CaseInterviewGuide Ebook1
CaseInterviewGuide Ebook1
CaseInterviewGuide Ebook1
CASE INTERVIEW
WORKBOOK
But consulting careers are no walk in the park. Pressures are high; travel
can be onerous; the interview process can be painful; and the risks of a
layoff can be high in a difficult economic climate. Before setting off on the
consulting route too enthusiastically, understand how you might like it.
Understand where the industry is going, your role in the industry, and how
closely it fits with your needs and personality.
If you’re reading this in an attempt to decide whether or not consulting is
for you, we’ve got some advice. Do a personal inventory of your skills and
talents, as well as your interests or what you merely enjoy. Also, find out
about other professionals’ experiences – both the war stories and the
rewards. If your network doesn’t include other consultants, use the
message boards on Vault’s consulting channel or join an industry
organization for leads. And read this guide to see if consulting really
interests you.
Just remember that positions are limited, and competition ranks among
the highest in many industries. Even if you have a Stanford MBA or decades
of experience, breaking into consulting requires perseverance and the
sharpest of networking and persuasion skills. The potential rewards,
however, are great.
One additional note: Don’t forget that a case interview is, first and foremost,
an interview. Everything you’ve ever learned about interviewing still applies.
Try to connect with the recruiter and establish a positive rapport. Be candid
and pleasant, and maintain eye contact. Regardless of how uncertain you
are of a response, try to remain calm and confident as well.
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CASE INTERVIEW APPROACH
It‘s important for you also to keep track of the interviewer. While it is
always advisable to display your skills across all four steps, you might
find the interviewer wants you only to focus on one of these steps. In
such cases, follow the interviewer‘s lead. There is no hard and fast rule.
SOME DOS
Make it a dialogue, not a Q&A – Think of it a joint problem-solving
session. No one is looking for industry expertise.
Bring insight; it‘s an intellectual discussion – Organize your thoughts
and stay structured. Be
creative and push for conclusions. Communicating effectively is
critical – Listen (take notes if you wish) and explain your thought
process. State your assumptions.
SOME DONTS
Resist force-fitting a framework or defending impractical solutions – A
framework is a proxy for structured thinking. Still, the best frameworks
are those which come naturally during the course of your thinking.
Remember, there need not be a solution for the case.
Don‘t stop or waste time if you are stuck. It‘s ok to acknowledge this
and ask the interviewer for help (don‘t make a habit out of it, though!)
– It’s a good sign, indicating receptiveness.
Don‘t be hasty and jump to conclusions. Everything should be logically
thought through and concluded. The interviewer will be dropping hints
throughout the interview – never forget to pick them up. If you ignore
hints, it will be seen as an inability to be receptive.
Do not shy away from numbers. Embrace them! You will not be asked
to calculate 234533 divided by 45223. The calculations will be very
basic; write them down and avoid mental arithmetic.
HOW SHOULD YOU PRACTICE?
Form a good group of 3-4 people.
Let people from different backgrounds be there (or different industries
or roles)
Choose wisely: The seriousness of each candidate is important.
Each person prepares 1 case and asks another, so in total, the
takeaway for the group would be 3-4 cases in one sitting.
Write the cases & the workings you do in a separate notebook
No. of Cases: Many questions arise on the magical number of how
many cases need to be done for cracking the dream job. Frankly, it is
not the number but the depth and breadth of cases covered. If done
diligently, any number around 50-60 would do.
CASE INTERVIEW APPROACH
Types of Cases: Not just different industries, but different types of cases are
also to be covered.
Profitability, growth, market entry, Market Sizing, pricing, M&A, Response to
Competition, new product development, etc. (If constrained by time, the
first 5 Main types can be selected)
You can create a matrix (like below) to keep track of whether you have
covered everything or not.
Not all kinds of cases can be found, but make sure the main industries and
main types of problems are covered. (NOTE: The above matrix is just for
illustration purposes and can be done by your group itself).
Profitability problems, if covered across all industries, will give you a very
good overview of the revenue and cost drivers of a particular industry and
different trends in the industry!
GENERAL TIPS:
While practicing a case, the interviewer (person who prepared the
case)would ask the interviewee. Let it be as formal as possible so that there
would not be any jitters on the interview day. Even PI questions can be
mixed with the case to be as realistic as possible.
After everyone has solved the case, the case can be discussed as a group
to see where improvements can be made. Ask for input from anyone from
the same industry (Peers or Alums etc.)
Write down the mistakes you have done in the case and where
improvements can be made. A notebook just for the mistakes & insights will
be a great asset before the D – day.
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However, in the last few years, Prozac has been facing stagnant and even
declining sales in some periods. Eli Lilly’s management team is not quite
sure why this has happened to one of their most important brands. It is your
job to determine why Prozac’s sales are flat/declining.
In order to help you do that, the extremely busy Eli Lilly CEO, Sidney Taurel,
will meet you in a VIP lounge at Indianapolis International Airport between
his arrival and his next connection. He will only have 15 minutes, so you will
be allowed to ask no more than 5 questions. Right after that, you’ll have to
call your manager at A. T. Kearney’s Chicago office and give him your
assessment of the situation and a set of potential solutions, so the team
can start to work to meet the very tight deadline imposed by the client.
INTERVIEW DIALOGUE
Myself (paraphrasing the interviewer): Prozac is an antidepressant only
sold under prescription. It has been the first drug in this market and has
rapidly grown due to its effectiveness in treating depression. Is that
correct?
Myself (smiling): Was that one of my five questions? Ops! I’ve just missed
my second one...
Myself: If this was the case, I would imagine that some competitors tried to
follow Prozac and develop similar formulas over the years to gain a stake in
this profitable market. The product’s impressive record of success may
have attracted not only generics but also brand-name competitors.
Interviewer: Yes, the company saw the entrance of new products in the
antidepressant market...
Myself: So, I will make this one my first question: do any of the competitors
exhibit any distinctive features and/or characteristics (such as higher
effectiveness, fewer side effects or lower prices) that would pose a major
threat to Prozac? If yes, it would be great if you could describe those
specific features and/or characteristics. Question count = 1.
Interviewer: Sure. But before that, let me give you a brief perspective on how
the market for antidepressants has developed... Before Prozac was
launched, the most commonly used type of antidepressant was
“tricyclics.” Those drugs were carefully controlled and largely prescribed by
psychiatrists only due to their serious and sometimes fatal side effects. The
innovation Prozac brought to the category was a reduction in the side
effects, which prevents users from committing suicide by ingesting large
doses of medication. As a result, the number of patients treated for
depression grew five to seven times from what it used to be. You’re right:
Prozac has been a favorite target for both generics and other brand-name
drugs (such as Zoloft from Pfizer, and Paxil, from GlaxoSmithKline).
CASE 1: PROZAC CASE
INTERVIEW DIALOGUE
interviewer: Generics basically compete on price (30-40% lower).
Moreover, Prozac has been particularly suffering attacks from other
patent-protected antidepressants in the same category, the Selective
Serotonin Reuptake Inhibitors (SSRI). Those products, among other
indications, have been specifically prescribed for General Anxiety Disorders
(GAD).
Myself: Right... If other products within the same category are growing, while
Prozac’s sales have been stagnant or declining, the company must have
experienced a decline in market share. Was that loss observed more
notably in one particular market segment than the others?
Question count = 2.
Myself: I see... Apart from the generics, do prices vary significantly among
branded drugs? Question count = 3. Interviewer: No. All of them are in about
the same price range. Price only varies significantly between brand-name
products and generics. As I mentioned before, generics tend to be
30%-40% cheaper on average. Myself: And when does the Prozac patent
expire? Question count = 4.
Interviewer: The basic patent expired in 2001, and the subsidiary patents in
2003... I believe should remind you that you only have one question left.
Myself: Yes, thank you. Is there any other information, an important external
factor, for example, that I should be aware of before developing my final
recommendations? Question count = 5.
CASE 1: PROZAC CASE
INTERVIEW DIALOGUE
interviewer: Generics basically compete on price (30-40% lower).
Moreover, Prozac has been particularly suffering attacks from other
patent-protected antidepressants in the same category, the Selective
Serotonin Reuptake Inhibitors (SSRI). Those products, among other
indications, have been specifically prescribed for General Anxiety Disorders
(GAD).
Myself: Right... If other products within the same category are growing, while
Prozac’s sales have been stagnant or declining, the company must have
experienced a decline in market share. Was that loss observed more
notably in one particular market segment than the others?
Question count = 2.
Myself: I see... Apart from the generics, do prices vary significantly among
branded drugs? Question count = 3. Interviewer: No. All of them are in about
the same price range. Price only varies significantly between brand-name
products and generics. As I mentioned before, generics tend to be
30%-40% cheaper on average. Myself: And when does the Prozac patent
expire? Question count = 4.
Interviewer: The basic patent expired in 2001, and the subsidiary patents in
2003... I believe should remind you that you only have one question left.
Myself: Yes, thank you. Is there any other information, an important external
factor, for example, that I should be aware of before developing my final
recommendations? Question count = 5.
CASE 1: PROZAC CASE
INTERVIEW DIALOGUE
Interviewer: Yes, and I’m really glad you asked me that. In recent years,
Prozac has deserved more attention from the general media than we
probably would like. It all started about 10 years ago. Around 8:30 a.m. on
September 14th, 1989, Joseph Wesbecker walked into the Standard Gravure
printing plant in Louisville carrying an AK-47 assault rifle and hundreds of
rounds of ammunition. Within 30 minutes, he killed eight people and
wounded 12 others before pulling a pistol from his belt and shooting himself
in the head. He had worked for the company for many years but had found
it so stressful that he had been off sick for a year. He was under treatment
from a psychiatrist, and shortly before the fatal incident, he had been
prescribed Prozac. Without Prozac, the killings would have been just
another horrifying instance of the senseless mass killings that seem to
plague modern life. With Prozac, they became a famous cause. By 1990, 54
civil and criminal suits concerning Prozac had been filed against Eli Lilly,
including one by the survivors of Wesbecker's killing spree and the families
of the dead. The victims claimed that a reaction to Prozac, not Wesbecker's
inherent mental illness, had caused the act and that Eli Lilly had
consistently misrepresented Prozac's safety to the Food and Drug
Administration and the medical community. Until today, Prozac has been
frontally attacked by the general media, which has generated disbelief
from the general public.
Myself: Ummm... pretty interesting story. Well, I know your time is scarce, so
I would like to summarize my general assessment of the situation and
briefly share with you a set of potential recommendations that I will be
forwarded to our project team in Chicago. Is that okay with you?
Myself: Prozac has been extremely successful since its launch, rapidly
achieving market leadership and still producing high margins. Despite all
the difficulties and the tough competitive environment, Prozac is still a very
important product on Eli Lilly’s portfolio, accounting for a significant portion
of the company’s earnings. Various factors contribute to the current
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CASE 1: PROZAC CASE
INTERVIEW DIALOGUE
decrease in sales: a more fragmented and aggressive market, newly
improved products, and public misjudgment. The development of a new
drug could be costly, and takes several years before it’s ready to go to
market. Moreover, the patent expires in a few years.
Interviewer: Good...
Myself: My very first impression is that Prozac fits very well the concept of a
“cash-cow”: large market share and high margin, but stagnant/declining
sales. But for developing a first set of hypotheses, I would also consider
other less probable possibilities. In order to save us some time, I’ll list some
of the possibilities I currently have in mind, and then we can go through
each one as time permits. Would that be fine?
Myself: Right... Here they are (I took a clean white sheet and started to write
in bullet points):
Do nothing
Extend Prozac’s life cycle
Product development
Do nothing
Extend Prozac’s life cycle
Product development
INTERVIEW DIALOGUE
Myself: As a “cash-cow,” Eli Lilly should consider “milk” this product,
extracting earnings as long as the product survives in the market. The first
alternative to that would be to extend Prozac’s life cycle as long as possible.
That could be achieved, for example, by prolonging Prozac’s patent
protection.
Myself: Honestly, I’m not very familiar with the mechanisms through which
a patent can be extended. Having said that, I think there might be a legal
mechanism to do that... And this issue brings us to one of my other points.
There has to be a way to prolong Prozac’s life cycle and/or expand its user
base. Lobbying might be a valid option. Also, we could consider product
modifications that would allow Prozac to be used for applications different
from the ones it is currently prescribed.
PRODUCT
The market leaders produce pure orange juice and blends based on
citrus juices.
Your product uses more elaborate blends of juices, usually with a base
of pear or peach juice (95% of the inputs) and flavored with cranberries,
bananas, mangoes, etc. (the other 5% of the inputs). Pear and peach
juice have the same prices as orange juice, but the other flavorings cost
about twice as much.
OPERATIONS
One plant in California produces all of the products; chilled, juice boxes
and frozen. It would be difficult to find another use for the plant without a
major conversion.
SOLUTION:
There are three choices:
1) Sell the chilled juice business. This would, however, affect the juice and
frozen concentrate businesses, as there are both advertising and
manufacturing synergies.
2) Sell all of the juice business. This may be more feasible, as the buyer could
capture the synergies but would not be too likely to turn the business
around. The selling price is likely to be low.
3) Keep the chilled juice business and rework the ingredients and costs. This
turns out to be the most feasible option, as evidenced by the success of
the competitors.
PRODUCT
he product line of the client has not changed over this period.
COSTS
Distribution 8% 9%
Salesforce: 7% 9%
The sales force was cut to reduce costs, though this sales force still covers
the same number of outlets.
The changes in the marketing budget come from reduced trade
promotions.
SALES FORCE/DISTRIBUTION
The products are mostly sold through large grocery stores and
convenience stores.
The sales force generally visits each customer at least once per quarter.
Promotions usually occur at the end of each quarter. Grocery and
convenience stores require a promotion to grant valuable end-of-aisle
displays or advertising space.
Competitors’ sales forces are regarded as the best in the industry
SOLUTION:
The data show that the greatest change is in the sales force numbers. It
turns out that the company went on a cost-cutting spree over the past
two years. The sales force was drastically cut, and the commission
scheme was reworked.
The marketing expenditure was also decreased. Most of the reduction
came from trade promotions. The product is sold through the same
channels as previously: large grocery chains and convenience stores.
Periodic trade promotions traditionally drive these channels. The
reduction in trade promotions brought about a loss of shelf space, which
has directly led to the decrease in market share. Also, the product line has
not changed in the past two years in a product category where new
products and line extensions are routine. In addition, the market has been
growing, indicating a missed opportunity for new products in the market.
Lastly, the increase in profitability has resulted from the lower costs, but
may not be sustainable.
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CUSTOMERS
Client has 30% customers in Europe, 10% in Asia, 50% in North America,
and 10% in ROW.
The client has 2 types of products – Standard (almost a commodity)
and Engineered (designed specifically for the client).
The standard products are getting commoditized, hence having
significant price pressure.
The engineered products have good margins in the 1st year and then
the margins decrease in the subsequent 3-4 years.
The client has 30,000 SKUs in their product portfolio.
The industries that the client serves are as follows:
NOTE: The interviewee should recognize the following by now based on the
Customer Information
Client % revenues from Electronics industry are quite low and that
industry has the highest % of Engineered products. The client should
focus more closely on that industry.
Engineered products offer much higher margins.
30,000 SKUs seem like a lot and should address that in the case as well.
There will be interdependencies among these products.
COMPETITIVE LANDSCAPE:
This is a highly fragmented industry with 20,000 competitors.
INVESTMENT/COST
There are integration issues among the small companies under the
client umbrella. The issues pertain to decentralized sourcing, sales staff,
and back-office operations. These should be centralized to decrease
cost (economies of scale) and improve coordination.
The product portfolio needs to be optimized. Evaluate the profitability of
each product along with its interdependency, i.e., its importance in a
product portfolio supplied to important clients. Evaluate the profitability
of each client as well. Suggest using databases for this analysis.
Divest assets pertaining to certain non-profitable low-volume standard
products to decrease capital investment. If these components are still
needed for a client portfolio, investigate outsourcing their production
and having exclusive contracts to maintain quality.
Evaluate the capacity utilization and supply chain for the 50 plants.
Decrease investment if possible.
SOLUTION:
The client can increase the ROIC from 10% to 20% by the following
initiatives:
Optimize product mix while keeping product interdependencies in mind
Sell more engineered products by growing business in the electronics
industry
Decrease cost by improving the internal integration
PRODUCT
Your client’s product is priced higher than competitors and has
historically been the most expensive.
Essentially, the tractors have the same basic features. Of course,
tractors are not commodities, and a few differences exist.
Your client has a strong reputation/image of quality in the market, and
the market has always been willing to pay a premium for that
reputation because it meant they would last longer and need less
maintenance. This can be critical for some farmers because they
cannot afford to have a piece of equipment break down at a critical
time.
Client has been involved in product improvement efforts-- tightened
tolerances and improved the durability of component parts.
They have needed to buy more expensive parts to execute this.
MARGINS
Sales quantity and revenues are down.
However, prices and costs are up. Fixed costs are constant, while
material costs have increased. The client has no answer about why
material prices have increased so staggeringly.
The operation is primarily an assembly operation, and finished part
prices have increased.
Client does not think that raw material prices or labor costs for your
suppliers have increased.
SOLUTION:
It turns out that prices have been raised to cover the costs of these
improvements, but customers do not value these improvements unless
they are essentially free --so sales are down. The client must
incorporate a cost/benefit analysis procedure into its product
improvement process. Don't forget, though, that you must consider the
long-term effects of these decisions.
CUSTOMERS
The customers are of 2 types: PROFESSIONALS (CONTRACTORS) and
PRIVATE CONSUMERS.
The customers are not very loyal (recognize this as an issue to be
addressed later if time permits).
They have multiple brands and have good basic quality paint.
FIRM’S ECONOMICS
The total revenues are 1B.
There are 3 sales channels as follows:
Company-owned stores: 600M in sales. Focuses on contractors
(professionals).
Consumer division: 300M in sales. Sold through mass merchandise.
Independent dealers: 100M in sales. Sold to local mom & pop stores.
The client maintains a separate set of warehouses to serve this channel.
COMPETITION
The competitors also have 3 distribution channels. There is no data on
competitors’ profitability.
SOLUTION:
The candidate should recognize that the company store channel, which
focuses on contractors (professionals), has the highest ROS (return on
sales). The company needs to focus on this segment.
The independent dealer channel has the lowest ROS. The company
needs to re-evaluate its strategy/presence in that channel.
The client needs to focus on their sales force and strengthen their
relationship with the contractors. Since loyalty is an issue, introduce
switching costs. Some techniques are order automation by establishing
a web presence, allowing contractors to quickly and easily re-order.
Re-evaluate the sales force compensation and their commission
structure.
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Your client has recently concluded that the old “local branch” way of
business is no longer viable. Typically, this bank has canvassed its
territory with small freestanding branches; however, the new age of
electronic banking and commerce is changing all of that.
SOLUTION:
Summary: It probably is the best setup for a cost-benefit analysis. The
number of new customers times the expected revenue from them plus
the additional revenue generated by potential new services plus the cost
savings must outweigh the forgone revenue generated by the customers,
you end up driving away.
Cost Savings: How much would it cost to establish a Calling Center and
what are the risks involved? Do we have the expertise in-house to do this?
How many branches could we close? Can we reduce traffic to existing
branches - thus requiring fewer tellers?
SUGGESTED FRAMEWORK:
Because this is a demand-oriented question, one should consider a
marketing framework, such as the 4 P’s.
SOLUTION:
The demographics of the area surrounding the prospective branch
should be examined. Population, business concentration, income levels,
etc., should be compared with those of historically successful branches.
The client must examine if the new branch would complement their
existing competence and strategy (retail or commercial, high growth or
high profitability, etc.) and what purpose it would serve. If the need
focuses on deposits and withdrawals only, maybe a cash machine would
suffice.
DISTRIBUTION 26%
LOGISTICS
The trucks are owned by the company and transport all products
directly to the customers throughout the country.
Customers pay for trucking by the mile.
CASE 9: CEMENT MANUFACTURER
CAPACITY ADDITION
Category: Profitability
PRICES
The company’s selling prices are set by prevailing market prices in
Portugal.
LOCATION
Land is available to expand the current factory; there is also a suitable
site near Porto, about 200 miles to the north.
Approximately 80% of the customers are within 100 miles of the current
plant.
SOLUTION:
As distribution is the second-largest cost item, it makes sense to
minimize distribution costs in choosing the site of the next facility. From
the data, it is safe to assume customers that are further away are less
inclined to buy due to the increased trucking costs. Therefore, the
location of the plant in the north may increase sales in the north by
reducing delivery costs to these customers.
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Category: Profitability
POSSIBLE SOLUTION:
This is a twist on the standard price/cost case that also questions the
interviewee’s understanding of the cost items. A possible analysis, line item
by line item:
COST
RC Cola would be higher due to their lesser power in negotiating price
breaks from suppliers.
DISTRIBUTION
RC is not distributed in as many outlets as Coca-Cola. Therefore, the
average truck driver will be driving more miles and spending more
time delivering a truckload of RC that the Coca-Cola driver, who will
have several stops within an immediate area.
Also, the typical order size for RC Cola would be smaller, meaning that
more stops would have to be made. In the case of Coca-Cola, it is
conceivable that one truckload may be delivered to just one
customer.
COST
Could be lower for RC, as there are fewer, but more loyal customers.
MARKETING
Lower for RC Cola, as they are not a frequent advertiser like
Coca-Cola.
ADMINISTRATION / OVERHEAD
Lower for RC Cola, as they are more of a “one-product” company than
Coca-Cola.
SOLUTIONS:
Reduce product line if customers (retailers) are willing to accept the
reduced product line.
Reduce low-margin trade brand production.
Emphasize pull marketing, and reduce the introduction rate for new
products.
Introduce controlling/scheduling measures for packaging.
POSSIBLE SOLUTIONS:
One outcome is that one of the two major players purchases the
technology. If the technology is patented and exclusively licensed, this
player may enjoy an advantage for a limited time. If the producer
makes enough bulbs at a low enough cost, all customers will
eventually switch over to the permanent light bulb, thereby drying up
the industry, putting the competitor out of business and greatly
reducing their own business.
Another solution is that all of the players obtain some version of this
technology. If that were to happen, the price for this product would
decline to the normal industry profit level, and customers would shift
to the permanent light bulb. Over time, all bulbs would be permanent
and the industry volume would greatly decrease, making the industry
more competitive and wiping out industry profits.
SOLUTION:
Clearly, the client should either drop price or reap additional profits.
If the client drops prices, other competitors will have to follow since
this is a commodity market and not following would mean a quick
demise. The lowering of prices might increase the client’s market
share marginally, but some smaller competitors will have to start
exiting the industry and larger competitors will have to start investing
to discover the client’s cost advantage.
At the same time, steel can users sill start switching to aluminum
cans, thus hurting manufacturers in that market. The resulting growth
in the aluminum can market will attract steel can manufacturers to
enter it. Since some steel can manufacturers have deep pockets and
a strong backing, these new entrants could pose a future threat to our
client.
CUSTOMERS/DEMOGRAPHICS
There are two basic user groups: industry, primarily semiconductor
manufacturers, and academia (in research labs).
What we've noticed lately is that the specific users in each of these
groups, who also happen to be the primary buyers, have become
relatively less sophisticated; that is, they are hired just to run the
instruments and know less about their technical qualities.
These buyers have become even more dependent on the sales forces.
What has happened is that our client alienated itself from other
manufacturers of X at a time when a strong relationship was
becoming even more important than it used to be. The buyers are
relying more and more on the X sales force, which are typically called
well in advance of the Y sales force
SOLUTION:
This is the second part of the main reason for our clients declining
sales: in addition to ruining their relationships with manufacturers of X
by producing their own, they happened to do so at a time when
relationships became even more important.
MARKET
The market is fairly regional; hence transportation costs and
competition have not changed dramatically.
No introduction of a substitute product.
COSTS
Production costs have remained stable.
SOLUTION:
Since there are stable costs, and strong sales, the only other
alternative is the price of your product. Investigate this avenue, and
you will discover the buyer link. Your margins are being squeezed due
to the increasing concentration and buying power of your customers.
COSTS
Division estimates current cost is $30 fully loaded. Requested
expansion should reduce the cost by 5 to 7 percent and triple
production of the hardware units.
Top two computers are estimated to have a 10 to 15 percent cost
advantage currently.
Main costs are assembly components and labor.
Division currently exceeds corporate return requirements; however,
margins have recently been falling.
CUSTOMERS
Division estimates much of initial target market (young families) has
now purchased the video game hardware.
No large new user segments have been identified. Distribution
Primarily outlets of distribution are top end electronics stores.
MINIMUM REQUIREMENTS
The following issues would need to be covered for the candidate to have
done an acceptable job:
What is future market potential? Candidate needs to question the
continuation of overall industry growth. She/he might ask about the
saturation of markets, competitive products (home computers), and
declining "per capita" usage.
What is the competitive outlook? Should at least recognize the need
to examine competitive dynamics. Issue areas might included:
concentration of market shares; control of retail channels; and R&D
capabilities (rate of new product introductions, etc.)
What will be the price/volume relationship in the future? Issues of
prices need to be considered.
BETTER/OUTSTANDING ANSWERS
No bounds on creativity, but better answers would address:
MARKET POTENTIAL
Recognize that there is a relationship between market penetration
and growth in new users which, when combined, yields an industry
volume estimate.
Address the shifting mix of product purchases, in this case from
hardware (player unit) to software (video cassettes).
Seek to look at buyer behavior in key buyer segments, i.e., "fad"
potential of product.
SOFTWARE
Recognize technology standards are set by industry leaders. In this
situation, the division as a secondary player will have to follow these
standards.
Recognize that different distribution needs may exist for different
products (In this case, hardware versus software).
Discuss the effect capacity additions can have on overall industry
price/volume relationships and on industry price levels.
COURSE PLUGIN
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CASE 17: TELECOMMUNICATIONS
DIVERSIFICATION
Category: Industry Analysis
SUGGESTED FRAMEWORKS:
Use an industry attractiveness framework, such as Porter’s Five Forces,
to determine whether this is a business you want to be in, or at least to
determine what kind of returns you can expect to achieve. Then, use
the value chain to look at where value is added in the home security
business. Finally, once you feel you understand the market, determine
if the core competencies of the Baby Bell are likely to match the
demands of the home security markets.
SOLUTION:
The conclusion is that this business is a reasonably good fit for the
company, but that more market research needs to be done to assess
the growth and profit potential of each segment of the market.
SOLUTION:
The competitor has used their new technology to produce a lower price
product. As evidenced in the Philadelphia / New Jersey market, nearly all
customers prefer this product to your client’s. Therefore, the future is
extremely bleak for your client, and they should be advised to respond to
the competitive threat, perhaps by updating their own technology.
Q1: Assuming your concern is valid, what reasons will you provide to other
partners about the need to acquire information technology skills?
Q2: Assuming your are able to convince other partners of the importance
of IT expertise, what steps would you take to rapidly build IT capacity in this
area?
Candidates should discuss the pros and cons of each method proposed;
impact on firm's current culture, cost to the firm, time needed to build
expertise, etc.
CLIENT’S RESOURCES/CAPABILITIES
They have perfected the technique of monitoring the gas plants
(using remote monitoring) and have the minimum average plant
downtime/breakdown in the industry.
By being the largest producer of gas, the client has achieved the
highest economies of scale.
SOLUTION #1:
The client can create value by operating 3rd party gas plants by
lowering the operational cost somewhat. More importantly by
minimizing the downtime of the gas plants they can add more
significant value. Therefore, based on the value proposition, the client
should enter into this business.
The client then needs to consider barriers to entry for other firms and
implementation strategy.
Barriers to Entry
The client’s capabilities are unique in the industry. They can sign
exclusive long term contracts with 3rd party clients to operate the gas
plants.
The client also needs to consider their pricing very carefully.
Implementation
Evaluate the capital investment of this market entry.
Since the client’s infrastructure is well established, the capital cost will
be minimal.
The client could offer to operate 3rd party gas plants which are
located reasonably close to their own plants. This would allow the
client to go up the learning curve while ensuring uninterrupted gas
supply to the customers.
SUMMARY
THE CLIENT SHOULD ENTER THIS MARKET SINCE THERE IS VALUE TO BE
CAPTURED AND THE CAPITAL INVESTMENT IS LOW.
CASE 21: VITAMIN MANUFACTURER
ENTRY INTO CHINA
FIRM: MCKINSEY, 1ST ROUND
CATEGORY: MARKET ENTRY ANALYSIS
Customers
The customers in US consist primarily of large corporate farmers
e.g. Tyson, Purdue.
Competition
Firms Resources
NOTE: THESE ARE PRICES IF THE CLIENT WERE TO ACQUIRE THE MINES.
Solution:
Economics of entry decision
The cost of raw material is given above for different mines. The additional
cost beyond the raw material is 10cents/lb.
Which mine will you choose? The one in Africa.
Now that the cost structure is established, the client should perform an NPV
analysis based on certain project sales volume.
The NPV analysis was positive.
Solution:
Author’s Comments:
Since I was not sure whether the interviewer wanted me to actually
calculate my best estimate or just brainstorm creative ways to do the
calculation, I decided to ask him beforehand. He offered me the following
tradeoff: I could choose between going through the calculation or outlying
alternative ways to arrive at an estimate. However, by choosing the latter, I
had to come up with at least three different procedures (and that’s exactly
what I decided to do).
1st Approach:
Secondary research. Contact the transit authority and see if the
measurement has already been performed before. Similarly, downtown
areas of cities of equivalent size could also have done some previous
studies on the topic.
2nd Approach:
Define the limits of the Loop and treat it as a system in which the units
processed are motor vehicles. By measuring the rate in which cars get into
and leave the system during the day, we could arrive at an estimate of the
average “inventory” built into the system throughout the day. A sample of
streets could be monitored (probably the most generally used) and the
results could be extrapolated to the whole area.
3rd Approach:
Use a phone directory to estimate the number of offices in the Loop. From
there, estimate the number of people commuting to work everyday, and
then the number of cars (discount people that car-pool or that use public
transportation). This number will be a percentage of the total number of
vehicles in the area, since we have to take into account the vehicles that
are just driving through the Loop and heading somewhere else.
4th Approach:
Measure the quality of the air in the Loop in terms of the concentration of
gases (from fuel combustion) throughout the day and contrast it with the
expected average contribution per vehicle.
A typical approach:
Estimate the number of people who chew gum: of the 300 million
population, 15% are between the ages of 10 and 20, the heaviest users, for a
total of 45 million. Estimate that these people chew two packs per week, for
annual sales of 4,500 million packs. For the other users over age 20, (70% of
the 300 million population, or 210 million) estimate a usage rate of one half
pack per week, for a total of 5,250 packs per year. Total packs per year is
9,750.
To check for reasonableness, figure the dollar sales that these packs
represent: at 25 cents per pack, annual sales would be $2.4 billion, a
reasonable figure.
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ENTRY
CATEGORY: SIZING
CASE 24: GOLFBALL MARKET ENTRY
CATEGORY: SIZING
Typical solution:
Golf ball sales are driven by end-users. The number of end users: take the
population of 300 million; assume that people between 20 and 70 play golf
(about 2/3 of the population, or 200 million) and estimate what proportion
of these people ever learn to play golf (guess 1/4) which reduces the pool
to 50 million. Now, estimate the frequency of purchase. If the average golfer
plays twenty times per year, and requires two balls per time, that’s forty
balls per person. Multiply that times the 50 million, resulting in a 2 billion ball
market.
A typical approach:
Product
This is the only product of its kind, in terms of taste and safety (lack of
harmful health effects) as proven in lab tests.
The brand name of the product has slowly become a common household
word.
Customers
The largest two customers (75% of your sales) are two worldwide beverage
companies.
The companies feature the brand name of your client’s chemical on their
product, and consider it a sign of quality.
The cost of the chemical sweetener represents 1.5% of their total costs.
Costs
The costs to manufacture the product are extremely low (about 20% of the
price of the product).
Solution:
You are the CEO of this firm and your firm is a large MNC
(multi national corporation).
Product
The product has passed the first round of in-company testing very
successfully. We are highly confident that it will be provide the masses
instant relief from almost all types of headaches. This is a unique discovery,
and no existing product comes close to it in terms
of effectiveness.
Solution:
Test structured thoughts:
What is critical – given the limited time, the candidate should first outline a
high level picture (set the scope) and then probe the details of each
section making reasonable assumptions and displaying their knowledge
of frameworks and tools.
Having done something akin to the above the candidate should be able to
proceed on the detailed analysis by leveraging some frameworks like
Customer/Competitor/Company analysis, Internal/ External elements,
SWOT, Cost revenue and profitability etc make necessary assumptions like
implications of FDA regulations, patent protection, clinical testing success,
competitor response etc
Summary:
Essentially, the candidate needs to provide a structure to the problem, flesh
out issues with probing analysis and produce a clear next-steps summary
for the firm is the winning solution.
These are easy to practice on your own – try figuring out a framework for
each one and crack it!
How many light bulbs does Huntsman Hall use each year?
How many births are there in England each year?
How many seats are there in Air Canada’s airline fleet?
CASE ONE
World real interest rates rose by about 1/2 % from the time of the
Pharaohs till the 1950s. Since then, they have risen by about 4%. Why do
you think this has happened?
Interviewer Notes
This is a perplexing question with a relatively simple answer. In the last four
decades, the demand for money has risen due to a large number of
entrepreneurial endeavors, corporate mergers and acquisitions, and
global expansion of businesses. The world money supply, however, has not
kept pace with this. As a result, the interest rates (the "price" of money)
have gone up.
CASE TWO
Why are soda cans cylindrical?
Interviewer Notes
To allow easier gripping.
To allow easier, denser packing in dispensing machines.
To avoid sharp edges that might cut hands.
Circular surfaces can easily distribute internal pressure. In addition,
surfaces with edges could develop fractures due to high stress at the
edges.
Cylinders provide the maximum volume for the least surface area and this
saves metal costs. Only spheres are better than cylinders in this regard, but
they are impractical.
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