M
C
P
T
B ASIC S CENARIOS AND H ELPFUL H INTS

www.christophermaynard.com

Profit Decomposition
Profit = Revenue - cost
Revenue/
Unit
Revenue
# of Units
Sold
Profit
Cost
 Segment, break it up in to its components
 Compare current status with historical tends
 Isolate the key driver causing the problem
 Explore possible resolutions
Cost/
Unit
Fixed
Costs
Variable
Costs
 Segment cost by logical groupings
 Segment costs by value chain
− Raw Materials
− Fabrication and Assembly
− Overhead
− Distribution
− Customer
# of Units
Sold www.christophermaynard.com

1
Cost Breakdown
Baseline
2
Four Step Cost Management Approach
3
Create Targets
(Product and Process)
Create and Conduct
Cost Reduction
Initiatives
4
Capture the Value of Projects
 Cost requirements and cost drivers
 Base vs. Overhead
 Contract Structure
 Business lifecycle stage
 Performance
Indirect Cost
$1,000M
Direct Material
$1,750M
Direct Labor
$500M
Total = ~$2.3B
 Set common goal

Aggressive, yet achievable
 In alignment with affordability objectives
 Collect initiatives

Conduct business case analysis
 Prioritize
 Align to accounting systems

Align resources
“Four Wall” Cost Containment
Segment ALL business cost in to logical categories
 Tracking, controlling and reporting the initiatives
 Verification/Validation metrics and status updates
 Analyze and validate project impacts on cost / schedules

Continuous feedback loop with finance and the customers
Benefits
Indirect Labor
R&D
Discretionary Spend
Footprint
IT
Corporate allocation $25
$125
$75
$100
$200
$175
$300
$0 $50 $100 $150 $200 $250 $300 www.christophermaynard.com
$M

Increase revenue
 Increase prices
 Increase volume
 Decrease costs
Increasing price
 Market power
 Demand elasticity
 Differentiated product
 Higher prices of substitutes
 Additional benefits – customer service
Increase sales volume
 Increase market share
 New products to new customers
 More products to current customers
 Increase growth
 Improve technology
 Promotion
 Find more efficient channels
Decrease costs
 Cost structure of firm / Evaluate value chain
 Improve utilization of equipment
 Outsource manufacturing
 Consolidate purchasing
 Reallocate to lower cost areas
 Partner with distribution
 Strategic IT
 Identify cost drivers
 Consider Fixed versus variable costs
 Which costs can be decreased
 What are the competitors cost structures
 How have costs changed over time
 Direct costs (materials, labor, factory overhead) vs. indirect costs (SG&A, overhead, depreciation, capital costs, R&D) www.christophermaynard.com

Customer
Product
Company
Competition
 Identify the customers
− Size, growth rate, % of total market
− Compare current status with historical trends
 Determine price points
 Distribution channel for each segment
 Customer concentration and power
 Product differentiation
 Identify complementary products
 Identify substitutes
 Determine product life cycle
 Packaging and shipping
 Capabilities and expertise
 Distribution channels
 Cost structure
 Financial situation
 Organizational structure
 Geographic footprint
 Market share distribution
 Competitor behaviors
 Barriers to entry
 Supply base
 Industry and government regulation www.christophermaynard.com

Company A
Customers Products Company Competition
Company B
Company A + B www.christophermaynard.com


A comprehensive analysis, using market data is used to assess all areas affecting the operator’s strategic direction:
− market dynamics : detailed consumer and business market segmentation and analysis of market drivers will be undertaken to identify the most valuable target segments and underlying reasons for market growth. Specific target areas are evaluated to provide key inputs: retail structures, financial transactions systems and
Internet usage provide input to sales and distribution planning
− competitive landscape : extensive competitive profiling in areas such as positioning, brand, target segments, value proposition, market offer, pricing, customer care, sales & distribution, coverage, network & support systems enable assessment of competitors’ strengths and weaknesses
− macro-economic outlook : analysis of relevant macroeconomic data determine market and segment growth
− legislation and regulatory framework : description of limitations or possibilities within the current regulatory environment that affect market and segment growth
− internal assets/technology : analysis of all internal assets including technology, brand, partnerships will be done to clarify which sustainable competitive advantages the company holds

An internal SWOT highlight areas of valid advantages and disadvantages, providing input to market entry positioning and value proposition

Identification of strategic risk areas at an early stage enables preparation of mitigating actions prior to market entry
Market dynamics
Competitive landscape
Internal SWOT
Market analysis
Macroeconomic outlook
Regulatory environment
Internal assets /
Technology
Identified strategic risk areas
Summary and conclusions
Market opportunity description
Market entry strategy
Vision and Mission
Objectives
Overall Strategy
Positioning
Value proposition
Brand
Target segments
Strategic directions
Pricing
Brand and communication
Sales and distribution
Products and services
Customer service
Launch phasing
Contingency plan
Internal and external www.christophermaynard.com factors
Tactical launch plan
Products & services
Pricing
Brand and communication
Sales & distribution channels
Customer service

Demand
 Determine growth in the overall market – is it sustainable?
 Determine the firms growth in the market – is it sustainable?
 Segment sources of demand
− Determine each segments share of total demand
− Identify trends in demand by segment
Supply
Cost of
Expansion
 Determine industry supply
 Segment industry supply by market / market segment
 Identify effect of increases in supply on prices
 Cost of expansion – can the business afford it?
 Calculate opportunity costs
− Payback period
− Break even point
− IRR
 Identify alternatives
− Outsource
− Lease
− Sub-contract www.christophermaynard.com

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Primary Value Chain Activities
Generic Example
 Suppliers – Raw materials, sub-assemblies, receiving, and inventory
 Operations – Internal activities that transform inputs into a final product
 Outbound Logistics – Activates required to get the finished product to the customer, including warehousing, order fulfillment, etc.
 Marketing & Sales – Activities associated with getting buyers to purchase the product, including channel selection, advertising, pricing
 Service – Activities that maintain and enhance the product’s value including customer support, repair services, etc. www.christophermaynard.com

Investment Decision Criteria
Market
Attractiveness
 Market size
 Market growth
 Market profitability
 Threats: substitutes, imports, etc.
 Market trends
Company
Attractiveness
 Profitability
 Relative market share
 Key customer segments
 Strength of customer relationships
 Strength of key talent
Competitive
Environment
 Market fragmentation
 Competitive threats
 New market entrants
 Barriers to entry
Feasibility &
Profitable Exit
 Existence of strategic buyers
 Existence of other financial buyers
 Expected exit multiple with improved performance www.christophermaynard.com

Market Size
 Current market size
 Market growth
Investment Decision Data Requirements
Tech Adoption
Rate
 S-curve development
Price
 Market price analysis
− Analogues systems
− Surveys
Cost
 R&D
 Advertising
 Non-recurring
 Recurring
Business Criteria
 IRR
 Payback Period www.christophermaynard.com

Manufacturing throughput time - the length of time between the release of an order to the factory floor and its receipt into finished goods inventory or its shipment to the customer.
Manufacturing throughput yield - the number of units coming out of a process divided by the number of units going into that process over a specified period of time.
Only good units with no rework are counted as coming out of an individual process.
-53%
Current
Capacity
Utilization Loss Planned QC Rework
Production Samples www.christophermaynard.com
Manuf.
Scrap
QC
Rejects
Available to Ship

The inventory in the process is related to the throughput rate and throughput time by the following equation:
Work in Progress Inventory = Throughput Rate X Throughput time
Some ways to improve operations: focus on cost, quality, speed and flexibility.
 Reduce work in progress inventory, reducing lead time.
 Add additional resources to increase capacity of the bottleneck.
 Improve efficiency of process capacity, increasing bottleneck capacity.
 Move work away from the bottleneck.
 Reduce complexity in design or redesign for better manufacturability. www.christophermaynard.com

Indirect Cost Elements and Controllability
Company XYZ
Cost Element Controllability
Indirect Labor
Discretionary Spend
High
High
Nature of the Challenge
• Optimum staffing is hindered by the variability and relative unpredictability of the business base
• Management depth and skill levels impact the achievement of direct cost goals and objectives
• Efficiency improvements and base growth can lower allocations to product lines
• Must tradeoff outside specialists/experts with internal resources to achieve best overall results
• Level of in-house vs. outsourced support is discretionary
Outsourcing of non-core functions to specialized suppliers in a service is typically more cost effective
• R&D is nominally “discretionary”, but is a critical component of ability to compete on future new starts
R&D Medium
Footprint Low
• Costs are driven by ownership structure, utilization, and geographic location
• Disposal of excess capacity lags variability in business base and can require consolidation
• Consolidation may involve short term increased cost
• Largely driven by occupancy levels, reduced footprint will lead to reductions in long run
• Investment in energy efficiency can reduce costs in long-term
Information
Technology
Benefits
Corporate
Allocations
Low
Medium
Low
• Heavy application of IT is required to operate the overall business effectively
• Long term agreements with vendors creating timing issues between contract renegotiation
• Depth and breadth of benefits are substantially driven by regulations and long-term agreements
• Retirement benefits, the largest element, is driven by market performance
• Totally discretionary, but performance driven incentives can lead to more effective operations and incentives are driven by competitive offers
• Consists of different types of costs
• Size of allocation is influenced by overall revenue and size of corporate cost structure www.christophermaynard.com

Indirect Cost Element Drivers
Company XYZ
Cost Element Drivers Questions
Indirect Labor
Discretionary Spend
 Too many layers of infrastructure
 Quantity of metrics/reports required
 Redundant effort with corporate allocations
 Lots of senior staff
 Training and common tools implementation
 Special projects
 What staffing levels are justified by current and projected volumes?
 What specific activities would “go away” or be done more efficiently if we were to operate differently?
 Which components of indirect labor are effectively fixed versus those that will vary with volume?
 Can we save on other discretionary items by managing them more closely?
R&D
 Not enough focus
 Product focus vs. market focus
• Are your R&D activities organized around product offerings or market forces – push vs. pull?
Footprint
Information
Technology
Benefits
Corporate Allocations


Leasing costs
Multiple desks / employee
 Can depreciation be reduced by consolidating footprint?
 Where are the constraints on the ability to move volume/ and where are the
“steps” in facility cost functions?
 Can we save on energy through smarter sourcing /responsible use?
 Support staff redundancies due to requirements for classified staff
 Program-by-program nature of the business
 Mix of legacy, current, and future systems
 What can we do to reduce this expense: simpler processes, better/ fewer systems, etc?
 What are the discrete decisions that drive IT costs and which choices should accompany various moves?
 Benefits not in alignment with industry
 Corporate cost structure is not in alignment with business model – holding company vs. strategic direction
 How do benefits compare with alternative sources of employment in markets where we operate?
 Can we reduce allocated costs by outsourcing, reducing internal costs or streamlining administrative processes?
 What is the effect to allocation base when volume leaves? www.christophermaynard.com

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Supplier Power
 Supplier concentration
 Relative bargaining
 power
Threat of Entry
 Capital requirements
 Economies of scale
 Absolute cost advantage
 Product differentiation
 Access to distribution
 channels
 Legal/ regulatory barriers
 Retaliation
Industry Rivalry
 Concentration
 Diversity of
 competitors
 Product differentiation
 Excess capacity &
 exit barriers
 Cost conditions
Buyer Power
 Buyers’ price sensitivity
 Relative bargaining
 power www.christophermaynard.com
Substitute Competition
 Buyers’ propensity
 to substitute
 Relative prices &
 performance of
 substitutes

Horizontal Integration
–
The acquisition of additional business activities at the same level of the value chain. This form of expansion contrasts with vertical integration by which the firm expands into upstream or downstream activities.
Some examples of horizontal integration include:

An oil companies acquisition of refineries

An automotive manufacturer's acquisition of a sport utility vehicle manufacturer
 A media company’s ownership of radio, television, newspapers, books, and magazines
Advantages of horizontal integration:

Economies of scale
– achieved by selling more of the same products, for example, by geographic expansion
 Economies of scope – achieved by sharing resources common to different products. Commonly referred to as “synergies”

Increased market power (over suppliers and downstream channel members)

Reduction in the cost of international trade by operating factories in foreign markets www.christophermaynard.com

Dogs - Low Market Share / Low Market Growth
Your market presence is weak. No market leadership and no economies of scale. Market growth is low, it will be difficult to improve the situation.
Cash Cows - High Market Share / Low Market Growth
You're well-established, so it's easy to exploit new opportunities.
The market isn't growing, opportunities are limited. Limit investment accordingly.
Stars - High Market Share / High Market Growth
You're well-established, and growth is exciting! These are fantastic opportunities, and should work to realize them.
Question Marks - Low Market Share / High Market Growth
Difficult area – Little revenue, but you could capture a disproportionate share of market growth www.christophermaynard.com

Factors used to determine business unit strength:
 Market share
 Growth in market
 Brand equity

Distribution channel access

Production capacity
 Profit margins relative to competitors
The business unit strength index can be calculated by multiplying the estimated value of each factor by the factor’s weighting, as done for industry attractiveness. Based on the strength index three decisions should be made:

Grow strong business units in attractive industries, average business units in attractive industries, and strong business units in average industries
 Hold average businesses in average industries, strong businesses in weak industries, and weak business in attractive industries
 Harvest weak business units in unattractive industries, average business units in unattractive industries, and weak business units in average industries www.christophermaynard.com

Product
Determining what products or services customers want and establishing specifications for those items.
Considerations include functionality, appearance and quality of the product, as well as packaging, warranty and support.
Pricing
Setting a competitive price for a product or service is an important part of marketing. That price may be based on the marketing strategy of whether to give the impression of quality or to appeal to the priceconscious buyers. Supply and demand also affects pricing.
Pricing includes not only the list price, but also discounts, financing and leasing options.
Promotion
Communicating and selling to potential customers. This includes advertising, sales promotion, publicity and personal selling. It refers to the various methods of promoting the product, brand or company, as well as the message and media to be used. Advertising and promotion costs can be a large part of the product price.
Analysis should be performed to determine the actual value of the promotion in getting new customers.
Place
Place is the location or channel where the sale can be made. This may include geographic location and market segment. Sometimes this "P" stands for placement or distribution, which refers to how the product or service gets to the customer. Distribution includes market coverage, channel member selection, logistics and levels of service. www.christophermaynard.com

Product
 Features and capabilities
 Positioning decisions and market segmentation
 Differentiated versus commodity
 Reliability, brand name (quality, reputation)
 Packaging, size
 Service and warranties
 Future strategy
Pricing
 Retail and discounts
 Strategy: MC = MR, skim, penetrate
 Volume or profits
 Perceived value or cost plus margin
 Economic incentives to channel
 Establishing barriers to entry
 Overall Strategy – relation to market size, product life cycle and competition
Promotion
 Consumer awareness
 Interest
 Select sales (Pull versus Push) Pull = advertising / Push = discounts to merchandisers
 Advertising medium (reach and frequency)
 Sales promotions – incentives to consumers, sales force and channel members
Place
 Channels (consider level of desire and margins desired)
 Coverage (trade off between coverage and costs)
 Inventory – levels, turnover, carrying costs
 Transportation – alternatives, efficiencies, cost www.christophermaynard.com

 Strategy
 Systems (such as IT, compensation, performance evaluation)
 Structure (organizational structure such as reporting structure)
 Style (leadership and management style)
 Skills (competitive advantage of the firm)
 Shared Values (philosophy and values)
 Staff (training and motivating) www.christophermaynard.com

Gross Profit Margin (gross profit earned on sales) = Sales
– Cost of Goods Sold/Sales =
Profit/Sales
Return on Assets (ROA) (how effectively the firm’s assets are being used to generate profits) = Net Income/Total Assets
Return on Equity (ROE) (bottom-line measure for shareholders, measures the profit earned for each dollar invested in the company’s stock) = Net Income/Shareholder’s
Equity
Return on Investment (ROI) (measures the profit earned for each dollar of initial investment)
= Net Income/Initial Investment. Can be compared to Cost of Capital on a rudimentary basis. www.christophermaynard.com

Small changes in consumer demand can result in large variations in order placement upstream. Eventually, the network oscillates while each organization in the supply chain seeks to solve the problem from its own perspective. This phenomenon is known as Bullwhip
Effect.
Causes of Bullwhip:

Overreacting to backlogs
 Neglecting to order in an attempt to reduce inventory
 No communication up and down the supply chain
 No coordination up and down the supply chain

Delay times for information and material flow

Order batching
 Demand forecast inaccuracies
 Rework or free return policies www.christophermaynard.com

Countermeasures to order batching
–
High order costs is countered with computer aided ordering, full truckload economics are countered with third-party logistics. Random ordering is countered with regular delivery appointment
Countermeasures to shortage gaming
–
Ignorance of supply chain conditions can be addressed by sharing capacity and supply information.
Countermeasures to fluctuating prices – High-low pricing can be replaced with everyday low prices. Special purchase contracts can be implemented in order to specify ordering at regular intervals to better synchronize delivery and purchase
Countermeasures to demand forecast inaccuracies
–
Lack of demand visibility can be addressed by providing access to point of sale data. Long lead times should be reduced where economically advantageous
Free return policies
–
Prohibit or limit policies if proven to be detrimental to operations www.christophermaynard.com

Strategy Structure
If the strategy is missing, unclear, or not agreed upon
If the structure isn’t aligned t to the strategy
Process
Integration
If the development of coordinating mechanisms is left to chance
Reward
System
If metrics and rewards don’t support the goals
People
If people people are not enabled or empowered
Confusion
 No common direction; people pulling in different directions
 No criteria for decision making
Friction Gridlock
 Inability to mobilize resources
 Ineffective execution; lost opportunity for competitive advantage
 Lack of collaboration across boundaries
 Long decision and innovation cycle times
 Difficult to share information and leverage best practices
Internal
Competition
 Wrong results; diffused energy
 Low Standards
 Frustration and turnover
Low
Performance
 Effort without results
 Low employee satisfaction www.christophermaynard.com

www.christophermaynard.com

Vision:
Mission:
Goals:
REQUIRED COMPETENCIES
• Text
• Text
CULTURE
• Text
• Text
• Text
• Text
STRATEGY
• Text
• Text
• Text
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TACTICAL PLAN
• Text
• Text
• Text
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Customers:
• Text
Products:
• Text
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REQUIRED RESOURCES
• Text
• Text
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• Text
ENABLERS
• Text
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• Text
• Text www.christophermaynard.com

Vendor Management inventory (VMI) reduces stock-outs and reduces inventory in the supply chain. Some features of VMI include:
 Shortening the supply chain
 Centralizing forecasting

Frequent communication of inventory, stock-outs, and planned promotions

No manufacturer promotions
 Trucks are filled in a prioritized order
 Relationship with downstream distribution channels
 Result
– inventory reduction and stock-out reduction www.christophermaynard.com

For a Vendor Management Inventory system to work, the conversation of distributors and the sales force must be addressed. They can be at least addressed by the following:
 Transform the sakes role into one of the marketing. For example, bonuses can be given based on the number of new clients

Distributor skepticism can be addressed by implementing a pilot program with vendorowned warehouses in order to demonstrate that the system works. Introduce system in distributor-owned warehouses on pilot basis
 Engage a neutral consultant in meetings among the vendor, distributor, and sales force
 Allow some manufacturer promotions in the transition

Extensively simulate the system off-line before implementing
 Don’t exaggerate the benefits of VMI; otherwise, any delay in realizing the benefits may cause the supply chain to lose faith in the system www.christophermaynard.com

www.christophermaynard.com

Recommendations
Strategy Consulting Recruiting Process
Networking Applying Case Interviewing


Know who you are speaking to
– Research the firm; do not ask basic
– questions
Understand the background of the individual; ask the right questions of the right people
Know why you are valuable to the firm
–
–
Why do you want to be a consultant?
Why do you want to work for Firm XYZ?
– What unique background do you bring to the consulting firm?
 Keep it brief
– Make your case quickly; consultants have a short attention span
– Appreciate that consultants communicate with many candidates every year
 Do your homework
– Don’t depend on the firms to tell you about deadlines, etc.
 Structure, structure, structure
– Set up a good framework early, verify it and then stick to it
– Know what each firm wants and tailor your resume/cover letter to that firm
– Reference people that you met with and let them know that you have applied
– Your structure should be easy to follow while driving you towards a recommendation
 Involve the case interviewer
– The case interviewer is the role of the manager, teammate or client (adjust appropriately)
 Again…keep it brief
– One page resume and cover letter
– Brief bullets (“consultese”)
– Emphasize accomplishments
– Demonstrate well-roundedness
– Ask for feedback throughout the case
– Take the lead, but listen carefully and change approach as needed
 Communicate clearly
– “Think out loud”
– Summarize findings along the way and state implications for the recommendation www.christophermaynard.com

Interviewers want to know that clients will value your high-priced advice
 Mental horsepower to come up to speed and quickly provide value
 Clear and easily communication style understandable by less educated clients
 Confidence and poise presenting controversial ideas to resistant audience
 Ability to thrive in environment of ambiguity
 Ability to take control of own analysis and quickly drive to client value
 Likable personality that will work well in team environment
The case is designed to test your ability to survive in this environment
 Hard problems that require quick assimilation of data and context
 Want to see clear communication of ideas, questions, and conclusions
 Want to see winning confidence in approaching entire interview
 Cases intentionally ambiguous, requiring educated assumptions, quick conclusions
 Want to see candidates that control interview
 “Airport test” – would I like to be stuck in an airport with this candidate? www.christophermaynard.com

Selection Criteria
Strategy Consulting Firms
 Ability to persuade others to follow your recommendations
 Need to have clear, professional written and verbal communication

Ability to tackle complex problems
 Need to be comfortable with numbers, frameworks, and ambiguity

Demonstrated through: GPA,
GMAT, Work Experience,
Case Interview, academic credentials
 Demonstrated through: Resume, Cover Letter, Case Interview
 Ability to drive work, both on your own and in a team

Need to have a record of accomplishment and results
 Demonstrated through:
Extracurricular Involvement,
Work Experience, Case
Interview



Ability to convince clients that you are worth hiring
Need to have impressive credentials/experience
Demonstrated through:
Resume

Ability to pass
“the airport test”
 Need to connect with people in the firm

Demonstrated through:
Case Interview
 Ability to show a passion for the job
 Need to convince consulting firms that they are your “first choice”
 Demonstrated through: Resume, Cover Letter, Case Interview www.christophermaynard.com

Recommendations for Success
Strategy Consulting
Skill
Development

Know your strengths and weaknesses and how they match up to expected performance criteria

Seek frequent feedback - don’t wait for formal reviews

Take responsibility for your own career and seek out the best opportunities - be an entrepreneur
Relationship
Development
 Seek out formal and informal mentors, who will both advise you and be your advocates
 Work with many people within your office/practice and build a support network
 Build close relationships with your clients - it will make your projects easier
Leadership
Development
 Participate in extracurricular activities such as training, recruiting, office events, etc.
 Find your niche and be known for something (market expertise, functional expertise, etc.)
 Seek out opportunities to mentor or develop others in areas where you have expertise
Personal
Development
 Do something outside of work and prioritize appropriately
 Manage work-life balance in collaboration with your team (but get the job done)
 Work within the context of your short-term and long-term career goals www.christophermaynard.com