UCLA Case Book 2019 - 2020
© anderson management consulting
association
List of Industry Overviews
This section includes brief overviews of 12 industries that are likely to come up in interviews
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Airline
Automotive
Commercial Banking
Health Care
Media and Entertainment
Oil & Gas
Pharmaceutical
Private Equity
Restaurant
Retail
Telecom
Utilities
Airline
Key Ideas
Revenue Streams
• Consolidation in industry
• Low cost carriers and fare competition
on competitive routes
• Online booking and check in
Cost Drivers
• Ticket sales to economy and business
passengers
• Fuel
• Charges for baggage and on-board
services (up selling)
• Marketing
• Expansion of domestic and
international routes
• Cargo transportation
• Capacity optimization (Load Factor)
• Value Added Services (food & drinks,
WiFi, etc.)
• Labor
• Terminal fees
• Insurance/legal fees
• Credit cards
Customer Segments
Channels
Risks
• Leisure travelers –
(generally price sensitive)
• Internet online travel sites,
airline websites
• Business travelers – (very
important to airlines due to
margins and services
purchased)
• Airline sales team: call
centers, online, or kiosk
• Changes in fuel prices have
a major impact on
profitability
• Freight/Cargo
Transportation
• Travel management
companies (TMCs) serving
corporate clients, travel
agents
• Macro economic conditions
greatly impact amount of
leisure travelers
• An intensely competitive
market with many foreign
airlines partly government
subsidized
Key Economics Drivers
• World Price of Crude Oil
• Trips by US residents
• Optimization of capacity
• Per capita disposable
income
Automotive
Key Ideas
Revenue Streams
• Automakers, Original Equipment
Manufacturers (OEMs), Replacement
Parts Production, Rubber Fabrication
• Highly capital and labor intensive
• Extensive competition due to foreign
automakers
• Unions
• Technology innovations such as electric
vehicle and autonomous driving
Customer Segments
• New car sales
• Labor
• Auto part sales
• Materials
• Services offered with vehicle purchase
• Advertising
• Financing
• Financing costs
• Extended warranties
• Recall costs
• Leasing
Channels
• Personal car buyers
• Automobile dealers
• Rental car companies
• Secondary automobile
market
• Commercial purchasers
• Government purchasers
Cost Drivers
• Automotive parts/services
outlets
Risks
Key Economics Drivers
• Globalization of the
industry enables more ease
of foreign competition
• GPD growth
• Extensive competition
impact on already low
margins
• Price of crude
• Changes in consumer trends
and tastes
• Income growth/disposable
income
• Steel prices
• Consumer confidence index
• Yield on Treasury note
Commercial Banking
Key Ideas
Revenue Streams
• Consolidation/acquisitions
• Increased mobile banking
• Channel innovation in digital and
physical channels
• Customer attrition rate
• Offshoring of call centers, back office
functions
• Digitization of processes
• Cross selling
• Loan interest (Loan types: Real estate,
Auto, Personal, Education)
• Wages
• Service Fees
• Interest rates on deposits
• Spread between interest rate charged
and Fed rates
• Branch and compliance costs
Customer Segments
Cost Drivers
• Credit cards
Channels
• Bad debt expense
• Overhead costs: paper fee, error rate
costs for manual processing
Risks
Key Economics Drivers
• Wealth: deposit balances,
income
• Savings and loan
• Change in savings behavior
• Consumer confidence
• Credit union
• Household debt
• By lifestyle: buying
behavior
• Traditional checking
• Loan default, interest rates
and federal funds rates
• Size: small businesses and
consumers
• Online banking
• Urbanization
• Microfinance
• Home and car buys
• Age: under 35 adapt to
technology better
• Employment statistics
• Disposable income
• Interest rate
• Government Regulation
Health Care
Key Ideas
Revenue Streams
Cost Drivers
• Affordable Care Act
• Hospital care
• Dependent on segment
• Highly fragmented: Top 50
organizations account for 15% revenues
• Physician and clinical services
• Significant costs related to new
technology implementation
• Employers pushing health care costs
onto employees
• Nursing
• Aging Baby Boomer population driving
increased revenues
• Research, Equipment, Investment
Customer Segments
• Prescription drugs
• Often inefficient organizational
structures
• Dental services
Channels
• Patients/consumers
• Hospitals
• All generations and
segments of the population
require different
products/services
• Doctors offices
• Nursing homes
• Outpatient surgery centers
• Pharmacies
• Medical equipment
Risks
• New legislation (Impact of
Affordable Care Act still
uncertain)
• Funding availability
Key Economics Drivers
• Regulation for health
medical insurance
• Federal funding for
Medicare and Medicaid
• Aging population
• Advances in medical care
and technology
Media and Entertainment
Key Ideas
Revenue Streams
• Create, license and / or distribute
content (TV shows, movies, music,
news, video games, books, magazines,
radio shows, advertising, etc.)
Cost Drivers
• Content sale/subscription
• Labor
• Advertising
• Marketing
• Licensing/distribution
• Investment in digital technologies
• Developing and acquiring multiple
brands and multiple distribution
channels
• Digitalization
Customer Segments
• Individual customers
segmented by:
Channels
• Cinema
o Demographic
• Traditional TV and home
video
o Age
• Internet advertising
o Genre preferences
• Video games and e-sports
• Book/magazine publishing
• Music & radio
Risks
Key Economics Drivers
• The business model is
evolving
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The growth of streaming
and mobile video
• Tech companies pose
competition for online
advertising
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Piracy and copyright
enforcement
•
Royalties and
monetization
• Competition for best
content
Oil & Gas
Key Ideas
Revenue Streams
Cost Drivers
• Upstream, midstream, downstream
• Crude oil
• PV-10
• Gasoline
• Exploration: seismic studies, drilling
rigs and labor
• Cost per gallon
• Natural gas
• Production: refining
• OPEC
• Refining products such as lubricants
• Pipelines
• GDP growth
• Gas stations: gasoline, food market, car
wash
• Gas station: oil, labor, insurance,
licenses
• Renewable energy
• Fracking
Customer Segments
Channels
Risks
Key Economics Drivers
• Petroleum refiners
• Retail
• Access to reserves
• Government regulation
• Electricity generators
• Wholesale
• Energy policies
• Domestic and commercial
users
• Commercial
• OPEC decisions
• International oil production
and demand
• Other industries
• Political pressures
• Substitutes/renewable
energy
Pharmaceutical
Key Ideas
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Affordable Care Act
Aging population
Patents and generics
Research & Development
Insurance
FDA
Market penetration
Contract vs in-house salesforce
Customer Segments
Revenue Streams
• Insurance payments
• Research & Development
• The federal government provides
certain grants to subsidize R&D
• Manufacturing cost
• Due to significant R&D lead times
revenue is highly volatile
• Wages
• Seasonality is high on certain products
(vaccines and cold medicine) and low
on other products (pain medicines)
Channels
• Medical patients
• Over the counter
• Prescribing doctors
• Prescription drugs:
Hospitals, pharmacies
• Government insurance
programs
• Health insurance companies
Cost Drivers
• Mail order pharmacy:
Express Scripts, Walgreens
• Marketing costs
• Liability insurance and legal fees
Risks
Key Economics Drivers
• Generic manufacturers pose
a major competitive threat
following patent expiration
• Median age of population
• Tariff barriers are no longer
a relevant form of
protection
• Insurance and regulatory
landscape
• Unfavorable government
healthcare regulations and
CMS rates
• Research and development
expenditure
• Patent protection
Private Equity
Key Ideas
Revenue Streams
• Value creation: selling underperforming
assets, pricing optimization, diversifying
customer base, operations efficiency
• Exit: strategic or IPO
• Synergies
• Stability of cash flows (IRR, NPV)
• Strong management team
• Targeted returns ~ 40%+
• Un-invested capital vs. invested
Investors
• Pension funds (largest
share)
• Private investors (e.g. High
net worth individuals)
• Banks, sovereign funds and
life insurance companies
Cost Drivers
• Components of the revenue charge
• Administrative costs (regulatory filings,
record keeping, accounting and travel)
o Invested capital
o Transaction and advisory fees
• Outsourcing of capital-intensive IT
functions for algorithmic trading
o Carried interest
• Divestures
Averages in Industry
• Large firms focus on deals
~$1B; middle market firms
cover deals between $15M $1B
• Average holding period before
sale has increased from 3 years
to 6 years in the past 15 years
• Borrowing can typically range
from 65% to 85% of the
purchase price of the firm
• Wages and profit sharing
Risks
Key Economics Drivers
• New regulation →
compliance costs, Rising
competition → decreasing
industry fees
• Investor
uncertainty/Pension demand
• Competition also exists
with sovereign wealth funds
and corporate buyers
• Regulations
• Changes in tax structure
• Access to credit/interest
rates
• Exit opportunities
• GDP/Investment returns
Restaurant
Key Ideas
Revenue Streams
Cost Drivers
• Newer “ fast casual” restaurants like
threaten to steal market share from both
QSR and full-service restaurants
• Food and beverages (usually the higher
margin products)
• Labor
• Merchandise
• Implementation of technology to
increase profitability
• Real Estate
• Catering
• Marketing
• Raw Material
• Franchising fees
• Licensing
Customer Segments
Channels
• Preferred/loyal customer
• Dine-in
• By location or
neighborhood
• In-house Delivery
• Purchase decision
• Pick up
• Outsource Delivery
Risks
• Maintaining a safe
environment for employees,
contractors, and other
visitors
• Wage and hour lawsuits
• Liquor liability
• Food allergies
• Food-borne
illness/contamination
Key Economics Drivers
• GDP growth
• Consumer Confidence
index
• Per capita disposable
income
Retail
Key Ideas
• Same store sales
• Sales per square foot
• Inventory turn-over
• Seasonality/recessions
• Trends
Revenue Streams
Cost Drivers
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Product sales (brick & mortar, online)
Slotting fee
Advertising
Affiliate marketing
Cross-selling additional products and
services
• Loyalty and rewards programs
• Cost of Goods Sold (74% of costs)
• Transportation
• Wages
• Rent and utilities
• Marketing
Customer Segments
Channels
Risks
Key Economics Drivers
• The industry consumer
oriented and, due to the
spectrum of products, its
markets are generally
segmented into different
income, demographics and
age
• Department Stores/Big box
retailers
• Changes in disposable
income
• Consumer Confidence index
• Discount retailers
• Demand and supply issues
• International Export/Import
• Demographic retailers
• Overstock
• Shopping malls
• Easy entry invites
competition
• Gross Domestic
product/inflation
• Per capita disposable income
• Commodity prices (e.g. gold
price for jewelry)
Telecommunications
Key Ideas
Revenue Streams
Cost Drivers
• Deregulation led to spur of new
companies
• Voice calls
• Infrastructure
• Additional lines/family plans
• Frequency licenses
• Bottlenecks: High capital, scarce
operating skills and management
experience
• Text and image communication
• Wages
• Data subscriptions
• Marketing and advertising
• Shift from telephones to internet-based
services for mobile
• Bundling of services
• Bundling with video, music & games
content
• Value Added Services
Customer Segments
Channels
• Retail/individual customers
• Retail stores - carriers and
mass retailers
• Rapid development of
technology
• Investment in rising
technology services
• Direct sales force
• High exit barriers
• Online
• Systems not reusable across
industries
• Number of subscriptions to
additional services
• Residential and Small
Business (Price sensitive)
• Large multinationals (Price
insensitive)
Risks
• Commoditized services
Key Economics Drivers
• Number of broadband and
mobile internet connections
Utilities
Key Ideas
Revenue Streams
Cost Drivers
• Increase in energy consumption
• High investment costs and regulations
• Industry structure is disintegrating into
smaller supplier segments
• Seasonality
• Gov. incentives for sustainable
initiatives
• Bundling services with renewable
• Transmitted electricity: base load and
intermittent electricity
• Purchased power accounts (nearly half
of total cost)
• Base load (95% of industry)
• Infrastructure
• Coal, natural gas, nuclear, other
• Wages
• Intermittent: renewable energy
• Marketing
Customer Segments
• Commercial and Industrial
• Residential
• Maintenance contracts
Channels
• Transmission
lines/pipelines
• Upstream electricity
generators
Risks
• Clean energy threatens the
future of traditional power
generation methods
• Seasonal demand leads to
uncertain estimates
• Energy efficient appliances
decrease consumption
Key Economics Drivers
• Economies of scale
• Industrial production index
• Climate/seasonality
Cases
#
Week
Cohort
Title
Type
Industry
1
1
1
PHD China Snacks
Profit/Market Eval
CPG, International
2
1
2
Drug Store Profitability
Profitability
Product Mix/Retail
3
1
3
Airplane De-Icing
Operations, Break Even
Aviation
4
1
4
American Beauty
Marketing/Brainstorming
Retail
5
2
1
Zoo Co
NPV/Profit analysis
Investment/Other
6
2
2
Town Mayor
Strategy/MacroEconomics
Other
7
2
3
UPS in Italy
Structure/Math
Shipping/Logistics
8
2
4
Car Leasing Center
Market Sizing/So What?
Other
9
3
1
Alpha Capital
PE/Investment Eval
Retail
10
3
2
Shermer Pharma
Market Entry
Pharma
11
3
3
Thompson Healthcare
Cost Reduction
Healthcare
12
3
4
Brazil Mining
Strategy/Valuation
Mining
13
4
1
Engineering Co
M&A
Industrial Goods
14
4
2
After School Programming
Growth Strategy
Other
15
4
3
Brazilian Road Concessions
Investment Valuation
Govt
16
4
4
Rock Energy
Profitability
Energy
17
5
1
Diabetes Testing Meter
Market Entry
Pharma
18
5
2
Stews Connection
New Product/Market Size
Aviation
19
5
3
Upscale Restaurant
Profitability
Restaurant
20
5
4
High Q Plastics
Profitability/Competitive Landscape
Industrial
1
1 / PLD Snacks
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Our client is PLD, a global manufacturer of snack foods and beverages. PLD has been a market leader in China’s potato chips (PC)
market for over two decades now but is facing increasing local competition.
Most notably this year, the company’s volume share in the South China region declined from 60% to 20%, and the company
hired us to find out why and how to react.
Overview for Interviewer
Industry: CPG/International
Case Format: Competitive Strategy
Concepts Tested:
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Market Evaluation
New Competitor
Competitive Response
Notes
This is a conversational case that focuses on competitive strategy.
Please note that there are critical pieces of information necessary for the
applicant to complete the case successfully. If the interviewee does not
immediately ask for information on competitors, products, and customers,
drive them toward those items before proceeding.
PLD Snacks – Interviewer Guidance
Clarifying Answers to Provide if
Asked
Products
• Consumers see current potato chips
products as commodities, so average
price is similar across competition
• Currently all potato chips are fried but
PLD is considering introducing baked
products which use minimal or no oil
in production.
Consumer – there are two primary
consumer groups in the PC market, the
Totally Fried Guys (TFGs) and the
Completely Baked Dudes (CBDs) group
• Totally Fried Guys prefer the
crispness of current fried products
• Completely Baked Dudes prefer
baked products with less or no oil
• TFGs comprise 80% of total market
consumption but more people are
switching to the CBD group. Assume
no seasonality in consumption.
Interviewer Guide to Case and
Handouts
Case Structure
The first question will focus on diagnosing the root cause of share loss by
understanding changes in both market size and the client’s volume in South
China region.
The second part of the case the interviewee should guide creative thoughts on
innovation, supply chain management and sales/marketing strategies to react
to the situation. This is the fun part and the interviewee can recommend
several strategic choices in both short and long term.
Answer
Candidate should identify that PLD’s growth has been in line with existing
competitors. The loss in market share is due to the entrant of prominent new
competitors.
Additional Information for Interviewee
Understand Market Size and
Share
The following information will be necessary to determine shift in South China volume share (60% – > 20%)
Notes to Interviewer
Interviewer to Provide
• Last year, PLD recorded 800,000 tons of sales in the national PC market with 40% market share, followed by WWT (10%)
and DLT (5%)
• The South China Region accounts for 10% of overall national PC market
• Last year PLD sold 120,000 tons of PC in South China with 60% market share; the rest of the market goes to WWT (20%)
and DLT (20%)
Table for Reference – To be calculated by Candidate
National
South China
Sales Volume (tons)
Market Share
Sales Volume (tons)
Market Share
PLD
800,000
40%
120,000
60%
WWT
200,000
10%
40,000
20%
DLT
100,000
5%
40,000
20%
Other
900,00
45%
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Total
2,000,000
200,000
PLD Snacks – Analyzing Market Share Change
1 & 2 / Diagnose the change in volume share (60% -> 20% ) in South China
1 / PLD’s volume is 132,000 at the close of this year. How
does that compare to last year?
Notes to Interviewer
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Interviewee should realize this is 10% volume growth,
as last year’s 120,000 tons
Interviewee should use calculation and previously shared
information (that PLD’s South China market share dropped
to 20%) to realize:
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The market size grew dramatically (132,000 / 20% =
660,000 tons, versus 200,000 tons full year last year).
Interviewee should then understand that the market
share loss was not caused by volume decline, but by a
jump in market size
2 / WWT and DLT volumes grew by 10%, what does this
mean for the overall market?
Notes to Interviewer
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Interviewee should realize WWT and DLT are growing at
the same rate as PLD and therefore were not driving
market growth; it must be that new competitor(s) entered
the market
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Most importantly, the new competitor(s) now command a
majority market share
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Vol. of PLD+WWT+DLT = 200,000*(1+10%) = 220,000
tons, a third of the current market size of 660,000
PLD Snacks – New Competitor Analysis
3 & 4 / Interviewee should probe on the following topics
Interviewee should identify the critical role the new competitor(s)
play in the market and identify their market share individually and
why they are excelling
Notes to Interviewer
New Competitor Information
• There was only one new competitor, XCD which entered the market in
the middle of this year. This competitor has done exceptionally well.
Provide the following if asked about XCD’s market share/sales:
• XCD has been in the market for only 3 months (now is Sept.), but
generated 280,000 tons of sales!
• An excellent candidate would quantify XCD’s performance by
looking at its monthly sales – That means XCD’s monthly volume was
more than 8 times PLD’s (280,000/3 = 93,000 tons/mo. vs. PLD’s
132,000/ 12 = 11,000 tons/mo.)
Why is this competitor doing so well?
• Explore 4P: Product, Price, Place and Promotion (in a less rigid way)
Once explored 4Ps are explored, provide the following:
• The key is product – XCD introduced a baked product
• Interviewee should realize it was the CBD group who was buying the
newly launched baked product
What do we know about CBDs in South China?
Notes to Interviewer
The CBD group was only 20% of the market
volume, but now more than half. ( XCD’s 90K
monthly vs Rest of Market’s 55K = 62%)
Frequency of eating potato chips has not changed for
either of the two groups.
Interviewee should start thinking where the new
CBDs consumers came from:
• Most of them were NOT “switchers” coming
from the TFG group.
• An excellent candidate would reason that the
majority of CBD consumers this year were
previous non-consumers of potato chips
• Reasons could be that these people concerned
about oil in the fried product. They are now
coming into the category to buy XCD’s baked
product which is not oily
PLD Snacks – Closing Thoughts
5 / Wrap it Up
Please provide an overview of the issue at hand, and a concise recommendation as to how we should proceed.
Notes to Interviewer
Candidate should provide a crisp recommendation in under one minute.
A good recommendation will address the following:
Is this a real threat?
• A good candidate should consider both short term and long-term
• In the short term, XCD seems to be growing on its own without stealing users from PLD, and they are only selling in a small
regional market (South China only 10% of national volume).
• But in the long term, given the CBD trend and XCD’s huge success in South China, XCD is likely to go nationally. South
China may be only a test market for them.
How should PLD react?
• Short term: focus on protecting business in South China and other regions by increasing marketing investment, promotions,
or introducing new flavors to excite the TFG group
• Long term: create own baked product or consider buying the new competitor
PLD Snacks – Potential Structure
Snack
Competition
PLD’s
Business
Snacker Market
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Flavor trends
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Total market growth
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Discontinued chip flavors
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Health trends
•
Segment growth
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New pricing strategy
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Pricing changes
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Changes in taste
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Supply chain changes
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Distribution channel changes
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Changes in chip type
•
Lawsuits
•
Public relations scandals
2
2 / Drug Store Profitability
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Our client is a drug store chain, similar to CVS, they have been losing profits for the last few years. Can you help us identify the
reasons and means to improve the profits?
Overview for Interviewer
Industry: Pharma
Notes
•
This case is done as a discussion, with the interviewer pushing the
interviewee toward revelations without necessarily asking direct
questions.
•
Is the loss of profitability due to product mix, store mix, increasing
costs or decreasing revenue? Or a combination of all the above?
•
What can the company do to improve profits – focused discussion
around one area of improvement from above list
•
This is a great case to begin incorporating some brainstorming given
that most candidates are familiar with the industry. Push for
candidates to draw insights out of their real world experience.
Case Format: Profitability
Concepts Tested:
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•
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Product Mix
Retail
Business Operations
Drug Store – Interviewer Guidance
Clarifying Answers to Provide if Asked
Interviewer Guide to Case and Handouts
Stores are typical to CVS, located in
several areas.
Case Structure
Stores have three key business areas:
The interviewee should develop a MECE framework that covers a wealth of
reasons why profitability is an issue.
1. Pharmacy
2. Health + Beauty
3. General Merchandise
As information on product mix, store mix and location is shared with the
interviewee, the candidate should brainstorm risks and opportunities of
making changes based on the information provided.
Answers
The firm is losing profits due to several reasons
• Product mix
• Store mix
• Location Details
The company should look at
• Changing product mix
• Closing bad stores
Drug Store – Product Mix
1 / Product mix
After structure, push candidate to identify that there could be different profitability by product.
Notes to Interviewer
Verbally provide the information in the table above to the candidate.
Product Type
Sales/Sq Ft
Profit Margin
Pharmacy
$20,000
5%
Health and Beauty
$10,000
20%
General Merchandise
$5,000
10%
Candidate should identify the profit per Sq Ft:
• Pharmacy ($1K)
• Health and Beauty ($2K)
• General Merchandise ($0.5K)
Push the candidate to identify opportunities and challenges of changing product mix:
• General Merchandise could be to gain foot traffic; Ensure it brings in those who shop Health and Beauty products
• Optimize store layout to give more shelf time to high margin products
• Backlash from suppliers on reducing size and SKUs of orders
Drug Store – Cost Management
2 / Cost improvements
Push candidate to identify ways to improve the cost side of the margins of general merchandise; in particular milk
Notes to Interviewer
Candidate should attempt to brainstorm ways to improve the cost structure of general merchandise in a structured manner.
•
•
•
•
Find cheaper suppliers
Renegotiate contracts
Find local suppliers
Get volume discount
Retail
Distribution
Acquisition
•
•
•
•
Cost of refrigeration
Reduce Mileage
Outsourcing vs insourcing
delivery
Grouping of delivery with
other merchandise
•
•
•
Cost of refrigeration
Cost of spoiled materials
Improved forecasting of
demand to reduce inventory
Drug Store – Store and Location Mix
3 / Profitability by store
Push candidate to recognize that profitability by store and location may be different
Notes to Interviewer
Information to provide to candidate on store mix:
•
•
60% of the stores are located near hospitals, in areas with heavy competition and in high crime infested areas – these stores
make 10% loss
Remaining stores make 25% profits
Candidate should identify the following:
•
•
•
Stores making a loss should be closed.
Risks of closing: Product shift could change 10% loss, Loss of key customers who are focused on health and beauty, backlash
of closing stores
Leverage lessons of profitable stores: identify common traits of profitable stores, opportunity for growth and how competition
and market size in those store locations looks
Drug Store – Closing Thoughts
4 / In conclusion…
Please provide an overview of the issue at hand, and a concise recommendation as to how we should proceed.
Notes to Interviewer
Candidate should provide a crisp recommendation in under one minute.
The recommendation should provide clear and succinct guidance on why the company has been losing profits for the last few
years, as well as next steps to proceed. The recommendation should also be delivered as it would be to a client, with a positive
and hypothesis driven spin on the conclusion.
The firm is losing profits due to several reasons
• Product mix
• Store mix
• Location Details
The company should look at
• Changing product mix
• Closing bad stores
• Improving on location
Drug Store – Potential Structure
Revenu
e
Costs
Competition
•
Product mix trends
•
New stores
•
New locations nearby
•
Customer segment trends
•
Renovations
•
Competitive pricing
•
Pricing / discount trends
•
Labor / overtime / turnover /
training
•
Product variety
•
Location mix
•
Integration of suppliers
•
Online shopping
•
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New supplier contracts
Logistics costs
3
3 / Airplane De-Icing
Your client is Air Co, a U.S. airline that has significant operations at one the of Chicago airports. Due to cold weather, the client’s
planes often have to be de-iced, but because the airline’s de-icing need is very unpredictable, the client decided to outsource de-icing
to Ice Co last year. However, Ice Co’s performance has not been satisfactory.
The client is considering in-sourcing airplane de-icing, but currently does not have enough resources perform the de-icing in-house.
The client requires a 4-year payback on investments and wants to know if they should in-source or outsource the de-icing.
Overview for Interviewer
Notes
Industry: Airlines
•
This case is interviewer guided/lead.
Case Format: Break-even
•
This case is about calculating the break-even on an investment
opportunity. The interviewee should demonstrate clear structure in
their calculation.
•
The interviewee should bring the break-even calculation into a
broader context once the calculation is complete
•
Although there is not a page given for this, the interviewer should
first ask the interviewee outline the major cost buckets.
Concepts Tested:
•
•
Operations
Break-even
Airplane De-Icing – Break Even
1 / Present Exhibit 1 to Interviewee and ask them to fill out, providing following information as asked
If the client in-sources the de-icing: they will need to hire 150 people (30 people multiplied by 5 months) for the whole icy
season.
• Workers must be paid for the whole month, even if they only work for one week
• Each worker costs $4,000 / month
• There are 5 months in the icy season
The performance problems result from Ice Co taking too long to de-ice the planes, leading to delays; we cannot quantify the impact
of this
Notes to Interviewer
Calculate in-sourced labor costs per event
• 3,000 events/season x 1/5 season/months = 600 events/month
• 150 workers/season x 1/5 season/months= 30 workers/month
• 30 workers/month x $4,000/worker/month = $120K/month
• Labor cost/event = $120K/600 = $200 per event
Calculate labor savings per event
• Outsourced cost: $300 + chemicals ($5 x 40) = $500/event
• In-sourced cost: $200 + chemicals ($4 x 40) = $360/event
• Savings = $140/event
Calculate payback period for the investment
• Savings per year: $140/event x 3,000 events/year = $420K
• Payback period: investment/savings per year = $3M/$420K = 7 years > than 4 year payback requirement
Airplane De-Icing – Analysis
2 / Achieving Payback Period
How could we decrease the payback period?
Notes to Interviewer
List of possible options:
• Fewer employees
• Restructure labor contracts so employees are paid actual
time worked
• Reduce cost of gallon of chemicals
• Reduce amount of chemicals used per event
3 / In Conclusion…
Please provide an overview of the issue at hand, and a
concise recommendation as to how we should proceed.
Notes to
Interviewer
The recommendation should provide clear and succinct
guidance on why the company should or shouldn’t enter the
market, as well as next steps to proceed.
To decrease payback period:
• Reduce investment costs –lease equipment instead of
purchasing it.
• Decrease labor costs to increase savings per event: renegotiate labor contracts; explore more flexible options
instead of hiring by month.
To improve Ice Co’s performance:
• Implement contract terms that require IceCo to meet
pre-determined performance metrics.
• Tie Ice Co fees to meeting contract terms
Airplane De-Icing – Potential Structure
Revenue
Comparison
In-sourcing
Costs
Outsourcing
Costs
•
Fixed contract fee
•
De-icing equipment
•
Fewer “customers”
•
Per-plane or time-based billing
•
De-icing chemicals
•
Better-trained staff
•
Procurement / governance
costs
•
Labor
•
Better incentivized staff
•
Airport fees
•
Faster de-icing times
•
Procurement / governance
costs
Airplane De-Icing – Exhibit 1
Ice Co
Client
Number of Events
3,000
3,000
Fee per Event
$300
N/A
Labor Costs
N/A
?
Cost/gallon of Chemicals
$5
$4
Gallons of chemicals per event
40
40
Cost Per event
?
?
De-Icing Investment Costs
Investment Cost ($M)
3.5
3
Note for BW printing,
2.5
2
Top = Training
Middle = Supplies
Bottom = Equipment
1.5
1
0.5
0
Training
Supplies
Equipment
4
4 / American Beauty Company
American Beauty Company (ABC) is, as the name suggests, a high quality beauty products company. They have done very well both
in the US and globally and enjoy great brand recognition. One of their major products is hair color. ABC manufactures high quality
‘use at home’ hair color products. They sell through retail and drugstores, with all manufacturing in-house. They have an 800 number
for customer support. Recently they have been experiencing declining revenues and market shares. The retailers have complained
about their products as the competition Bell International takes over. The firm has been called in to advise ABC on what to do.
How would you start thinking about this problem?
Overview for Interviewer
Notes
Industry: Consumer products
•
Interviewer led/guided
Case Format: Revenue decline
•
Jump into framework after reading the prompt
Concepts Tested:
•
Emphasis on using data and insights throughout the case in the
final conclusion. Pointing out brand awareness and perception of
quality and low market share of men’s as sources of the potential
problems.
•
Focus on structure and logic for brainstorming questions.
•
•
•
Market share
Segmentation
Market sizing
Framework example
Its an open ended question. There can be number of ways to approach this problem. Crucial here is to look at the big picture and come
up with three or four major areas that you would like to explore given this specific product, industry and the situation. Do not get
caught in the profitability trap due to mention of declining revenues. A good answer would include following
Distribution
Channel
Customer
Product
•
Attributes
•
Target market (segments)
•
Distribution network
•
Ease of use
•
Brand loyalty
•
Shelf space and positioning
•
Value prop
•
Price sensitivity
•
Share of distribution network
compared to competitors
•
Price
•
Important attributes
•
Benchmark against comps
•
Typical cust. behavior
•
Market share and trends
•
Purchasing habits
Core Case Question 1
1/ Brainstorm Question
One of their biggest market segments is 18 – 55 year old women. But their share has been declining recently. Why do you
think this might be happening? How would you approach this issue?
Notes to Interviewer
There might be a number of issues here. But structure is the
most important. Candidates should break down the
problem into two:
1.
•
•
•
•
Why this may happening?
Lack of brand awareness
Low Trial % of products in this segment
Low Re-trial/re-purchases % 🡪 quality issues
Issues with access/distribution
2. How you would go about testing these hypothesis?
• Marketing research to see which one of these ABC is
lacking in
• Compare against industry/competitor benchmarks
Exceptional Candidates Will Mention…
•
Break down the problem in this kind of structure
and use language such as “in order to test these
issues, I would…”
Core Case Question 2
Break Even & Market Potential
Using the data below, what sales are required for ABC to have 50% of the women’s market in 2 years?
Notes to Interviewer
Candidate should conduct market share calculation
using the data table below which you can provide
verbally
Exceptional Candidates Will Mention…
•
Interviewee should point out that based on this data
looks like their biggest segment, women, is maturing
fast.
Core Case Question 3
Market Share
Calculation
What is the dollar market share for ABC currently? What will the mkt share be in 2 yrs?
Notes to Interviewer
They will need to ask for the current and future mkt share data. Current market share
is as below. Assume they keep the same market share in 2 years.
Exceptional Candidates Will
Mention…
•
•
ABC’s current $ mkt share = 0.5 * 800 + 0.1 * 200 + 0.3 * 100 = 400 + 20 + 30 =
450M
Bonus: Mkt share % = 450M / 1.1B = ~41%
ABCs Market share in 2 years = ABC share in $/total market in $
Total market in 2 years = 800 * (1.05^2) + 200 * (1.2^2) + 100 *(1.1^2 )= 882 + 288
+ 121 = 1291M
ABC’s market share in 2 years = 882*0.5+ 288*0.1+121*0.3 = 506.1
Mkt share % = 506.1 / 1291= 39.2%
Explain all calculations before
diving into them.
Interviewee should notice that
ABC has quite low penetration
rates in men’s segment
Core Case Question 4
Market Share
Calculation
The team also did a customer brand awareness and perception survey in the 18 – 55 yrs women segment for ABC
benchmarking its products against the competitor Bell. The results of the survey are in the table below. What do you
notice and what do you suggest ABC can do about it? (Hand exhibit 1 to interviewee)
Notes to Interviewer
Survey results in exhibit 1 and below
Exceptional Candidates Will
Mention…
You can see from the results of both the surveys that
despite its high quality and brand recognition, the
competitor Bell fares better amongst customers in
both dimensions whether users or non users.
ABC should focus on improving its brand awareness
and perception of quality. For brand awareness, they
have to focus on advertising. To improve its
perception of quality, they should invest in
promotions, joint marketing efforts with retailers to
push their product and trials.
Core Case Question 5
Conclusio
n
Can you please summarize your findings and give a recommendation to the ABC CEO?
Notes to Interviewer
•
Conclusion should be structured with
summary of all calculations/findings
•
Next, conclusion should go into a
couple of recommendations to improve
revenue
Exceptional Candidates Will
Mention…
A good recommendation will include the following major points: Based on
the analysis so far, it seems like the main reason for declining revenues and
market shares is that the competitor Bell has achieved better brand
awareness and perception of quality in the market compared to ABC.
Hence ABC should focus on improving these through advertising and
aggressive promotions and marketing. Going forward, it seems like ABC
has very low penetration in the men’s segment. They should target these
segments for future growth opportunities since the women’s segment seems
to be maturing. Also, the total market size of teens seems really low. There
might be opportunities there to expand the total market size through
innovative products, increased usage and acceptance of hair color products.
Exhibit 1
5
5 / Zoo Co.
•
•
Our client is a zoo that is thinking about acquiring a famous zebra from an African preserve.
It’s a huge investment, but they believe the new zebra would be a great contribution to their animal community. You have been
engaged to help decide whether this is a good idea. What would you consider when trying to help your client make this decision?
Overview for Interviewer
Notes
Industry:
Zoo & Aquarium
The interviewee should lead the case, but interviewer should use
structured question prompts.
Case Format:
M&A
Even though the client is a Zoo, we're undertaking a similar process to what
is done when underwriting an insurance policy. The case evaluates basic
concepts, but involves many calculations and use of financial and
assessment techniques. (This is also very similar to an acquisition case.)
Key case objectives:
Concepts Tested:
•
•
•
Investments
Break-even Analysis
Basic NPV
1. Investment Valuation –Walk through the valuation process for an asset
2. Breakeven Analysis –Determine the revenue increase needed for a
positive NPV
3. Risk Assessment –Should the zoo should use an insurance contract to
hedge downside risk?
Rounding numbers is generally okay but should not be done to the extreme
as it will alter the results
Zoo Co. – Interviewer Guidance
Clarifying Answers to Provide if Asked
Data to provide when asked (nudge
toward revenue/cost if needed)
• 300K people visit the zoo annually
• Admission is $15 per person
• Benefits from zebra acquisition
could lead to increased attendance.
Another zoo that acquired a similar
zebra had an 8% increase
Interviewer Guide to Case and Handouts
The interviewee should think about performing a break-even and a sensitivity
analysis.
They should start by asking about the benefits and costs associated with zebra
acquisition (Left)–Share with interviewee after probing questions are received
Using the data on the left to calculate benefit to zoo from acquisition
• Determine whether or not this zebra purchase makes financial sense for the
zoo, using the NPV value
Costs from zebra acquisition
•
•
•
•
•
•
Food, health costs and additional
trainers are part of annual
maintenance costs
Acquisition cost: $235K
New facilities: $850K
Transportation: $110K
Annual maintenance: $90K
Discount rate = 20% Assume that
immediate cost are paid today, and
annual costs and benefits are realized
beginning next year and sustained
into perpetuity (assume that the
Zebra would live forever to simplify
the calculation)
Using the cost and benefit data provided, the interviewee should calculate the
simple NPV of the acquisition
Assume that attendance benefits are realized immediately and maintained
thereafter
• Annual benefits = (300K)*($15)*(0.08) = $360K
• Upfront costs = $235K + $850K + $110K = $1.195M
• Annual costs = $90K
• NPV = -$1,195K+(($360K -$90K)/0.20) = $155K
Continue by asking questions in next page
Zoo Co. – Key elements to analyze
1 / Break-even
Analysis
Zoo Co. is concerned about using the other zoo’s attendance
benefits as a proxy. They think that attendance could
increase by less than 8%. What analysis could you perform
to address their concerns? What is the breakeven attendance
increase required?
2 / Risk
Assessment
Since the zoo is very risk-averse, they’re interested in hedging
some of their downside risk. An insurance company has offered
to provide the Zoo with a constant revenue to increase revenue to
$250,000 per year if attendance increases are less than or equal to
5% (if additional revenue for a particular year is only $135K, the
insurance will give the Zoo, $115K).
In exchange, the insurance company wants the zoo to pay 1% of
the zoo’s total expected annual revenues as a premium. What
might you do to determine if this was a good deal?
Notes to Interviewer
The interviewee should determine that a sensitivity /
breakeven analysis of the NPV calculation with lower
attendance increases will help confirm that the project still
makes sense
See calculations page
Notes to Interviewer
The interviewee should recognize that additional information
is needed, and that a market research study could aid in this
process.
Hand out Exhibit 1 after the interviewee identifies this notion
The interviewee should use the market research to determine
the probable attendance increase
Zoo Co. – Calculations
3 / Mathematics Questions
1. What is the breakeven attendance increase required?
1. Do you think the insurance company is providing a good deal to the zoo? (Present Exhibit 1for this question)
Notes to Interviewer
1. Break-even:
• -$1,195,000 + ((revenue-$90,000)/0.20) = 0
• ($1,195,000) x .20 = revenue - $90,000
• revenue = $239,000 + $90,000 = $329,000 (*required additional revenue to break even)
• $329,000 = (300,000) x (15) x (% increase)
• % increase = ($329,000 / $4.5M) = 7.3%
After handing over exhibit 1
2. Annual cost to zoo: 1% of total zoo revenues = (0.001)*($4,752,000) = $47,520
Annual expected benefit to zoo = ($250,000 -$225,000)*(0.40) + ($250,000 –135,000)*(0.20) = $33,000
Costs > Benefits, so this is not a good deal
Zoo Co. – BONUS (if time permits) Calculation
4 / The GWF enters the picture
The Global Wildlife Federation will pay any zoo $500K after a zoo host its endangered insect exhibit for one year. The
increased traffic from the new exhibit will generate an additional $280K in revenue.
Zoo Co. is expected to incur $655K in costs to set-up the exhibit. Is the new exhibit worthwhile setting-up
Assume the 20% discount rate and all revenues occur after year 1
Notes to Interviewer
NPV Calculation:
= -$655,000 + (($500,000 + $280,000) / 1.2)
= -$655,000 + (($780,000) / 1.2)
= -$655,000 + ($650,000)
= -$5,000
Zoo Co. – Solution & Recommendations
4 / Final recommendation, solutions, and thoughts
•
•
It is unlikely that the zebra acquisition is a good idea for the zoo to undertake given the information provided. At other zoos,
attendance has gone up substantially due to a new zebra; however, based upon our market research, it seems less likely that
we can breakeven on the investment through increased attendance. We have received an insurance contract to help mitigate
some of the downside risk; however, it is too expensive to create value.
In order to make the investment more palatable, we may consider negotiating with the insurance company to either increase
the revenue benefits provided or decrease the premium cost.
Excellent Cases
Will:
•
Identify that we can use another zoo's attendance increases as a proxy for estimating our own attendance increases
•
Notice in Exhibit 1 that it is unlikely that attendance will increase sufficiently enough for the zoo to break even
•
Notice that the insurance company's premiums and benefits are both impacted by attendance increases; so if attendance
increases are always greater than 5%, the zoo will be paying even more but getting no benefit
•
Notice that the insurance company's contract is essentially an option; so a different structure to the contract may be more
suitable for the zoo
Zoo Co. – Exhibit 1 Market Research
$450,000
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$-
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
3%
5%
7%
Possible Attendance Increase
Annual Revenue
9%
Probability
Possible Attendance Increases
Annual Revenue
Probability
3% Increase
$135,000
20%
5% Increase
$225,000
40%
7% Increase
$315,000
30%
9% Increase
$405,000
10%
Expected Additional Annual Revenue
$252,000
Plus: Current Annual Revenue
$4,500,000
Expected Total Annual Revenue
$4,752,000
6
6 / Town Mayor
The client has just been elected to be the mayor of a town of 500,000 people in the United States. The town has experienced some hard
economic times recently and there has been a slight decline in population. The mayor’s election platform was centered on a message
of economic revival with a plan to be launched in the first 100-days of office. The mayor has hired you to help develop the plan. What
information would you like to know about the city and what is your plan?
Overview for Interviewer
Industry: Government
Notes
This is an interviewer-led case with the following objectives:
•
To see if the candidate can come up with a comprehensive
framework to get to a solution
•
To see if the candidate can complete some quantitative analysis
•
To see if the candidate can demonstrate creativity
•
Ask the question in the prompt and see the framework example on
the next page
Case Format: Growth
Concepts Tested:
•
•
•
Conceptual problem solving
Structure
Creativity
Framework Example
Candidate should start by providing a framework to analyze the town…
Revenue
trends
•
•
•
Income taxes (by income
bracket)
Cost trends
Population trends
•
Education
•
Population segment
•
Subsidized health care
•
Employment / employers
•
Public transportation
•
Lifestyle
•
Public services (e.g. police &
fire)
•
Other (e.g. public assistance)
Sales tax
Property tax
•
Corporate tax
•
Other taxes (e.g. vehicle
license)
Core Case Question 1
1 / Brainstorming
Question 1: What could’ve caused the population and economic decline?
Notes to Interviewer
Exceptional Candidates Will Mention…
Possible answers could include…
More structured responses by breaking down the problem
into levers.
• Poor macro conditions
• Tax increases
• Aging population
• Deteriorating infrastructure
• Surrounding cities are in economic decline
• Increasing crime rates
• Major airlines cut numerous flights to and from the city
Population decline
- Leaving the area
- Mortality rates
- Aging population
Economic downturn
- Lower spending – because of decreasing population or
higher taxes
- Over-reliance on one industry etc
Core Case Question 2
2 / Unemployment Overview
Question 2: Unemployment is currently 8%. The mayor would like to increase the population by 5% and decrease
unemployment to 5%. How many new companies does the town need?
Notes to Interviewer
To be provided to interviewer upon request:
•
60% of the population can work
•
The average company size is 500 employees
•
Original prompt said population is 500K
Solution:
1. Identify current working and employed population
Population that can work = total population X % who can work = 500K * 60% = 300K
Current total employed workers = working population * (1 – unemployment rate) = 300K * (1 - 8%) = 276K
2. Calculate net additional employed workers needed in mayor’s desired future state
Mayor would like to decrease unemployment to 5% (i.e 95% employed) and increase the population by 5%
Future population that can work = 300K*1.05 = 315K
Future total employed workers (95%) = 315K*95% = 299.25K
Increase in workers = Future – current = 299.25K – 276K = 23.25K
3. Total companies needed
Total companies needed= increase in workers / # employees hired per company = 23.25K/0.5K = 46.5 companies ~ 47 companies
Core Case Question 3
3 / Other Options (Present Exhibit 1 + 2 )
According the graphs, which companies should be pursued by the mayor?
Notes to Interviewer
There is really no right answer to this question, but the candidate should recognize the following things:
•
Highest age distribution is 40-50
•
18-30 age distribution is relatively low
•
The right mix of companies is a combination of potential growth, risk and which age distribution to go into. It is OK to
choose the high growth high risk company as long as it is paired with other lower risk options. A reasonable portfolio
would be pursued possibly.
•
Example answer: 8,3,4,1 – took the high risk/high potential due to the upcoming generation from 10-18 while mitigating
the greater risk by choosing 1.
Core Case Question 4
4 / Other Options
The state is considering putting a university in the town – what concerns do you have with this proposal?
Notes to Interviewer
Possible concerns:
• The town is older (retirement community) and not ready for this
• No central location geographically to put a large university
• How will the university be funded? What will the cities role be?
• What is the time frame?
• Will progress be able to be made before the next elections come up?
• What taxes would the university pay?
• Would students and/or staff live in the city?
Conclusion
4 / In conclusion…
Please provide an overview of the issue at hand, and a concise recommendation as to how we should proceed.
Space left open for overall notes
Exhibit 1
Exhibit 2
Age group distribution
Average employee age in industry by growth
potential and risk
70
Bubble size: risk of industry growth
100%
90%
Company Avg. Age
(years)
80%
70%
60%
50%
40%
9
1
3
6
2
4
7
30%
20%
8
10%
5
0%
18
Age Groups
0-18
18-30
30-45
45-60
60-75
Low
Potential for growth Industry
High
7
7 / UPS in Italy
Your client is a startup in a small village in Italy that provides the local delivery of packages sent to this village through UPS’s nextday-delivery service. The CEO of this firm has hired you to help them decide how many trucks to lease. There are different models
available, but our client has been told that they will need to have a consistent fleet (they can only lease one model type) and so we will
also need to identify what model they should lease.
Let me provide a quick overview of how the company operates: (i) They receive every package at 5pm from UPS, (ii) a bunch of
people then sort the packages and (iii) load them on a truck where they are stored overnight, and (iv) then deliver them starting at 9am
for 10 hours. How would you suggest approaching the client’s problem?
Overview for Interviewer
Notes
Industry: Logistics
Case Format: Operations
Concepts Tested: Bottlenecks
•
This case is interviewer guided/lead.
•
This case tests a candidate's ability to analyze how many packages must be delivered and to
see if the bottleneck is the time or the truck size.
•
Not all information is provided up front to the candidate; he/she should be aware of this and
must identify additional data that will allow him/her to solve the case.
Core Case Question 1
1 / Framework
How would you go about analyzing this problem? (This is the spot for the framework – a potential answer is below)
Ideal
responses
Interviewee: I’d like to understand a few things to evaluate this decision. First, I would like to start by analyzing the
demand. I would like to know how many packages we have to deliver and how long, on average, it would take us to
deliver a single package. Then, I would like to analyze the numbers in the context of the three truck models our client can
lease.
Core Case Question 2
2 / Overview
Given the following information, which truck option should the client select and how many trucks will you need to satisfy the
demand?
Notes to Interviewer
Information to be given:
• Packages delivered per day: 1,000
• Dimension of package (envelope) is 1x1x1.
• Operates five days a week.
• It takes 8 minutes, on average, to deliver a single
package and to be ready for the next one (“assume
they deliver one every 8 minutes”).
• Drivers, fuel, etc. are not considered and do not
make a material difference to the analysis (for sake
of simplicity).
Solutio
n
Least amount of trucks needed (based on 8 min delivery constraint) needed =
Time to delivery all packages / time in the day
(8mins * 1000 packages) / (10 hours * 60 mins) = 13.3 trucks
When assessing each truck, we multiply 1,000 (total packages for all trucks)
by 1*1*1 (average package size) and divide by the truck capacity to
determine how many trucks we will need. Given the constraint on minimum
number of trucks calculated above, calculate the cost per day based on the
number of trucks required and cost per truck per day.
Truck
Cost
per day
Dimensions
Demand
per day
Capacity
/ Truck
Trucks/day
(rounded)
Trucks
(min)
Total cost
per day
A
$150
3*4*5
1,000
60
17
17
$2,550
Truck
Cost per
day
Dimensions
A
$150
3*4*5
B
$40
9*2*1
1,000
18
56
56
$2,240
B
$40
9*2*1
C
$130
6*8*10
1,000
480
3
14
$1,820
C
$130
6*8*10
Core Case Question 3
Question
3
Ok, it seems a good idea. Let’s move on. Now imagine 6 months have passed and your recommendation was pretty successful.
Now the CEO want us to investigate any potential risks that he/she should be assessing/considering.
Notes to Interviewer
Potential structure for analyzing risks
Internal
External
• Only one supplier (UPS) – we are captive to UPS
• Need for extra drivers (e.g. people get sick) – do we
have enough employees
• Unionized drivers may shift labor cost up in the future
• Need to lease more trucks because trucks can break
down causing late delivery
• Insurance costs
• More fine tickets than forecasted because drivers want
to deliver on time
• Adoption of new technology (e-mail) might reduce the
need for sending packages
• Government regulation
• New competition in the city – there are no real barriers
to entry, since UPS would likely partner with any
carrier who can deliver on customer service metrics at
a cheaper cost
• No association with our brand, this our supplier can
switch to our competitors or start its own operation
Core Case Question 4
4 / Another Scenario
Let’s think of another scenario. Now we have to investigate sources for profit growth for this company with one restriction, we
can neither add new truck leases nor change the existing ones. ( Push for out of the box solutions – no formal wrap up here)
Notes to Interviewer
Revenue
Costs
• Extend hours: the trucks are already paid for the day, if we • Evaluate the route of each truck to reduce time or usage of fuel
extend the delivery time after 7pm we can deliver more of UPS • Improve technology usage in the sorting and loading packages;
or from other companies, even local companies.
may reduce number of people at the factory
• Different packages: we may recommend to UPS to sell different • Re-negotiate leasing terms for trucks
(more robust) packages to some clients and get part of it.
• Move warehouse to a cheaper place
• Pick packages: every time we leave a package we make space to
pick a package and deliver it to another part of the village or to
give it back to UPS to send it to another place
• Get contract with a new operator: see whether we can deliver
stuff to other company who is in the delivery business but does
not compete directly with UPS. Thought we can not add new
trucks we can think about utilization of current trucks
• Advertisement: are the trucks painted with UPS logos? We can
sell advertisement to them or to other companies. Those trucks
are all day in the street.
• Insurance: offer insurance of packages to clients.
8
8 / Car Leasing
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 manufacturers. 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 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 don’t know how big
this call center should be. How many employees do they need to hire for this call center?
Overview for Interviewer
Notes
Industry: Labor planning
•
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:
Case Format: Interviewee Led
•
# of cars sold in the US
•
the client’s market share
•
The % of customers who sign lease
•
Average length of lease
•
Service demanded of and provided by call center
•
First ask for a general framework to attach the problem then go into
calculations
Concepts Tested:
•
•
Sizing
Calculations
Calculation part 1
Information to Share if Asked
•
•
•
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.
Drive the candidate to calculate the number of cars the client
sells per year and how many customers uses the lease. The other
points of his/her framework will be touched upon later.
Calculation
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 Client’s Market Share: 10%
Cars sold by the client = 15 M x 10% = 1.5 M cars per year
•
•
•
•
•
•
•
•
Population in USA: 300 Million
Age range that buys 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
40% of the clients customers uses the lease to acquire the car.
Length of the lease: 3 years.
Customers who sign lease = 1.5 M x 40% = 0.6 M customers per year
Calculation part 2
Information to Share if Asked
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 calls / 360 days/year = 5,000 calls/day
uniformly distributed throughout the year and
during the day (there will be no peak of calls)
•
Demand per day (in minutes) = 5,000 calls x 5 minutes = 25,000
minutes
•
Union contract states that employees can only
work 6 hours per day, 6 days per week
•
# of employees to answer all calls on a day = demand per day / minutes
worked per day per employee = (25,000 / (6 hours * 60 min/hr)) ≈ 70
employees (exactly 69.44 employees)
•
The call center will receive calls only from 8am
to 8pm, Monday to Sunday
•
•
On average, each call will be 5 minutes long
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
•
Days in a year = 360 days
•
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
•
Holidays can be ignored
•
•
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
Brainstorming Question
1 / Analysis
The client does not have enough money in their budget to hire all the 82 employees. What would you suggest to reduce the
number of employees?
Notes to Interviewer
This is a regular brainstorming 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 calls:
• Develop a customer website that easily provides information directly
• Map the most common questions and provide a FAQ on the customer’s 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 customer’s problem before he/she is directed to an
operator
• Train the employees to faster solve the customer’s problem
Push the candidate beyond their comfort zone to come up with another novel idea, even if they have already been thorough.
Framework Example
Candidate should start by providing a framework to analyze the town…
Call Center
Reps
Car Leases
•
Efficiency (e.g. call/hr)
•
Client share of car market
•
Utilization
•
Fraction that lease vs buy
•
Average hours worked
•
Length of lease
•
Hours of operations
•
Type and frequency of call
9
9 / Alpha Capital
Alpha Capital is a private equity firm that is looking to buy a high-end male fashion retail chain named BNG. This is a private retail
chain that was started in California 20 years ago. Alpha Capital is looking to see a 25% ROI in 3 years. They want us to help them
decide whether to buy BNG and assess BNG’s economic growth in 3 years.
Overview for Interviewer
Industry: Retail
Case Format: P/E Investment
Interviewer
Guidance
•
This case is interviewer guided/lead.
•
The candidate should consider the following points during the course of the
case discussion:
Macroeconomic conditions
Competitive Landscape
Comparisons between locations of a multi-site retail business
•
•
•
Concepts Tested:
•
•
•
ROI
Supply/Demand
Market Evaluation
The exhibits indicate that demand is linear for shirts and pants but for belts
and shoes there is a sharp drop in demand at a particular price. This makes
this price notable and the candidate should point this out.
Interviewer Guidance & Question 1
Clarifying Answers to Provide if Asked
Demand Estimation
• BNG has 10 retail outlets, all in
California
• Annual revenue is $60 million
• BNG sells men’s jeans, shirts, and
shoes, all of which are sold only in
their own boutiques to control the
high-end image
• All clothing is manufactured in the
US
• The owner will sell the chain for a
one-time payment
Question 1:
What factors would you look at to assess BNG’s prospects for growth?
Context
• Macroeconomic factors
• Industry size/growth rate
• Competitive landscape
Positioning
• Consumer perceptions (what is the size and growth rate of the current
target demographic? Can the brand be leveraged to appeal to an
additional/wider target market?)
• Pricing (is there a potential for price optimization?)
• Sales channels (is there potential to expand into new points of sale?)
• Product Mix (Expansion of product line? Accessories, lower end?)
• Brand awareness (especially outside California for new market growth
opportunities)
Operations/Organization
• Strengths and incentives of management team (are they well-defined, or
can they be optimized?)
• Efficiency of operations (potential to outsource?)
Core Case Question 2 & 3
2 / Sale Factors
The owner of BNG is willing to sell the chain for a one-time
payment. The chain currently experiences 20% profit, and will
earn $60 million next year. What factors should Alpha Capital
look at to determine the maximum price to pay for BNG?
3 / Calculations
What is the maximum amount Alpha Capital would be willing
to pay for BNG?
Notes to Interviewer
Factors:
• Expected growth rate
• Other industry comps
• Macroeconomic considerations
Information to be provided if asked by interviewee:
• Growth will be 10% for the next 3 years
•
Assume no cost of capital (candidate should ask)
•
To receive 25% ROI (given in prompt), Alpha Capital
would be willing to pay $31.7 million (39.7M/1.25)
Profit
Year 1
Year 2
Year 3
Total
$12.0
million
$13.2
million
$14.5
million
$39.7
million
Core Case Question 4 & 5
4 / Causes
BNG’s 10 stores have been experiencing dramatically different
revenue. What do you think are the causes for this variability?
Potential Framework
Store location
• Consumer population/location demographics (is it consistent
with BNG’s target consumer?)
• Amount of foot traffic (location type-mall vs. stand alone)
• Proximity to competitors
• Local marketing efforts (local campaigns: advertisements,
promotions)
• Proximity to supply chain (if far away, is there a high
frequency of stock outs)
Human capital
• Quality and experience of store management and salespeople
• Incentive practices for store staff (is this consistent across store
locations?)
The below factors could be mentioned by the interviewee. These
should be dismissed by the interviewer as they are consistent
across all 10 store locations:
• Store size
• Product selection
• In-store promotions and signage
5 / Drivers
What are some drivers of growth for BNG?
Potential Answers
External drivers
• Macroeconomic conditions
• Competitive pressures
• Fashion trends
Internal drivers
• Products sold (variety, quality, etc.)
• Sales channel selection (locations of the stores, etc.)
• Marketing effectiveness
• Operational effectiveness (production costs, distribution
methods, etc.)
Core Case Question 6 & 7
6 / Hand over exhibit 1
•
What is your immediate reaction? What can they do to improve
profits
7 + 8 / Wrap it up
These are quick questions to close out the conversation
Potential Responses
BNG is in the inelastic portion of a double kinked demand curve
for belts/shoes, and they are in the elastic portion of the demand
curve for shirts/pants
Increase price of belts/shoes to extract more profits
• Instead of the current revenue of price*volume=1*1=1, BNG
could increase the price to $1.20 and volume would only lower
to .9, increasing revenue to $1.20*.9=$1.08.
• This would increase profits by at least 8% because it would
boost revenue by 8% while decreasing variable costs (less
volume sold).
Decrease the price of shirts/pants to increase traffic into stores
• BNG could decrease the price of shirts/pants to $0.80 and
increase volume to 1.8. This would result in revenue of
$0.80*1.8=$1.44. However, the interviewee is unable to
determine whether or not this would increase total profitability
unless we know more about BNG’s cost structure (variable
cost of product, etc.)
What do you think is the meaning of the two “kinks” in
the belts/shoes demand curve?
These kinks are competitors price points. Perhaps BNG’s
competitors have a high-end line of belts/shoes as well as a
low-end line of belts/shoes.
BNG is considering opening 14 new stores. The CEO
wants you to tell him what factors are the most important
for him to consider as he opens these stores.
Answer is open-ended for the interviewee; a good answer will
draw from relevant information discussed throughout the case
and include supporting evidence.
Potential Structure
High-end Male Fashion
Market
BNG’s Profitability
Alpha Capital
•
Total Addressable Market
•
By product mix
•
Retail Experience
•
Market Share of Competitors
•
By customer sub-segment
•
Potential portfolio synergies
•
Expected 3-year Growth
•
•
Operational improvements
o
By channel
Online
Retail
•
Relative to competitors
•
Brand/customer awareness
o
•
Competitive Dynamics
Exhibits
10
10 / Shermer Pharma
Our client, Shermer Pharma, is a venture-backed start-up Pharmaceutical company. Over the past 15 years, Shermer has been
developing a molecule that has been approved by the FDA to cure Alzheimer’s with 90% efficacy. We have to determine:
• How should we sell our product?
• Is our product going to be profitable?
Overview for Interviewer
Industry: Pharmaceuticals
Notes
This case focuses on 2 questions: can the interviewee determine what it
takes to launch a new product profitably through a cost-benefit analysis,
and can the interviewee think through the implications of starting a sales &
marketing organization from scratch?
Case Format: Market Entry
The case is driven by the interviewee.
Concepts Tested:
There are two primary options for the sales & marketing question:
• Start your own sales force
• Contract sales
•
•
•
•
Market Entry
Market Sizing
Breakeven
Risk Evaluation
Another high-quality option is to sell Shermer to a larger firm.
Profitability opportunity will center on the interviewee’s ability to read
tables and data on the market and Shermer’s market share.
Case structure:
Interviewee should focus on the questions separately. First, they should
brainstorm how they would sell the product and ask questions to get after
the costs of a sales force (Exhibit 1). An optional middle step is a brain
teaser to determine the size of the Alzheimer’s market (provide answer of 5
million at the end of the exercise.) They then need to ask about the costs
and revenues from the new product (Exhibit 2).
Interviewer Guidance
Clarifying Answers to Provide if Asked
Industry definitions:
• Our product is a pill that cures
Alzheimer’s, an illness that
currently has no treatment that
cures or stops the progress of
this disease
• Alzheimer’s is a degenerative,
terminal disease that causes
senility and dementia.
• 30 million people suffer
worldwide
• Sales would be focused on
Neurologists and Psychiatrists
(not the consumer or product)
Client Characteristics
• Shermer doesn’t have a Sales or
Marketing organization, the
company has purely been a
research firm to this point. FDA
approval, etc. has been granted
Competitive Dynamics
• We will not focus on
competitive response during this
case as we are the only firm that
has a cure for this illness and
will be for the next 5 years due
to the barriers to entry of
competition.
Guidance on
Exhibits
•
•
o
o
After the interviewee walks through their structure, they should ask questions about
the costs of sales and then ultimately the profit equation.
Let the interviewee drive the case. When you feel that they have asked enough
information about the following topics, give them the exhibit that shoes this
information:
Sales force options 🡪 Exhibit 1
Revenues vs. costs 🡪 Exhibit 2
•
If the interviewee isn’t getting to the question on the three sales force options, guide
them back toward this and provide Exhibit 1.
•
Have a conversation with the interviewee to force them to talk through the essential
components of the profit equation that are needed to answer the question.
•
The numbers reveal that the product will be profitable. However a critical question
will be the sales channel, which is why they need to determine to use contract sales in
order to be profitable. It is also correct to state that Shermer should sell the product to
a larger firm, but the second half of the case should be under the assumption that the
owners decide to do contract sales.
Exhibit Guidance-Interviewer’s Eyes Only
Clarifying
Answers
This page
possesses
all the to Provide if Asked
“missing pieces” for the case – it
is your discretion to provide the
right answers/plugs when needed
for the candidate
1
2
Guidance on
Exhibits
Key Elements to Analyze
Market
Entry
Using Exhibit 1, the interviewee should be able to
determine that contract sales is the best financial
option.
Notes to the
interviewer
•
The question boils down to realizing that the client’s
competencies are rooted in developing a product, not sales and
marketing. The correct approach is therefore to contract sales
or sell the company.
• The qualitative approach to the answer is appropriate, but once
the interviewee has discussed enough of the inputs, share
exhibit 1.
o
There is missing data in the chart that should be calculated.
• A third option with no attached data would be to sell the
company to a larger firm, this is a good discussion to have and
if prompted the interviewee should discuss the tradeoffs
qualitatively.
• A contract sales organization is typically less effective than
internal sales, though most interviewers won’t pick up on this
and simply giving the financial answer is appropriate.
Profitability
Using exhibit 2, the interviewee should determine that our
product will be profitable utilizing either type of sales force
Notes to the
interviewer
•
You should let them try to size the market as a first step,
but then provide the actual number of 5 million.
• The firm requires that R&D costs be recovered by Year 5
of the product (a window before which there will be no
competitive response)
o
We can ignore NPV for this question and just assume
a straight line amortization. The interviewee
should come to this conclusion on their own but correcting
is
okay if they get stuck.
• Critical information on the exhibit should be provided as
the interviewee asks, though should only be volunteered if
they are stuck
• We can ignore tax, however a good interviewee will ask
about it, and doing so would realize we will still hit profit
targets by year 5
• Manufacturing and packaging costs are included in the
gross margin
Solutions and Recommendations
Wrap it Up
Please provide an overview of the issue at hand, and a concise recommendation as to how we should proceed.
Notes to Interviewer
•
•
•
•
•
•
•
Shermer Pharma’s core competency is their research focus. The plausible argument can be made that they should sell the
company to a larger firm that has the appropriate capabilities that it takes to market and sell a product. Though this might be
the right answer, the client isn’t always going to take the optimal approach, particularly when it comes to ownership of the
firm. We need to be flexible to account management’s wishes.
Assuming the owners decide not to sell the company, contract sales is the next best option, that gives us the best scenario
when determining overall profitability of our product.
The latter half of the case is simple math, determining a P&L for our product and coming up with the correct answer that
Shermer can be profitable.
Ask for high level analysis at the end of the case. What else?
There is an option to sell the company even though there is no data provided to support this.
Challenging the interviewer on the effectiveness of a contract sales organization is a bonus. A qualitative argument can be
made that for an additional 5 Million per year, we can realize the benefit of a more effective sales force.
$1,000 per year for a life-saving cure for a currently incurable ailment may be under priced.
Exhibit 1-Sales Force Options
Present Exhibit 1
Notes to Interviewer
Exhibit 2-Annual Net Income
Present Exhibit 1
Notes to Interviewer
Potential Structure
Go to Market
Market Size
•
o
o
•
•
•
Competition
Number of players
Market share
Product
•
Pricing/Revenue Model
•
Barriers to Entry
•
Launch Strategy
•
FDA & Regulatory
•
Funding
•
Capital Investment
•
Economic Risk
Alzheimer’s prevalence
Growth & Trends
Price Sensitivity/Elasticity
11
11 / Thompson Healthcare
•
•
•
Our client is Thompson Healthcare, a health insurance firm located in the Midwest.
Customers pay Thompson a fixed monthly premium per person covered under the plan. In exchange, Thompson pays for all health
services that each member requires (e.g. physician care, prescription medications, hospitalization).
In recent years, Thompson’s financial and competitive position has begun to erode, and the CEO has retained our firm to help them
determine what is causing the problem and how to fix it.
Overview for Interviewer
Notes
Industry:
Healthcare
•
This is a McKinsey style case. The interviewer should drive the case
and converse with the interviewee
Case Format:
Cost reduction
•
Say the following:
•
“Before asking you questions about the case, I will give you the
background you will need. There are a number of issues that I would like
to cover with you today; do not be surprised if I change topics abruptly.”
Concepts Tested:
•
•
•
Cost management
Sales channel strategy
Economic value analysis
Interviewer Guidance
Information to Share (not just if
asked)
Client Characteristics:
• Thompson Healthcare is a mutual insurance company,
meaning all of its profits are returned to members in the form
of lower premiums the following year. As such, Thompson
does not seek to maximize profit – it seeks to minimize cost.
• Thompson’s prices reflect underwriting of risk and the
underlying cost to serve a customer.
Competitive Dynamics:
• Market share is steady, despite presence of major national
health insurance company in the market (United Healthcare –
UHC).
• UHC has 30% market share
• UHC typically expects to earn a 5% profit margin.
Interviewer
Guide
State the information to the left after reading the initial prompt.
The interviewee should develop a variant of the following
question:
How can Thompson Healthcare reduce its total cost to
serve its policy holders?
Ideally, the interviewee should be able to break down the question
into two parts:
1. Managing medical costs
2. Managing administrative costs
Ask the interviewee the questions on the following pages and move
on when they have answered the question sufficiently.
Local industry characteristics/economics:
• The national average rate of medical cost inflation is 10%
over the past five years.
• Thompson has seen medical cost inflation of 12% over the
past five years.
• UHC has seen medical cost inflation of 10% over the past
five years.
Questions 1 & 2
Problem
Structure
What factors would you consider in order to
understand
Thompson’s eroding financial position?
Notes to the
interviewer
•
The interviewee should lay out a structure for
analyzing the case.
•
They could have determined that revenue is not
relevant based on the information given in the initial
prompt on page 1 and 2, so the interviewee should
focus on cost.
•
Costs in the case break into fixed costs and variable
costs.
o
Variable Costs (medical costs – claims made
by
policyholders)
o
Fixed Costs (administrative costs (e.g. marketing
and sales, underwriting, finance)
•
Specifically, we will need to understand how these
costs have changed over recent years.
Initial
Hypothesis
Medical costs are the largest component of Thompson’s costs. Thompson’s medical
costs are increasing faster than the national average. What are some potential
reasons why this is taking place. What opportunities would you explore to reverse
this?
Notes to the
interviewer
• Medical cost = (number of claims) * (cost per claim)
• Potential answers include:
o
Deductibles are low, leading members to see doctors for
minor medical issues🡪 increasing deductibles will
make members more conscious of costs
o
Thompson pays more for procedures than average🡪 conduct
benchmarking study to determine what competitors
charge for various procedures
o
Thompson insures an older population than average🡪
increase marketing efforts toward younger consumers
o
Thompson insures a sicker population than average🡪
enhance wellness programs
Question 3
Second
Hypothesis
In addition to medical costs, administrative costs for Thompson are also higher than average. The biggest driver of this phenomenon is a high cost of sales.
Thompson’s policies are sold through independent agents. All independent agents work with a ”General Agency” which acts as a sales support organization.
How much does Thompson pay in commissions each year? What are some potential approaches Thompson could take to reduce its cost of sales? What
strategic issues exist with these approaches?
Notes to Interviewer
Additional information to provide after interviewee explains how they would calculate commission expense:
• Commission (10% of annual premiums) is paid to the General Agency, which passes a share to the independent agent. Total
commission paid is, on average, $25 per agent, per month
• Interviewee should identify the need for # of agents. Give the number 500,000 if asked
• Total commission expense = $25 * 500,000 * 12 = $150,000,000
•
o
o
o
•
o
o
Potential approaches to reduce cost of sales:
Reduce commission percentage
Cap commission to a certain level per year
Change commissions structure from percent of premium to flat fee (percent of premium increases at the rate of medical
cost of inflation every year)
Potential risks with these approaches:
Agents could shift business from Thompson to another carrier that pays higher commission
Agents would lose incentive to sell if commission is capped
Question 4
Next level of
analysis
The team has decided to pay a flat commission directly to agents, and to pay the General Agencies a separate fee for the support services they provide
to agents. If the total commission paid to both parties is set at $20 per member per month, what share should be given to the General Agencies?
(If interviewee is unsure of “what share” means, explain they should find the maximum amount that should be allocated to the General Agencies)
Notes to Interviewer
Additional information
• General Agencies performs three activities: training, application processing, and performance management.
• If Thompson were to perform these activities internally, they would cost:
o
Training: $6,000,000
o
Application processing: $9,000,000
o
Performance management: $15,000,000
•
•
•
•
Potential approach
The total cost of the activities that General Agencies perform is $6,000,000 + $9,000,000 + $15,000,000 = $30,000,000
There are 500,000 members and 12 months in a year
The maximum amount of money Thompson should be willing to pay the GA for the activities performed is the per
member, per month cost of these activities ($30,000,000/(500,000 * 12) = $5
Conclusion
Final
recommendations
Taking into account what you’ve learned so far as well as your own hypothesis, what would you recommend to the CEO
at this point?
Notes to Interviewer
Our client should take action to reduce both medical costs and administrative costs
• At this point, the interviewee should synthesize the findings from the interview into several clear initiatives. For example:
o
Enhance marketing efforts to attract more young customers and bring down the average claims per member
o
Conduct a benchmarking study to determine opportunities for reductions in payments for medical services.
o
Change the commission structure to flat fee per member per month. This achieves the goal of reducing commission
expense, while at the same time keeping an agent’s incentive to sell more business.
Strong interviewees will demonstrate the ability to analyze issues using a clear structure and will draw out implications of their
analysis. The quantitative calculations in this case are elementary, but the process to get to them is somewhat more complicated.
12
12 / Brazil Mining
Our client is a US industrial conglomerate, with major investments in South America, India, and China. One of these investments is a
mining operation in Brazil. At this mining operation, our client produces only one metal, which is considered to be an international
commodity product. This metal has hundreds of applications. In Brazil there are only two other producers.
The CEO has hired us to help identify new opportunities for this business as well as understand the market dynamics. He wants to
know whether he should divest the mining business or invest in an additional facility. This afternoon, the team is going to meet with
the CEO to discuss our initial hypothesis.
Overview for Interviewer
Industry:
Mining
Notes
•
•
•
Case Format:
Strategy/Valuation
Concepts Tested:
•
•
•
Revenue and profit drivers
Pricing
Competitive Dynamics
This is a BCG style case. The interviewer should drive the case and
converse with the interviewee.
Start by showing exhibit 1
We have been provided the following information:
Interviewer Guidance
Information to Share (not just if asked)
•
o
o
o
The interviewee should provide a
structure/framework that would look at the
big picture then start hypothesizing. The
framework should include:
Discuss market dynamics (local and
international supply and demand)
Discuss the expected competitive
response to any action (price war)
Summarize all findings in a
presentation format
Example dialogue
This is an example. Key points have been bolded, which the interviewee should
touch on.
Interviewee: (summarize the case and work on a framework) In this case it is important
to look at the competition (specifically, understand the different cost structure of the
three producers), estimate the market demand and discuss the international trade
environment. We should all discuss the specifics of the metal commercialization
industry.
Interviewer: Where would you like to start?
•
•
•
•
An efficient plant should have 1,000,000
ton capacity (but not all plants are
operating efficiently). From this
information the interviewee should be able
to assume that competitors are operating
more than one plant each.
The market grows with GDP
There is a strong demand for the product
internationally
The competitors are probably located away
from the coast, adding transportation costs
Interviewee: Clearly, the client is running on full capacity, but the competitors seem
to have idle capacity. From the data provided, it looks like the competitors’ cost
structure allow them to sell in the international market while our client does not
currently export any of its products. Our client would experience zero margin if it
did export as the international price is $450 which is equal to our cost of production.
The local price is considerably higher than the international price, so the producers
would rather sell as much as possible in the local market. I hypothesize that there is not
enough demand in the local market. Main takeaways:
o
Competitors would prefer to sell in the local market ($600/ton) instead of export
o
Competitors are running with idle capacity but we know demand exceeds
Conversation, Continued
Interviewer: What about the international market?
Interviewee: You did mention that there is a strong demand worldwide. We have to find out why the competitors are not selling their
full capacity. We can think of many possible reasons. Geographical distance, transaction costs, transportation costs, export taxes,
etc.
Interviewer: But competitors are able to export some metal right?
Interviewee: Competitors might have operations abroad so it makes it easier to export to international facilities. They also might
produce part of their capacity close to harbors, which we don’t. Considering that the international price is much lower than the local
one, I would expect some barriers for international trade.
Interviewer: Brazil does have some taxes for foreign products and producers struggle with transaction costs. Let’s look at cost
structure. Why could there be a difference in costs?
Interviewee: I would consider geographic location, technology, economies of scale, supply chain synergies.
Conversation, Continued
Interviewer: Yes, enough to convince the CEO to invest in a new production facility. This would be a $400 million investment in year 0
for a capacity of 1,000,000 tons with a cost of $420/ton. How would you evaluate this investment if the new production would be
traded in the international market? Would you recommend this investment?
Interviewee: The margin will be $30 per ton ($450-$420) * 1,000,000 which would be $30 Million per year. Using a 10% discount rate
(they should at least mention this and whether they will be discounting or not) this will generate $300 million total. The $400
million investment would not be worth it.
Interviewer: So would you advise against it?
Interviewee: I would advise against it unless he is willing to engage in a price war in the local market.
Interviewer: What would be the minimum price he could go to turn this investment profitable?
Interviewee: We should be cautious because a lower price would impact current profitability. To break even the increase in annual
international margin would have to equal 10 million ($100 million * 10% discount rate) plus the loss in local annual margin. Setting
this up we have (($600-x) * 600,000) + $10,000,000 = ((x-$420) * 1,000,000). Solving for x we get ~$493.
Conversation, Continued
Interviewee: That’s correct, but the competitor has a lot more to lose with a price reduction. In our client’s case we found out that it
would lose money as the margin of current production drops. However, the client only sells 600,000 tons right now while the
competitors sell 4,800,000 combined. They would probably reduce their production to avoid a higher price reduction.
Interviewer: Really? So you are recommending our client to invest $800 million in a 2,000,000 tons capacity plant?
Interviewee: I haven’t done the math but I guess this would be too risky. I would recommend our client to invest $400 million and see
how the market reacts.
Interviewer: That is a fair recommendation. After all they will be playing a game with no real expected result.
The interviewee should now summarize the findings from this discussion for the client, highlighting the approach and key
recommendations.
Exhibit 1
Potential Structure
Operation
s
•
•
•
Suppliers
• Equipment
Transportation
• Within country
• Across country
• International
Partnerships
• Local and International
• Sales
Market
Competition
•
•
•
•
•
Price comparison
Reputation
Location differences
Cost comparisons
Market share
13
13 / Engineering & Construction Co
A large engineering, procurement, and construction company has seen its valuation drop recently. It builds large refineries and
industrial plants. It is global in nature and operates in four main regions. This company is a recent roll-up of three smaller companies
that operate independently. They have $1B in revenue. How would you approach the problem?
Overview for Interviewer
Notes
Industry: Industrial Goods
•
This case is interviewer guided/lead.
Case Format: M&A
•
This is an M&A case where the candidate is required to evaluate why a
recently-created conglomerate has dropped in market valuation in the
industrial goods space.
•
The candidate should use a comprehensive framework, walk the
interviewer through it, and be prepared for analytical detours throughout
the flow of the case.
•
Major Buckets Include:
• Revenue trends
• Cost trends
• The engineering and construction market
Concepts Tested:
•
•
•
Market valuation
Structured problem solving
Mathematical analysis
Interviewer Guidance
Clarifying Answers to Provide if Asked
Revenue growth
• Is strong organically and from
acquisitions
Interviewer Guide to Case and Handouts
Case Structure
Margins
• Have been shrinking
The case should start with the candidate hypothesizing the reasons that could
lead to a declining valuation. This is a simple test of idea generation. Ask the
candidate to list a structure with which they will approach the problem. Does it
seem reasonable and comprehensive?
Additional Points
• There is a backlog of work – lots of
business
The remainder of the case should follow a “call and response” in which the
interviewer is asking direct questions, and is looking for thorough and
structured thought from candidates in each answer.
Core Case Question 1
1 / Shrinking Margins
What do you think the main potential causes for shrinking margins could be?
Notes to Interviewer
Potential answers:
• Lack of integration of the three units
• Poor reporting
• Competing business units
• Multiple procurement units
• Lack of cross-selling over the units
• Lack of knowledge sharing across units
• High-revenue but unprofitable clients
• No prioritization of backlog
• Sales force compensation structure
• Declining business need for their services – long-term
Exceptional Candidates Will Mention…
•
•
The answers themselves will not be the indicator of
excellence here. What is really important is that the
candidate approaches this brainstorming problem with some
sort of structured analysis.
For instance, following along with their framework, the
candidate could bucket potential reasons into revenue, cost,
and market or some other combination.
Core Case Question 2
2 / Increasing Margins & Man Hours
The Company thinks they have an idea as to where they could improve their costs after integrating.
The goal is to increase their margins by 10%. (Note: candidate has already been told company has $1B in revenues.)
Solutio
n
Notes to Interviewer
Data to be provided:
•
Calculation of Effective Man-Hours:
Business Unit
# of Engineers
Utilization
1
1,800
50%
2
3,000
90%
3
1,200
50%
Question Continued:
• The industry benchmark for optimal utilization is 80%
and engineers make $100k each.
• Assuming constant man-hours, how many engineers will
be needed post-integration?
•
Business
Unit
# of
Engineers
Utilization
Effective
Man-Hours
1
1,800
50%
900
2
3,000
90%
2,700
3
1,200
50%
600
Total
6,000
Calculation:
4,200
Core Case Question 3
3 /Concerns?
What would you think are some possible concerns with
integrating the three units?
Notes to Interviewer
Possible Answers:
• Different corporate cultures
• Different global areas of operations
• Do they operate in fundamentally different businesses?
• Lack of a sufficient reporting system
• Will the dynamics of the integration be communicated
clearly?
• Time frame of integration – 3 months versus 3 years
4 / Recommendation
Can you please summarize and give us your final
recommendation?
Notes to Interviewer
•
•
Candidate should provide a succinct but comprehensive
recommendation with risks and next steps.
Exceptional candidates will mention other future areas of
synergy from the merger, e.g. CapEx, admin costs, PP&E,
etc.
Potential Structure
Revenue
Revenue
Trends
Trends
Cost Trends
Eng. & Constr. Market
•
By business unit & region
•
By business unit & region
•
Growing or shrinking?
•
By product mix
•
By product mix
•
Revenue & cost benchmarks
•
Ability to achieve cross-sell
opportunities
•
Fixed cost synergies
•
Regulatory trends
•
Variable cost synergies
14
14 / After School Programming
Our client offers after school programming focused on supporting at-risk youth through high school, helping them to enter and succeed
in college. The client is trying to figure out the best way to meet its growth target of most efficiently serving students at 7 new sites
while raising the client’s national profile. You’ve been asked to help them vet potential sites to maximize social and financial impact.
Overview for Interviewer
Industry: Other (non-profit)
Notes
•
This case is interviewer guided/lead, and is designed to emulate a
McKinsey interview.
•
The key to this case is understanding the client’s business and goals.
Encourage the candidate to take time to understand the business model
and questions being asked.
•
This case focuses not just on financial objectives but the client’s other
wishes/hopes, and the analysis and recommendation should adequately
consider those recommendations.
Case Format: Growth Strategy
Concepts Tested:
•
•
•
•
Organizational
Capacity Expansion
Customer Strategy
Marketing Strategy
Interviewer Guidance
Clarifying Answers to Provide if Asked
•
•
•
•
•
•
•
At-risk youth are students who are at
risk of dropping out of high school or
have already done so (for behavior,
grades)
Client operates local centers attached
to high schools with full-time staff
Client offers tutoring/test prep support
to youth, plus internships/career
opportunities
All centers in Massachusetts or south
New Hampshire
8 sites, 2,500 youth served
School districts and state agencies
reimburse client for activities
Client has high national profile and
has declined offers from high school
systems in Florida and California
offering to pay for client to establish
centers in their districts
Interviewer Guide to Case and Handouts
Question 1: What are the client’s options for locating and opening new sites,
and what considerations should it consider in selecting these options?
Question 2: Let’s look at the effect of additional sites on central costs. Client
allocates them uniformly across each site (e.g. total central costs / 8 =
allocation per site). The client wants to understand how expanding sites will
affect the allocation of central costs. Assume central costs don’t vary
depending on selected expansion method (Show Exhibit 1)
Question 3: The client thinks serving high density areas of at-risk youth will
be best for its mission and raise its national profile. Which geographic areas
show the most promise for its mission fulfillment? (Show Exhibit 2 with data
from representative school districts.)
Question 4: You (the candidate) listed additional factors that could help the
client evaluate new locations. What are the pros and cons of these factors in
each geographic area, and how would they influence new geographies?
Question 5: Final Recommendation and Next Steps
Core Case Question 1
1 / Organizational Changes
What are the client’s options for locating and opening new sites, and what criteria should they consider in selecting from
these options?
Notes to Interviewer
Candidate should focus on geographic options for sites:
• Near existing sites (middle schools, high schools)
• New standalone sites in existing states
• New sites in states neighboring existing states
• New states who’ve contacted the client
Exceptional Candidates Will Mention…
•
1.
•
•
Information to the provide the candidate:
• 3 primary methods for opening new sites are:
• (1) partnerships
• (2) licensing
• (3) wholly-owned sites
•
Candidates should go back to their original framework and
note the client cares about mission and financial impact.
This should lead to two sets of criteria:
Mission-related
# of at-risk youth
Other youth organizations nearby
Working with high schools
2. Financial-related
•
Funding potential
•
Potential to leverage existing infrastructure/relationships
•
Ability to recruit talent
Core Case Question 2 & 3
2 / Expansion
Let’s look at the effect of 7 additional sites on central costs.
(Show Exhibit 1)
Notes to Interviewer
•
•
Candidate should point out that the 74% increase in costs
is less than the 88% increase in number of sites, meaning
that central office cost allocation per site should decrease.
Look for an exceptional candidate to quantify the impact
of growth on costs per site.
3 / Mission
Client thinks serving high density areas of at-risk youth will
be best for its mission and national profile. Which areas
show the most promise for its mission? (Show Exhibit 2)
Notes to
Interviewer
•
•
Worcester, MA neighbors existing client site. Nashua, NH
doesn’t have a site.
Help the candidate if they struggle. Assume uniform
distribution of class size, dropout rate, and GPA’s across
grades.
Core Case Question 4 & 5
4 / Marketing
5 / Recommendation
What are the pros/cons of the additional factors in each area,
and how would it influence the client’s location choices?
Notes to Interviewer
•
•
•
•
Can you please summarize and give us your final
recommendation?
Notes to Interviewer
Look for a table matching geographic options vs.
screening criteria from the candidate’s framework.
Interviewer can help the candidate set up the chart but
should let the candidate lead the analysis.
An illustrative chart:
Neighboring site
New site in
existing state
Neighboring or
new state
Mission fit
Pros/cons
Pros/cons
Financial fit
Pros/cons
Pros/cons
•
•
•
•
Answer should show that client should focus on existing
and maybe neighboring states
Should not consider expansion outside New England
Financial analysis should show benefits of scale, but
mission fit should indicate that existing/neighboring
geographies have the highest density of at-risk youth.
Growing within existing/neighboring states has fewer risks
for the client.
Exhibit 1
Exhibit 2
Exhibit 2 Solution
Potential Structure
Geographic
Bucket
Options
1
Financial
Impact
Social Impact
•
Near existing sites
•
# of at risk youth
•
Funding potential
•
New sites
•
Youth organization presence
•
Talent recruitment
opportunities
•
Methods for opening new sites
•
Partnership opportunities with
high schools
•
Ability to leverage existing
relationships or infrastructure
15
15 / Brazilian Road Concessions
Our client is a Brazilian road concessions company looking to expand internationally. Economic growth in Brazil is stagnant, and the
client wants to diversify its portfolio to keep growing revenues and profitability. What factors should the client consider as it thinks
through its options to expand internationally?
Overview for Interviewer
Notes
Industry: Government
•
This case is interviewer guided/lead.
Case Format: Investment Valuation
•
This case is meant to emulate a McKinsey final round.
Concepts Tested:
•
•
•
•
International expansion
Interpreting graphs
Market entry
Math
Interviewer Guidance
Clarifying Answers to Provide if Asked
•
•
•
•
Client operates in Brazil, has scouted
opportunities in South America. Its
staff mostly speaks Portuguese
Client only focuses on road
concessions (building and operating
public roads)
Client’s customers are municipal,
state, or national governments. Bids
usually through competitive requests
for proposal (RFPs)
Client is open to all geographies with
South American bias
Interviewer Guide to Case and Handouts
Question 1: Graph analysis. Client has decided not to pursue opportunities
outside South America because of cultural differences and complexity of
management. (Show Exhibit 1)
Question 2: There are no viable joint venture opportunities. Client wants to
decide primary investment vs. M&A. What inputs to compare the value of
each investment? (Show Exhibit 2)
Question 3: Final Recommendation and Next Steps
Core Case Question 1
1 / Which Markets?
We’ve decided not to pursue opportunities outside South America because of culture differences and managerial complexity.
Based on this graph, which market should our client focus on in South America? (Present Exhibit 1)
Notes to Interviewer
Correct Answers:
•
Upper-right countries (Mexico, Colombia, Chile, and
Peru) and could maybe argue for Argentina
•
For Argentina, ease of doing business is not high but the
pipeline is strong
Follow up
Question
Assuming the client chooses to enter one (or more)
markets, how should it approach market entry?
Correct answers:
•
Greenfield/primary investment
•
Joint venture (JV)
•
Acquisition (M&A)
Follow-up: What are the pros/cons of each?
Example answers:
•
Primary investment – pro: greater control, con: limited
market knowledge
•
Joint venture – pro: some market knowledge, con: less
control
•
M&A – pro: local market knowledge, con: more expensive
Core Case Question 2
2 / M+A Options
The client’s decided there are no viable joint venture opportunities, and wants you to evaluate primary investment and M&A as
potential options. To evaluate the opportunities side by side, what inputs are needed to compare the value of each investment?
Notes to Interviewer – provide Exhibit 2 after interviewee walks through major inputs
below
Note: interviewee may ask here how revenue is earned for the client. Client is paid by kilometer for each vehicle which travels
over their roads (see in annual profit below and in exhibit 2).
Primary Investment:
M&A:
•
Annual profit = [KM * $/KM * vehicles] * [1 –
OpEx]
•
Annual profit = Revenue * [1 – OpEx] + [Revenue *
Synergies]
•
Payback period = initial investment / annual profit
•
Payback period = initial investment / annual profit
•
Investment Value = annual profit / discount rate
(*assume perpetuity)
•
Investment Value = annual profit / discount rate
(*assume perpetuity)
Closing Thoughts
Recommendation – ask for conclusion after ROIC calculation in
exhibit 2
What should the client do? What next steps do you recommend?
Notes to Interviewer
Answer
Client should enter a South American market (e.g., Columbia, Chile, Mexico) via primary investment:
•
•
•
High levels of cultural similarity, low levels of managerial complexity in South American markets
Above countries and Peru all have big pipelines are relatively easy to do business in vs. other S. American markets
Primary investment has a higher ROIC and shorter payback period vs. M&A route
Example Next Steps
• See if you can negotiate lower M&A price
• Sensitivity analysis of investment comparison to macroeconomic factors
• Client’s ability to win deals as the primary investor in a new country
Exhibit 1
Exhibit 2
Input
Primary Investment
M&A
KM
$300
N/A
$/KM
$5
N/A
Expected Traffic
(vehicles/year)
20K
N/A
Annual Revenue
KM * $/KM * Expected Traffic $120M
OpEx
30%
40%
Investment
$150M
$750M
Contract Term
Perpetual
N/A
Discount Rate
10%
10%
Synergies
N/A
15% (of rev.)
Exhibit 2 Solution
Input
Primary Investment
M&A
Annual Revenue
$30M
(300*$5*20K)
$120M
Annual OpEx
$9M
($30M*30%)
$48M
($120M*40%)
Annual Profit
$21M
($30M - $9M)
$90M
($138M - $48M)
Payback Period
7 Years
$150M/$21M
8.3 years
($750M/$90M)
NPV
$210M
($21M/10%)
$900M
($90M/10%)
ROIC
40%
($210M/$150M) - 1
20%
($900M/$750M) - 1
Note: $138M annual revenue under M&A scenario includes $120M base revenue plus synergies of $18M (15% of rev.)
Potential Structure
Economic
Prospects
Bucket
Culture/management
1
Politics
•
Language/culture barriers
•
Project Pipeline
•
Regulatory environment
•
Countries with similar
working and management
culture
•
Future Project Value
•
Political climate
•
•
Geographical distance
Target Country
growth/infrastructure
•
Competition
•
Current/multinational
players
•
Industry
concentration/nature
•
Bid competitiveness
Target Country business
climate
16
16 / Rock Energy
Rock Energy, an Oil & Gas company, is evaluating buying one of three oil fields in South America. They plan to outsource all drilling
activities after purchasing the rights to extract oil from one of the fields. Your job is to identify the best potential investment for Rock
Energy. How would you evaluate the three oil fields, and which oil field should Rock Energy purchase?
Overview for Interviewer
Notes
Industry: Energy
•
This case is interviewee guided/lead.
Case Format: Opportunity Assessment
•
Interviewee should follow these broad steps:
Concepts Tested:
1. ID how long it takes to drill 1 well in each region, using provided
depth/penetration rate
•
•
Investments
Creativity
2. Quantify cost of 1 well
3. Price and barrels extracted per day should lead to revenue/profit by well.
Need to understand that you can produce a different number of wells by
region, and only have a limited number of rigs
4. After calculations, interviewee should consider other factors or risks that
Interviewer Guidance
Clarifying Answers to Provide if Asked
•
The rights offered to Rock Energy
give the right to drill for 1 year and
produce oil for 20 years. No oil
production until beginning of year 2.
•
Can deploy max of 10 rigs in each
region
•
Cost of rig day includes crew,
consumables, services, etc.
•
Any extracted oil will be sold at spot
market price
•
Assume oil wells will produce the
same amount of oil for the next 20
years with no ongoing maintenance
costs
Interviewer Guide to Case and Handouts
Question 1 (Exhibit 1): Hand out exhibit 1 after introduction of the case.
Interviewee should conclude that each region’s characteristics will affect Rock
Energy’s drilling time, production, revenues/costs
Question 2 (Profitability): Give out current spot price and ask interviewee to
work out each field’s profitability, not just each well’s. Answer will be a
function of investment, variable costs, and quantity of oil extracted per field,
which in turn depends on the number of wells drilled in one year
Question 3 (Conclusion): Buy the rights to Region 2 because it is the highest
profitability, but interviewee should acknowledge other factors that could
impact that decision in their recommendation:
• Insurance costs
• Political stability
• Labor unions/contracts
• Oil price volatility
• Quality of oil extracted
Core Case Question 1 and 2
Exhibit 1
Analysis
This exhibit should give the interview enough information to identify (a) the number of wells and (b) amount of total oil that could
be extracted from each field, as well as (c) per well yearly production. At this point, reveal to the interviewee that the missing spot
price is $50. (Ask math question on following page after interviewee has walked you through Ex 1)
Notes to Interviewer
Three major points to identify as interviewee walks
through profitability analysis:
1.
Average well production in Region 3 is the largest of
all regions, but you can only drill 33% or 50% the
wells, respectively, vs. Regions 1 and 2.
2.
Region 1 is the most profitable on a per well basis (as
variable costs show)
3.
But different numbers of wells can be drilled in each
region in year 1 and there are fixed costs, making
Region 2 the most profitable for Rock Energy
Math
Summary
Yearly profits per region (see next page for math):
•
Region 1 - $50M
•
Region 2 - $68M
•
Region 3 - -$4M
Follow-up: What qualitative issues would you consider
when making an investment like this? (interviewee should
mention at least 2)
•
Insurance costs – different country regulations and
coverage required, etc
•
Political stability – political instability could create
additional risks
•
Oil price volatility – all regions have a negative return
below $27/barrel
•
Oil quality – lower quality oil could result in lower than
spot market sales price
Detailed Math Answer
Ask this question after the interviewee has walked you through
exhibit 1
What are the profits during year one of production in each region? (e.g., first year after drilling or year 2)
Math Solution – allow rounding to 360
days/yr
•
•
•
Time to complete well (Depth / penetration rate): Region 1: 60 days, Region 2: 90 days, Region 3: 180 days
Production per well (Daily production* 360 days): Region 1: 36K barrels, Region 2: 72K, Region 3: 108K
Formulas: Cost per well (Days to complete well*Cost per rig per day), Annual revenue per well (Price* # barrels per year),
# of wells per year (360/[well completion time]) * (# rigs)), Profit margin (profit per well/cost per well), Total Revenue
(annual revenue/well * #wells/year), Total Cost (Cost/well*# of wells + oil extraction rights), Profit (Total Revenue – Total
Cost)
Region 1
Region 2
Region 3
Investment cost (oil extraction rights)
$40M
$40M
$40M
Cost per well
$0.3M
$0.9M
$3.6M
Annual revenue per well
$1.8M
$3.6M
$5.4M
Profit per well
$1.5M
$2.7M
$1.8M
Profit margin per well
500%
300%
50%
# wells per year
6 wells/rig * 10 rigs = 60
40
20
Total Revenue
$108M
$144M
$108M
Total Cost
$58M
$76M
$112M
Profit
$50M
$68M
$ -4M
Recommendation and Next Steps
Example
Answer
•
•
•
Rock Energy should invest in buying the rights for Region 2
Even though the profit margin on Region 1 is much higher per well, return on investment depends on total wells that can be
drilled in year 1 and the upfront cost of extraction rights in that region
Interviewee should touch on other qualitative reasons that might affect the investment decision
Notes to Interviewer
•
An excellent interviewee might also discuss the impact of an expected value analysis as a potential next step, including how
different probabilities could be assigned for number of barrels extracted per day
Exhibit 1 – Oil field profiles (2018)
Average well depth by Region
4000
4000
3500
3500
3000
3000
Avg. depth ( in meters)
Meters per day
Drilling rates by Region
2500
2000
1500
2500
2000
1500
1000
1000
500
500
0
0
Region 1
Region 2
# Operating Rigs
Average well production (barrels/day)
Cost per rig/day ($US)
Region 3
Region 1
Region 2
Region 1
10
Region 2
10
Region 3
10
100
$5,000
200
$10,000
300
$20,000
Note: Wells are continuously dug for one year only, with oil extracted going forward. Wells are dug by rigs. Once a well is
completed, a rig can move on to dig another well.
Region 3
Potential Structure
Revenu
es
Qualitative
Considerations
Costs
•
Oil spot market price
•
Drilling costs
•
Insurance Costs
•
Daily oil field production per
region
•
Rig costs
•
Political stability of the region
•
Labor costs
•
Labor contracts and unions
•
Extraction rights costs
•
Oil price volatility
•
Oil quality differences
•
Other macroeconomic factors
•
Nature of extraction rights?
17
17 / Diabetes Testing Meter
•
Our client is a laboratory that provides diabetes testing services to hospitals in the UK. They have developed a self-diagnosis meter
that patients can use to do testing on their own. They have hired us to determine if we should take this product to market.
Overview for Interviewer
Industry: Pharma
Notes
•
•
Case Format: Market Entry
Concepts Tested:
• Market Entry
• Market Sizing
• Break-Even / Profitability
•
•
•
•
This case is interviewer guided/lead.
This is a market entry case where the candidate is required to evaluate
the feasibility of a new product in in the pharmaceutical/healthcare
space.
The candidate should use a comprehensive framework, walk the
interviewer through it, and be prepared for analytical detours throughout
the flow of the case.
Major Buckets Include:
• Customer Demand
• Competition
• Costs & Revenues
Candidates should answer following questions during the case:
• Is there enough long term demand for this product given current
competition?
• What options does the company have, in terms of taking this
product to market?
Note: UK Population is ~60M
Interviewer Guidance
Clarifying Answers to Provide if Asked
Demand Estimation
• UK Population = ~60M
• 30% of people have diabetes
• 5% > 65 have diabetes
• 20% population is > 65
• No growth in % or population
Competition
• 4 competitors
• Market share 25%, 25%, 15%, 15%
• Client has 20% share
• Growth was 20% until two years ago
• Growth since is flat
Revenue & Costs
• Fixed cost is $25M
• Marginal Cost is $20
• Per Unit Revenue is $25
Additional Points
• Patients could op to use both methods
• Product could be promoted as a
prevention device (low cost option for
testing diabetes)
Interviewer Guide to Case and Handouts
Case Structure
The first question will focus on long-term demand given current competition.
Candidate should first focus on break-even and profitability, and then
understand the size of the total market.
The remainder of the case should follow a “call and response” in which the
interviewer is asking direct questions, and is looking for thorough and
structured thought from candidates in each answer.
Answers
Candidates should identify the breakeven point, then recognize that even at
100% capture the firm won’t be profitable. Candidate should work to use
industry-specific language, and identify that there are potential cannibalization
issues for the company.
Core Case Question 1
1 / Break Even & Market Potential
Is there enough long term demand for this product given the current landscape?
Notes to Interviewer
Candidate should conduct a break-even analysis here:
• Per Unit Profit = $25 - $20 (MC) = $5
• Fixed Cost = $25M / $5 = 5,000,000 units to break even
How Big is the Total Market?
• 80% pop. < 65 = 48M @ 30% Prevalence = 14.4M
• 20% pop > 65 = 12M @ 5% Prevalence = 0.6M
• Total Diabetic Population = 15M
• Client’s Market Share = 20% * 15M = 3M
Assuming they capture 100% of their market share, they
still won’t be able to make a break even point. Given no
population growth, there is not enough long term demand
for a profitable or break-even product.
Exceptional Candidates Will Mention…
•
This number doesn’t account for canibalization, or taking market
share from existing competitors. This product, if it brings positive
PR and attention, could act as a loss-leader to get customers to
purchase other medications from the brand. Because this is zerosum, every customer you gain is lost from a competitor.
•
Note that there could be opportunities outside of the UK, such as the
USA and Mexico which are the two countries, globally, with the
highest rate of diabetes.
Core Case Question 2 & 3
2 + 3 / Break Even & Market Potential
What options does the company have in terms of taking this
product to market?
Notes to Interviewer
Are there any cannibalization effects with regards to
hospitals in terms of introducing the product?
Exceptional Candidates Will Mention…
This is a high-level discussion and should touch on delivery
Giving patients capability to test glucose levels in home may
channels for the medical industry. Candidate should do best
remove revenue models for hospitals (no longer have patients
to use industry specific vocabulary, rather than speak in
visiting to have service performed) so revenue would decrease
generic distribution methods.
for hospitals from this business line and they would likely
• Concepts should include: Through National Insurance
decrease orders and eat into our client’s revenue from its
(U.K. has nationalized insurance) Partnership (i.e. sign w/
national insurance as , partnerships w/ hospitals; door-todoor sales; doctor’s offices
hospital business.
Core Case Question 4 & 5
4 / Other Options
If the product can’t be launched within the UK, what else
can the lab do with the product?
Notes to Interviewer
Consider launching the product in other markets like the US
or Mexico where diabetes prevalence is high and our client
may not have hospital testing business, thereby reducing
cannibalization efforts.
5 / Summary
Can you please summarize and give us your final
recommendation?
Notes to Interviewer
•
•
•
Due to the limited number of customers available and low future
growth prospects, the product should not be launched in the UK
market at this time.
The company should look at markets outside the US, or sell it to
hospitals or competitors
Keys to a good finish: Find a way to deliver difficult news while
remaining optimistic for future prospects and growth.
Potential Structure
Customers
Market
Company
•
Number of Patients
•
Hospitals and doctors
•
Product Mix
•
Competitors
•
National Health Insurance
•
Cannibalization Risks
•
Trends
•
Patients
•
Launch Considerations
•
Benchmarking similar
products
•
Willingness to pay
•
Break-even analysis
•
Alternatives
•
Fiscal / Time Restrictions
18
18 / Stew’s Connections
Our client is a start-up with the ability to deliver broadband internet to commercial airlines. How would you help them think about
their offering?
Overview for Interviewer
Notes
Industry: Airlines / Tech
•
This case is interviewer guided/lead.
Case Format: Market Entry
•
This is a market entry case where candidate is required to evaluate the
feasibility of a new product entry in the airline industry.
•
Candidates should use a comprehensive framework, and be willing to
guide the interviewer through a logical progression.
•
Calculations are only one approach - please allow flexibility for other
approaches that are logically sound.
•
Interviewee should mention industry and market size as a major bucket
in the case structure.
Concepts Tested:
•
•
•
•
Market Entry
Market Sizing
Breakeven
Risk Evaluation
Core Case Question 1
1 / Market Sizing
Present Exhibit 1 and inform candidate there are 3,000 planes. Then ask candidate to estimate the market size for broadband for
airlines based on the provided information.
Notes to Interviewer
Provide the following information as necessary
• Broadband for Airlines: there is general interest from the airlines. The start up would have to invest relatively little, and would
keep most revenues. The airline would charge customers on a per flight pricing model.
Example Analysis /
Core Case Question 2
Present Exhibit 1
Present Exhibit 2, at which point the candidate should recognize they need to produce a breakeven analysis. If they don’t
recognize this probe them and ask them to think beyond market size as to what they should consider next.
Notes to Interviewer
Information to be given if asked
• The company has discovered that if they can generate $250,000 per
plane in annual revenue, they will be profitable.
Guidance
• 250,000 / 2,000 legs/plane = $125/leg
• $125 / $15 = 8 users/leg
• 50 laptop users/leg, and at $15 there is 20% penetration (Exhibit 2)
so we estimate 10 users.
•
•
•
•
•
Assume 100 passengers at
price/penetration combinations
30 users @ $5 = $150/flight
25 users @ $10 = $250/flight
20 users @ $15 = $300/flight
5 users @ $25 = $125…
various
Set Price at $15
Probe the candidate for breadth and understanding of new market entry - ask about some other factors to consider - keep asking
what else until they can’t come up with other factors to consider.
•
•
•
Competition: candidate should dig deeper into competition, especially with regard to intellectual property. For this case, the
company has the patent on the high speed connection.
Risks: ask candidate which risk are associated with business model. Use your judgment when considering answers.
Closing Thoughts
Wrap it Up
Please provide an overview of the issue at hand, and a concise recommendation as to how we should proceed.
Notes to Interviewer
Candidate should provide a crisp recommendation in under one minute.
The recommendation should provide clear and succinct guidance on why the company should or shouldn’t enter the market, as
well as next steps to proceed.
Potential Structure
Go to Market
Market Size
Risks
•
Number of planes
•
Pricing/Revenue Model
•
Barriers to Entry
•
Segmentation
•
Launch Strategy
•
FAA & Regulatory
•
Growth & Trends
•
Installation Capabilities
•
Existing Competition
•
Number of Passengers
•
Maintenance and Training
•
Emerging Competition
•
Type of Passengers
•
Capital Investment
•
Laptop Penetration
•
Airline/Economic Risk
•
Price Sensitivity/Elasticity
Exhibit 1
Exhibit 2
19
19 / Upscale Restaurants
•
Our client is an upscale restaurant in TianJin, China. It serves government officials and high-level business customers. Its monthly
revenue is 1.2M Yuan. The CEO recently hired us to help them increase their profitability.
Overview for Interviewer
Notes
Industry:
Restaurant/Hospitality
•
The interviewee should lead the case, but interviewer should use
structured question prompts.
Case Format:
Improving Profitability
•
This is a profitability case where the candidate is required to evaluate the
revenue side of the equation. Candidates should dive deeper than just R
& C and think about revenue drivers, product mixes, etc.
•
Question 1 is all about framework.
•
Major challenge is getting all the information up front - the monthly
revenue given in the very first sentence becomes integral later. If they
ask later in the case about revenue, challenge them to find it in their
existing notes.
Concepts Tested:
•
•
•
•
Core business
Revenue drivers
Product mixes
Cultural awareness
Interviewer Guidance
Information to Share if Asked
Interviewer Guide to Case and Handouts
•
Exchange Rate: 8Y:1USD
Case Structure
•
As China’s economy is booming, the
upscale dining market is growing 20%
every year.
Candidate will begin with a deep dive into their structure and approach. When
candidate arrives at product mix/variability in revenue, give Exhibit 1.
•
•
Customers for high-end dining are
generally price insensitive
All competitors are earning money.
(Price and value proposition are
similar)
Candidates throughout the case should be working toward solving the two key
issues - raising prices and turning big room tables into individual rooms.
Question 2 will focus on brainstorming, after which you will pursue the
quantitative portion. Candidates should identify demand capacity and profit.
Question 4 will require the candidate to look back to the initial prompt.
•
Variable costs across industry are 50%
of revenue. Assume no fixed costs.
•
On weekdays, there is always a line for
Core Case Question 1 & 2
1 / Structure & Product Mix
After structure, push candidate to identify variability in
customer value. Once achieved, provide Exhibit 1.
Notes to Interviewer
2 / Potential Solutions
What are potential solutions for this situation?
Notes to Interviewer
There are two approaches that could (and should) be taken.
Exceptional candidates will easily identify the first, and the
interviewer can move straight to the second approach if
desired.
Candidate should recognize that government officials and
business customers prefer individual rooms to big rooms
because of their requirement for privacy. Currently our
client is not meeting customer demand.
Additional information to be provided on previous page at
this stage.
1. Raising prices. This is to see if they listened to the critical
information “there is always a line for individual rooms”
and customers are generally price insensitive.
1. Converting the big table rooms into individual rooms
which generate significantly higher income.
Exhibit 1 / Reference for Interviewer
Core Case Question 3 & 4
3 / The Quant
4 / Alternate Solution
Through market research, we have determined that if we raise weekday individual
room price by 33%, we will lose 10% of customers. How will it change our
profitability?
Analysis 3
A second solution is converting half of big room tables into 5 individual rooms. It
will take two weeks to renovate, during which the entire restaurant will close. The
conversion will cost 100k Yuan. What’s the total project cost?
Analysis 4
Changing Price will result in 10% customer loss
The observant candidate will quickly calculate this from the initial
revenue information given at the beginning of the case rather than
making heavy calculations using the table.
Weekday Lunch
Previous
Now
Customer
4*20*.80 = 64
64*(1-.10) = 58
Price
150
150*(1+.33) = 200
Revenue
64*150 = 9600
58*200 = 11600
Profit
9600 *.50 = 4800
11600*.50 = 5800
•
Incremental Profit
-
5800-4800 = 1000
•
Underlying demand is 200% capacity, price increase won't reduce
volume
Weekday Dinner
Previous
Now
Customer
6*20 = 120
120
Price
300
300*(1+.33) = 400
Revenue
120*300 = 36000
120*400 = 48000
Profit
36000*.50 = 18000
48000*.50 = 24000
Incremental Profit
-
24000-18000 = 6000
Daily Incremental Profit = 7k * 20 days/mo = 140k / mo profit
•
Capital Investment = Y100,000
Opportunity Cost = Y1.2M *.50*.50 = Y300,000
Total Cost = Y400,000
Final Thoughts
Final Recommendation
Please provide an overview of your findings and recommendations for how the client should best proceed.
Notes to Interviewer
Final recommendations in this case should focus on the value of targeting the appropriate audience, and doing so at the profit
maximizing price. Good candidates will explore both price increases and restaurant renovation, with exceptional candidates
recognizing that the next steps should include evaluating both options together, and separately, to estimate long-term profit
benefits moving ahed.
Note: This case provides a relatively easy opportunity for the candidate to properly deliver a case closing. This should be crafted
as if it’s actually being delivered to a client. That is, it should remain positive, definitive, and lay out a clear path for how the
candidate/firm would approach this problem moving ahead. (Demonstrating continued/future value is vital in any service
industry.)
Potential Structure
Profit Tree
Customers
•
•
•
•
•
Time of Day
• Down times?
Size of Party
Type of customer
• govt
• family
• business
Alcohol?
• Happy hour?
Location
• Near what?
•
•
Revenue
• Primary Source?
• (80/20)
• Product
Mix/Profitability?
• Food/Bev
• Customer elasticity
• Pricing
• Capacity?
Costs
• Lost business
• Staff
• Ingredients
• Facilities
• Variability of product
mix
• Vendors
Competition
•
How are we priced
comparatively?
•
What is the reputation
compared to competitors?
•
How are we located relative to
comparable restaurants?
•
Do we have a distinct
advantage compared to other
options?
Exhibit 1
20
20 / High Q Plastics
•
•
•
Our client, High Q Plastics, is an automotive parts supplier in the US. They primarily manufacture and sell plastic injection-molded
parts, such as grills, door handles, decorative trim, etc. to automotive customers
The client has two primary revenue sources: large automotive OEMs, and aftermarket. The client has recently seen declining
profits, primarily due to increased price competition from new overseas competitors in China. Annual profits have declined from
$50M to $20M over the last few years.
What is the reason behind declining profitability? How can High Q improve profits? Can they reach $100M in profit by 2014?
Overview for Interviewer
Industry:
Industrial Goods
Notes
•
•
Case Format:
Improving Profitability through cost reduction.
Quant/Structure Score: 8/5
•
•
•
Concepts Tested:
•
•
•
Competitive Analysis
Creativity
Operations
The interviewee should examine the following MECE questions
about the competitive dynamics of the industry.
Industry:What is the sales volume trend? What is the % of demand and
growth of OEM vs. aftermarket segment? Is one of these segments more
profitable than the other?
Competitors: Who are they? What is their relative market share? What
are their prices vs. our clients’? What is their cost structure vs clients?
Do they have the tech or quality competitive advantage relative to client?
Revenue: How have our clients prices changed in recent years? have they
declined across all customers and products?
Costs: What trends is our client seeing in their cost structure? Increasing
labor and material costs?
Interviewer Guidance
Clarifying Answers to Provide if Asked
Industry Characteristics
• Automotive sales overall still growing
steadily, driven by emerging markets
• Automotive manufacturing is leaving
the United States
Client Characteristics
• Client is currently one of the leaders
• Client has US based mfg
• Revenues have slowly declined for the
last fifteen years
• Clients products are higher quality
than Chinese competitors’
Competitive Dynamics
• Automotive OEM customers are
looking to reduce cost, driving
increased price competition among
parts suppliers
Questions & Hand Out Guide
1. What key questions would you ask an industry expert in order to better
understand the reasons behind High Q’s declining profits?
2. The CEO of High Q wants to know if $100M in annual profit is achievable
by 2014. What would you need to know in order to determine this?
3. What ways can you think of to increase revenues? Reduce costs?
4. Our client is planning to implement lean manufacturing across all four of
its US plants in order to provide cost savings and increase profits. (EX1)
1. The client is expecting to produce 80% of 2010 volumes (this is a
frequently missed step in calculation) in 2014
2. Planning to reduce prices by 10%
3. Lean manufacturing across all plants will provide 20% savings in
raw materials and 30% savings in labor.
4. What is the change in profits the High Q CEO can expect from
2010 to 2014 based on this information?
5. High Q’s CEO has also asked us to take a look at competitive dynamics
among the automotive OEMs in order to predict any increase in profits
from increased sales. (Hand Exhibit 2 & 3)
6. Please summarize your findings to the CEO, including any other potential
opportunities to increase High Q profit in the next few years.
Core Case Question 1
1 / Break Even & Market Potential
What key questions would you ask an industry expert in order to better
understand the reasons behind High Q’s declining profits?
Notes to Interviewer
Interviewee should examine the following MECE questions about the competitive dynamics of the industry:
1. Industry / What is the sales volume trend? What is the % of demand and growth of OEM vs aftermarket segment? Is one of
these segments more profitable than another?
1. Competitors / Who are they? What is their relative market share? What are their prices vs our clients’? What is their cost
structure vs. our clients’/ Do they have a tech or quality competitive advantage relative to our clietn?
1. Revenue / How have our clients prices changed in recent years? have they declined across all customers and products?
1. Costs / What trends is our client seeing in their cost structure? Increasing labor and material costs?
Core Case Question 2 & 3
2 / Break Even & Market Potential
The CEO of High Q wants to know if $100M in annual profit
is achievable by 2014. What would you need to know in order
to determine this?
Notes to Interviewer
In order to understand if $100M in profits by 2014 is
achievable, the candidate will need to know the following:
•
•
•
Annual quantity sold
Selling price
Clients fixed & variable costs
3 / Brainstorming Increases in Profit
What ways can you think of to increase revenues? Reduce
costs?
Notes to Interviewer
Interviewee should come up with 2-3 ways each for cost
reduction and increasing revenues. A few examples include:
Reduce Cost / find alternative material sources, invest in
process automation to reduce labor, consolidate multiple
manufacturing sites to reduce SG7A, relocate close to
customers to reduce transportation costs
Profit = Q*(P-VC)-FC
Increase Revenue / segment customers to determine price
sensitivity, increase marketing in aftermarket segment,
negotiate long-term contracts with OEM customers.
Core Case Question 4
4 / Lean manufacturing and cost savings
Our client is planning to implement lean manufacturing across all four of its US plants in order to provide cost savings and
increase profits. (Exhibit 1)
1. The client is expecting to produce 80% of 2010 volumes in 2014
2. Planning to reduce prices by 10%
3. Lean manufacturing across all plants will provide 20% savings in raw materials and 30% savings in labor.
4. What is the change in profits the High Q CEO can expect from 2010 to 2014 based on this information?
The interviewee should use the information provided to
calculate the probability for each plant in 2014 (left). It is
important to note that revenues, labor, and material will
decrease by 20% due to the reduced quantity output, plus the
additional 20% savings in material and 30% in labor.
Overhead costs will not change.
From this calculation, the interviewee should reference question two. Even with lean manufacturing implementation, High Q is
still a long way from the CEO’s goal of $100M in annual profits, and is therefore likely unrealistic. A strong candidate will
make note of this. If they do not, it may be worth asking them if they have any larger insights from this section.
Core Case Question 5 & 6
Notes to Interviewer
5. High Q’s CEO has also asked us to take a look at competitive dynamics among the automotive OEMs in order to predict any
increase in profits from increased sales. (Hand Exhibit 2 & 3)
Interviewee should be able to use the information provided in the exhibits to calculate the following
6. Please summarize your findings to the CEO. Include any potential opportunities to increase High Q profit in the next few years.
Interviewee should concisely summarize overall goal of case (increase declining profits due to new, low cost competition, and
main findings from each question, as well as a recommendation. (Yes, they should implement lean manufacturing). Interviewee
should also generate a list of additional opportunities not included.
a. consolidation of 4 major manufacturing plants
b. pursue growth in the aftermarket segment
c. diversify business into plastic injection-molded parts for other industries with less price competition
Exhibit 1
Exhibit 2
Exhibit 3
Potential Structure
Competitors
Industry
Profit Tree
•
Sales volume trends?
•
Who?
•
% of demand for OEM
•
Relative market share
•
how are clients prices?
•
% demand for aftermarket
•
what are their prices?
•
have competitors prices
dropped also?
•
Is one better than others?
•
cost structure?
•
•
•
•
Revenue
Costs
• Trends?
technology?
•
Labor costs?
•
SG&A
•
Materials
comp advantage?