The case book for nonbusiness people Elementary perspectives on business frameworks and analysis
Purchase the full version for $4.99 by clicking this box
Publication data © 2012 The Advanced Degree Consulting Con sulting Alliance Alliance Self-published on Lulu.com
Editor in Chief
Steven Greene
Associate Editors
Norman Atkins, Atkins, Jr Nikhil Mutyal Xiaoqing Lin
Assistant Editors
Aarohi Zokarkar Yikai Chen
Contributors
Siamak Pour Graham Siegel Jennifer Heller Sabil Huda Ke Huang Sumanth Swaminathan Marla Isaac
Case authors
Steven Greene Yikai Chen Wendy Yip Brian Quist Ke Huang Brandon Strom Song Liu Joseph R Owens
The Advanced Degree Consulting Alliance (ADCA) is a graduate-student run organization consisting of PhDs, JDs, and MDs at Northwestern University in Chicago, IL, USA. This case book is the fruition of one years’ work by a large ADCA team to make the world of case interview preparation more accessible to the nonbusiness person. Several of the case book editorial board and ADCA’s members have gone on to work at BCG, Booz, LEK, McKinsey, ZS Associates, and other firms. If you are an academic, someone transitioning careers, new to business principles, or just simply interested in an elementary perspective of business frameworks and analysis this is the book for you.
Check out our free preview at www.scribd.com Please report feedback or errata to
[email protected]
© 2012 The Advanced Degree Consulting Con sulting Alliance Alliance Self-published on Lulu.com
ILLEGAL DISTRIBUTION IS STRICTLY PROHIBITED This publication is protected under the US Copyright Act of 1976 and all other applicable international, federal, state and local laws, and all rights are reserved, including resale rights: you are not allowed to give or sell this Case Book to anyone else. If you received this publication from anyone other than lulu.com or The Advanced Degree Consulting Consulting Alliance, you've received a pirated copy. copy. Please contact us via e-mail to notify us of the situation. All contents copyright © 2012 by The Advance Advanced d Degree Consulting Alliance. All rights reserved. No part of this document or the related files may be reproduced or transmitted in any form, by any means (electronic, photocopying, recording, recording, or otherwise) without the prior written permission of the authors.
No problem can be solved from the same level of consciousness that created it.
Albert Einstein
How to move around this document
CS
Contents by sequence (directs to page 4)
Upper corner of each page
CT
Contents by topic (directs to page 5)
CA
Case bank (directs to page 85)
CS
CT
CA
Contents Organized sequentially (all linked)
CS
SECTIONS 1
Introduction to consulting
(8)
2
Elementary business concepts
(18)
3
Elementary quantitative analysis for businesses
(50)
4
Business frameworks
(64)
5
Case bank
(88)
6
References
(196)
CT
CA
Contents Organized by topic (all linked)
TOPIC (ABC order) 1
Accounting basics (financial (financial statements) statements)
CS
FRAMEWORK (ABC order) 1
BCG matrix
2
Breakeven analysis
2
Benefit-price-consumer (BPC)
3
Cost identification
3
Four P’s, four C’s
4
Competitive strategy
4
GE-McKinsey matrix
5
Corporate organization
5
Growth strategy (3 horizons)
6
Decision tree
6
Market entry
7
External factors
7
McKinsey 7S
8
Integration
8
Porter’s 5 forces
9
Macroeconomic Macroeconomi c definitions
9
Pricing strategy
10
Product or industry life cycle
10
Product development
11
Segmentation
11
Profitability
12
Time value of money, net present value
12
SWOT
13
Value chain
13
VRIO
CT
CA
CS
SECTION 2 Elementary business concepts
ADCA
CT
CA
Value chain analysis Assessing firm’s activities-driven profitability
CS
CT
CA
DEFINITION The term “value chain” has an ambiguous meaning. Some use it to refer to an entire industry’s value chain (as in the lobster consumption value chain (use reference), other’s use it to refer to a specific company. Either way, the industry or company may be decomposed into a series of value adding activities, as was discussed by Michael Porter in his book Competitive Advantage. The various activities that a company or industry is involved in each add a certain value to the product it offers. These activities may be decomposed into into primary and support activities. Not all companies take part in the full value chain, in fact this is rare.
EXAMPLE: LOBSTER CONSUMPTION
Upstream
Lobster on ocean floor s e i t i v i t c a g n i d d a e u l a V
Downstream
Lobster fishing Wholesale Retail Lobster consumers
Lobster for dinner!
Lobster on ocean floor s e i t i v i t c a g n i d d a e u l a V
Upstream
Input: boat, fuel, fishing tackle Operations: go fishing! Delivery of lobster to wholesaler at dock Marketing to wholesaler, customer if possible
Lobster to wholesaler
Downstream
IMPORTANT : Lobster fishing incumbent firms can only expect to be valuable if lobster fishing captures a significant IMPORTANT: portion of value created by entire lobster consumption value chain (left figure).
Market structure Defining the landscape of a market
DEFINITIONS
CS
CT
CA
Market control **BUSINESS SENSE ALERT
Monopoly Only one provider of a product or service, leads to higher prices for inferior quality, but illegal in developed economies.
Here the focus is on the “supply” side of businesses. The term monopoly is well known to most people, but it’s analogue on the buyer side is known as a monopsony . If there is a monopsony , there is one buyer in the market who has all the power.
Total control
Oligopoly A market market dominated dominated by by a small small number of incumbent firms comfortably differentiated from one another so profitability may be strong.
No control
Competitive market Also called called monopolistic competition , a large number of firms have a small proportion of market share and only slightly differentiated products. Here, competitive pricing dominates.
1
Few
Many
Perfect competition
Monopoly Oligopoly Competitive market
Number of competitors
Strategic control map Competitive pressure in the 5 forces
Partial control through performance
Complete control
CS
CT
DEFINITION
The strategic control map shows market capitalization of different players in an industry relative to one another
] e r a h s / s g n i n r a e $ [
e c n a m r o f r e P
HOW TO READ THE MAP
Vulnerable
Partial control through size
Companies with high market capitalization have stronger position, more strategic control, and the likelihood to be in a position to acquire other companies. Conversely, companies with a combination of low assets and low market-to-book ratio are vulnerable
Size [market capitalization**]
LEGEND OF MAP ELEMENTS Companies that are performing well, but have the risk of being acquired by companies that are performing just as well and bigger in size
Companies that get most value of their from cutting cost and gaining scale. They are vulnerable to players bigger in size or have better performance
Companies that have large book capital and high returns. They have the advantage of acquiring other companies.
**BUSINESS SENSE ALERT
Market Capitalization is calculated as number of shares * price per share
and is seen as the total worth of all a company’s assets.
CA
CS
SECTION 3 Elementary Quantitative Analysis for Businesses
ADCA
CT
CA
Contribution analysis Determining the breakeven point
CS
CT
CA
In the graph, the point on the x -axis -axis where the contribution curve intersects the fixed costs is called the “breakeven” point, i.e. the number of units sold where the total costs and revenues cancel out.
Breakeven calculation using unit contribution concept
For breakeven, divide unit contribution into fixed costs
Profit = Revenue − Total Cost = 0,
P· x
Profit = Revenue − ( C v · xbe − C f ) = 0,
[$]
Prof it = P· xbe − ( Cv · xbe − C f ) = 0,
Total sales
( P − Cv ) xbe
Cv · x
Contribution curve
= C f
U
Variable cost
Therefore
U· x Profit
Fixed cost
Loss
C f
xbe =
C f U
Applications Cost-profit-volume Cost-profit-volume analysis Net income calculation
Units sold
xbe
x
Sales achievability and benchmarking
Time value of money Net present value value (NPV)
CS
CT
CA
DEFINITION A dollar today is worth more more than a dollar tomorrow tomorrow due to inflation inflation.. If you put $100 in a savings account today, today, it will accrue interest and contain more dollars at the end of the year.
COMPOUNDING PRINCIPLE If you invest $100 in a bank-issued security of deposit what will its value be in 4 years at 8% interest per year? $100
$108
$116.64
$125.97
Total compound periods
$136.04 Time [years]
0
1
2
3
4
Future value
=
(
T
)
C0 1 + r
Present value
Interest rate, cost of capital
NET PRESENT VALUE (NPV) is the difference between the present value of cash inflows and outflows
Cash inflow Rt
Time [years]
1
C 0
2
3
t
Cash outflow C t
Cash flows estimated from an income statement
T
( R − C ) − C t t =1 (1 + r ) T
Net present present value value = ∑
t
t
0
CS
SECTION 4 Business Frameworks
ADCA
CT
CA
4-P and 4-C framework comparison Analysis of the marketing mix
CS
CT
COMPARISONS 4-P
4-C
Product : tangible object or
Consumer . Focus on the end
intangible service to be sold
user and value offered by the product
Price. The amount the
Cost. The cost incurred by the
customer pays for the product
customer. Motivation to maximize value for customer.
Place . Distribution channel for
Convenience . Where and how
product, the place where a product is purchased
is purchasing the product convenient for the customer
Promotion . Advertising, sales
Communication . The interface
promotion, etc.
between the seller and customer, includes advertising, promotion, and PR
Consumer (Product)
Cost (Price)
Target market Communication (Promotion)
Convenience (Place)
USAGE Both 4-P and 4-C framework serve the same purpose: provide guidelines for sound product/service marketing marketing Sometimes one of the “C”s is replaced by “Competitor.”
CA
BCG matrix Product portfolio analysis
BCG MATRIX
CS
Reprint document here
Used to analyze a large company’s product portfolio Requires identification of midpoint, how do we define high growth and high market share?
CT
Market growth Stars
Question marks
Achieving Achieving high growth growth but still require high levels of cash due to rapid growing market
High growth, low share products. Expensive but do not generate high returns…try to move left.
Cash cows
Dogs
Low growth, high share products generate cash to invest in other business ventures but don’t cost much.
These products generate little value (close to breakeven) due to competitive pricing and mature industry with stagnant sales.
Then, place products of a company into the matrix using measures relative to industry Develop company strategy that follows the purple arrows (red are bad!)
USAGE Identify products to focus on efficiency or growth Identify divestments Re-think pricing strategies
Market share
CA
0
Profitability framework A general outlook on profits
CS
CT
CA
Problem, e.g. Profits (bottom line in income statement) has been declining Client not satisfied with current profitability
GENERAL PROFIT TREE
Revenue stream 1
Market size Volume sold
Total Revenue
Revenue stream i
Market share Price per unit
Tip: can be useful to verify this is not an “industry-wide” issue first, make brief check at beginning beginning of case. If it is industry wide, there is little strategy we can use in this business segment to improve profits.
Revenue stream N
Profit* COGS Fixed Total costs
SG&A
OR
Other (tax, depreciation, interest)
Total costs
Market size Volume sold
Variable
Market share Cost per unit
CS
SECTION 5 Case bank
ADCA
CT
CA
List of cases (all linked)
CASES 1
Solar eclipse
2
Smart bridge
3
A2 accounting
4
Coffee pods
5
The price is right
6
Beer-for-all
7
Consumer lending in China
8
Skiing on fibers
9
Retail nouveau
CS
CT
CA
How to be the interviewer
CS
CT
CA
CASE FLOW Each case in this section of the case book has the following linear flow. Below, the “core analysis” constitutes the most time consuming portion of the case for the interviewee. To successfully give each case, you, the interviewer, should be familiar with both the case setup page and case data page as each candidate may do the case in a different order. The better you know the case, the better experience the candidate candidate will have! Therefore, we encourage giving cases you have done yourself previously. If this is not possible, you MUST read the case before you give it to someone. The next 4 pages give a summary of the first 2 pages of each case, and example of a “component” page, and a scoresheet to check a candidate’s progress, for your reference. INTERVIEWER
CANDIDATE
Case question (1) Broken into separate “components,” this is where the candidate will do quantitative and qualitative analysis
Case setup (1)
The case question to start things off
Page with summary, recommendations, and synthesis of findings
Case data (1)
Contains general notes for the interviewer, a simple structure for the case, and a summary of core analysis Second slide for interviewer use that has clarifications of the question and data for the candidate (e.g. competitors, suppliers, distribution channels, or relevant external factors)
Core analysis (2-6)
Exhibits used for the core analysis part
Conclusion (1)
Exhibits (1-4)
Interviewer guide (empty template)
NOTES TO INTERVIEWER
This area contains information for the interviewer to read before administering the case. It includes any tricks, general insights, or areas to focus on while administering the case.
CS
CT
CASE FLOW AND KEY ELEMENTS TO EXPLORE
Component 1
Sub-component Sub-component 1
Component 2
Sub-component Sub-component 1
Sub-component Sub-component 2
Component 3
This area contains the specific flow of the case and identifies sub components in each area. A good candidate will hit all these throughout the case, working efficiently and getting key insights. A POTENTIAL STRUCTURE Case conclusion
This box has a simple structure that can be used to help struggling candidates form their analysis structure. The contents of this box are not required for a good case.
CA
Data bank & clarifications (empty template)
CS
BASIC CLARIFICATIONS OF CASE QUESTION
This box contains any simple but extra information pertaining to any confusing points in the case question. This area is distinguished from the two below. Here, Here, only simple clarifying statements are included noncentral to the case whereas the data below may be critical to solving the client’s problem. DATA BANK (only give what is asked for)
This box contains any numbers or information relevant to the case. This may include information about suppliers, distribution, client products or services, customers, industry trends, competitors, or something else.
ADDITIONAL QUALITATIVE INFORMATION
This box contains any additional information less vital to solving the case, though some of the tidbits will help the candidate put the problem in perspective.
CT
CA
Scoresheet for metric-based evaluation of candidate
Metric
Description
CS
CT
Score (1-5)
Analysis structure
How the candidate identifies key areas areas to explore and and prioritizes them with case-specific justifications. justifications. This is how the candidate “gets going” in solving the case.
Creativity
The uniqueness uniqueness of the candidate’s ideas and his ability to structure idea generation. generation.
Quantitative analysis
The candidates ability to communicate his mathematical approach and get the right answer.
Synthesis
Whether or not the candidate gains key insights from any quantitative quantitative or qualitative analysis, relates findings to the client objectives, or uses findings to prioritize further exploration.
Poise
How comfortable would you feel putting the candidate in front of a client? Grade the candidate based on confidence, eye contact, and assertiveness.
Communication
The candidate’s ability to lucidly explain his thoughts, analysis steps, and results, as well as whether or not he is convincing in his conclusions or synthesis.
Conclusion
The ability of the candidate to be both concise and comprehensive in conveying conveying the recommendation -or summary -- to the client. Would the client CEO respond favorably? Did the candidate hit the key analysis points or bring up less relevant case components?
AVERAGE
CA
Case 1 Solar Eclipse
CS
CT
CA
Author: Steven Greene
SOLAR ECLIPSE Alpha Solaris (ASR), one of the largest US solar panel manufacturers at $2.5 billion in sales in 2010, has seen its stock price plummet from $150/share in March to below $50/share today. Though the company is scheduled to become the largest global solar provider next year due to locked-in contracts and currently has a sturdy balance sheet, the solar energy industry is in a squeeze, unnerving investors. ASR’s management team has asked you to formulate a strategy to maintain short term profitability. profitability. How do you begin?
ADCA
CS
SECTION 6 References
ADCA
CT
CA
References
CS
CT
CA
1
Bain & Company. Bain insights , published montly online at http://ww http://www.bain.co w.bain.com/subscribe.aspx m/subscribe.aspx..
2
Brealey, R.A., Myers, S.C., and Allen, F. Principles of corporate finance , 10th ed., McGraw-Hill: New York (2011).
3
Cheng, V. “Free 6 hour case interview tutorial,” (2012). Online at www.caseinterview.com. www.caseinterview.com.
4
Cosentino, M. Case in point: complete case interview preparation, 5th ed., Burgee Press: Needham, MA (2007). Online at www.casequestions.com .
5
Harvard Business School. “Financial statements: the elements of managerial finance,” excerpted from Finance for Managers . Harvard Business School Press: Boston (2006).
6
Kiechel, W. The lords of strategy: the secret intellectual history of the new corporate world , published by W. Kiechel III (2010).
7
McKinsey & Company. McKinsey quarterly: the business journal of McKinsey & Company , published quarterly online at http://www.mckinseyqu http://ww w.mckinseyquarterly.com/home.a arterly.com/home.aspx spx..
8
Ohrvall, D. Crack the case system: complete case interview prep, Ohrvall Media (2011). Online at www.mbacase.com .
9
Porter, M.E. Competitive advantage: creating and sustaining superior performance , The Free Press: New York (1985).
10
Porter, M.E. Competitive strategy: techniques for analyzing industries and competitors , The Free Press: New York (1980).
11
Saloner, G., Shepard, A., and, Podolny, J. Strategic Management , Wiley: New York (2001).
12
The Boston Consulting Group. BCG perspectives , published periodically online at https://www.bcgperspectives.com https://www.bcgperspectives.com..
