CASE INTERVIEW

BASICS FRAMEWORK
 Key concepts and basic
framework methodologies :

Session: 9-10
 Key concepts and basic framework methodologies:

•Marketing:
•3Cs, 4/7Ps, 5 forces, BCG Matrix. Ansoff Matrix, PESTLE

• Economics: Working environment of a company, Pricing, Demand and Supply, Elasticities, Market
structures (monopoly, oligopoly, perfect competition, etc)

•Supply chain and operations : Value chain mapping

• Finance basics : P&L, Balance sheets, capital budgeting principles, time value of money, cash flows
•MECE segmentation
•Pareto principles
• Top down/bottom up approach to problem solving
Business concepts commonly used in consulting cases
Markets CoCompetition Bus
Business es
strategies
§ Commoditized v s Consolidated
§ C vs fragmented M revenue growth
§Major owth
differentiated Fragmented advantages strategies
st
§ K
§ New vs mature Key competitive § Key cost reduction initiatives
§ High-end vs low-end Advantages
§ Economies of scales
(how to compete in a market)
§ Market attractiveness § Network effect
§ TAM-SAM-SOM § Cannibalization
§ Key factors of the decreasing § Loss-leader”
“L pricing
cing
market (incl. “5 Forces”) tegy
F follower strategies
§Fast

Customers BusBusinesses OthOthers

§ Price elasticity of customer § High variable co st businesses § Factors of attractiveness of an

segments high fixed cos t businesses acquisition target
§ Typical consequences of high § New companies vs § Switching costs
churn rate established/mature companies
§ Typical advantages of high § Vertically integrated
retention rate businesses
§ “Hockey stick” growth

| 33
General Frameworks

Topic Key Drivers

Revenue • Volume
• Internal  Price, Customer Service,
Distribution/Inventory/Capacity
• External  Competition, Substitutes/Complements, Market
Forces/Demand
• Price  Competition, Elasticity, Differentiation, Segments
• Product Mix  Attributes (e.g. niche, patent), Quality, % of
Revenue, Variety
• Alternative Revenue Streams
Costs • Fixed Costs  Manufacturing, Labor, Marketing, Overhead, IT,
SG&A, PP&E
• Variable Costs  Inputs, Distribution, Marketing, Maintenance,
Packaging, Inventory
• Balance Sheet Items
• Benchmark Opportunity Cost/Cost Accounting/Capacity Utilization
• External  Union strikes, Technology, Currency Fluctuations,
Tariffs, De-Regulation

46
General Frameworks

Topic Key Drivers

Competition • Rivals (structure) • Reaction
• New Entrants • Position
• Substitutes
Customers • Market Size • Purchase Drivers
• Segments • Price Elasticity
• Needs • Retention/Loyalty
Processes • Manufacturing • Customer Service
• Marketing • IT
• Sales • R&D
• Distribution • Forecasting
Company • Core Competencies • Controls
• Cost of Capital • Financial Capability
• Brand • Management Capability
• Organization / Incentives

47
Key definitions

Term Definition
Customer Subdivision of a market into discrete groups that share similar
Segmentation characteristics.

Discount Rate Also known as cost of capital. There is an opportunity cost associated
with every investment, with the cost being the expected return on an
alternate investment.
Entering New Market Three main methods: start from scratch, form joint venture, acquire an
existing player.
Fixed Costs Costs that do not change with an increase or decrease in the amount of
goods or services produced.
Gross Margin A Company’s total sales minus its cost of goods sold, divided by the
total sales revenue, expressed as a percentage.
Horizontal Integration The acquisition of additional business activities at the same level of
the value chain.
International Main mechanisms: exporting, licensing, franchising, joint venture,
Expansion foreign direct investment (acquisition or startup).

54
Key definitions

Term Definition
Inventory A ratio showing how many times a company's inventory is sold and
Turnover replaced over a period. Should be compared to industry averages: low
turnover implies poor sales or excess inventory; high ratio implies either
strong sales or ineffective buying.
Learning Curve Visually shows how new skills or knowledge can be quickly acquired
initially, but subsequent learning becomes much slower. A steeper curve
indicates faster, easier learning and a flatter curve indicates slower, more
difficult learning.
Market Share The percentage of market size controlled by an individual firm.
Payback Period The length of time required to recover the cost of an investment.
Market Size Total size of a population (usually measured in number of people or actual
dollar value) that would purchase a company's goods or services. Market
size is always relevant and is a question that should be asked.
Product Lifecycle Four main stages: market introduction, growth, maturity, decline.
NPV The difference between present value cash inflows and present value cash
outflows.

55
Key definitions

Term Definition
SWOT Analysis Strengths, Weaknesses, Opportunities and Threats. Very basic
framework, probably not a good idea to put down as your case
framework, but good to have as a mental checklist.
Synergies The idea that the value and performance of two companies combined
will be greater than the sum of the separate individual parts. Used
mostly in M&A.
Value Chain Another concept from Michael Porter. His Value chain: Inbound
Logistics, Operations, Outbound logistics, Marketing and Sales.
Variable Costs Costs that vary depending on a company's production volume; they
rise as production increases and fall as production decreases.
Vertical Integration Degree to which a firm owns its backward suppliers or forward
buyers.
Weighted Average An average in which each quantity is assigned a weight. These
weightings determine the relative importance of each quantity on the
average.

57
Key definitions

Term Definition
Arbitrage The purchase of securities on one market for immediate resale on another
market in order to profit from a price discrepancy.
Break-Even Total amount of revenue needed to offset the sum of a firm's costs. Implies that
the firm's profit will be $0.
CAGR Compound Annual Growth Rate: (Ending value/beginning value)^(1/# of
years)-1. Most likely to show up in a case with graphs and exhibits.
Capacity The maximum level of output of goods and/or services that a given system can
potentially produce over a set period of time.
Competitive When a firm is able to deliver benefits equal to competitors but at a lower cost
Advantage OR able to deliver greater benefits than competitors.

Contribution C=P-V, where P is unit price, and V is variable cost per unit.
Margin
Core The activities that a firm does well to create competitive advantage.
Competencies

53
Key definitions

Term Definition
Product Mix Total number of product lines that a company offers to its customers.
Often an important area to explore in profitability cases to identify
loss-making products.
Promotion Coupons, discounts, trials, etc. designed to increase sales of a product
or service.
Rule of 72 Also known as the rule of 70, AKA rule of 69. Simply put 72, 70 or
69 in the numerator and the projected annual growth rate in the
denominator to give you the amount of time until the investment
doubles.
Sales per Square Foot The average revenue a business creates for every square foot of sales
space. Used in the retail industry as a measure of efficiency.
Same Store Sales A statistic used in retail industry to determine what portion of new
(SSS) sales has come from sales growth and what portion from the opening
of new stores.

56
General Frameworks

Topic Key Drivers

Macro • Legislation
• Unions
• Technology
• Economy  Oil, Interest Rates, Unemployment
• International Issues  Politics, Regulations, Taxes, Tariffs
• Environment
• Socio-Cultural
• Demographics
Supply Chain • Suppliers
• Distributions
Industry • Barriers to Entry/Exit
• Lifecycle
• Consolidation
• Government Policy
• Capital Costs
• Access to Technology, Distribution, etc.

48
 Financial Tools

• Cash flow

• New present value / cost of capital

• Return on investment
How can we maximise our profits? (1)

Profit = Revenues – Costs

Profits = [(price – variable cost) × quantity] – Fixed Costs

Profit = Q x (P-VC) – FC
How can we maximise our profits? (2)
Cost Driver Analysis

This analytical tool can help you understand what makes a particular kind of cost go up or down.
These areas are covered in Tuck’s Managerial Accounting class. A neat reference to these topics
is found below.

Cost Drivers
Materials Commodity Prices
Product Formula
Scrap Level
Direct Labor Labor Policies
Wage Rates
Throughput Rate
Indirect Labor Size Of Staff
Wage Rates
Plant Output
Overhead Capacity
Utilization
Allocation Methods
Staff Size
Office Expenses

Breakeven Analysis
The BEQ is calculated by dividing the fixed costs (FC) by the
price minus the variable cost per unit (P-VC):
BEQ = FC/(P-VC)
 Sample framework 1: Increase
30
profits
• Client’s earnings / profits (or ‘bottom-line’ in Income Statement) has declined or stopped
Overview
growing
•
• You need to recommend ways to increase profits

Sample
Framewor
k
Marke Revenues Costs Customer / Channel
t
• Industry • Product mix • Client cost • Customer
- Growth
G th ( (g)
) f P itof/ Parity / (Fi d / V structure
P i -t Points i bl ) Whi h Segment
td
- Revenues (R) difference our (Fixed / Variable)
- PP&E (Property, - Which segment do
we serve?
- Profits (Π) products and Plant & - Are they
• competition Equipment) most
Competition prod. - Overhead profitable?
- C1
C2 market share (s1)
(s2) • Pricing (P)
- Competitive parity - SG&A
Labour • Channels
- Current sales mix?
- Etc. in - Materials - Are they low-
prices - IT / Systems cost
- Can we ↑ prices? • Benchmarks channels?
• Volume
What’ (Q) How- doHow
our do our
costs - Do
attract high these channels
margin
- What
share?s our market costs
stack up vs. attract high margin
customers?
- Enough capacity • others? - Incentive
to Supplier power structures /
meet demand? performance
Economics Review

Concept Definition
Adverse Selection Situation in which an individual’s demand for insurance is aligned to
their risk of loss (i.e. people with the highest expected value will buy
insurance) and the insurer cannot account for this correlation in the
price.
Consumer Surplus Economic gain achieved when consumers purchase a product for a
price less than their willingness to pay.
• Consumer Surplus = Willingness to Pay - Price
Economies of Scale The average cost per unit for a business entity is reduced by increasing
the scale of production.
Economies of Scope The average cost for a business entity is reduced by producing two or
more products.
Elasticity • If E>1, decrease price to increase revenue
• If E<1, decreased price leads to lower revenue
Law of Diminishing At some point in the production process, the addition of one more unit
Returns of output, while holding everything else constant, will eventually lead
to a decrease in per unit returns.

51
Economics Review

Concept Definition

Marginal Cost Cost of one more unit of output.

Monopoly Entity is the only supplier of a particular good.

• Lack of competition  produce less and charge more
• Barriers may include government regulation, networks, patents, scale, etc.
• Revenue is the midpoint of the demand curve
Moral Hazard The unobservable actions and risks that humans may take once a contract is signed since they
don’t bear consequences. It is a special case of information asymmetry that affects the cost of
transaction.
Perfect Competition • Firms take price  MR = P
• Maximum profit = MR = MC
• P<AVC  shut down
Price Discrimination Situation in which identical goods are sold at different prices from the same provider.
• 1sr degree  Different price for different willingness to pay
• 2nd degree  Different price for different quantities
• 3rd degree  Different price for different segments (attributes)
Risk Averse Individuals who prefer certainty over the uncertain for the same expected value (EV).
Risk Neutral Individuals who are indifferent on risk taking if the EV is the same.
Risk Seeking Individuals who prefer risk even if the EV for a certain event and the risk is the same.

52
Porter’s Five Forces

Porter’s Five Forces Analysis

Threat
of New Entrants

Bargaining Power Internal Bargaining Power of

Suppliers Rivalry of Customers

Threat
of Substitutes

42
 What should our strategy be? (2)

• Porter’s Five Forces (amended)

Combine the efforts of different

companies to produce value.
Porter’s Five Forces
Concept
Internal Rivalry • Concentration and balance
• Industry growth
• Product differences
Threat of New Entry • Economies of scale
(Barriers to Entry) • Capital requirements
• Access to distribution
channels
Threat of Substitutes • Switching costs
• Relative pricing
Bargaining Power of • Supplier concentration
Suppliers • Switching costs
Bargaining Power of • Buyer concentration
Customers • Buyer volume
• Buyer switching costs
Key Drivers
• Exit barriers
• Overcapacity
Number of Competitors
• Competitor response
• Brand identity
• Proprietary product differences
• Availability of and consumer
propensity to substitute products
• Threat of forward integration
• Product differentiation
• Ability to backward integrate
• Substitute products
43
Key Marketing Concepts
4Ps
Product • Features and capabilities
• Quality and reputation
• Service and warranties
Promotion • “Pull” versus “push”
• Consumer awareness
• Loyalty
• Advertising medium
Price • Perceived value
• Willingness to pay
• Retail/Discounts
• Economic incentives
Place • Channels
(Distribution) • Inventory  levels, turnover,
carrying costs
Considerations
• Packaging and size
• Positioning and market
segmentation
• Differentiated versus commodity
• Public relations
• Buying process
• Trial/Repurchase
• Skimming
• Strategy  relation to market
size, product lifecycle, and
competition
• Coverage
• Transportation  alternatives,
efficiencies, costs
44
Key Marketing Concepts : Esp Launching a New Product

3Cs Considerations
Company • Strengths/Weaknesses/Opportunities/Threats
• Strategy and vision
• Available resources/Capacity
• Experience/Learning curve
• Financial
• Culture/Organizational structure
Competition • Industry
• Size/Number/Market share
• Economies of scale/Scope
• Capabilities/Experience
• Resources  Financial, distribution
Customer • Perceptions
• Loyalty
• Switching costs
• Purchase behavior
• Segmentation
• Market characteristics/Trends

Cost Cost of Course of Action, Funding, Project Break Even

45
 3 Cs - evaluate the company’s position in the market
• Customer

- What is the unmet need?

- Which segment are we/should we target?
- Are they price sensitive?

• Competition

- What are strengths/weaknesses?

- How many are there and how concentrated are they?

- Are there existing or potential substitutes?

• Company

- What are its strengths/weaknesses?

- Where in the value chain do we add value?

• Cost
• Capacity
• Culture
• Competence
Decision trees
• Decision trees are most effective when you start
with the core problem then break that into three to
four mutually-exclusive, collectively exhaustive
(MECE) sub-problems.

• Continue to peel back the layers of the problem until

you have reached a sufficient level of detail.

• For example, ―Profits will go up if our revenues go

up and/or our costs go down
Size of Market
 Sample framework 2: Market entry;
Investment
and new technolog
31 y
• Client is considering entering a new market. Your goal is to recommend whether or not they should enter it
Overview • For these types of cases what is common is that the company is considering spending money to get some kind
of
economic return. In addition to seeing whether the decision is financially sound, you have to
test:
- Likelihood of implementation success based on industry conditions and firm capabilities
- Do a risk assessment
Sample
Framework

Strategic Logic Economics of decision Risks / Others

• Why are they thinking • New market • Execution/entry
ofmarket entry? -conditions
Total Revenues (R) barriers?
- Channel access?
- Growth? - Total Profits (Π) - Regulatory barriers?
- Mature current market? - Growth (g) - Does firm have $ to make
- Response to competitor • Competition in a new investment?
move?
• Resources and capabilities market
- C1 market share (s1) • Risks
- What does the firm have that - C2 market share (s2) - Implementation risk
makes them think they can - Etc. - Political risks?
be • Economics - Currency risk?
successful? - Investment required - Macroeconomic
Macroeconomic risk?
Brand
 Patents
 - Expected share of revenues risk?
 Local expertise/partners - Expected share of profits
- Profitable? Payback period?
 Market Segmentation:
• Demographic variables
Age
Education
Family life cycle Family size Gender
Income Nationality/Race Occupation Religion
Sexual Orientation
Socioeconomic Status

• Geographic variables
Climate
Country size
Region of the world or country

• Behavioral variables
• Brand loyalty Decision Making unit
• Product end use
• Product seekers Product usage rate
Readiness-to-buy stage

• Psychographic variables
Attitudes
Life style
 How can we improve our operations? (3)

• Business process re-engineering

• Total quality management

• The balanced score card

• The 4 Ps
– Product
– Price
– Promotion
– Place
Definition of Differentiated Markets

Definition

§ A differentiated market is opposite to a commoditized market

and is one where products have material differentiating points

Examples
§ Dating mobile applications § Anesthesiology
services for heart
§ Cyber security software
surgeries
§ Real estate
§ Legal services for
§ Education at top MBA programs complicated cases
§ Management consulting services § Theater performances

| 3
Definition of Differentiated Markets

Typical characteristics

§ Many differentiating points and unique value propositions

between market players

§ Customer segments are not very price sensitive and ready

to pay price premiums

§ Price pressure is likely low/moderate

§ Margins are likely high/moderate

§ Differentiating points are one of the key success factors

§ Competitive landscape is likely fragmented with many players

offering highly-differentiated product/service lines

| 9
How to add a story on Differentiated Markets

Our client is a software developer that does back-end for gyms.

The gyms market decreases. They would like to shift their focus
on fitness centers that are usually small businesses. They
would like to offer front-end interfaces (e.g. member
management, fee collections). Should they?

Member management and fee collection software

§ A lot of different features and interfaces across different

software vendors

§ Price is not the only purchasing decision making criterium

§ Margins are likely high/moderate (but dependent on scale)

§ Competitive landscape is likely fragmented with many players

| 17
Definition of Commoditized Markets

Definition
§ A commoditized market is a market where products/services
aren’t very differentiated and the value propositions of
different players are similar

Examples
§ Chocolate bars § Video-streaming
services
§ Gas stations
§ Photography services § Electric scooter
sharing services
§ Rental cars
§ Peer-to-peer lending
§ Pillow market platforms

| 3
Definition of Commoditized Markets

Typical characteristics

§ Few differentiating points and similar value propositions across

market players

§ Customer segments are price sensitive

§ Price pressure is high

§ Margins are likely slim

§ Vo lume-driven businesses

§ Economies of scale are a key success factor

§ Competitive landscape is likely consolidated with several

major players that capture high market share and enjoy high
marketing budgets, developed distribution networks and high
brand awareness

| 10
How to add a story on Commoditized Markets

Your client is a fast food chain in Germany. They are a global

company, but want us to focus on Germany. They experience
a
decline in the number of unique customers. The client asks us
to help understand why that is happening and how to turn it
around.
Fast food market

§ Fairly similar product offerings across different players

§ Price-sensitive customer segments, high price pressure

§ Low margins, volume-driven business

§ Competitive landscape is likely consolidated with several

players that dominate the market

| 17
Definition of High-end Markets

Definition
§ A high-end market is usually associated with high-quality,
expensive products/services. All else being equal, markets
typically have high-end, mainstream/mass and low-end
segments.

Examples
§ High-end fashion (e.g., apparel) § Yachts
§ Luxury cars § First class seats at
§ Artisanal ice-cream passenger airlines

§ Premium chocolate § Upscale restaurants

§ Luxury cruise lines

| 3
Definition of High-end Markets

Typical characteristics

§ Profitability is likely high

§ Customer segments are not likely price sensitive and are usually ready to
pay price premiums, typically valuing brand names and high-quality product

§ Key success factors typically include high-quality offerings, established

brands and large investments in marketing

§ Competitive landscape is likely fragmented with several differentiated players

§ M arket size is likely significantly smaller than the correspondent mass

m arket/low-end market (e.g., high-end apparel vs. low-end apparel)

| 9
How to add a story on High-end Markets

Your client is a wine producer that makes sustainably sourced

boxed wine. They have decided to acquire a premium wine
producer. Should they? Both companies are California based.

Premium wine market

§ Price-inelastic demand as only customers with specific

income range can afford premium wine

§ High margins as customers are likely ready to pay price

premiums

§ A few high-end wine producers (highly differentiated)

§ Market size is fairly large, but might be far smaller than

regular wine market

| 16
Definition of New Markets

Definition
§ A new market is a market that emerged recently (maybe
several years ago). Opposite to a mature market that has
be
en around for a while

Examples
§ Electric scooter sharing services § Telehealth services
§ Drones § Virtual reality
§ Meal-kit delivery services videogames

§ Peer-to-peer lending platforms § Electric cars

§ MOOC (Massive Open
§ Medical marijuana
Online Courses)

| 3
Definition of New Markets

Typical characteristics

§ Growth rate is high (likely double-digit numbers)

§ Market is likely attractive; there are likely many new entrants (particularly if
the barriers of entry are low)

§ Competitive landscape is likely to change dynamically

§ The players are likely to invest heavily in marketing to grow sales rapidly
(with the market) and operations (to support rapid growth)

§ Ty pical profitability is quite low or negative given most players aggressively

invest in marketing and growth

| 9
How to add a story on New Markets

A video-streaming service (competitor of Netflix/Hulu) has hired

you to increase their revenues. What factors would you want to
consider?

Video-streaming service industry

§ Emerged fairly recently, suggesting high growth rate

§ Rapid growth and large size attract new players

§ Competitive landscape hasn’t stabilized yet

§ The streaming service companies are likely to invest

aggressively in marketing to keep up with the high growth rate
of the market and gain market share

§ Typical profitability might be low or negative

| 19
What should our strategy be? (3)

• McKinsey’s 7-S Framework –Developed by Tom Peter &Waterman 1982

Holistic integration of 6-S with the Company’s Shared Value.

-Emphasizes how each factor(S) is interrelated & integrated

with other parts(S).
Value Chain Analysis
 Value Chain Analysis
• provide a good outline for analyzing a company’s internal operations and the value of each step in making a
product or service go from raw materials to a finished good or service.
• Value chain analyses step you through the company’s processes and help you understand how much value
each step adds.
• Through this type of analysis, you can discern possible synergies among various units of an
organization and determine which value activities are best outsourced and which core
competencies are best developed internally.
• It can also show you where there may be potential to remove a step in the process that adds little
value. Finally, it may uncover where a company is weak and is thus vulnerable.

•Vertical Integration
•
•Some companies find beneficial to integrate backward (towards their suppliers) or forward (towards
their customers).

•Vertical integration makes sense when a company requires greater control of a supplier or buyer that
has major impact on its product cost or when the existing relationship involves a high level of asset
specificity.
A balanced score card
 Sample framework 3: M&A
32
deal
• Client is considering an M&A transaction
Overview
• Your goal is to recommend whether or not to do the
deal

Sample
Framewor
k
Strategic Fit Deal Economics Risk Assessment
• Basic deal rationale • Valuation (Know • Has the company done
- Cost
C t synergy- DCF!) basic i iti acquisitions
b f ? before?
focus?
- Revenue-synergy DCF!)
- Revenue &Costs - Capability test
- focus? - CAPEX & Working • Organizational
- Early-stage co. being Capital cultures
acquired for - PBT (profit before tax) - Compatible (high % of
technology?
- Response to - Taxes
PAT (profit after M&A dealsare
as cultures destroy
not
competitor tax) value
compatible)
• move? - Cost of capital (R) • Need to manage PMI
Type of deal • - Value = (PAT / (Post
- Vertical
Horizontalintegration • r) merger integration
Horizontal
- New market entry via deal Deal
- CostPrice
and Revenue process)
by themselves
- Diversification move Synergies
- New Firm value • Can investors not
• New Value > Deal Price diversify
 Sample framework 4:
33
Outsourcing
• Client is considering outsourcing an operation
Overview
• Your goal is to recommend whether or not to do the
outsourcing
• Do NOT make a recommendation on cost savings alone – explore areas like customer
service
impa c t, custom e r segm e nt impact etc.
Sample premium
Framewor
F k
k
Strategic logic Decision Economics Risks / Others
• Why are they thinking • Current costs (in- • Risks
ofoutsourcing? house
operation) - Implementation risk? Political
- Cost savings? • Outsourced costs risks?
- Market entry into • Initial • - Currency risk?
BRIC/other investment Partner capabilities
markets? required - Quality of service
- Early-stage
acquired forco. being
technology? - Outsourcing
IT/System - Technology
Lead time
- Response to consultants
investments - Customer service
competitor • Net cost savings • Stakeholder mgmt.
move? - Stakeholders – job loss issues
• Customers etc..
- Whataffected
are their needs? - Manage media & community
- Which
IMPORTANT: Sometimes interviews might make a difference between Outsourcing and Off-shoring: former refers to functions that
segments?
are
done outside firm’s boundaries. Latter refers to outsourced functions done in a distant location such as India or Ireland.
 Sample framework 5: Non-profit
34
organizations
• Client is a non-profit organization
Overview
• Your goal is to solve the specific problem for the
•organization
Important to display that you understand that non-profits have fundamentally different
drivers
beside just the econo m ic s o f a p a
rticula r decision
Sample
Framewor
F k
k
Strategic Rationale Deal Economics Other
• Mission of non- • Planned • Required
profit
- Health investment
- What will it cost? capabilities
- Does non-profit have what
- Education - Do we have the it
- Poverty alleviation money? takes to do this well?
- Etc. • Returns, if any • Risks
- Response to competitor - Will we be getting back - How will media perceive
move?
• Stakeholder opinions and money? this
decision?
likely - Will organization make / lose - Critical to factor in
reaction money on this? stakeholder reactions –
- Donors will
- “Customers” – those who
from the non-profit’s this alienate donors,
etc.?
benefit
services volunteers
- Volunteers
- Paid staff