturing Co.s costs include procurement of supplies, manufacturing costs,
and labor costs. When customer request parts, Contract Manufacturer Co. needs to invest
significant sums in machinery and technology
Guidance
Ideal recommendations should touch on some of the areas below. The candidate should be
measured against the quality of the questions posed and the level of the discussion overall. The
candidate should sound interested in the potential for better market intelligence but realistic about
the state of the company and whether this is feasible in their environment.
External best practices (What):
The candidate may be curious to better understand whether other companies similar to
Contract Manufacturer Co. (e.g. their competitors or proxy industries) are able to develop
accurate views of their end-markets.
Analysis indicates that in the contract manufacturing space, companies are not very
mature at market intelligence. Their competitors do not appear to be any further along in
this process.
Best-in-class companies, however, have established market intelligence functions that
capture market data, including publically available data (financial statements, research
reports, etc.) 131
Case 17: Contract Manufacturer Co.
Strategy Bain & Company

Motivation and justification (Why):


The candidate should be curious about the benefits of developing a more accurate view of
their markets. The candidate may postulate a few reasons or ask for guidance
While it is difficult to quantify the benefits of better market intelligence, overall it is clear this
is beneficial because of the strategic decisions and risks the company is able to take
Specifically, a sophisticated business is able to do the following:
1. Accurately forecast revenue
2. Improve account planning, e.g. revise production, capacity and resource plans
3. Develop long-term strategy, e.g. identify capability gaps and evaluate need for M&A
or R&D to fill the gaps
4. Build credibility with the investor community by communicating an accurate annual
view of the market and corresponding strategy
Customer willingness (How):
The candidate may be curious to understand whether customers would be willing to share
Guidance their strategy and plans with their suppliers, since that is ultimately what a proprietary view
of the market will depend on
Our research indicates that most customers were open and willing to discuss their
strategies with Contract Manufacturer Co. since they understand that it furthers both
organizations objectives
Customers in certain industries/sectors, however, remain reluctant to share much
Sector applicability (Where):
One vital insight is that the ability for Contract Manufacturer Co. to develop an accurate
view of the market differs across sectors; that said, there is the potential to improve their
market intelligence gathering in all sectors
One way to determine applicability is to use a matrix (see Exhibit 2), plotting need for
market intelligence on one dimension and ability to accurately develop a view of the market
on the second dimension; the recommendation would then be for the client to first focus on
sectors where there is the greatest need and ability to improve market intelligence, in order
to get the biggest wins first 132
Case 17: Contract Manufacturer Co.
Strategy Bain & Company

Roles & responsibilities (Who):


The candidate may consider who in the organization would be best suited to improve
market intelligence gathering
The organization has a centralized strategic planning team that could be responsible for
gathering and tracking publically available data; ultimately the sales and account teams will
need to be trained to listen and engage their customers in discussions about market
direction
There is no right answer about who should own this process
Next steps (When):
The candidate should attempt to think through immediate next steps. There is no right
answer but the candidate should understand that this is a capability that will take time to
develop and will not transform over night
Some next steps might include:
1. Getting buy-in for this idea across the organization
Guidance 2. Performing analysis to understand in what sectors to prioritize efforts
3. Consider running a market intelligence pilot in a few sectors
4. Evaluate the systems in which they currently capture customer data and ensure
they will allow for more mature data gathering
5. Begin to more comprehensively track publically available data

As the discussion progresses, the interviewer should give the exhibits to the candidate:
Exhibit 1: the first insight here is that third party forecasters are just as inaccurate and indeed in
most cases, more inaccurate than Contract Manufacturer Co. at forecasting the market. The taller
the bar, the greater the forecast error and therefore the less accurate the forecast. The second
insight is that the accuracy differs across sectors, so the candidate should begin to think about
the applicability of this work to specific sectors
Exhibit 2: this is one way to prioritize the sectors (the candidate may have recommended an
alternative approach). The insight is that the client should focus their efforts on the top right
quadrant (see Exhibit 2, for interviewer only) 133
Case 17: Contract Manufacturer Co.
Strategy Bain & Company

Exhibit 1: Annual revenue forecast errors

Contract Manufacturer Co.s Forecast Error


62%
Third Party Forecast Error

38% 40% 40%


33% 31%
27%25% 25%
20% 18% 20%
15% 16%
12% 10%
6%
3%

Sector 1 Sector 2 Sector 3 Sector 4 Sector 5 Sector 6 Sector 7 Sector 8 Overall

Note: Contract Manufacturer Co. is forecasting each sectors revenue for the next year; the third party
source is forecasting the size of the overall market (sector) next year

134
Contract Manufacturer Co. Exhibit 2

High

Sector 1
Value of a proprietary view

Sector 4

Sector 5
Sector volatility

Sector 6 Sector 3

Sector 8 Sector 7
Sector 2
Low

Low Degree of market exposure High

Ability to develop a proprietary view


Contract Manufacturer Co. Exhibit 2
For Interviewer Only
LEVEL OF EFFORT REQUIRED DIFFERS ACROSS SECTORS

More challenging Greatest impact


Sectors with fewer customer relationships Sectors with many customer relationships
High

and a high degree of volatility and a high degree of volatility


Value of a proprietary view

Less accessible and less accurate external Less accessible and less accurate external
market data market data
Sector volatility

Difficult to establish an accurate proprietary Greater need and opportunity to establish


view but greater need for one an accurate proprietary view

Look externally Quick wins


Sectors with fewer customer relationships Sectors with many customer relationships
and relative stability in the sector and relative stability in the sector
More accessible and more accurate More accessible and more accurate
external data external data
Low

Opportunity for greater reliance on external Opportunity to more quickly and effectively
market research develop a proprietary view

Low Degree of market exposure High

Ability to develop a proprietary view


Case 17: Contract Manufacturer Co.
Strategy Bain & Company
Expected:
Understands the client situation and question at hand
Develops a framework that addresses an overview of the issues at play

Good:
Completes all Expected requirements
Asks some of the clarifying questions to narrow the focus of their framework (or after developing
Performance the framework, as part of the discussion)
Leads a good discussion around the issues
Evaluation Reaches a conclusion with minimal prompting

Excellent:
Completes all Good requirements
Raises most issues listed and suggests some other, creative areas not mentioned in the case
Provides a high level overview of next steps the client should take to implement some of the
suggestions and risk mitigation

137
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 138
10%
Case 18: Online Automotive Marketplace
Strategy Bain & Company

Your client is an online automotive marketplace that enables dealers and individuals to buy and sell cars.
They have recently acquired 4 companies operating in a similar domain that have somewhat overlapping
products. They are increasingly facing problems with their sales and service processes because of the
Prompt acquisitions.

What should they do?

This is a general case that focusses on brainstorming the possible problems that are causing trouble to
the sales and service functions and also coming up with potential solutions to the problems. In case the
candidate does not automatically answer the following questions, prompt him/her to ask:
What do you think is causing the problem?
What are the potential solutions?
What are the risks associated with implementing these solutions?
What are some of the ways we can mitigate these risks?

Provide the following information upon request:


Their customers are car dealers of different sizes (some spending a lot and some spending very less)
Guidance Currently the sales force serves meet all the dealers face-to-face, irrespective of size
The client has media products (banners etc.) and software products
Software products that enable dealers to acquire a fleet of cars, merchandize/organize information
about these cars, put ads of these cars on websites

In case the candidate asks for further information on how exactly the problem was caused share the
following: the client was already serving the entire value chain (as highlighted above), through its own
products. Through the acquisition, the client added companies to its portfolio that made similar products
and sold them to dealers.

139
Case 18: Online Automotive Marketplace
Strategy Bain & Company
After the candidate has provided his/her reasons for the problem, share the following:
Similar products offered by the companies acquired
Lack of incentives for the sales force to up-sell and cross sell products of acquired companies
Lack of a robust centralized IT system
Too many sales roles, creating confusion in the exact roles and responsibilities
Disproportionate amount of time spent in serving dealers that spend too less

Ask the candidate to recommend solutions to each of the above problems:


Product bundling, killing a few products
Incentivize sales force to cross-sell and up-sell
Implement a centralized IT system where everyone knows what is being sold to who, etc.
Streamline the sales force with clearly defined roles and responsibilities
Better dealer segmentation and serving the lesser paying dealers remotely than in person
Guidance
Keys risks associated with implementing the solutions:
Dealer confusion; some dealers might love a particular product that we might kill
Lack of focus of the sales force due to increased responsibilities. Increased turnover
Might be too costly and hard to implement
Job losses; distrust, and antipathy amongst the sales force
Dealer churn due to change in the service provided

Ways risks can be mitigated:


Educate the sales force and the dealers about the benefits that they are expected to obtain
Create mechanisms to actually provide great service to the dealers by opening dedicated remote
service centers and saving money

140
Case 18: Online Automotive Marketplace
Strategy Bain & Company
The client is planning to implement all your recommendations, can you estimate the financial
Prompt impact of the recommendations?

The candidate should ask what metric the client wants. Tell him to calculate EBITDA. He/she should
automatically start talking about revenue and cost = EBITDA

Encourage a brainstorming session around revenue drivers and cost drivers. Ask the candidate to come
up with possible drivers for both revenue and cost. Also ask whether the individual revenue and cost
drivers are expected to increase/decrease.

Following are the drivers:


Revenue (will increase):
Increased dealer growth
Reduced dealer churn
Guidance Increased average spent/dealer
Costs (will increase):
Increased sales costs
Reduced service costs
Increased IT costs
Increase in other costs
EBITDA (will increase)

Once the candidate has done the brainstorming, provide them with Exhibit 2 & 3. Check their public
math.

141
Case 18: Online Automotive Marketplace
Strategy Bain & Company

Exhibit 1: Revenue Drivers

Revenue Driver Without recommendations With recommendations


implemented implemented
Net Number of dealers

Division A 90 ?

Division B 40 ?

Division C 45 ?

Number of dealers added

Division A 15 20

Division B 10 15

Division C 5 10

Number of dealers lost

Division A 5 0

Division B 7 2

Division C 2 2

142
Case 18: Online Automotive Marketplace
Strategy Bain & Company

Exhibit 2 (Candidate copy)


Revenue Driver Without recommendations With recommendations
implemented (USD) implemented (USD)

Average annual spend per dealer

Division A 80,000 90,000

Division B 90,000 100,000

Division C 100,000 110,000

143
Case 18: Online Automotive Marketplace
Strategy Bain & Company

Exhibit 3 (Candidate copy)


Cost Drivers Increase in cost due to recommendation
implementation (USD)

Sales cost 500,000

Service cost -250,000

IT costs 500,000

Other costs 450,000

144
Case 18: Online Automotive Marketplace
Strategy Bain & Company

Exhibit 1: Revenue Drivers (Interviewer copy)


Revenue Driver Without recommendations With recommendations
implemented implemented
Net Number of dealers

Division A 90 100 (=90-15+5+20-0)

Division B 40 50 (=40-10+7+15-2)

Division C 45 50 (=45-5+2+10-2)

Number of dealers added

Division A 15 20

Division B 10 15

Division C 5 10

Number of dealers lost

Division A 5 0

Division B 7 2

Division C 2 2

145
Case 18: Online Automotive Marketplace
Strategy Bain & Company

Exhibit 2 (Interviewer copy)

Revenue Driver Dealers Spend Per Revenue Dealers Spend Per Revenue
Calculations: without dealer without with Reco. dealer without with Reco.
Reco. without Reco. Reco.
Reco.
Additional Revenue

Division A 90 80,000 90*80,000 100 90,000 100*90,000=


=7.2 Million 9 Million
Division B 40 90,000 40*90,000 50 100,000 50*100,000=
=3.6 Million 5 Million
Division C 45 100,000 45*100,000 50 110,000 50*110,000=
=4.5 Million 5.5 Million
Total 15.3 19.5 Million
Million

Difference in revenue = (19.5 - 15.3) Million = USD 4.2 Million

146
Case 18: Online Automotive Marketplace
Strategy Bain & Company

Exhibit 3 (Interviewer copy)

Cost Drivers Increase in cost due to recommendation


implementation (USD)

Sales cost 500,000

Service cost -250,000

IT costs 500,000

Other costs 450,000

Total cost impact = 5000,000-250,000+500,000+450,000 = USD 1,200,000

Total EBITDA impact = 4,200,000 1,200,000 = USD 3 Million

147
Case 18: Online Automotive Marketplace
Strategy Bain & Company
Expected:
Does not get overwhelmed with the data and the overall case
Identifies some of the reasons for the problem and also proposes some solutions, risks and
mitigation
Identifies some revenue and cost drivers
Gets close to the final EBITDA impact number

Good:
Performance Completes all Expected requirements
Identifies most reasons for the problem and proposes most of the solutions, risks and mitigation
Evaluation Identifies the revenue and cost drivers
Drives the calculation and gets very close to the final answer

Excellent:
Completes all Good requirements
Feels and appears confident throughout the case
Has a hypothesis upfront and conveys them to the interviewer
Drives the calculation and gets the answer correct through shortcuts

148
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 149
10%
Case 19: Russian Shipbuilding
Strategy
During the cold war, the USSR shipbuilding (SB) industry was based on programs. Each program was
different (e.g. destroyers, submarines, patrol) and had its own organization, own technology, own
engineers and own manufacturing facilities.

In the mid-90s, Russia was facing a strong recession, and decided to make public its SB industry.
However, some of the States with manufacturing facilities (Exhibit 1), were concerned about losing
these facilities, and therefore, increasing the unemployment in the region (each State with facilities had
an average of 50,000 direct employees and 150,000 indirect employees). To keep everyone happy, the
federal government decided to give over 60% of the company to States ownership (3-8% for each
State depending on the number of facilities and employees) and the remaining stake to public offering.
To make it more interesting for private investors, the company was restructured in 3 main divisions:
naval, submarines and advanced technology (AT).

After 15 years, the company has doubled its employees and has become one of the biggest players in
Prompt the SB industry. Revenues are $85B for naval, $10B for submarines and $12B for advanced
technology. A new CEO has been appointed to manage the whole company. She is concerned about
the effectiveness of the company, specially in the military segment. Her concern is based on three
factors:
1. 80% of naval revenues comes from commercial products (e.g. light boats, ferries)
2. Within the naval program, military ships are just adapted from commercial ships (e.g. goods
transport, tankers). See Exhibit 2.
3. The advanced industry division, has four programs (Electronic Defense, IT, Cyber Security and
missile boats), where missile boats are less related to the other three programs. See Exhibit 3.

The new CEO is thinking of creating a new division, called Military, to manage all ships with military
purposes. She is hiring you to evaluate if this is a good decision.

Is this the right choice? What should be her decision?


150
Case 19: Russian Shipbuilding
Strategy

Exhibit 1: Map of Russian shipbuilding facilities

Naval Raw Material


AT Parts
Submarines Final Assembly

151
Case 19: Russian Shipbuilding
Strategy

Exhibit 2: Fjellstrand M/V vessel, originally for commercial purposes,


now adapted to military

PSV model used for Military support


fishing platform

EXAMPLE

152
Case 19: Russian Shipbuilding
Strategy

Exhibit 3: Programs within the advanced technology division

Electronic Defense
IT Cyber Security Missile boat
(e.g. surveillance)

3.1 2.2 1.7 5.2

Yearly revenues
in $B

153
Case 19: Russian Shipbuilding
Strategy

The goal of this case is to evaluate how the student analyzes the current and future situation,
develop alternative scenarios for the new organization and provide a recommendation to the CEO.

The first thing that the student should be surprised by is that missile boats are not a part of Naval.
This is a key question for the discussion. The initial reasons why missile boats were included under
Advanced Technology are not valid nowadays, and are not needed to develop the case.

Please note that those employees who are directly related in manufacturing process are regarded
as direct employees whereas there are several subsidiary services required like machine repairs
etc. which are not directly related to production but are inevitable. Employees falling under this
category are namely indirect employees.

Although many frameworks are possible, there are 4 main areas to discuss:
1. Market potential: any change in the organization will require a certain investment. We want to
Guidance know if there are market opportunities that would justify this change
2. Synergies: there might be synergy opportunities for each scenario
3. Political issues: as stated in the case, politicians are wary of any change in the organization. Any
change in the organization could affect the facilities distribution and power ownership, potentially
going against the States interests
4. Potential scenarios:
M&A: creating a new division (Military) separated from the other two
Integration: integrating missile boats into Naval
Cooperation: increasing synergies between naval and missile boats
Current: keeping the company AS-IS

If the candidate does not mention the 4 points above, ask him/her to analyze the market potential
and list some synergies, political issues and potential scenarios.

154
Case 19: Russian Shipbuilding
Strategy

Market guidance:

Provide Exhibit 4. The candidate should identify that deliveries of missile boats will stop in 2018,
while naval deliveries will continue increasing in the future. He/she should conclude that the market
for missile boats will stop and therefore it is not necessary to do a merger. This conclusion would be
a trap, because:
The average manufacturing length to deliver a naval ship is 10 years, while for missile boats it is
just 5 years.
The main interests for AT are electronics, so they have little interest on improving (sales and
R&D) missile boats

Synergies guidance:

Guidance The candidate should develop an extended list of potential synergies. It is important to list the 3
main synergies: revenues, costs, know-how (this is key, because it will affect the political issues and
development of new products). A list with examples is shown later. This is an orientation list; the
candidate might come with other examples. No numbers are required. Share this with him/her once
the analysis is done.

Political issues guidance:

The candidate should list different organizational scenarios and how political issues might affect
each one. If he/she is stuck, the interviewer could provide some metrics (e.g. whether the scenario
will affect employees, facilities and State power) to develop the discussion. A list with examples is
shown below later. This is an orientation list, the student might come with other examples. No
numbers are required. Share it with him/her once the analysis is done.

155
Case 19: Russian Shipbuilding
Strategy

Scenarios guidance:

The candidate should identify 4 possible scenarios (as-is, cooperation, integration, merge into a new
division).The student should then highlight some aspects of each scenario, including ease of
implementation, value creation, and political attractiveness. A table with the different options is given
Guidance later. Key aspects are examples; other could be possible. Once completed, the interviewer can
share the table with the candidate. At the end of analyzing the scenarios, the student should perform
a recommendation to the CEO. Any answer is possible and should be supported with good
reasoning and information.

Expected:
Effectively summarizes the information given
Identifies areas of discussion
Arrives at some conclusion

Good:
Completes all Expected requirements
Works with the data to answer questions
Performance Asks good clarification questions
Evaluation Identifies most areas of synergies

Excellent:
Completes all Good requirements
Identifies all key recommendations with data to support
Identifies all 4 key scenarios
Summarizes all of the findings at the end of the case and provide a recommendation
Provides additional creative ideas
156
Case 19: Russian Shipbuilding
Strategy

Exhibit 4: Confirmed military orders to deliver by type of product

100
90
80
70 Missile Boats 1
60 Patrols
50
Tankers
Market 40
Shipbuilding Transporters
30
Others
20
10
0
2009 2011 2013 2015 2018

Red: products from advanced technologies


Blue: products from naval
1 Missile boat dont have a new product in the pipeline after 2015

157
Case 19: Russian Shipbuilding
Strategy

Interviewer copy: potential synergies

Reduction of procurement costs (economies of scale)

Amortization of R&D costs on a higher production


volume
Costs
synergies
Efficiency gains in production

Reduction of structural costs

Synergies Better access to markets (geographies, clients)

Synergies Revenue
Extension of the product portfolio and cross-selling
synergies

Strengthening of the bargaining power

Enhancement of the products through the use of


better technologies

Transfer of
Sharing of management and operations best practices
know-how

Sharing technology to new product development

158
Case 19: Russian Shipbuilding
Probability of happening
Strategy

Interviewer copy: political issues


Moving Moving Power
Scenarios Key comments Employees Facilities Change1

National interests remaining too


Keep AS-IS divergent
Keep current political division

Some R&D might move from one


Increase
factory to another, decreasing
coopera-tion
Political expertise in some regions
between
Redefine some facilities activities
Issues companies
Change commercial organization
Redefine facilities activities and
organization
Integrate
Integrate missiles services into naval
missiles into
central organization
naval
Decrease power of States where
missile facilities are located
Merge both One unique organization, separated
programs to from naval and AT
create a new Redefine contractual agreements with
Military suppliers
division Redefine manufacturing process
1 Changes in the States stake might happen due to changes in employees and facilities 159
Case 19: Russian Shipbuilding
Probability of happening
Strategy

Interviewer copy: potential scenarios


Value Feasi- "Political" at-
Scenarios Key comments creation bility tractiveness

No changes in the current landscape High


Keep AS-IS No synergies and keeping
underperforming facilities

Increase Common R&D effort throughout a


coopera-tion program Medium
between Sharing of industrial activities
Scenarios companies Unified commercial approach

Integration of all activities into naval


Change in political weights
Integrate
Naval would become even a bigger Low
missiles into
division compared to submarines
naval
and advanced technology

Merge both Consolidation of all activities into a


programs to new separated division Low
create a new Sharing of R&D and production load
Military Specialization of sites
division New power division
160
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 161
10%
Case 20: Online University
Strategy Deloitte
Your client is a reputed top 10 private university in the U.S. The schools management have
determined that they need to start introducing online courses in their portfolio of offerings but the
board of directors are skeptical of providing education in this format. Your firm has been hired the
answer the following questions:

Prompt What are the drivers of online education?


What is the market size of online courses in the U.S. today? Could you show how this has
grown in the last decade (2002-2012)?
Should the university introduce online courses? Please advise the client on opportunities,
risks and the strategy they should adopt.

This is a part strategy and part market estimation case. The analysis below is one way that it could be
solved, and the information may be provided if requested. It is also acceptable for the candidate to
make many of these assumptions for his/herself, as long as you find them reasonable. Either way, ask
the candidate to walk you through his/her thought process for solving the problem before embarking
on the calculations and final conclusion.

Guidance The following details may be provided upon request:


Undergraduate program (6,500 students) and graduate programs, ranging from business,
medicine, to law, public policy (8,200 students) the candidate may ask for this but is expected to
recognize that it is not necessary to solve the case
If the candidate asks anything else, feel free to provide information you see fit but note that the
profile of the university itself is not very relevant to the case

162
Case 20: Online University
Strategy Deloitte
The candidate should list some, if not all the following drivers of online education growth:
the rising cost of traditional education
greater trust and credibility associated with online learning
internet adoption and streaming capability
Guidance increased accreditation
increased acceptable of qualifications earned through online education by employers
attractive technology-based tools that enhance learning
recent involvement by brand name universities

163
Case 20: Online University
Strategy Deloitte

The candidate should ask for the following information about the market to do the sizing exercise:

2002 2012

Total number of post secondary students in the U.S. 1,916,000 2,628,000


Percentage taking one or more online courses 3% 20%
Number of students doing online courses (to be
calculated) 57,480 525,600

Guidance The candidate is expected to calculate the number of online courses (which is not the same as
calculating the number of students doing one or more online courses) for 2002 and 2012 by
assuming a reasonable split among students who are doing full programs online (e.g. Phoenix
University) vs. some course (average of 4) vs. few (average of 1.5). Allow the student to provide a
rationale for the split he/she assumes. Then provide this table:

2002 2012
A % of online students doing full programs (12 courses p.a.) 10% 20%
B % of online students doing 4 courses average 20% 30%
C % of online students doing 1.5 courses average 70% 50%

164
Case 20: Online University
Strategy Deloitte
This will allow the candidate to make the following calculations:

2002 2012
A (No. of students doing online course*% doing full programs*12)
= 57,480*10%*12 68,976 1,261,440
B (No. of students doing online course*% doing some courses*4)
= 57,480*20%*4 45,984 630,720
C (No. of students doing online course*% doing few courses*1.5)
= 57,480*10%*1.5 60,354 394,200

D Total online courses taken (A+B+C) 175,314 2,286,360


Guidance Total traditional courses taken (total number of post secondary
students*12 courses p.a.)
E = 1,916,000*12 22,992,000 31,536,000
Online courses as a percentage of total courses taken (D/(D+E)) 0.76% 6.76%

Eventually, the candidate is supposed to compare ~1% in 2002 vs. ~7% in 2012 of online courses
taken as a percentage of total courses taken and recommend whether this is significant enough for
the client to consider introducing online courses. There is no clear answer but the candidate is
expected to take a side and support it confidently.

165
Case 20: Online University
Strategy Deloitte
Possible reasons for introducing online courses:
Absolute number of online courses taken increasing from less than 200,000 to about 2M in
decade
Rise of accreditation (number of universities accredited as well as agencies providing
accreditation)
Global reach in terms of students for the client
Limited infrastructure costs (no buildings required; part-time teaching staff can be employed)
Major brand names also joining the online education game (Harvard, MIT, Purdue)

Possible reasons to not introduce online courses:


Guidance 1% to 7% of total courses taken being online over a ten year period during which society has
become hugely dependent on online means to communicate and function is not significant
Most students (80%) doing online courses are only doing a few or some courses online (not full
programs)
There is no data yet to show that individuals with online degrees have similar learning outcomes
and/or employment prospects
There is no one major, reliable accreditation agency
The client is a top 10 private university that caters to the most sought after employers in al fields.
They do not accept online qualifications

166
Case 20: Online University
Strategy Deloitte
Expected:
Recognizes first that a brainstorming of factors driving online education growth is necessary
before embarking on the market sizing part of the case
Lists some of the factors contributing to the growth of online education
Comes up with a reasonable approach to the market sizing and completes the calculations
competently
Arrives at some conclusion

Good:
Completes all Expected requirements
Recognizes most strategic drivers of growth for online education and can articulate the
relationship among them
Performance Can explain his/her plans at the start and provides reasoning behind the approach to the market
Evaluation sizing
Assumptions are realistic and he/she reaches a conclusion without much help
Can make a final recommendation for the client without prompting and with confidence.

Excellent:
Completes all Good requirements
Reaches a very sound conclusion based on the data and calculations
Assumptions and estimations are very realistic and the candidate is quick in identifying all the
elements of the problem
Proceeds with the assumptions in the right direction and estimates the market size without any
prompts from the interviewer
Delves into other avenues that the company might explore if the ideal plan fails

167
Case Interview feedback form
Case _______________________ Case type ______________ Interviewer ____________________

Execution
Case start time __:__
Structure 1 2 3 4 5
Logical approach Comments: Framework development ______ min
MECE Framework explanation ______ min
Appropriate drive to solution Case discussion ______ min
Quantitative Ability 1 2 3 4 5
Speed Comments:
Case end time ___:____
Accuracy
Comfort, reaction to mistakes Overall Rating: 1 2 3 4 5
Business intuition 1 2 3 4 5
Practical Comments: Strengths
Insightful
Breadth & depth across multiple functions
Creativity

Communication
Professionalism 1 2 3 4 5
Poise Comments:
Confident-Persuasive
Articulate-concise
Client ready Weaknesses
Written 1 2 3 4 5
Clarity of writing and page layout Comments:
Ability to refer back
Comfort, reaction to mistakes

Behavioral (optional)
Quality of star stories 1 2 3 4 5 Comments:
Length 1 2 3 4 5
Clarity 1 2 3 4 5
Key: 1=Bottom 10%, 2= 10th-25th percentile,
Relevance 1 2 3 4 5
3= middle 50%, 4= 75th-90th percentile, 5=Top 168
10%
Operations

169
Case 21: Beta Peaks
Operations McKinsey & Company

Your client, the general manager of Beta Peaks, a ski mountain in western Massachusetts, has
asked you to help him with the business. He was appointed to oversee all business operations 4
years ago. The client has noted that each year, Beta Peaks has earned disproportionately lower
revenues than a nearby mountain, Alpha Peaks. While costs have been stable, he is afraid that the
Prompt mountain cannot stay in business if the current trend continues. Your assignment is to identify why
revenues are lower at Beta Peaks and to propose solutions to increase revenues.

What areas would you explore to identify why revenues have declined?

Allow the candidate to draft his/her framework and walk you through. Potential areas of exploration
include demand (total number of customers has remained constant over the past 4 years),
competition (Alpha Peaks is the only other mountain within 100 miles of Beta Peaks) and if the
Guidance candidate asks about product mix & prices, let them know that:
Prices and product sales mix for all other concessions, rentals, and apparel sales are the same
Alpha Peaks charges $30 for day passes while Beta Peaks charges $40

170
Case 21: Beta Peaks
Operations McKinsey & Company
Now that you have scoped out the problem, he would like you to take a look at Exhibit 1.
Prompt Given this data, what is the average number of customers at each mountain?

If asked, tell the candidate to assume single queue, multiple server model. Please note that all lifts
have 20 chairs: 10 going up and 10 going down. Only the chairs that are going up should be used to
calculate the number of customers on the lift.

Beta Peaks:
People on the lifts: 10 chairs/quad x 2 quads x 4 seats/quad = 80 people
People skiing down: 8 people arrive at the top per minute x 10 minutes to get down = 80 people
People in line for lift: = arrival rate x time in line = 8 people/min x 5 min = 40 people
Total for Beta Peaks: 200 people

Alpha Peaks:
People on the lifts: (10 chairs/quad x 2 quads x 4 seats/quad) + (10 chairs/double x 2 doubles x 2
Guidance seats/double) = 120 people
People skiing down: 12 people arrive at the top per minute x 10 minutes to get down = 120 people
People in line: 12 people/min x 30 minutes = 360 people
Total for Alpha Peaks: 600 people

Next level insights from analysis:


There are 3 times as many customers at Alpha Peaks. Based on prices of $40 at Beta Peaks and
$30 at Alpha Peaks per ticket, this results in a revenue difference of $10,000 ($18,000 - $8,000)
per day
Additionally, our client has a 6x shorter wait time for getting on chairlifts. This indicates a clear
differentiating factor to draw more customers

171
Case 21: Beta Peaks
Operations McKinsey & Company
After seeing this intermediate analysis, the client proposes reducing the price per ticket to match
Alpha Peaks price of $30 per ticket.
Prompt
By what percent should the client expect to increase annual sales?

Inform the candidate to make the following assumptions: customers will switch mountains until the
wait time at each mountain is the same, no additional customers will enter the market, all other
variables stay the same (time to get down the mountain, number of lifts, competitors prices, etc.),
mountain is open from October through March, 7 days a week with even demand each week
through the season

Time in line = (# people in B line / B arrival rate) = (400 people - # people in B line / A arrival rate) =
= (# people in B line / 8 people/min) = (400 people - # people in B line / 12 people/min)

(# people in B line) x 12 people/min = (3200 people2 /min) (# people in B line) x 8 people/min


# people in B line = (3200 people2 / min) / (20 people/min) = 160 in line at Beta Peaks
Guidance Insights from analysis:
This pricing change results in 120 (160 40) new customers per day. Total revenue per day = 320
x $30 = $9,600
Total revenue before per day = $8,000
Increase of $1,600 per day a 20% increase in daily revenues

Next level insights from analysis:


This is a substantial increase in revenue and the strategy is worth considering, however it is
important to note that wait times would increase, potentially negatively impacting demand of
current customers.
The wait time would increase from 5 minutes to 20 minutes
172
Case 21: Beta Peaks
Operations McKinsey & Company

Exhibit 1: Representative Snapshot of the two mountains

Beta Peaks Alpha Peaks

Number of quad chairlifts 2 2

Number of double chairlifts 0 2

Number of chairs per lift 20 20

Number of seats per chair 4 4

Time to reach the top 10 minutes 10 minutes

Time to get to the bottom 10 minutes 10 minutes

Average wait time in line 5 minutes 30 minutes

173
Case 21: Beta Peaks
Operations McKinsey & Company
Expected:
Appropriately scopes problem in a MECE framework
Identifies differences in volume, capacity, and sales at two mountains
Does the math correctly, without hesitation

Good:
Performance Completes Expected requirements
Uses math to identify # of people at each mountain
Evaluation Achieves first level insights and scopes out how to get more customers to mountain
Uses analysis effectively in wrap up

Excellent:
Completed Good requirements
Reaches next level insights independently

174
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