What Interviewers Want 7 Cases

Case 4: ABC Conglomerate Bain, 1st Round About This Case This was a first-round Bain case. It is fairly straightforward in the analysis, but the difficulty lies in keeping the information straight between the three divisions. Give out the information freely, but make the candidate ask for each piece of information for each company. In order to crack this case, they will need to have neat and orderly notes and be able to quickly form a mental picture of each of these different divisions. Note that this case is also difficult because there is no information about the products or industries. This is not important to the case, so donÕt make anything up Ð just tell the candidate that they should focus on the information they have. The Problem The CEO of a major conglomerate is dealing with poor profitability in each of his three divisions: A, B, and C. What should he do to maximize value for his shareholders? Information Gathering Read this information well before you give the case. The same information is available for each of the divisions, but make the candidate ask for each divisionÕs information separately rather than summarizing the data for them. Do not offer any information without being asked specifically and concisely for it. Division A Competition Ð The firm is the clear market leader with 60% share. Cost Structure Ð Manufacturing is done in Asia by all firms and is largely considered to be as low-cost as possible. Revenues Ð This division generates over 60% of the firmÕs revenues but gross margins have been declining in recent years. The high fixed costs maintained by this division have moved net income into the red as gross margins have declined. Pricing Ð Prices have been becoming increasingly competitive. Division A has had to price aggressively to maintain sales volume, even with its strong market leadership position. Market Trends Ð The overall market for division AÕs product has been shrinking in the last few years and looks like it may continue to do so. Customer Preferences Ð Customers are moving to an entirely new product category as a substitute, and prefer the product category of Division A less and less. Threat of Substitutes Ð A new product category is filling the customer need previously served by Division AÕs product. Division A is not well positioned to enter this new category. Division B Competition Ð The firm has only 5% and is one of many players in the market. Cost Structure Ð This market is relatively new and it is believed that costs can be reduced significantly from their current position. Revenues Ð Revenues have been low but growing. The division is running a negative net cash flow as it is currently investing in marketing, R&D, and plant capacity. Pricing Ð A wide range of prices exist in the market currently with margins generally high. Market Trends Ð The overall market is growing at 10% a year and is expected to experience significant growth in the near future. Customer Preferences Ð This is a relatively new product category and consumers are not yet sure what they want or like. Division C Competition Ð The firm has 50% share with only one other major competitor and a few minor ones. Cost Structure Ð The firm has significant economies of scale and has the lowest variable cost in the market. Significant expenditures are being made in marketing, R&D, and plant capacity in an attempt to grow revenues. Revenues Ð Revenues have been strong with good operating margins, but have been flat for the past few years. Pricing Ð Division C has a price leadership position in the market. Market Trends Ð The overall market is not growing and expected to remain flat for the foreseeable future. Conclusion A star candidate will see that his/her time is nearly up and will present a recommendation for the client without prompting. If the interview is within 3 minutes of the end, ask: ÒThe CEO just called and wants to know what he should do.Ó Good Answer: Clearly the conglomerate needs to rationalize its company portfolio to maximize shareholder return. Each of the three divisions is in a different stage of the market lifecycle and needs to be treated accordingly. Division A finds itself in a declining industry with no apparent way to move into a new product category. As the incumbent firms struggle to maintain volume in a shrinking market, prices have fallen along with volume. Operating income is no longer enough to cover a high fixed cost base and the company is bleeding with little chance to recover. Division A should be divested immediately. Division B is in an emerging growth market. While it is not making money today, it is in a favorable industry and represents a strong investment opportunity. The division should invest aggressively in R&D, marketing, and production capacity in an attempt to become the market leader by developing differentiated, branded products. Division C is the leader in a mature industry and has the ability to generate a steady stream of cash for use in other investments Ð namely Division B. Division C should streamline operations by eliminating all expenditures not directly needed to maintain profitability and should be managed as a cash cow. Case 5: Artificial Turf 1st Round The Problem Our client would like us to estimate the market for artificial turf. How would you approach this question? Information Gathering Read this information well before you give the case. Share this information in each bullet only if the candidate asks for it in a clear and deliberate way. This is a market sizing problem, so rarely is any more information provided. It tests the candidates comfort with ambiguity. The candidate should lead the discussion and start brainstorming on the uses of artificial turf: x x x x x Sports fields o Football o Soccer o Rugby o Golf Commercial businesses Residential Airports Schools o High schools o colleges After the candidate has identified some uses for artificial turf, prompt him to estimate the number of schools in the US. (or any of the places where artificial turf is used) Analysis To estimate the market size of turf in high schools in the US we have to estimate the following: x Number of schools x Number of sq feet of turf that is bought each year / high school x Price of turf / sq foot We start by estimating the number of schools: Number of schools in the US = Number of high schools + number of colleges + number of community colleges Number of High schools: Population of US = 300 M (M=million) Percent of population age 18 = 1% (assuming population is equally distributed) Number of people age 18 = 300M x 1% = 3M Assume 80% go to high school, then the number of people age 18 who go to high school = 3M x 80% = 2.4M Assume that on average there are 250 18-year-olds in a high school. Then the number of high schools = 2.4M / 250 = 9,600 high schools Number of Colleges Ð bachelors colleges: Population of US = 300M Percent of population age 19 = 1% Number of people age 19 = 300M x 1% = 3M Assume 25% of people go to college, then the number of 19-year-olds who go to college = 3M x 25% = 750,000 Assume that the average size of graduating class is 400 students, then the number of colleges is = 750,000 / 400 = 1875 colleges Number of Colleges Ð community colleges: Assume 10% of people go to community college, then the number of 19-year-olds who go to community college = 3M x 10% = 300,000 Assume average graduating class is 200 students, then the number of community colleges is = 300,000 / 200 = 1500 community colleges Total amount of artificial turf: Make the following assumptions: x price of turf = $10 / sq feet x lifetime of turf = 10 years x athletic field = 60 yards x 120 yards = 60 x 3 feet x 120 x 3 feet = 64,800 sq ft x adoption of turf = 50% Now we can calculate the market size for turf: x Number of schools = 9,600 + 1,875 + 1,500 = 13,000 x Number of sq feet of turf that is bought each year / high school = 1/10 x 50% x 64,800 = 3,240 sq feet x Price of turf / sq foot = $10 Market size = 13,000 x 3,240 x $10 = $420 Million Conclusion The market size for artificial turf in schools in the US is about $420 Million. Case 6: Retail Bank Accenture, 2nd Round The Problem Our client is the private division of a retail bank that has 100,000 clients, $500,000,000 in revenues, and $150,000,000 in net income. Our clientÕs goal is to double the revenues and profits of the business in 5 years. Assess the feasibility of the goal. Prioritize the two or three most important steps they should take in their action plan. Information Gathering Read this information well before you give the case. Share this information in each bullet only if the candidate asks for it in a clear and deliberate way. Pricing: they make their revenues from interest and fees Costs: transaction costs, salaries. The nature of the sale is one-on-one pitch between the bank sales person and the customer. So the salary cost and the transaction costs tend to be high. Geography: They have a large presence in the North East and a moderate presence in the South East Products: They have 4 product lines, with the following ranks in revenue and profit generation: x x x x Private banking: o deposits o loans Investment management: o brokerage o advice o access Trust: o State planning and trust o Transferred death Insurance: Revenues 1 Profits 1 2 3 3 2 4 2 Customers: 20-25% of customers purchase more than one product. 75-80%% of customers purchase only one product. They are segmented into 5 groups: Volume Number of Customers Ultra High: High Net: Affluent: Mass Affluent: Mass: $10M+ $1M-$10M $0.5M-$1M $100,000-$500,000 $0-$100,000 5% 10% 20% 25% 40% The Ultra High, High Net, and Affluent segments generate 60-70% of the revenues, while the Mass Affluent and Mass segments generate 30-40% of the revenues. Analysis At this point the candidate should start analyzing the numbers to make fact based recommendations. Buyer selection: Since transaction costs tend to be the same for the different customer segments, it makes sense to grow the number of the higher revenue generating customers and decrease the number of the lower revenue generating customers. We can attract the top 3 segments by marketing more selectively and doing promotions for higher income customer groups. We can discourage less affluent customers by raising the prices on them, giving them the option to add more profits, or switch to a competitor. Cross sell: Since 75% of customers purchase only one product. ThereÕs an opportunity for cross-sell between the different product lines. Assuming that we will only serve the top 3 customer segments: Revenue generated by customers in top 3 customer segments = $500M x 70% = $350M Revenue generated by customers who only have one product = $350M x 75% = $262.5M If we assume that the 4 types of products generate comparable revenues, then if we crosssell each customer 3 other products then the new revenue will be = $262.5 x 4 = $1,050M Conclusion It is feasible to double revenues and profits if we can only cross-sell our current customers the other products in our business. The next steps Private Retail Bank should take are: x Give incentives to the bankÕs sales force to cross sell different products to its existing customers. x Do promotions for the top 3 affluent market segments. x Increase its prices in its bottom 2 mass market segments to ÒfireÓ its unprofitable market segments. Case 7: Coffee Shop Bain, 1st Round The Problem A friend asked me if I wanted to buy his coffee shop for $100,000. Do you think I should do it? Information Gathering Read this information well before you give the case. Share this information in each bullet only if the candidate asks for it in a clear and deliberate way. Location: The coffee shop is in Vail, Colorado Products/Prices: Cup of coffee, $4.00 Bottled Water, $2.00 Pastries, $3.00 Variable Cost: All products have a 50% margin Customers: The shop serves mostly locals, not tourists, so demand is consistent throughout the year Other Costs: Rent was $500 per month Wages (for 2 employees) were $8.00 per hour. The shop is open 12 hours a day, six days a week Tell the candidate that he can assume that the coffee shop will bring in consistent profits. Analysis This is a valuation question. So to get the value of the coffee shop we need first to get the profitability. Revenues Estimate market size. Assume that the coffee shop gets 10 customers per hour in slow hour and 20 customers per hour in a busy hour. The first and last 2 hours of the day are busy hours. So the coffee shop gets 20x4 + 10x8 = 160 customers/day. If we assume all the hours as busy hours on Saturday, then we have 20x12=240 hours on Saturday. Number of customers / week = 160 x 5 + 240 x 1 = 1040 Number of customers / year = 1040 x 50 = 50,200 Assume 60% of customers order coffee, 30% order pastry, and 10% order a bottle of water, then the spend is: 50,000 x 60% x 4 + 50,000 x 30% x 3 + 50,000 x 10% x 2 = $175,000 Fixed Costs Rent = 500 x 12 = $6,000 Wages = $8 x 12 x 6 x 50 = $30,000 We can also make assumptions about utilities and insurance. Profits Profits = 175,000 x 50% - 36,000 = $52,500 Assume a 40% tax rate: Profits after tax = 52,500 x (1-40%) = $31,500 Valuation If we assume that the coffee shop is in operation for 5 years and we use a 10% WACC, then its value would be: Value = 31,500 + 31,500/ 1.1 + 31,500/1.1^2 + 31,500/1.1^3 + 31,500/1.1^4 = $131,000 Conclusion As long as the sales would be consistent for the rest of the 5 years, it would be profitable to buy the coffee shop. Further analysis could be done on the management experience and the competition to ensure that sales would be consistent. Case 8: S SOFTWARE BCG, 2nd Round The Problem An US software company wants to offshore its engineering/designing unit to India, as well as to penetrate into the India software engineering market. Should they do it? Information Gathering Read this information well before you give the case. The candidate is supposed to figure our following information by asking appropriate questions. The interview style is pleasant but reserved. Since itÕs a two-fold question, a strong candidate will begin with laying out a clear scope and then gather relevant information to analyze the situation. Other benefits of off-shoring Significant Minor Off-shoring is critical to access local market Yes No Definitely offshore Offshore but also find out other critical factors to enter the India market Evaluate the India market Stay in current market independently with and strengthen market, customer, competitiveness competition, etc. Market Share Ð the company is the industry leader in US with close followers chasing behind. Profitability Ð declining (unknown reason, but increasing labor costs can be a reasonable assumption). Capability Ð strong engineering department in the US. Cost Ð R&D is the major cost and Indian engineers are estimated to be 1/4 of the cost of the US engineers with the same technical capability. Customer Ð x Has a strong existing customer base in the US. x Customers care about the quality of service, but are also considering lowering cost in the long run. A strong candidate should follow up with questions about customer segmentation. x x x Most of S SoftwareÕs clients are medium to large companies in US. The most profitable clients are large companies in developed countries where S Software already has a strong base. S Software doesnÕt have any international presence yet. Competition Ð US x Key US competitors are all off-shoring in order to lower the cost. Competition Ð International x The growth of the international market is impressive compared to the more mature and stable US market. x Key competitors are expanding their international business aggressively. x India is one of the fastest growing international markets as well as the one with the largest market size. A strong candidate will get the hint that entering the international market, especially the India market, is critical for the company to both fulfill current customerÕs emerging needs of cost saving and grow its future business. He/she should then start to compare the competitive advantages between large US companies off-shoring and local Indian players. Ability to fulfill customized needs High quality services Access to most profitable clients Cost advantage Local market knowledge Local client / government / supply chain relationships Low legal risks US companies O O O Indian players O O O O O Conclusion The short answer is ÒYesÓ. The situation falls into the upper left corner of the matrix because Ð x In the long-run, even current customers with established relationship will need to look for cheaper alternatives. S Software can offshore its R&D to lower the cost but still keeps its customer service team in the US to maintain the high service quality. x Although clients in the developed country are more profitable, the actual growth of the market is limited. Developing markets like India might not be as profitable as the US, but with the huge and growing market size, even capturing a small percentage of the market can provide substantial profits. x S Software might lack knowledge of the Indian market, but its strong customer relationship management skills, large existing customer bass, and the understating of unique customer needs can be further leveraged in India. In addition, hiring local talent or partnering with local companies can help solve the concern of the lack of local knowledge. x The legal risk as well as the political risk in India can be considered low. Case 9: H HEALTH McKinsey, 1st Round The Problem A US health care provider suffered a profit decline last year. You are hired to solve this problem. Information Gathering Read this information well before you give the case. Basic information should be given as the candidate asks for it, but the rest of the interview is very directive. The candidate is supposed to follow the direction and do the math confidently. The interview style is pleasant and helpful. Background Information x The key revenues come from commissions. x H Health signs contracts with patients and provides medical services. x H Health has 300 contracted physicians. x A ÒreferralÓ is necessary if certain medical treatment/service canÕt be provided by H HealthÕs contracted physicians. Question 1: How would you approach this problem? Answer: Profit = Revenue Ð Cost = No. of patients * (unit price Ð variable cost) Ð fixed cost The candidate can be creative to come up with possible reasons for revenue decrease and cost increase. Some examples Ð Revenue declined: - number of patients dropped - unit price dropped - competition grew their market share Cost increased: - VC: number of visits increased (e.g. major flu), per person cost increased (e.g. cost of the medicine), referral cost increased - FC: physicianÕs salary increased Question 2: Competitor analysis Ð why is our referral cost higher than the competitor? H Health Sunshine Number of patients 300,000 500,000 Referral cost $20 (per member, per month) $15 (same) Answer: (again, the candidate is encouraged to be creative) - Economies of scale - Lower administration costs - More contracted physicians Question 3: Assuming none of the contracted physicians have the specialty of cardiology, estimate the number of referrals per year for cardiology based on the following information: Number of patients: 300,000 20% of the total population is > 65 years old, and 30% of them need treatment For the rest of the population, thereÕs a 10% chance for them to require the treatment The treatment usually requires 5 visits to the doctor per year. Answer: >65 years = 300,000*0.2*0.3 = 18,000 <65 years = 300,000*0.8*0.1 = 24,000 42,000*5 times/year = 210,000 (times/year) Question 4: The actual number of referrals is 300,000. Why is it higher than the estimate? Answer: - H HealthÕs clients do not have the same weight between different ages as the total population - They underestimated the number of visits per year - More demanding patients ask to be referred even if they donÕt have such issues - Physicians refer non-cardiology patients because they donÕt want to take the risk and are not motivated to provide services even if they are capable Question 5: How much does the number of referrals have to decrease in order to justify following incentive plan to encourage contracted physicians to be more responsible? Incentive plan: Bonus: $100,000 / year to top 10 physicians with the lowest referral rate Training: $1,000,000 Referral cost: $200 per referral Current no. of referral: 300,000 Answer: Total cost = 2,000,000 2,000,000/200 = 10,000 Question 6: If the incentive plan can reduce the number of referrals by 5% for year one and 2% for year two, what is the total saving? Answer: Y1 = 300,000*5% = 15,000 Y2 = (300,000 Ð 15,000)*2% = 5,700 Total saving = (15,000 + 5,700)*$200 - $2,000,000*2 = $140,000 Question 7: Apart from Cardiology, how can H Health improve the number of referrals in general? Answer: - Increase training to improve physicianÕs capability - Extend the incentive program to other departments - Improve the quality of relationship with the patients and build up the trust - Improve/remove physicians who are outliers with extremely high referral rate - Increase the no. of contracted physicians - Partner with other health care provider to lower referral cost Conclusion According to the example of cardiology, H Health should improve its profitability by lowering the referral cost. H Health can x reduce the number of referrals, and/or x reduce the cost per referral Case 10: H HOTEL Booz Allen Hamilton, 1st Round The Problem You are hired by H Hotel to advise whether they should raise their daily room rate from $160 to $180. Information Gathering Read this information well before you give the case. ThereÕs very limited information to begin with, therefore the candidate is expected to ask questions, but in a structured way. Allow 10-15 seconds for the candidate to layout his/her assumptions for each step of the analysis before giving any clues. Certain level of stress should be created but the overall interview style is pleasant. Industry Overview x Overall market: stable. x Segmentation: the hotel industry can broadly be divided into two segments that serve different customer needs Ð one for business purposes and the other for vacation. Exploration: Let the candidate characterize each segment. For example: business hotels usually locate in the center of metropolitan areas, are smaller in size compare to the average vacation resorts, are better equipped with in-room business services like internet/fax/printer, and are more flexible in booking. Vacation hotels have to be in a touristy or scenery area but not necessary in the center of it, have a wider range of price and facilities, and with more fluctuations in demand. x Competition: The client is the leader in the Business Hotel segment and an average player in the Vacation Hotel segment. Internal Company Analysis x The client decided to focus on the Business Hotel unit. Why do you think they made such decision? Answer: 1) Location advantage: since the client is already the leader in this segment, they must have already blocked the best locations in most of the big cities. Competitors are hard to compete with this given the fact that the supply of space in hot spots is very limited. 2) Steady revenue stream: once contracts with big corporations are signed, the demand of business traveling is much easier to predict than vacation hotels which contributes to a higher occupancy rate. In addition, a fixed price can be set more easily. 3) Lower maintenance cost: business hotels tend to be smaller in size and need less recreational facilities. z From an internal view of the company, why do you think they wanted to increase the price? Answer: To increase profitability. z Does it make sense from H HotelÕs internal view? Answer: The usual Profit = Revenue Ð Cost = Price*Quantity Ð (Fixed Cost + Variable Cost) function should appear here. Hint the candidate that thereÕs not much room for cost saving by saying Òthey already outsourced the cleaning serviceÓ, Òthey just went through a major layoff and cut the staff by halfÓ, Òtheir restaurant and bar are operating efficientlyÓ, etc. On the revenue side, both increasing quantity (occupancy rate) and price (room rate) can increase H HotelÕs revenue. External Consumer Analysis z How is the price increase going to impact consumersÕ behavior? Answer: The candidate should look into both the Òend userÓ (the actual business travelers) and the ÒcustomerÓ (the corporations that H Hotel has contracts with). The impact on end users is limited since they donÕt pay for it. They wonÕt stop staying at H Hotel as long as the service level, flexibility, location, and other conditions remain the same. For the customer, most of them have long and stable relationship with H Hotel (thatÕs what makes H Hotel the leader of Business Hotel) will only leave if 1) the price is not competitive compare to H HotelÕs competitors (in this case itÕs still competitive) 2) the price exceeds the cap of its traveling expense (in this case the cap is $240) 3) no extra benefits come with the price increase (in this case H Hotel provides better services, more business friendly facilities, etc.) z Assuming H Hotel successfully increased the price, what can they do to the Òend userÓ to increase demand? Answer: Let the candidate e creative here, but make sure they hit following points. Differentiation: On the product side, H Hotel can improve its convenience (e.g. provide transportation/get the hottest spot in the emerging area of a city), increase its business friendliness (e.g. in-room fax/printer), and upgrade its rooms, etc. For the service, H Hotel can create a more personalized experience for consumers by keeping track of each travelerÕs special demand, set the room differently, etc. One step further, H Hotel can also lock consumers in by offering traveler specific promotion (different from the ones for the corporate), such as offering free gifts to the consumers (e.g. shopping coupons) or cross promotion between H HotelÕs business hotels and vacation hotels (e.g. free stay at one of the vacation hotels when the traveler takes his/her family on vacation next time). Conclusion A star candidate will see that his/her time is nearly up and will present a conclusion without prompting. If the interview is within 3 minutes of the end, ask for the conclusion. Answer: The short answer is ÒYesÓ. z H Hotel has competitive advantage given its superior location, good service, and trust worthy relationship with long term customers. Given such strong base, thereÕs room for H Hotel to increase its price with further differentiated product and service. Even after the $20 increase, the price is still far below its customerÕs ceiling and remains competitive among its competitors. Furthermore, H Hotel can still grow its sales quantity by locking travelers who have several business hotel choices in by adopting traveler specific promotions. z From an internal point of view, cost saving has reached a limit. H Hotel has to improve its profits by top line growth. As long as price doesnÕt effect quantity (occupancy rate), total revenue will grow.