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7/29/2019 Ross Casebook 2006 for Case Interview Practice | MasterTheCase
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CONSULTING CASE INTERVIEWPREPARATION GUIDE
2005 - 2006 Recruiting Season-2nd Edition-
December 5, 2005
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The Case ListNote: Do not read all of these cases as soon as you receive this guide. While completed cases both alone and within groups is highly encouraged, pre-rearemoves the element of surprise which stems from addressing a case for the f
this sensation is very difficult to replicate.
1. Car tires 11
2. Super pens 12
3. HVAC service provider 14
4. Multi-purpose tool 16
5. US healthcare 186. Software product 20
7. Frozen dough 24
8. Fertilizer innovation 26
9. School buses 28
10. Pharmaceutical distribution 3011. Tissue paper 32
16. Sheep auction
17. Security systems
18. Termite control
19. Telecom service pr
20. Smart card manufa21. Insurance provider
22. Appliance insuranc
23. Auto parts manufac
24. Electronics retailer
25. Trucking 26. Hong Kong port
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Editors note
Introduction to cases
Administering cases
Receiving cases
The case list
The cases
Contents
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Establishing theCase
This is where the initial business problem is posed and the interviewer is pr
additional information they can provide to the candidate upon request. Thesby the interviewer.
Candidate Handout /
Assignment
This handout will eventually make its way to the candidates hands. Howevoccurs is at the discretion of the interviewer. Some interviewers may chooscandidate with a large amount of information early on to see them struggle,
reluctant to provide information unless asked specifically. Assignments forexactly that, and should be expressly completed under the eye of the interv
AdditionalQuestions/
Information forCandidate
These slides are a continuation of the Establishing the Case slides, either ainformation to provide the candidate (upon request or due to timing), or takidirection. These slides are to be kept by the interviewer.
Sample Solution
These slides suggest where the case could/should go based on the initial cabackup data These frameworks are by no means the only possible solution
Format Introduction
In this case preparation guide you will find four types of slides. The type ois noted in the upper left corner.
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Case 1: Car Tires (I of I)McKinsey & Company, Round II
Quick Brainteaser Case
Quick Brainteaser Case
Problem Statement NarrativeAdditional Information to
Provide Upon RequestSample So
Please estimate the numberof passenger car tires soldeach year in the UnitedStates.
About 10M new cars aresold each year
Cars last about 7 yearsbefore needing replacement
Tires last 45K miles
People drive 15K miles/ yr
Assume people purchasenew tires when needed
Assume no growth ininstalled cars
There arroad
60M o 10M n
Tires las
60M inst 20M ceach y
20M x
10M new @4 tir
@5 tir
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Case 2: Super Pens (I of II)A.T. Kearney, Round I
Your client is a bank vault manufacturer, mostlyfocusing on the large walk-in type. Its a very maturebusiness and they are the largest supplier in theindustry. In order to diversify their business and providegrowth, the client has bought a company that specializesin high technology security devices. One of thiscompanys biggest and most promising products was a
pen that has the ability to distinguish if the personsigning anything is in fact the owner of the pen.
The client would like you to define the following:
Who would the customers of this technology be?
How do we market to them?
What is our value proposition?
Information to provide upon requ Pens cost $20 to manufacture at
The technology is very compactreliable, and incredibly secure; eproof.
Things to think about during case How did the candidate arrive at
clients and industries Did the candidate use a spec
vetting target customers, etc How did the candidate construc
Asking questions around curcosts/revenues and how the
Who is the actual customer vs w
Problem statement narrative
Establishing theCase
Establishing theCase
Guidance for intervinformation provided u
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Case 2: Super Pens (II of II)A.T. Kearney, Round I
Sample SolutionElements
Sample SolutionElements
A credit card substitute With viable economics Crea
$10,000 in annual charges for eachcard in circulation
1%: Industry accepted fraud rate
100M cards exist across USA
$20: Production cost per pen
0.001%: Anticipated fraud rate
$100/year incurrently
$0.01/year i
If pen costs
for card com
This is a potential customer solution, the case could (and should) be adapted for Banks, GovernmeNet Worth Individuals, Exclusivity/Loyalty programs, etc.Interviewer should feel free to allow full market estimation scenario in all cases to allow for more robust mat
This is a potential customer solution, the case could (and should) be adapted for Banks, GovernmenNet Worth Individuals, Exclusivity/Loyalty programs, etc.Interviewer should feel free to allow full market estimation scenario in all cases to allow for more robust math
However, added costs and incomplete reach could
$500 per card reading site in
modifications and trainingto accept new technology
Pens would only work at retail
establishments, and would beinsecure over internet, phone, andother unsigned transactions
Drawback
Needinpen
Incomp
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Case 3: HVAC Service Provider (I of II)The Boston Consulting Group, Round I
Your client is an energy firm that has a lot of extra cashand wants to know if they should consolidate HVAC(heating, ventilation and cooling) service firms in theAtlanta area.
The client would like to know if this is a viable
investment they should consider.
Only provide additional informaspecifically asked by candidate.
Atlanta market consists of 500 f Average annual revenue: $10 Revenue growth: 3% Acquisition cost: Perpetuity Cost of capital: 13%
Cost structure (% of revenues) Labor: 50%, Technicians are Equipment: 25% Administrative: 20% Profit: remaining 5%
Savings areas:
Labor dispatching efficiency Equipment5% decrease throu Admin: 1% net decrease afte
Problem statement narrativeGuidance for interv
information provided
Establishing theCase
Establishing theCase
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Case 3: HVAC Service Provider (II of II)The Boston Consulting Group, Round I
Sample SolutionElements
Sample SolutionElements
Candidate shouldcalculate
implications of
changing coststructure
Then want toconduct a break-
even analysis.
A solid interview willaddress other
potential risks
No industry experience
Cultural issues (small operations purchased by large company)
National entrants overpowering effort
Reducing purchase price
Cost Center
LaborEquipment
AdministrativeProfits
Cost (% rev)
50%25%
20%5%
Cost ($)
$5M$2.5M
$2M$500K
Savings (% cost)
5%5%
1%
Savin
$250$125
$20
Current profit
$500M
Interest rate
10%(CoC growth)
Cost of firm
$5M
Expected profit
$895K
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Case 4: Multi-Purpose Tool (I of II)The Boston Consulting Group, Round I
Your client is a diversified hardwaremanufacturer that produces a multi-purposehand tool. For several decades, your client wasthe only company to make such a tool. Over thepast 2 years, the company has seen a decline inrevenue.
What is driving the decline, and what can yourecommend as a solution?
Only provide additional informaspecifically asked by candidate.
Price: $50, constant over time
Current volume: 100M units/yr
Channel: Hardware retailer- can
Price elasticity of demand: 0.5 (2will raise demand 10% & visa ve
Several new competitors in past Selling similar product for $3 Channel: Discount retailers (
Problem statement narrativeGuidance for interv
information provided
Establishing theCase
Establishing theCase
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Case 4: Multi-Purpose Tool (II of II)The Boston Consulting Group, Round I
Sample SolutionElements
Sample SolutionElements
Increased competition?Yes!
Substitute products?Yes!
Decline in marketdemand? No, demand ishigher than ever with do-it-yourself work (ourmarket) increasing
Marketing budgetreduction? No, beenvery stable.
Decline in distributionchannels? No one
Initial revenue driverquestions
Given contract, clientmust investigate price
Drill to increasedcompetition.
Competitors competingon price ($30 vs. $50)
Competitors in differentchannel
Client can not changechannel
Price elasticity ofdemand is 0.5
Customers not veryprice sensitive
Increasing price by 20%to $60 will reducedemand to 90M units, etc
Follow-up question:Why not increase priceby 40%? To furtherincrease revenues?
A: Demand may be non-linear, and unpredictableat large price changes
In tconcurincinc$5.rec
Lonshoentof dto epro
Fur
shoprepro
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Case 5: United States Healthcare (I of II)McKinsey & Company, Round II
I have just been talking with with Rick Wagoner, GMsCEO, about his companys skyrocketing health carecosts. GM pays for the health care of about 1.1Mfamilies, which equates to about $8-9B or $1500 per carsold. After a while, he began discussing the UnitedStates healthcare problem on a national level.
The US spends 15% of its GDP on health care whileJapan spends 7-8% and Germany spends 10%.However, he says there is no evidence that health care isbetter in the US: average life expectancy is actuallydecreasing and about 45M people are uninsured.
He wanted me to explore possible causes and solutionsfor the increasing cost trend with decreasing
effectiveness/quality. He made a point of saying hedidn't want to discuss politics, and shied away fromfancy frameworks in our discussion
There is no additional informatiopurpose of this case is to test pthought. If the candidate makesdevils advocate and try to get reverse him or herself. Some ex
Privatized vs. socialized med Subsidized medicine develop
unsubsidized Healthcare availability for all Boutique hospitals vs. full se Preventative vs. reactionary m
Problem Statement NarrativeGuidance for inter
information provided
Establishing theCase
Establishing theCase
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Case 6: Software Product (I of IV)The Boston Consulting Group, Mock Interview
Your client is a software maker that has oneproduct.
The CEO would like to know whether thecompany should offer multiple products instead
of one.
Client goal: grow revenues
Product: Document authoriWord, etc)
Possible product segmenta
business vs. home product
Company recently completesee next page for results
Currently only offer product
(business curve on chart)
Problem statement narrative Information provided u
Establishing theCase
Establishing theCase
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Case 6: Software Product (II of IV)The Boston Consulting Group, Mock Interview
Candidate Handout(upon request)
Candidate Handout(upon request)
0
100
200
300
400
500
600
0 5 10 15 20 25 30
ProductPrice
Market Study Results
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If we are currently selling to businesses for$500, what is our total revenue?
If we segment our demand and sell separateproducts to separate markets, what do ourrevenues look like?
Is there anything else to think about?
Additional questions for candidate
9M units x $500 = $4.5B
Segmentation shows the
Solution gu
Case 6: Software Product (III of IV)The Boston Consulting Group, Mock Interview
AdditionalQuestions
AdditionalQuestions
Use this slide as interviewers guide afterproviding graph to candidate
Use this slide as interviewers guide afterproviding graph to candidate
Price
200400500
Home
200x15M = $3B$2B$1B
Bu
200x1
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Case 6: Software Product (IV of IV)The Boston Consulting Group, Mock Interview
Sample SolutionElements
Sample SolutionElements
The candidate may discuss elements needed to createtwo versions of the product- these may include:
Programming Testing/ QA Packaging Sales/marketing Distribution
The interview can go in this direction, asking thecandidate to outline a viable cost structure per segment
Incremental Costs Product Differentiation/ C
Licensing Complimentary Pro
Little/no ability to create different markets could lead to price-led crocannibalization
Creating switching barriers woulddifferentiate between product linescannibalization
Related to the product/market differentiation issue, the
firm could gain incremental revenue by either:
Establishing separate product sales/licensing costs for
Rather than separating current pro
products-
Client could offer a series of comp
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Case 7: Frozen Dough (I of II)A.T. Kearney, Round I
Your client is a Consumer Packaged Goods company.More specifically, they produce frozen dough for uses inmaking bread loaves, pizza crusts, cookies, bagels, etc.This is a family-owned company with $2 billion in annualsales with two primary distribution channels.
You have been hired to assess a problem the companyis experiencing with spoilage. The client is experiencing
a significantly higher spoilage rate than that ofcompetitors.
Competitors spoilage rates average about 2.5%,however, the clients rate last year was 10%. Theysucceeded in reducing the spoilage rate to 7.5% byimplementing a strict First-In-First-Out inventorymanagement system at its warehouses and by instituting
a program that carefully tracks the number of days left inthe shelf life of the dough and once it gets close theinventory is donated to a charity for a tax break.
Distribution Channels: Wholesale restaurant supplie Supermarket chain bakeries
Dough is not branded- no custo
Shelf life is 180 days, with custo
Very similar recipes across indu High recipe switching costs
Spoilage occurring at client distcustomer locations
Problem statement narrative Information provided
Establishing theCase
Establishing theCase
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Case 7: Frozen Dough (II of II)A.T. Kearney, Round I
Sample SolutionElements
Sample SolutionElements
Candidate should want to investigate along valuechain for weaknesses/ benchmark differences
Candidate should want to investigate along valuechain for weaknesses/ benchmark differences
DemandForecasting
Purchasing/Materialssourcing
ManufacturingSales &
Distribution
Indications(only provideto candidateupon request)
Rather oldforecasting tool hastended to generateoverly cautiousproductionnumbers, but doesnot account for allspoilage cost
Materials comefrom similarvendors as all othermanufacturers
Materials do notspoil, spoilage onlyoccurs afterproduct has beenmanufactured
Old productionequipment
Foreman told us ininterview that hetends to hedgeagainst forecastingby overproducing-it is a pain to retoolthe machines all thetime
3 Distributioncenters (DCs):West, Midwest, Eas
US sales only
Will sell dough forany use- regardlessof sales volume
Some productshave very lowcustomer-turn
Potentiald d
Improve forecastingl b fl
Long term: invest ind d hi
Customer-level SKUi li i
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Case 8: Fertilizer Innovation (I of II)McKinsey & Company, Quick on Your Feet
Your client is an agricultural products manufacturer.They invented a product called Green Nutrient. This isgoing to help the farmers by allowing a variable fertilizerrate.
The company is interested in a pricing strategy and go-
to-market options.
Problem statement narrative
Green Nutrient measures the arequired, allowing for a variable
Two main benefits: Reduces oveand increase under-use (increas
Benefit #1: 20% reduction in fert 1 bag / acre @$15/ bag
Benefit #2: Improve yield 2% Current average yield: 100 bu
No competition
Farms average about 400 acres 1000 Large farms: 1000 acres 3000 Medium farms: 400 acre 6000 Small farms: 200 acres
Product lasts 10 years
Product production cost: $10K p
Guidance for intervinformation provided
Establishing theCase
Establishing theCase
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Case 8: Fertilizer Innovation (II of II)McKinsey & Company, Quick on Your Feet
Sample SolutionElements
Sample SolutionElements
$3.00 fertilizer savings per acre (0.30 * $15)$5.00 yield increase ($2.5 * 100* 0.02)
WTP per acre: $8.00 or $3.2K per average farm per year
Requisite Math
1. Large: If we price the product at $80k we sell 1000profit $70M
2. Large & Medium: If we price the product at $32k well 4000 fit $88M BEST OPTION
Second-Best Answers
1. Skimming: start by pricing at $8then $16k;
2 Offer a service to the farms at u
First-Best Answ
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Case 9: School Buses (I of II)A.T. Kearney, Round I
Your client is a school bus manufacturing company thathas just been purchased by a leading international truckmanufacturing company.
The CEO of the truck company has asked the presidentof the newly acquired school bus company to improvehis organizations profits. The president of the schoolbus company has in turn, asked us to help determinewhat areas will provide the best results.
Information to provide upon requ Company is open to any and all Bus market is growing with pop Customers: Schools, counties, l 3 players (including client) with Prices have been historically hig
market, not likely to change
1 plant in renaissance zone wit All production equipment fully d Comparatively low labor costs Material costs are high but com One competitor struggling finan
Tips for interviewer This is not a numbers case- pay
candidate frames problem and t Take liberty with story, allowing
Problem statement narrativeGuidance for interv
information provided u
Establishing theCase
Establishing theCase
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Case 9: School Buses (II of II)A.T. Kearney, Round I
Improving internal operations Exploring synergies with ne
Sample SolutionElements
Sample SolutionElements
Sourcing
If trucks and buses purchaoriginal equipment manufaconsolidating purchasing opower and eliminate purch
Modularity
Buses and trucks are builtmay exist in R&D for any nstocking duplicative comp
would reduce inventory an
Act assupplier
If the bus plant is not operatake advantage of tax situacheaply supply parts to tru
Co-leveragesales &
distribution
Selling buses to those whoversa adds to the potential
companies, potentially alloin a stagnant industry
Offshore/Near-shore
High domestic raw material costs raise the question:can we do better elsewhere?
Sourcing parts globally may reduce raw material costsand increase profitability
Compete onPrice
This is a dangerous ploy. Leveraging low cost laborand low tax production may lead to increased shortterm sales (and potentially higher profits)
However if a competitor is able to follow, customersmay see all benefit and there is no going back if it is amistake
Seek new
Our low cost of production position may lend to afavorable position in a complementary industry.Luxury, and other custom bus production requires
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Case 10: Pharmaceutical Distribution (I of IA.T. Kearney, Round I
Your client is a large pharmaceutical distributor in a marketprimarily consisting of three main players. The three firms have acombined market share of 96%. The client has been growing viaacquisitions, and it operates in four business segments which areall operated independently:
Drug Distribution is the core business representing 85% of sales.Our client buys drugs from pharmaceutical firms and distributesthem to hospitals, etc. They typically buy and sell both brandname and generic drugs, and this area has historically lowmargins.
Manufacturing and distribution of medical products, includesinstruments, ER kits, supplies, etc.
Pharmacy Services is the other category comprised mostly ofacquisition targets with no other logical home. Services includetemporary staffing and owning and operating retail pharmacies.
The drug vending machines segment supplies machines tohospitals that distribute high frequency drugs to aide nurse
productivity.
Background information to read to candidateQuestions to ask candida
background info
Establishing theCase
Establishing theCase
The client has a long history of profitsquarters, profits, the companys stock all been down.
The CEO has called you in to provide aimprove profits.
How would you approach this meeting What areas would you look at to impro
Interviewer Note:
This is a structuring and thought caseestablish how the divisional structuretremendous cost savings
Allow candidate to walk through profit
the discussion toward reducing costs
Ask candidate (if not already doing so)
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Case 10: Pharmaceutical Distribution (II of IA.T. Kearney, Round I
Sample SolutionElements
Sample SolutionElements
Admin. / Overhead Purchasing Manufacturing Sales
Interviewerguidance foreach area (do notread verbatim)
Separately run betweendivisions, but not veryscalable
Scale appears to exist inmaintenance, repair andoperations purchasing
Only one division-medical products - usesmanufacturing and it isnot a core competence,perhaps outsourcing?
Run as separateorganizations betweendivisions, selling to thsame clients- largebenefit in combining
Possiblecandidate
recommendation
This client exhibits the textbook case for de-silo-ing and creating a matrix organization. By operatingdivision groups, the organization will be able to run with a much more efficient cost structure and lever
strengths to increase revenues
PharmaDistribution
Med. EquipMfg. & Dist.
PharmacyServices
Drug Vend.Machines
Admin &Overhead
Admin &Overhead
Admin &Overhead
Admin &Overhead
Purchasing Purchasing Purchasing Purchasing
Mfg
PharmaDistribution
Med. Mfg. &
Admin &Overhead
Purchasing
Mf
CurrentSiloedSystem
ProposedMatrixSystem
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Case 11: Tissue Paper (I of II)A.T. Kearney, Round II
Your client is a tissue paper manufacturer. Theirproducts includes facial tissue, napkins and bathroomtissues. The client has a consumer business and acommercial business.
The CEO of the firm is facing pressure to improve thefirms profitability. To improve profitability, the CEO isconsidering increasing the average price on commercialproducts by 10% and wants to know whether he shoulddo it.
You have two weeks to conduct the assessment.
Only provide each piece of inforasked for it specifically by the c
An assessment of historical pricshowed that the price elasticity product is 2.0
Piloting the price change is not timeframe
Product Price: $100/ton Product sales volume: 1000 tons
Fixed Costs: $20K Variable Costs: $70/ton
Current market share: 40%
Problem statement narrativeGuidance for interv
information provided
Establishing theCase
Establishing theCase
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Case 11: Tissue Paper (II of II)A.T. Kearney, Round II
Sample SolutionElements
Sample SolutionElements
Competitors stealing share Industry is operating at capacity, and it would take a long time for
competitors to add production ability to steal our market share This is a long-term concern
Areas candidate should be concerned about
Revenue
$100/ton x 1000 tons = $100K
Costs
Fixed: $20K
Variable: $70/ton x 1000 tons = $70K
Profits
$100K - $70K - $20K = $10K profit
Base profit scenario
Revenue
$110/ton x 800 tons = $88K
Costs
Fixed: $20K
Variable: $70/ton x 800 tons = $56K
Profits
$88K - $56K - $20K = $12K profit
Increases profits by 20%
10% price increase pro
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Case 12: Charcuterie Processor (I of III)A.T. Kearney, Round I
Our client is a consumer goods company. We areconsulting to the food division.
They sell processed pork products like sausages. Theproduct is a retail branded product available in retailerssuch as Kroger.
The clients profitability has been declining. They wouldlike to know why has this been happening and what yourrecommendation for correcting the situation is.
Information to provide upon requ
The clients value chain is availaas a handout to the candidate
The market is mature and stable
Market Share: Client: 30%; major competito
(primarily forward integrating40%
Packers process hogs only 8%to our market
Costs: 50% material (rising) / 50
New entrants approaching retail
Client revenues are down with scurrently compete on price
Problem statement narrativeGuidance for interv
information provided u
Establishing theCase
Establishing theCase
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Candidate Handout(upon request)
Candidate Handout(upon request)
Client Value Chain
Case 12: Charcuterie Processor (II of III)A.T. Kearney, Round I
Hog producersgrow and sell hogs
PackersPrepare material for
processing
Processorsprepare consumerproducts (client)
Retail/ DSell fina
end
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Sample SolutionElements
Sample SolutionElements
Client Value Chain: What the candidate may see
Case 12: Charcuterie Processor (III of III)A.T. Kearney, Round I
Hog producersgrow and sell hogs
PackersPrepare materialfor processing
Processorsprepare consumerproducts (client)
Retail/ D
New competitors also suppliers: raising prices to client and lowering prices to retail
Backward-integrating The client may choose to backward integrate to Packing and/or Producing in order to bea
game SOLUTION: This does not make strategic sense, as sausage material is only ~8% of the p
Partnering The client may choose to approach packers who have not yet forward-integrated into pro
exclusive purchasing deals SOLUTION: Two major packers have not yet forward integrated, and would likely be very
By consolidating the sausage manufacturing business the client would have increased b
Areas the candidate may chose to focus for solutions
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Case 13: Music Retailer Loyalty (I of II)DiamondCluster, Round I
Your client is a music retailer that has grown throughacquisitions, acquiring 45 retailers in the past 5 years.They operate 750 stores nationally. They have alreadydecreased costs through operational improvements, butthe firm now has 15 brands, which has left customersconfused, so the client is undergoing a re-brandingeffort.
They are concerned that they have no information ontheir customers, only sales data, and therefore cannotsegment customers across product lines or genres.
The client wants to implement a loyalty program toidentify and understand their customers. They want youhelp the figure out how to construct the loyalty plan.
How would you develop the business case for thisinitiative, quantify the benefits, and determine the cost?
This is a qualitative case coverinsubject. Walk the candidate threstablish the program, not actua
Products offered are media-spec CDs DVDs Posters Accessories All genres
Problem Statement NarrativeGuidance for interv
information provided
Establishing theCase
Establishing theCase
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Case 13: Music Retailer Loyalty (II of II)DiamondCluster, Round I
Sample SolutionElements
Sample SolutionElements
Acquisition / Program TypeRevenue/ Efficacy
MeasurementCost
Monetary
Rewards such as free CDsor DVDs, or even cash, aftera certain dollar value ofpurchases is reached
In
formational
Provide members with
proprietary artist or concertinformation such as a fanclub.
Prom
otion
Provide customers withpromotional material that
the client receives for freefrom record labels, such asconcert tickets t shirts
PilotProgram
Conduct pilot in one regionand compare it with another(this is what they actuallydid), essentially setting anexperiment and controlpopulation using statisticalanalysis to compare the two
populations.
Requirem
entfor
Deals
Have customers enroll inthe program system-wideby only allowing membersaccess to special reducedprices (similar to grocery
stores).
StartupCosts
Pur
Continuing
Operations
Majo C
etOthe
T
sy M
se
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Case 14: Retailer Discounting (I of II)A.T. Kearney, Round II
Our client is a retailer in New York State. They have 120stores across the state and they are constantlycompeting with other retailers for customers. They areNOT a low-cost retailer in the state but on certain daysthey give out heavy discounts on their products toattract customers. They create brochures for weeklydeep discounts and deliver them to their customers byinserting them in newspapers in the morning.
The clients competitors are also doing the same and theproblem is that this scheme is not generating enoughreturn on investment for our client as compared tocompetitors. How would you analyze the situation to seewhere the problem could be and how would you
compare the execution strategy of offering thesediscounts of our client with that of their competitors?
Only provide each piece of inforasked for it specifically by the c
Campaigns are run on the same
Stores are as accessible (if not mcompetitors
Store product-mix is similar to c
Our discounts are similar to tho(in price and product)
We are using the same newspap
Problem statement narrativeGuidance for interv
information provided
Establishing theCase
Establishing theCase
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Case 14: Retailer Discounting (II of II)A.T. Kearney, Round II
Sample SolutionElements
Sample SolutionElements
Getting customers into stores Servicing customers onc
Service levels on sales days- are customreadily available?
Is inventory adjusted in accordance with
Back-end logistics: are prices updated insystems? (THIS WAS THE PRIMARY ISSUupdated and customers were highly conf
Generating additional revenue from eachdiscounted products?
Planning & Analysis
Used electronic communication along supply chain to alert suppliersto anticipated dramatic demand shift for supply & restocking (atappropriate levels)
Bundling
By discounting one product (such as hambuns, ketchup, mustard, relish, tableclothprice nearby would dramatically increase
How do we figure out which items to put on sale, and which to feature in newspaper inserts? How do we sell non-discounted products to people entering the store purely for discounted items? How can we better manage our inventory around these sales periods without overstocking or stocking out?
Follow-up series of questions for candidate
On what days are we running these discounts compared to our
competitors? Friday vs. Saturday?
What newspapers are we using to deliver the brochures? Which isbest for our customers: Times or Post?
What is the layout of brochures compared to competitors?
How accessible are the stores compared to our competitors?
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Case 15: Book Retailer (I of II)Booz Allen Hamilton, Round I
Your client is a book publisher who deals in fiction, andwants to increase profitability. Sales for the companyare as follows (read this chart to the candidate- watch fornotes organization):
The client wants to understand why profits look the waythey do, and what it can do to improve profitability.
Only provide each piece of inforasked for it specifically by the c
Book prices are $15 regardless o
No difference in fixed costs acro
Material costs are the same for a
Bigger authors require higher ro
authors Author is the primary driver to d
There are huge economies of sc
Small sellers are primarily distribookstores, requiring higher pe
80% of space dedicated to smal
Can not currently determine whibreakouts
Problem statement narrativeGuidance for interv
information provided
Establishing theCase
Establishing theCase
Category Profit/ Unit Annual Volume
($3) to $2
$10
$5
1M
Small Sellers
BreakoutPotential
Bestsellers
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Case 15: Book Retailer (II of II)Booz Allen Hamilton, Round I
Sample SolutionElements
Sample SolutionElements
Product mix in stores Demand forecasting
It appears 80% of storesare geared toward salesof products with anexpected profit of($0.50), perhapsreallocating this mix tobe more favorable tobestsellers and break-out books wouldincrease profits
Forecasting whichbooks may becomebreakouts would allowfor massive headwayon competition and bigprofits
Suggested modelinputs:
Media mentions Fads Pre-orders Tie-ins
Online sales Authors previous
sales
What risks do you seein doing this?
Product Mix: slowsellers are requiredto get people topurchasebestsellers
Demandforecasting: Gettingthe breakoutswrong would bevery costly
Logistics:Little downside
Interviewer possible
follow-up
Candidate may propose action in
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Case 16: Sheep Auction (I of VI)Bain & Co., Round I
Your client is looking at investing a significant amountof money to create an online auction company thatfacilitates sheep sales from producers to largecustomers.
They will only do this if they could make roughly $10 Mannual profit in 5 years, and they have enlisted your help
in determining the go/no-go decision.
Only provide each support slidethe information by the candidate
Slides: Overall market size (in lbs of Sheep prices (in $/lb) Farmers (producers) who us Sheep sold at auction vs. con
All large processors (buyers) us
Sales via auction and contract wno steal share between channel
Follow up questions for candidathe calculation (which should to
What would you do to achiev
Problem statement narrativeGuidance for interv
information provided u
Establishing theCase
Establishing theCase
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Case 16: Sheep Auction (II of VI)Bain & Co., Round I
Candidate handout(upon request)
Candidate handout(upon request)
0
50
100
150
200
250
300
350
400
450
Millio
ns
Lbs
ofSheep Annual Sheep Sales
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Case 16: Sheep Auction (III of VI)Bain & Co., Round I
Candidate handout(upon request)
Candidate handout(upon request)
$0
$5
$10
$15
$20
$25
$30
Sales Price/100lbs sheepAuction Profitability by Channel
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Case 16: Sheep Auction (IV of VI)Bain & Co., Round I
Candidate handout(upon request)
Candidate handout(upon request)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Sheep Sales by Channel
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Case 16: Sheep Auction (V of VI)Bain & Co., Round I
Candidate handout(upon request)
Candidate handout(upon request)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Farmers Online
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Case 16: Sheep Auction (VI of VI)Bain & Co., Round I
Sample SolutionElements
Sample SolutionElements
Expected
Calculation(Approximate)
**Use 2009 numbers to show 5-year maturity and steady-state fomodel assumes a 100% penetration- candidate should deduct thairrelevant given overall industry profitability**
400Mlbs sheep
50%auctioned
30%online farmers
$10per 100 lbs sold
x x x
What would you do to reach the $10M profit level fromhere?
If this product were already launched, how would youchoose to market it?
Train farmers and sheep produc Provide central computer locatio
facilitate farmer interactions Expand the auction tool to other
Trade magazine advertisements Door to door sales & training rep
Time permitting follow-on questions And sample a
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Case 17: Security Systems (I of VI)Bain & Co., Round I
Your client is a financial investor interested in investingin a start-up national security company
The security company sells and installs alarm systemsand then provides monitoring service, patrolling theneighborhood and following up if the alarm goes off.
The client has hired you to size the market andrecommend if this is a good investment or not.
Only provide each support slidethe information by the candidate
Slides: Target companys current sit Demographics and growth by Competitive landscape Competitive estimated reven
10M suburban households 1M new suburban households e
System is priced at-cost
1-2 large local players per marke
Large local players are entering competing with large national p
Problem statement narrativeGuidance for interv
information provided u
Establishing theCase
Establishing theCase
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Case 17: Security Systems (II of VI)Bain & Co., Round I
Candidate handout(upon request)
Candidate handout(upon request)
Number of homesin market
10 Million
Home growthlast year
1 Million
Competitors Largest national player appears to have financial difficulties
System Price $1,000 installed
Client Market SituationClient Market Situation
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Case 17: Security Systems (III of VI)Bain & Co., Round I
Candidate handout(upon request)
Candidate handout(upon request)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005: US Homes by Value
1% growth
1% growth
2% growth
4% growth
4% growth
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Case 17: Security Systems (IV of VI)Bain & Co., Round I
Candidate handout(upon request)
Candidate handout(upon request)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Competitive Landscape
National Player 5
National Player 4
National Player 3
National Player 2
National Player 1
Local Player 5
Local Player 4Local Player 3
Local Player 2
Other Players(10,000)
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Case 17: Security Systems (V of VI)Bain & Co., Round I
Candidate handout(upon request)
Candidate handout(upon request)
0%
5%
10%
15%
20%
25%
30%
Competitive Estimated Revenues and EarningsEBIT (%)
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Case 17: Security Systems Company Market Entry Bain & Co., Round I
Sample SolutionElements
Sample SolutionElements
Market Sizing(Annual Revenue)
Market Growth
70% of alarm buying market is growing at 1% per year, with the overall alarmgrowing at or less than population growth
This makes market growth unattractive
Competition Reach
The national market is dominated by one player with several other strong plvery difficult
The local market is highly fragmented with apparently 1-2 major players in eentry in this space equally difficult with local de-facto monopolies
CompetitiveEnvironment
Large national players appear to be operating with rather low EBIT numbers
spread out infrastructure and inefficient utilization of resourcesSmaller local players have stronger EBITs, however this leaves them in a st
$1000System
1MNew Homes
$30/moService
10MExisting Homes
x + x =12Months
x
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Case 18: Termite Control (I of V)The Boston Consulting Group, Round I
Your client is a termite control company that providessolutions for eliminating termites from homes. Theircurrent solution involves setting up baiting systems (asimilar concept to mouse traps) the baiting systemconsists of stations that are set-up around the house toattract and kill termites.
A competitor has come up with a new solution that
involves liquid sprays for killing termites. They have juststarted selling this treatment. How should the clientrespond?
Problem statement narrative
Establishing theCase
Establishing theCase
Only provide information and eabeing asked for the information
Client has 20% share with 100K
Some customers perceive spraynew customers will switch, othe
Assume existing customers will
Client has capability to produce
Systems are equally effective
Slides for candidate to review: Client and competitor pricing Client and competitor cost st Customer retention rates
Guidance for intervinformation provided u
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Case 18: Termite Control (II of V)The Boston Consulting Group, Round I
Candidate handout(upon request)
Candidate handout(upon request)
S
$1500
$300
Initial Installation
Annual Renewal & Prevention
Baiting System
Pricing By Channel
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Case 18: Termite Control (IV of V)The Boston Consulting Group, Round I
Candidate handout(upon request)
Candidate handout(upon request)
Client Historical Retention RatesPercentage of customers in year 0 that renew their subscription in subsequ
Year 1
90%
Year 2
80%
Year 3
70%
Year 4
60%
Year 5
50%
Year 6
40%
Year 7
30%
Year 8
20%
Year
10%
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Case 18: Termite Control (V of V)The Boston Consulting Group, Round I
Sample SolutionElements
Sample SolutionElements
Candidate should look atthe profitability of each
option
And realize decliningexpected annual
renewals negate majorityof profit differences.
Expected profit per customer:
Aggregating indicationsbetween systems
Discounting would virtually eliminate profit difference between products (all spray profit o
Incumbent client can leverage built-in fear for customers (toxicity) of new, cheaper, produ
If there is a low/no startup cost for new product, there is little/no downside risk of entry
Allows for a concise
Allowing the spray market to cannibalize baiting sales will lead to drawn out per-customer pprofit-reliance on renewals.
$400$50
Initial InstallationAnnual Renewal & Prevention
Baiting System
Year 0
400250
400250
Year 1
4590
445340
Year 2
4080
485420
Year 3
3570
520490
Year 4
3060
550550
Year 5
2550
575600
Year 6
2040
595640
Bait system profitSpray system profit
Summed Baiting ProfitsSummed Spray Profits
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Case 19: Telecom Service Provider (I of II)The Boston Consulting Group, Round I
Your client is a telecom service provider. They have 2products long distance and wireless. Their customersare businesses, and they use a sales force to sellproducts.
The only competitors sales force has higher $ sales persales person and the client has hired you to determine
why
Problem statement narrative
Establishing theCase
Establishing theCase
Only provide information after bby the candidate
Client and competitor are only p
Sales of $6B for client; $10B for
Client customers spend equally
Client revenues are 80% long diwith a target of 50/50 split
Sales force of 3000 representativ Our representatives have 10y
3-5 clients per representative for
Client representatives spend 45%
competitor representatives spen Difference is spent on admin
Guidance for intervinformation provided
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By conducting aroot-causeanalysis
The candidate will beable to answer theclients question
Example:The sales per representative discrepancy appears to have three primary drivers Our reps are tied up with administrative tasks while they could be out selling 25% mo Our quota system rewards our reps to sell what they know not what we want them Our representatives are very experienced, but technology is changing and they need
product knowledge
Case 19: Telecom Service Provider (II of II)The Boston Consulting Group, Round I
Sample SolutionElements
Sample SolutionElements
$6B / 3000 Representatives= $2M/ Rep client
$10B/ 3000 representatives= $3.3M/ Rep competitor
$1.3M/ Rep differential
Sales Discrepancy
Long-distance Heavy Sales
80/20 Revenue split is off
50/50 industry spend-benchmark target in favor oflong distance
Productivity
Competitors able to leverage~25% more time
Accounts for about 25% x $2Mor $500K difference
Qu
Representascheme notcorporate r
Represen
Experience
representatproduct the
And provide aRetool processes to increase rep time selling, likely by increasing administrative staffImplement training program for representatives so they understand both products equally
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Case 20: Smart Card Manufacturer (I of III)The Boston Consulting Group, Round II
Circa-late 1990s:Your client is a global high tech company that is adiversified manufacturer (chips and cell phones forexample). The company has decided to enter theSmartcard market and wants to know where in the valuechain they should enter.
On Smartcards, there is a computer chip that provides a
broad array of functionality. It can process transactionslocally, provides a higher level of security. Thetechnology is currently used in Europe and a little inAsia, however it is not currently used in the U.S. It canbe used for loyalty programs, transit, credit cards, ATM,etc.
Problem statement narrative
Establishing theCase
Establishing theCase
Only provide information after binformation by the candidate
ADDITIONAL INFORMATION ON
Client has already determined toknow where and why
Market is currently growing at 25
Ask candidate to draw their thoubefore telling them what the valu
Do tell candidate elements o Let candidate ask about spec
Guidance for intervinformation provided u
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Case 20: Smart Card Manufacturer (II of IIIThe Boston Consulting Group, Round II
Additional Informationto Provide
Additional Informationto Provide
Card DevelopmentTerminals/ Local
ProcessingSystem
Implementation
Concentration
CompetitiveTactic
Profit Margins
Other
Share of $1spent in industry
4 players with equalshare
Patented technologies
15%
All products are inperformance
25%
10 players with equalshare
Products are mfg basedw/ little intellectualproperty
10%
Natural extension ofcurrent products (ATMs& Disk drives)
25%
12 players with equalshare
Major IT consultingfirms
20%
Track records are highlyimportant
20%
Hig
Ge
10
Reele
30
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Case 20: Smart Card Manufacturer (III of IIIThe Boston Consulting Group, Round II
Sample SolutionElements
Sample SolutionElements
Card Development
Terminals/Local Processing
SystemImplementation
ContinuingOperations
Expected Profits/ $Industry Revenue
$1 x 25% x 15% =3.75
$1 x 25% x 10% =2.5
$1 x 20% x 20% =4.0
$1 x 30% x 10% =3.0
Corporate Alignment
Medium/ High
High
Low
Low
Competition
Low
Medium
Medium
High
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Case 21: Insurance Provider (I of IV)The Boston Consulting Group, Round II
Your client is a car insurance company. Their claimsprocessing department is under pressure to reducecosts. How might you help them?
If the candidate asks what is driving their cost reductionpressure, add.
Apparently the CEO believes her competitorsprocessing cost is less. Nor necessarily thecompetitors overall payout, but the actual processingitself is cheaper.
Problem statement narrative
Establishing theCase
Establishing theCase
SEE CLIENT AND COMPETITORNEXT PAGE TO ADDRESS QUE
Let the candidate draw assumptpossible to develop time spent o
Customers purchase insurance processing convenience
Guidance for intervinformation provided u
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Case 21: Insurance Provider (II of IV)The Boston Consulting Group, Round II
AdditionalInformation to
Provide(NOT A
HANDOUT)
AdditionalInformation to
Provide(NOT A
HANDOUT)
Call center receives a call fromcustomer
Agent assigns an inspectorand informs customer ofprocess (different processesdepending onclient/competitor)
Phase A(Same across companies)
Inspector receives appointmenttime from agent and visits thedamaged car
Inspector prepares a report andestimates a reasonable payout
Our Phase B
Agent instructs customer to
have car inspected by threemechanics and fax in quotes
Competitor Phase B
Candidate should waefficient each operati
i.e.: how many claiinspector process
Things they should in Travel time Inspection time Time spent to review Report writing time Total time worked eac
Candidate should finmaking our process m
Guideline for Process Differences
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Case 21: Insurance Provider (III of IV)The Boston Consulting Group, Round II
Candidate HandoutASSIGNMENT
Candidate HandoutASSIGNMENT
Previous Costs Proposed Costs
10010206010
RevenuesPhase APhase BPayouts
Profits
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Case 21: Insurance Provider (IV of IV)The Boston Consulting Group, Round II
Sample SolutionElements
Sample SolutionElements
Completing theCost Diagram
and voicingconcerns about
risk
Implementing the new structure already used by competitors may cause punexpected directions (either up or down)
Potential for fraud must be addressed prior to full system wide rollout
Some customers may prefer the ease of a scheduled visit rather than havinon their own (especially if serious accident)
Leads to aclient-tailored
recommendation.
Survey selection of client base (and potential client base) anonymously to dmodel
Institute pilot program in a select area to determine effect on payout and clie
in both regards, rollout system wide
Previous Costs Proposed Costs
1001020
6010
RevenuesPhase APhase B
PayoutsProfits
10010 (same)
10 (something less)
70 (variable)10 (variable)
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Case 22: Appliance Insurance (I of II)The Boston Consulting Group, Round II
Your client is an insurance company that sells homeappliance insurance. They have hired you to helpefficiently increase product sales, what would you do?
IF THE CANDIDATE ASKS FOR SPECIFICS, ADD
The client covers all appliances in the home for$400/year. Therefore any problems with the washer,dryer, air conditioning, refrigerator, range, etc, all getcomplete repair or replacement
Problem statement narrative
Establishing theCase
Establishing theCase
Client sells to all households in Direct Mail Channel:
Target 60M non-moving h 50M mailers sent $0.50 per mailer to send 0.5% sales conversion rat
Sales Team Channel Target 40M moving house 80% coverage 5% conversion ratio 1000 members of sales te $100K annual salary Coverage is highly conce
regions- little coverage in
Guidance for intervinformation provided
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Case 22: Appliance Insurance (II of II)The Boston Consulting Group, Round II
Sample SolutionElements
Sample SolutionElements
Candidate should want to calculate acquisitioncost per customer for direct mail
And then for the sa
Candidate should drive to a set of conclusions &recommendations
Additional conversations
Sales team coverage is less costly , therefore firm shouldconcentrate on building capability in this area
Specifically: build capability in northeast
How might our sales channels affecindustrys problems with adverse swho most need insurance tend to puthose who do not)
Target marketMailers sent
Cost per mailerTotal mail cost
Conversion ratioNew customers
Cost per customer
Direct Mail
60M50M$0.5025M0.5%250K$100
Target marketCoverage (%)
Coverage (homes)Conversion ratioNew customers
Team sizeIndividual salaryTotal team cost
Cost per customer
Sal
$$
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Case 23: Automobile Parts Manufacturer (I ofA.T. Kearney, Round I
Your client is an automobile interior plastic productmanufacturing company. The clients market share is20% and the industrys growth rate is nominal.
Over the past two quarters, their profits have stagnatedand the CEO is concerned.
The company has only one customer and the customercontinuously forces the client to price down. The
company has one factory outside of Detroit and thefactory is running at 70% utilization. The companymanufactures 42% of the product on that factory andoutsources the remaining 58%.
The CEO would like to improve factory utilization as wellas improve profitability could you help develop somerecommendations?
Problem statement narrative
Establishing theCase
Establishing theCase
The customer has no plans to in
Two products with particulars b
Small parts are more labor intenmats
Mats lend more brand recognitismall parts
Parts produced internally have a
outsourced parts Outsourced work has lower labo
Guidance for intervinformation provided
Quantity (tons)Full Cost
Price
Plastic Rugs
100$6$7
Small Parts
40$4.7$5
Internal Production
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Internal capacity: 140 / 0.7 = 200 tons ; max
Case 23: Automobile Parts Manufacturer (II oA.T. Kearney, Round I
Sample SolutionElements
Sample SolutionElements
Future client demand Effect on brand name and positioning
Labor relations Undiversified client base
The standout candidate will address other concerns of thesourcing decision, such as
Candidate should want to calculate current profitabilityIf the candidate determines the pr
mix, then they should recalcula
$1
Rug (P) Equip. (P)
$0.30
Rug (Q)
100
Equip. (Q)
40 -$1
Rug (P) Equip. (P)
$0.30
Rug (Q)
180
Equip. (Q)
80+ + +x x xx
100 12 -180 24
= -$44
Internal Production Outsourced Production
$1
Rug (P) Equip. (P)
$0.30
Rug (Q)
200
Equip. (Q)
0 -$1
Rug (P)
+ +xx
$200 0 -$8
= $156 : Improvement of $
Internal Production O
+ + +
+ +
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Case 24: Electronics Retailer (I of III)The Boston Consulting Group, Round I
Your client, Circuit Co., is a national consumerelectronics retailer similar to Best Buy. For the past fiveyears, Circuit Co. has grown its revenues and earningsprimarily through new store openings. However, CircuitCo. knows that this type of growth can not be maintainedforever. For the past year, the company has focused onseveral initiatives aimed at improving same-store salesand earnings. One of these initiatives has fallen by the
wayside and you have been hired to analyze thesituation.
Specifically, in the third quarter of 2003, Circuit Co. ran apilot program in the digital camera departments of itsSouthwest Region stores. The CEO wants to know:
1. Was the program a success?
2. What improvements can be made to the program?3. Should Circuit Co. roll the program out to the rest
Problem statement narrative
Establishing theCase
Establishing theCase
ADDITIONAL INFORMATION ON
Details about the pilot program Traditionally, all of Circuit Co
employees were generalistsevery one of them did all of tbe done: stocking the shelvequestions, running the cash program involved setting up specialists in the digital casolely responsible for answequestions and selling digital remaining employees remainGeneralists maintained their Specialists were paid a small
commissions based on digita
Guidance for intervinformation provided u
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Case 24: Electronics Retailer (II of III)The Boston Consulting Group, Round I
Additional Informationto Provide
Additional Informationto Provide
Only provide each item when askedNote: Company still growing by adding stores SKU portfolio did not chang
Pilot had no effect on other
Q3 runs June- September
Generalist wage changes in
Pilot Program Financials Additional Po
3Q 2002 3Q 2003
5027.75199251
89912
296674
Digital Camera Rev. ($M)Total Store Rev ($M)
# of storesDigital Camera COGS ($M)
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Case 24: Electronics Retailer (III of III)The Boston Consulting Group, Round I
Analysis offinancial
performance
Digital camera revenues increased by about 80%
Stores increased by ~50%, therefore camera revenue per store increased a
However, COGS increased about 170% or 120% after normalizing for store
This means digital camera profits actually declined during the pilot prograrevenues increased dramatically
Leads toclients answers.
It appears specialists were focusing on selling low margin cameras in ordedriven commissions
In terms of revenues, the program was a success, however the client suffe
Sample SolutionElements
Sample SolutionElements
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Case 25: Trucking (I of III)DiamondCluster, Round I
Your client is a trucking company. The company hasgrown through acquiring regional trucking companies,which are currently each managed as separatebusinesses.
The CEO, who is new and is an outsider to the company,has asked you to help prioritize some short term
investments, as well as advise on where the companyshould go in the long term.
In terms of the short term investments, the CEO isparticularly interested in a Route Optimization softwarethat has been developed by one of the regional divisionsand has significantly improved profitability within that
division. So, first the CEO wants to know what theimpact to the firms profitability will be
Problem statement narrative
Establishing theCase
Establishing theCase
CANDIDATE HANDOUT EXPLAIIMPACT ON FOLLOWING PAGE
If prompted, have the candidatedemand is very stable, and expe
Current pickups or drop-offs/ hr Pickups or drop-offs/ hr w/ softw
Hourly rate $100 Annual system wide pickups: 4M Drop-offs: 4M Tax rate: 40% No depreciation
Labor is 1/3 of total costs Labor is 50% pickups & 50% del
Ask candidate to outline their idFuel
Guidance for intervinformation provided u
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Case 25: Trucking (II of III)DiamondCluster, Round I
CandidateHandout
(upon requestabout
softwarefunction)
CandidateHandout
(upon requestabout
softwarefunction)
Market A Market B
Region 1:Pick ups &
Deliveries
Impact of software
Long Haul
A
B
C
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Case 25: Trucking (III of III)DiamondCluster, Round I
CandidateHandout
(upon requestabout
softwarefunction)
CandidateHandout
(upon requestabout
softwarefunction)
This is the cost savings excluding a system widerollout and system maintenance costs. Since
the system already exists in one market, thesecosts can easily be modeled for whole system
Watch the candidate frame oshould think about the struprocess is more important th
What are the benefits?Overhead consolidation
Access to marketsCentralized/ non-duplicatiEfficiencies in long-haul tr
What are the costs?Startup integration costs
Severance/ shut-down cosAdvertising for increased
Candidate should calculate cost reduction:Question: What should the Cis looking to integrate the di
2 pickups/ hr 8M pickups &drop-offs/ yr
$100/hr* * = $400M
2.5 pickups/ hr8M pickups &drop-offs/ yr
$100/hr* * = $320M
$80MPretax Benefit
$32MTaxes @ 40%
$48MFinal Benefit
-
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Case 26: Hong Kong Port (I of VII)McKinsey & Company, Round I
Your client is Hong Kong port. The management isconcerned about revenues going down and asks foryour advice.
When asked to further elaborate on the business, add
Lets assume that the only source of revenue for the
client is container processing services related toshipment of containers. A manufacturer that wants toship a container hires a shipping company. The shippingcompany tells him what ship the container should beloaded on. The manufacturer brings a container to theport and pays the port for taking care of everything(paper work, possible storing, loading on ship) to be
done to load the container on the ship named by themanufacturer.
Problem statement narrative
Establishing the Case -BACKGROUND
Establishing the Case -BACKGROUND
CANDIDATE HANDOUTS ON FO Revenues have been decreasing
Current sales of $200M/ yr
Client has 50% market share
Industry is growing at 7%/ yr
Competitors (both modernized imainland China ports, Zhanjiang
Customers: Guangdong (mainlamanufacturers (typical route is C
Customers are VERY cost sensi
No difference in shipping cost fr
Handouts: Container Processing Costs
Guidance for intervinformation provided u
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Case 26: Hong Kong Port (II of VII)McKinsey & Company, Round I
Candidate Handout(Upon Request)
Candidate Handout(Upon Request)
Hong KongZhanjiangShenzhen
Port Container Processing Cost
$320$300$310
Processing Cost
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Case 26: Hong Kong Port (III of VII)McKinsey & Company, Round I
Candidate Handout(Upon Request)
Candidate Handout(Upon Request)
Gross marginOperating margin
Hong Kong
20%10%
Zhanjiang
17%10%
Shenzhen
22%10%
Port Margins
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Case 26: Hong Kong Port (IV of VII)McKinsey & Company, Round I
Candidate Handout(Upon Request)
Candidate Handout(Upon Request)
Fixed costDirect labor cost
Materials / fuel / variableSG&A
Hong Kong
60%20%10%10%
Zhanjiang
70%15%8%7%
Shenzhen
65%15%8%
12%
Port Cost Structures
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Case 26: Hong Kong Port (V of VII)McKinsey & Company, Round I
Candidate Handout(Upon Request)
Candidate Handout(Upon Request)
Map of Area
20 miles
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Case 26: Hong Kong Port (VI of VII)McKinsey & Company, Round I
AdditionalInformation
AdditionalInformation
What drives the customer decision in choosing whichport to ship from?
What costs does a manufacturer incur while shipping acontainer from his plant to end customers?
How does the manufacturer get the container to port?
How about manufacturer transportation costs?
Manufacturer transportation cos
Hourly labor cost is the same fo
There is an administrative borde
mainland China- trucks have to clearances (and endure long wa
50% time waiting, 50% in cus
Long lines in evenings, but no li
Customs communications are h
Need two drivers for HK, mainlaalso salaries much higher in HK
HK government has a stake in th
If the candidate does not drive to manufacturertransportation costs in 15 min., provide hints
Guidance for intervinformation provided
Total Cost
Hong Kong
$300
Zh
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Case 26: Hong Kong Port (VII of VII)McKinsey & Company, Round I
Sample SolutionElements
Sample SolutionElements
Convince HK government to invest in building out thecustoms station at the border to increase throughput
Invest in updating customs information andcommunication systems
Lobby HK government to abolish regulation thatprohibits Chinese commercial drivers to drive in Hong
Kong
These will all reduce manufacturer transportation costs
Orchestrate a single customs clor at port) rather than a customs
Establish a separate trucking coborder cost
This is a short-term solution
Incentivize manufacturers to shi
at night to avoid evening rush
Expected Recommendations Creative Recomme
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Case 27: Argentinean Bank (I of III)McKinsey & Company, Round I
Your client is a bank in Argentina who has historicallyserved individuals or large corporations. There are onlythree other large banks in the market, with each havingequal market share and cost structures. Last year, yourclient was the first bank to enter the small to mediumbusiness market and made some money. They did thisprimarily by offering the businesses the same servicesthat they offered the small and large companies throughtheir retail outlets. They would like to understand how
they could become more profitable
Problem statement narrative (I)
Small to medium business mark Users are very price sensitive Clients cost structure is rather s Clients retail outlets can
Information provided
Establishing theCase (I)
Establishing theCase (I)
If the candidate has asked the appropriate questionsabout the profit equation, it is apparent that
Price can not be easily changed
The cost structure is currently very good
Initial question solution elements
ASK CANDIDATE:Please give mproducts that you would offer to
sized businesses
Initial question fo
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Case 27: Argentinean Bank (II of III)McKinsey & Company, Round I
Lets do some calculations.
Right now, we make $1000 Revenue/Product, Have $160Million in profit, and service 2 products per customer.
The current cost structure is 20% profit, 20% fixed, and
60% variable.
Given the services you have talked about we predict thatcustomers will increase to 600,000 expected customers,3 products per customer, the revenue per product staysthe same, the variable cost per product stays the same,what is the expected profit?
Problem statement narrative (II)
Current Structure$160 M Profit
$160 M Fixed
$480 M Variable
$800 M total Revenue
$800 M Revenue/ $1000 Revenue/
800,000 Products
Variable Cost Per Product = $600
New Structure
Rev. 600,000 customers*3 produ$1,800 M
Fixed Costs $160 M
Requisite math &
Establishing theCase (II)
Establishing theCase (II)
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Case 27: Argentinean Bank (III of III)McKinsey & Company, Round I
Sample SolutionElements
Sample SolutionElements
Ask candidate:can you provideme a couple of
ways to segmentour small andmedium sized
businesscustomers?
Answers (which should be backed up by some rationale) could in Risk susceptibility Size (revenues)
Size (employees) Industry (service/ production) Lender services Borrower services
So, should wemove forward
with this?
Given the potential return and connection to our current offeringoutweigh the risks- looks like a go! (candidate should structure
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Case 28: Sandwich Bags (I of VII)The Boston Consulting Group, Sample Case
Establishing theCase
Establishing theCase
Your client is a very small consumer packaging
company. One of their product lines, for which theyhave one dedicated machine, is plastic bags for foodstorage. They have 3 sizes of bags 4 (sandwich bag)8 quart bag and 12 (gallon bag). The bags are all thesame width the sizes refer to the length of the bag.
The client is facing more demand than they think that
they have capacity to produce. They have called us in tofigure out a 2 key questions:
How can they best utilize their current bag capacity?
Should they invest in a new bag machine?
Lets start with the capacity question. How would youwant to start to think about this problem? What
Candidate should be interested
Capacity of the machine Demand for each product Revenue / costs for each pro Production time for each pro
Provide candidate with capacityprofitability slides if they ask for
Prompt with So, based on this would you recommend the comprollers and why?
Answer should be: 4 and 8overload
PART II: So, the client has somhave not met, should they invesWhat information would you like
If asked:Cost: $750K
Problem statement narrative Interviewer guidance &
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500 bag-widths produced pe
Runs 20 hours / day
5 days / week
50 weeks per year
Total of 5000 hours of producti
Key Capacity
4 bags
Machine
Machine
Machine
8 bags
12 bags
1bag-width
1bag-width
4 4 4 44 4
8 88
Case 28: Sandwich Bags (II of VII)The Boston Consulting Group, Sample Case
CandidateHandoutCapacity
(Upon
Request)
CandidateHandoutCapacity
(UponRequest)
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4
8
12
# bags /bag-width
6
3
2
Profit /bag ($)
.02
.03
.04
Annual Dem(# of bag
9M
3M
3M
CandidateHandoutProfits &Demand
(UponRequest)
CandidateHandoutProfits &Demand(Upon
Request)
Profitability and Demand by Product Type
Case 28: Sandwich Bags (III of VII)The Boston Consulting Group, Sample Case
C
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4
8
12
# bags /bag-width
6
3
2
produced perhour
3000
1500
1000
Profit /bag ($)
.02
.03
.04
Demand(# bags)
9M
3M
3M
TotalProfit ($
180k
90k
120k
CandidateHandout
(Aftercompleting
previousmath)
CandidateHandout
(Aftercompleting
previousmath)
Completed Profits & Capacity
Case 28: Sandwich Bags (IV of VII)The Boston Consulting Group, Sample Case
Addi i l
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AdditionalInformation
AdditionalInformation
Ask: What would you have to believe to say a new
machine is a good idea? (suggestions) Demand would increase faster than 2% A new product could be introduced Capacity could be rented out Prices will increase
A NEW PRODUCT Tell candidate: lets say the clients R&D team has just
come out with a new bag. It is a 2-in-1 bag, one sideholds your sandwich and the other side holds yourchips or lettuce to keep things from getting soggy.This bag is a 6 bag. Assume that if we stated toproduce this bag tomorrow it would be accepted, therewould be no lag time for people to catch on to using it.
What annual profit per bag would we need to generate inorder to make the new roller a good purchase
$120K per year from 12 bags
$600K profits over 5 years
Need $150K over 5 years for pay $30K per year $0.03 per bag at 1M bags $0.015 per bag at 2M bags $0.01 per bag at 3M bags
To candidate: So, if we coulproduce 1M bags we would bgraph(next page), please drarepresents all of the price/quwhere we would be willing toin the roller.
Does this curve have any end
Should we invest in a new machine? Getting the ans
Case 28: Sandwich Bags (V of VII)The Boston Consulting Group, Sample Case
C did t
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profit perbag ($)
0.03 x
CandidateAssignment
DemandCurve
CandidateAssignment
DemandCurve Case 28: Sandwich Bags (VI of VII)
The Boston Consulting Group, Sample Case
S l S l ti
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Getting the answer
Sample SolutionElements
Sample SolutionElements
Lets assume that we take the $
combination. We can produce or 2000 bags per hour. Total prhours so we still have 1500 hounew roller.
The client would like to come uinnovation. They would like to bags, or perhaps a bigger bag. have remaining, just brainstormmight investigate for a large sto
This is an open-ended questioncandidate constructs thoughts solutions.
Bonus
# of bags (M)
profit perbag ($)
1
0.03 x
0.015
0.01
2 3
Case 28: Sandwich Bags (VII of VII)The Boston Consulting Group, Sample Case
E bli hi h
Establishing the
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Case 29: Gift Wrapping Paper (I of III)The Boston Consulting Group, Round I
Establishing theCase
Establishing theCase
Your client is a gift wrapping paper manufacturer in the
United States. They are considering a proposal tooutsource their manufacturing to mainland China. Youhave been called in to assist in the go / no-go decisionmaking process. They would like to know yourthoughts and your recommendation
ASK CANDIDATE TO BEGIN BY ESTABLISHING COST
BUCKETS
AFTER COST BUCKETS ESTABLISHED, ASK HOW THEYMAY DIFFER IN CHINA (A: LOWER LABOR COSTS?)
LET CANDIDATE STEER INTERVIEW FROM HERE
Cost comparison provided on ca
do not provide until candidate odifferences and asks for specific
Fixed costs include: Plant & machinery See diag Employees See diag
Variable costs include: Raw paper material $20 per Ink $100 pe
$50 in C Ink is special wrapping pape
unavoidable cost
Shipping cost from China to US is
Problem statement narrative Interviewer guidance &
C did t
Candidate
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CandidateHandoutProfits &Demand
(UponRequest)
CandidateHandoutProfits &Demand(Upon
Request)
United States
China
1 Unit Parts & MachinesCost: $100 each
1 EmployeeCost: $100 each
+ =
Case 29: Gift Wrapping Paper (II of III)
The Boston Consulting Group, Round I
Gift Wrapping Paper Production Comparability Between Mark
S l S l ti
Sample Solution
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Case 29: Gift Wrapping Paper (III of III)The Boston Consulting Group, Round I
Sample SolutionElements
Sample SolutionElements
Establish base US
costs
$100 Parts & Machines$100 Labor Expensive US based labor$20 Paper Commodity- difficult to lower
$100 Ink Specialized product
Generate comparableChina costs
$100 Parts & Machines More equipment may increase repair c$50 Labor Lower per employee, but hiring/firing$20 Paper$50 Ink Closer to supplier, still expensive
$150 Shipping
Compare two fullyloaded costs for
options
Shipping is the deal-breaker for China Lower shipping costs would increase attractiveness
What might some alternatives be? Bulk, sheets rather than rolls? More variables to manage in China, not very labor intensive product in US
G t
Does not look viable at this time
T k i k l t i Chi t dd l t t ti l f
E t bli hi th
Establishing the
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Case 30: Automobile Manufacturer (I of II)Booz Allen Hamilton, Round II
Establishing theCase
Establishing theCase
Your client is a leading auto manufacturer in the United
States. There are three primary players in this market.Historically, the market leader had 30% share, our clientand the other player both had 20% market share.
Over the past 2 years, your clients share has beenfalling, and it wants to know why.
This is an understanding the m
profitability case. If prompted, runderstanding for the industry.not want to drive to the profit eq
Elasticity of demand: 5
Consumer preferences are the sshifted
There are no warranty, capacity,
Competitors price with a huge s No major product portfolio c
Client market share has fallen fr
Problem statement narrative Interviewer guidance &
Sample Solution
Sample Solution
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Case 30: Automobile Manufacturer (II of II)
Booz Allen Hamilton, Round II
Sample SolutionElements
Sample SolutionElements
Competitors Client
Similarly elastic demand Have a summer sale
No extraordinary innovation Unknown production Unknown customer satisfaction
Very elastic demand No summer sale
No extraordinary innovation Solid production Solid existing customer satisfaction
Price sensit Not complai
quality Still purchas Preferences
Math to determineprice change
Need to regain 20% market share This is a gain of about 35% (15% share increasing to 20%)
With a elasticity of demand of 5, increasing share 35% will require a price d
Is a straight price drop the best way to regain customers?
Recommendedl ti
In order to prevent competitors following a price reduction to regain share
locked methods the client can pursue: Discounting higher-margin after-market products or add-on features
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