Case Interview Frameworks Overview Determine Key Issue(s) Develop Hypotheses Gather Data / Test Hypotheses Develop Options Refine Answer As the interviewer describes the situation, think about what are the key issues facing general management Develop hypotheses Decide what data you need to better understand the issues Listen to the facts Evaluate which facts are critical to the key issues Probe for more detail in critical areas Use facts and numbers appropriate in building argument Summarize options before making recommendation State pros and cons - be fact driven Make your recommendation Make Recommendation Case Interview Frameworks Using Frameworks There is no golden rule, more than one framework may be applicable Use an appropriate framework Do not force a framework Be hypotheses driven Be prepared to revise your hypotheses Mutually Exclusive and Collectively Exhaustive (MECE) Listen for clues from the interviewer Accept direction from the interviewer Display your thinking visually / graphically Be transparent in your analysis Leave time to summarize and make recommendations Case Interview Frameworks Some General Frameworks The Three C’s The Four P’s Porter’s Five Forces (+govt.) Supply & Demand The Profit Equation Internal - External NPV Analysis Don’t be afraid to create your own framework, as long as it is logical, appropriate and transparent to the interviewer. Case Interview Frameworks Market Sizing Determine The Key Drivers Bottom Up or Top Down? Make Assumptions Calculate Use Round Numbers! Common sense check! Analyze Results Implications? Increasing Factors Decreasing Factors Adjust Answer Adjust Answer Case Interview Frameworks Declining Profits What's Driving the Decline? Gather Information Analyze Using Profit Equation Revenues Price Decreasing Comp. pressure? Expenses Volume Decrease Increase - Market Conditions - Competition Higher Marg. Costs - Org. Dysfunction - Overtime Product Mix Fixed Costs Variable Costs Unusual Expenses Selling Less Profitable Items - Added Capacity? - Raw Material Prices - Writeoffs - Lawsuits Case Interview Frameworks Increase Profitability Revenues Price COGS Unit Volume Direct Material Price Sensitivity - Elasticity Existing Market - Promotion - Place Scale Economies /Diseconomies - Supply Constraints Competitive Environ. - Substitutes New Markets - Geographic - Economies of Scope Inventory Mgmt. - Carrying Costs - Shrinkage SG&A Direct Labor Variable O/H Replace w/machines - Union? Cost Acctg. - Allocation Drivers - Does pricing reflect Cost Can we explore economies of scope with entry into adjacent industry? Case Interview Frameworks Increase Capacity? Should We Increase Capacity? Market Demand Industry Capacity Competitors Plans Investment vs. Improvement Market Trends Threats Improve Productivity Add Capacity Cyclical / Seasonal Bottlenecks Add shifts Economy Design for manuf. Acquire Global Competition Consumer tastes Substitutes Outsource Case Interview Frameworks Customer Turnover What Has Changed in the Following Environments? Company Customer Competition Regulatory Product Is quality sagging? Tastes changing? Are low cost competitors stealing from us? Do new tax incentives exist? Price Have sensitivities changed? Overpriced versus our competition? Disposable income? Are diffentiated competitors stealing from us? Any new regulations restricting the use of our product and favoring substitues? Place Is our distribution getting squeezed out? Are Customers Changing Channels? Demographics of our target? Are competitors integrating into distribution and shutting us out? Promotion Are we spending? Push vs. pull? Do new substitutes exist? Are they offering our customers special incentives to switch? (particularly with substitutes) Has public image changed? Case Interview Frameworks Competitive Response Customer - What do they want? - How do they choose? Values/Tastes Price Sensitivity Competitor - Where are we positioned? - Where is the competition? Purchasing Habits Product Company - How do we add value? Resources to respond? Business relationships Place Susbsitutes Disposable income Distribution channel Demographic changes Mature market? Bundled product? Cost structure Distributor Tangible Vendor Intangible Customer Price Promotion New customers? Normal good? Finances • Given the above, is it worth making a competitive response? • How will the competition react? • Applying game theory or PARTS analysis may help. Case Interview Frameworks New Product Introduction? Customer Does product met a need? Competition Is there any? Yes Product Have we done homework? What does the segment want? Proliferation of products already? Price Have we explored sensitivity? Can we make a profit at this price? Many Is market growing? Promotion Push or Pull? Cost of launch? Will current promotions help? Place Is distribution aligned with customer? Are we experienced in this channel? Company Can we do it? Can we eat the young? No Few What wil be the strategy? Low cost or Differentiated? Are there barriers to entry? Yes Can we beat them? No Can we erect some? Finance Are we able to finance the launch? Should we buy an existing producer? Will we be first movers? Any precious resource that we own? (Ricardian rents) Operations D0 we have capacity? Supply network? M arketing Will we cannibalize existing products? Is this a complement / bundled good Does it build on resources? Case Interview Frameworks International Expansion Internal External Quantitative Doesit match our growth strategy? - ROE/ROI Cultural Differences of Customers - Tastes / product preferences - Values / gender roles Alliance with local firm? - Joint venture/distributor Methods of Conducting Business - Introductions - Government contacts Can our resources succeed overseas? - Flexible enough to adapt? Educational Differences Amount Is organization consistent with overseas 'autonomy' Economy & Exchange Rates Timing - Startup / disposition - Operating Corporate Values - Bribery Worker's conditions / child labor Seasonality - Weather Discount Rate Distribution system - Transportation infrastructure - Different channels Political Climate - Instability Local Market - Size - Competition ROI / Hurdle Rate Cash Flows Case Interview Frameworks Investment Decision Investment Decision NPV Analysis Useful Life Cash Flows Timing - Opportunity Cost Size - Market Potential - Outflows - Working Capital Other Factors Discount Rate - Risk Free Rate - Inflation - Risk Adjust Strategic Fit Synergies Environmental Political Competitors - Missing Links of Value Chain - Seasonality - Volatility - Inflation Demand Cycle Stability Regulation - Current Supply Potential Demand Case Interview Frameworks Company Acquisition Understand Purpose Diversification? Gain Market Share? Geographic Expansion? Analyze Opportunity Internal Factors External Factors Strategic Objective Strengths & Weaknesses Resources Acquisition Fit Industry Attractiveness Porter's Five Forces Three C's Identify Acquisition Candidates Soft Issues - Culture/Fit - Management Hard Issues - Price - Balance Sheet Case Interview Frameworks Hostile Takeover Defense Two Options Both Designed to Raise the Value of the Company Self-Help White Knight Are We Highly Levered? (Relative to the Industry) Classic M&A Is there a Firm That... Yes No Do We Have Cash? Issue Debt, Buy Back Stock Has Financial Strength Strategic Compatability Cultural Fit Yes Then Buy Back Stock to Raise Stock Price No Can We Release Good News to Raise Stock Price?
