adca case book 2012 preview

© Advanced Degree Consulting Alliance

The case book for nonbusiness people Elementary perspectives on business frameworks and analysis

1st Edition

© Advanced Degree Consulting Alliance 2

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Publication data 2012 The Advanced Degree Consulting Alliance Self-published on Lulu.com

Editor in Chief Associate Editors Assistant Editors Contributors Case authors

Steven Greene Norman Atkins, Jr Nikhil Mutyal Xiaoqing Lin Aarohi Zokarkar Yikai Chen Siamak Pour Graham Siegel Jennifer Heller Sabil Huda Ke Huang Sumanth Swaminathan Marla Isaac 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.

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This case book is neither sponsored nor endorsed by Northwestern University


2012 The Advanced Degree Consulting Alliance Self-published on Lulu.com

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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 Alliance, you've received a pirated copy. Please contact us via e-mail to notify us of the situation. All contents copyright © 2012 by The Advanced 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, or otherwise) without the prior written permission of the authors.

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Albert Einstein

No problem can be solved from the same level of consciousness that created it.


CS CA CT How to move around this document

CS

CA

CT

Contents by sequence (directs to page 4)

Contents by topic (directs to page 5)

Case bank (directs to page 85)

Upper corner of each page


CS CA CT

Elementary quantitative analysis for businesses

Business frameworks

Case bank

References

Elementary business concepts

Introduction to consulting

Contents Organized sequentially (all linked)

SECTIONS

1

2

3

4

5

6

(8)

(18)

(50)

(64)

(88)

(196)


CS CA CT Contents Organized by topic (all linked)

TOPIC (ABC order)

Accounting basics (financial statements)

Breakeven analysis

1

2

3

4

5

6

Cost identification

Competitive strategy

Decision tree

Corporate organization

7

8

External factors

Integration

FRAMEWORK (ABC order)

BCG matrix

Benefit-price-consumer (BPC)

Four P’s, four C’s

Growth strategy (3 horizons)

GE-McKinsey matrix

McKinsey 7S

Porter’s 5 forces

Product development

Pricing strategy 9

Time value of money, net present value

10 Product or industry life cycle

Profitability

VRIO

SWOT

11 Segmentation

12

Value chain

1

2

3

4

5

6

7

8

9

10

11

12

13

Market entry

Macroeconomic definitions

13


ADCA

Elementary business concepts SECTION 2

CS CA CT


CS CA CT Value chain analysis Assessing firm’s activities-driven profitability

EXAMPLE: LOBSTER CONSUMPTION

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 primary and support activities. Not all companies take part in the full value chain, in fact this is rare.

DEFINITION

Lobster on ocean floor

Lobster for dinner!

Valu

e ad

ding

act

iviti

es

Lobster on ocean floor

Lobster to wholesaler

Valu

e ad

ding

act

iviti

es

Lobster fishing

Wholesale

Retail

Lobster consumers

Input: boat, fuel, fishing tackle

Operations: go fishing!

Delivery of lobster to wholesaler at dock

Marketing to wholesaler, customer if possible

IMPORTANT: Lobster fishing incumbent firms can only expect to be valuable if lobster fishing captures a significant portion of value created by entire lobster consumption value chain (left figure).

Upstream

Downstream

Upstream

Downstream


CS CA CT Market structure Defining the landscape of a market

Market control

Number of competitors

Total control

No control

**BUSINESS SENSE ALERT

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.

1 Few Many Perfect competition

DEFINITIONS

Monopoly

Only one provider of a product or service, leads to higher prices for inferior quality, but illegal in developed economies.

Oligopoly

A market dominated by a small number of incumbent firms comfortably differentiated from one another so profitability may be strong.

Competitive market

Also called monopolistic competition, a large number of firms have a small proportion of market share and only slightly differentiated products. Here, competitive pricing dominates. Monopoly

Oligopoly Competitive market


CS CA CT Strategic control map Competitive pressure in the 5 forces

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.

LEGEND OF MAP ELEMENTS

DEFINITION

HOW TO READ THE MAP

**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.

Perf

orm

ance

[$

ear

ning

s / s

hare

]

Size [market capitalization**]

Partial control through performance

Vulnerable

The strategic control map shows market capitalization of different players in an industry relative to one another

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

Complete control

Partial control through size


ADCA

Elementary Quantitative Analysis for Businesses

SECTION 3

CS CA CT


CS CA CT

In the graph, the point on the x-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.

Contribution analysis Determining the breakeven point

For breakeven, divide unit contribution into fixed costs

Units sold

[ $ ]

Total sales

Variable cost

Contribution curve

Fixed cost Profit

Loss

·U x

·vC x

·P x

fC

Breakeven calculation using unit contribution concept

( )( )

( )

·

0,

0,

0,· ·

v be f

be v be f

v be f

Profit Revenue Total Cost

Profit Revenue C

Prof

x C

x x C

C

it P C

P C x

= − =

= − =−

=

−

−

=

= −

U

bexx

Therefore f

bexUC

=

Cost-profit-volume analysis

Applications

Net income calculation

Sales achievability and benchmarking


CS CA CT Time value of money Net present value (NPV)

DEFINITION A dollar today is worth more than a dollar tomorrow due to inflation. If you put $100 in a savings account today, it will accrue interest and contain more dollars at the end of the year.

COMPOUNDING PRINCIPLE

Time [years]

If you invest $100 in a bank-issued security of deposit what will its value be in 4 years at 8% interest per year?

0

$100

1

$108

2

$116.64

3

$125.97

4

$136.04

( )0Future value 1 TC r= +

Interest rate, cost of capital

Total compound periods

1 2 3 T Time [years]

t

NET PRESENT VALUE (NPV) is the difference between the present value of cash inflows and outflows

Present value

Cash inflow Rt

Cash outflow Ct C0 ( )( )1

Net present value1 t

T

t r=

= −−

+∑ t

0tR C

CCash flows estimated from an income statement


ADCA

Business Frameworks SECTION 4

CS CA CT


CS CA CT 4-P and 4-C framework comparison Analysis of the marketing mix

Consumer (Product)

Communication

(Promotion)

Convenience

(Place)

Cost (Price)

Target market

Both 4-P and 4-C framework serve the same purpose: provide guidelines for sound product/service marketing USAGE

COMPARISONS

4-P 4-C Product: tangible object or intangible service to be sold

Consumer. Focus on the end user and value offered by the product

Price. The amount the customer pays for the product

Cost. The cost incurred by the customer. Motivation to maximize value for customer.

Place. Distribution channel for product, the place where a product is purchased

Convenience. Where and how is purchasing the product convenient for the customer

Promotion. Advertising, sales promotion, etc.

Communication. The interface between the seller and customer, includes advertising, promotion, and PR

Sometimes one of the “C”s is replaced by “Competitor.”


CS CA CT BCG matrix Product portfolio analysis

Market growth

Market share 0

Question marks High growth, low share products. Expensive but do not generate high returns…try to move left.

Stars Achieving high growth but still require high levels of cash due to rapid growing market

Dogs These products generate little value (close to breakeven) due to competitive pricing and mature industry with stagnant sales.

Cash cows Low growth, high share products generate cash to invest in other business ventures but don’t cost much.

BCG MATRIX

Used to analyze a large company’s product portfolio

Requires identification of midpoint, how do we define high growth and high market share?

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!)

Identify products to focus on efficiency or growth

USAGE

Identify divestments Re-think pricing strategies

Reprint document here

http://www.bcg.com/documents/file13904.pdf�


CS CA CT Profitability framework A general outlook on profits

Profits (bottom line in income statement) has been declining

Problem, e.g.

Client not satisfied with current profitability

GENERAL PROFIT TREE

Profit*

Total Revenue

Total costs

Revenue stream 1

Revenue stream i

Revenue stream N

Volume sold

Price per unit

Market size

Market share

COGS

SG&A

Other (tax, depreciation, interest)

OR

Fixed

Variable

Volume sold

Cost per unit

Market size

Market share

Total costs

Tip: can be useful to verify this is not an “industry-wide” issue first, make brief check at beginning of case. If it is industry wide, there is little strategy we can use in this business segment to improve profits.


ADCA

Case bank SECTION 5

CS CA CT


CS CA CT List of cases (all linked)

Solar eclipse

Smart bridge

CASES

1

2

3

4

5

7

A2 accounting

Coffee pods

Consumer lending in China

The price is right

8

9

Skiing on fibers

Retail nouveau

6 Beer-for-all


CS CA CT How to be the interviewer

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 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.

Case question (1)

Case setup (1)

Case data (1)

Core analysis (2-6)

Conclusion (1)

Exhibits (1-4)

Exhibits used for the core analysis part

Page with summary, recommendations, and synthesis of findings

Broken into separate “components,” this is where the candidate will do quantitative and qualitative 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)

Contains general notes for the interviewer, a simple structure for the case, and a summary of core analysis

The case question to start things off

CANDIDATE INTERVIEWER


CS CA CT Interviewer guide (empty template)

NOTES TO INTERVIEWER CASE FLOW AND KEY ELEMENTS TO EXPLORE

Component 1

Component 2

Component 3

Sub-component 1

Sub-component 1 Sub-component 2

Case conclusion A POTENTIAL STRUCTURE

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.

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.

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.


CS CA CT Data bank & clarifications (empty template)

DATA BANK (only give what is asked for) ADDITIONAL QUALITATIVE INFORMATION

BASIC CLARIFICATIONS OF CASE QUESTION

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.

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.

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, only simple clarifying statements are included non-central to the case whereas the data below may be critical to solving the client’s problem.


CS CA CT Scoresheet for metric-based evaluation of candidate

Metric Description Score (1-5)

Analysis structure How the candidate identifies key areas to explore and prioritizes them with case-specific justifications. This is how the candidate “gets going” in solving the case.

Creativity The uniqueness of the candidate’s ideas and his ability to structure idea 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 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 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


CS CA CT Case 1 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. How do you begin?

ADCA

SOLAR ECLIPSE

Author: Steven Greene


ADCA

References SECTION 6

CS CA CT


CS CA CT References

1

2

3

4

5

6

7

8

9

10

11

12

Bain & Company. Bain insights, published montly online at http://www.bain.com/subscribe.aspx. Brealey, R.A., Myers, S.C., and Allen, F. Principles of corporate finance, 10th ed., McGraw-Hill: New York (2011). Cheng, V. “Free 6 hour case interview tutorial,” (2012). Online at www.caseinterview.com. Cosentino, M. Case in point: complete case interview preparation, 5th ed., Burgee Press: Needham, MA (2007). Online at www.casequestions.com. Harvard Business School. “Financial statements: the elements of managerial finance,” excerpted from Finance for Managers. Harvard Business School Press: Boston (2006). Kiechel, W. The lords of strategy: the secret intellectual history of the new corporate world, published by W. Kiechel III (2010). McKinsey & Company. McKinsey quarterly: the business journal of McKinsey & Company, published quarterly online at http://www.mckinseyquarterly.com/home.aspx. Ohrvall, D. Crack the case system: complete case interview prep, Ohrvall Media (2011). Online at www.mbacase.com. Porter, M.E. Competitive advantage: creating and sustaining superior performance, The Free Press: New York (1985). Porter, M.E. Competitive strategy: techniques for analyzing industries and competitors, The Free Press: New York (1980). Saloner, G., Shepard, A., and, Podolny, J. Strategic Management, Wiley: New York (2001). The Boston Consulting Group. BCG perspectives, published periodically online at https://www.bcgperspectives.com.

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