Ross - Case Book - 2008
Ross - Case Book - 2008
Ross - Case Book - 2008
Casebook 2008
Ross Consulting Club
Note: This document is for the use of Ross Consulting Club members only. Reproducing or
transmitting any part of this document in any form or by any means without the explicit
permission of the Ross Consulting Club Board is prohibited.
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Table of contents:
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Case 1: Film Production -medium- Bain&Company, Round 1
Context:
The client is a large film production studio, FilmCo, which develops and distributes full-length feature
films for the U.S. and international markets.
FilmCo is planning on releasing its big budget film of the year nine months from now and is
considering a new release strategy. The first component of the strategy is to release the movie in
heaters on the same day around the world. The second component of the strategy is to release the
DVD of the movie day-and-date (meaning releasing the DVD the same day as the theater release).
FilmCo is interested in knowing whether this is the best release strategy for this movie and, if not,
FilmCo would then like to know what its release strategy should be.
The main question to answer is if the new strategy FilmCo is considering is better than the usual release
strategy in the movie industry.
To assess this we need to see which of the releases brings more profits to FilmCo.
a. Regular Strategy: We need to estimate the revenues that could be generated and costs involved
with this type of release ( which is from my knowledge: theater release in the US followed by
theater release internationally, DVD release internationally). In order to estimate the expected
revenues, I would look at similar type of movies and their economics
b. New strategy: I would start by checking if this strategy was ever used and the results it brought.
Then I would estimate the changes in revenues, costs of this strategy versus the regular one.
Finally, I believe we need to check if there are any regulation regarding international theater release and
how these regulations will affect our new strategy
FilmCo has done a simultaneous global theater release, but never simultaneous with the DVD release.
Only one movie has ever been simultaneously released theatrically and through DVD, and it was by a
small, independent film company.
The film is the third movie of an action series. The previous two films were produced by another
studio, so we have no financial data on them.
The simultaneous theatrical and DVD release is expected to cause a 20% decrease in revenue from
theater ticket sales and a 25% increase in DVD sales.
The marketing campaign for the movie is expected to be $50M, while the marketing campaign for the
DVD is expected to be $5M. With the simultaneous release, no DVD marketing campaign is required.
Pirating movies accounts for a 20% loss in total theater revenue. A simultaneous global theater
release will cut this down by 25%.
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Case 1: Film Production -medium- Bain&Company, Round 1
3
Case 1: Film Production -medium- Bain&Company, Round 1
(The interviewer should then calculate the expected revenue from the theater release and from the
DVD release using second and third slides and other information that he/she gathered)
$500M∗14+$250M∗3+$100M∗2+$50M∗1
Estimated theater revenue = = $400 million
20
Estimated DVD revenue = $400M*30%/60% = $200 million
(to decide between going simultaneously with the theater and DVD release versus going separately
the candidate need to calculate the profits generated by the two strategies)
Simultaneous Separate
I recommend FilmCo should do a simultaneous global theater release but a delayed DVD release
because:
However there are some risks involved with this strategy. With global release we cannot reduce
spending in case the movie fails in the US. There are also risks regarding the problems that may be
caused by governments impeding or delaying the release in their respective countries.
We need to investigate further these aspects before going forward with the plan.
5
Case 2: Office Vending Services -hard- Bain&Company, Mock
Context:
Office Vending Services Inc. (OVS) is the market leader in office vending machine services. The
business services provided include sales and delivery of product, restocking of machines, and repair of
faulty equipment. Profits are substantially down in the business.
The CEO of Office Vending Services needs Bain to assess the root causes of the profitability decline
Good Framework:
There are many ways to go about solving this problem. Key points to bring up in a framework include:
• What is happening with OVS’s revenue and costs?
o Can ask interviewee – what do you think are the major cost buckets for a firm like OVS?
(examples – delivery costs, SGA, COGS, etc.)
• Customers – Are wants and needs being met?
• Competition – How is the competition doing? Are there new entrants? Big rivals? Substitutes?
Ex 2 – OVS costs decreasing past 2 years; rate of cost decrease is increasing, but is not keeping pace with
the rate of revenue decline; Down 4% from ’96 - ’97; down 7.5% ’97 – ’98. (Interviewee should begin to
think about where the cost reductions are coming from and what the drivers are. May ask for a cost
breakout for OVS.)
Ex 3 – Volume of deliveries are dropping over the past few years. What is the driver? Can have
Interviewee speculate.
Ex 4 – Average price per delivery has remained stable; so revenue per delivery has not dropped.
Ex 5 – OVS is dominant player in market but has been losing market share – 20% over the past 2-years.
Interviewee should be able to estimate the competitors’ market size, as well as the percentage of the
market OVS currently has.
• OVS Revenue: $200M (40% of market)
• Vend Int. Revenue: $130M (26% of market)
• Candy & Pop Revenue: $110M (22% of market)
• Other Revenue: $60M (12% of market)
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Case 2: Office Vending Services -hard- Bain&Company, Mock
It is also important for the interviewee to see that Vend has grown the fastest at 40%. It will be
important to understand how Vend has grown – what does Vend do well that has allowed them to be so
successful over the past few years?
Ex 6 – Should see what attributes are important to customers and how OVS ranks versus their
competitors. The top 2 for customers (Price and Delivery Reliability) are where OVS scores the lowest.
Conversely, Vend scores the highest in these two categories. Additionally, OVS scores very well in
Product Variety and Machine Service/Repair, yet these are not nearly as important to customers.
Interviewee should begin to make links between what has allowed Vend to grow (meeting customer
needs) while OVS loses market share.
Also, interviewee can calculate each firm’s profit margin in order to compare them in a more direct
manner.
• OVS: 200/200 = 0%
• Vend: 117/130 = 10%
• Candy: 98/110 = 11%
This clearly shows that OVS’s profit margin is non-existent and that their competitors are running a more
efficient operation.
Ex 9 – OVS’s cost per delivery is 9.5% higher than the competition. Also, the breakout of the overall
costs within each delivery differs:
• OVS’s COGS and SGA per delivery are higher (roughly 70% of total delivery cost versus 50%)
• OVS’s delivery bucket of the overall cost per delivery is roughly half the cost of the
competition – again, not meeting customers’ need and spending less than other vendors.
Ex 10 – OVS has been reducing costs across the board, but the largest reduction has come from
deliveries – which is clearly impacting the overall business. The small decreases in the other large
buckets, has not significantly impacted overall costs.
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Case 2: Office Vending Services -hard- Bain&Company, Mock
Conclusion
What is the overall issue with profitability?
• Profit margin is current 0% compared to 10% and 11% for two largest competitors
• OVS is reducing costs, but revenue is dropping faster than costs are
o OVS has reduced costs significantly in Delivery, yet this is the most important attribute
to customers
o OVS has not reduced costs much in COGS, yet Price is very important to customers
• Not meeting customers’ needs:
o Price and Delivery are the most important but OVS scores lowest in these categories;
competitors are meeting customers’ needs and are stealing share away from OVS
o OVS’s spending on Product Variety and Repair are significantly higher than the industry
spends and are in areas that customers do not value as much – need to reallocate and
reduce
• Potential next steps:
o Look to reduce COGS, SGA and repair costs
A reduction in product variety could decrease COGS through economies of scale
– OVS would purchase higher volumes of fewer products, lower cost/unit
Reduction in variety may also reduce costs of delivery as there would be fewer
products to carry in vehicles (more deliveries possible) and may reduce the
time/complexity of refilling a machine
o Increase spend on delivery to improve customer satisfaction (more research needed)
More drivers
Better vehicles
More efficient delivery routes
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Case 2: Office Vending Services -hard- Bain&Company, Mock
$300M
250
230
200
200
100
0
1996 1997 1998
$300M
225
216
200
200
100
0
1996 1997 1998
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Case 2: Office Vending Services -hard- Bain&Company, Mock
3.0M
2.0
1.0
0.0
1995 1996 1997 1998
$125
75
50
25
0
1995 1996 1997 1998
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Case 2: Office Vending Services -hard- Bain&Company, Mock
Percentage Change
Total market sales (1996-1998)
Total: 3%
$500M 17%
Others
22%
400 Candy & Pop Co
200
0
1996 1997 1998
Source: Market Research; Company Annual Reports; Office Vending Services Financials
CHI 6
Ex 6: Customer satisfaction
Price 10 4 8 7
Product 6 10 5 6
Variety/Selection
Delivery Reliability 9 5 10 8
Machine Service/Repair 3 9 4 5
Complaint Resolution 5 7 5 4
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Case 2: Office Vending Services -hard- Bain&Company, Mock
Ex 7: Customer satisfaction
6
6
5
4
3
Importance
Cand & Pop Co
2 Vend
International
Office Vending
Services
0
Price Product variety/ Delivery Machine Complaint
selection reliability service/repair resolution
Office Vending
$200M $70M $60M $30M $30M $10M
Services
Vend
$130M $35M $30M $30M $17M $5M
International
Candy &
$110M $32M $22M $23M $15M $6M
Pop Co.
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Case 2: Office Vending Services -hard- Bain&Company, Mock
$125
105
Other
100 95 94
Repair
75 Delivery
SG&A
50
25
COGS
0
Office Vending Vend International Candy & Pop Co
Services
Costs
Total: (11%)
225
Other
216
200
200 Repair 0%
(14%)
Delivery
(25%)
SG&A
100 (8%)
COGS (7%)
0
1996 1997 1998
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Case 3: Retail Brokerage -hard- McKinsey&Company, Round 1
Context:
Our client is a retail Brokerage firm with annual revenues of $5B. They are operating throughout the
US with 200 branches opened. Half of these branches are corporate and half are franchised.
Trading means that brokers do specific transactions as per their customer’s requests. The revenue in
this division would come from a fixed fee of $10 per transaction.
In the Asset Management division, the firm is administering the customer’s money and the revenues
come from a percentage from the total amount administered assets which is 1%
Costs:
Fixed costs: $1B
$800M – IT ( $700M from Trading and $100M from AM)
$100M – Marketing
$100M – SG&A
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Case 3:Retail Brokerage -hard- McKinsey&Company, Round 1
Variable costs:
Trading:
Commission to brokers: 40% of revenues
Other costs: $2 per transaction
Asset Management:
Commission to brokers: 40% of revenues
Fee to an outsourcing firm that is managing the assets: 0.4%
Trading division:
Revenues = $3B
Fixed Costs = $700M(IT) +$60M(Mkt.-pro rated from the revenues) + $60M(SG&A-pro rated from the
revenues) = $820M
Variable costs:
Commission: 40% of the $10 fee = $4 per transaction
Other = $2 per transaction
Number of transactions = $3B / $10 = 300M
Variable costs = $6 * 300,000 = $1.8B
Profits:
Trading profits = $3B - $1.8B - $0.82 = $380M (12.66%)
Asset Management profits = $2B - $180M - $1.6B = $220M (11%)
A good candidate will also observe that Asset Management is slightly more profitable than trading.
Interviewer: Now we are almost in an economic depression. What would happen to this firm if an
economic recession would happen next year? Calculate by how much they need to increase the
number of transactions/ assets managed now in order to breakeven in each division in case of
recession.
In order to do that I need to know what happened with this firm at the last recession in order to try to
benchmark the effects.
(if the interviewee does not ask for past recession effects ask to brainstorm on how they can estimate
the effects of the incoming recession till they get to this answer)
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Case 3:Retail Brokerage -hard- McKinsey&Company, Round 1
Interviewer:
Number of transaction decreased by 50%
Assets managed decreased by 15%
For Trading:
If x = number of transaction needed now
#transaction * revenue per transaction = fixed costs + #transaction*variable cost per transaction
(50% * x) * $10 = $820M + (50% * x )*$6
x = 410M
They will need to increase the number of transaction by ~35% [(410M-300M)/300M]. I don’t think this is
feasible in a short period of time, especially just before a recession.
Interviewer: How can they address the risk of the recession (how can they keep the profitability at
current levels)?
They can either try to increase the revenues or decrease the costs:
Increase revenues:
- Change the product mix – get more asset management business because it is more profitable
o Advertise
o Incentivize brokers to get more assets
o Offer more benefits for customers coming to us instead of competition
o Extend office locations
o Offer new products for current customers
o Put in place a field sales team of brokers to get more assets or trade customers either by
attracting more and richer customers or by making the current ones put more money in
- Get more, richer customers
- Increase the fee per transaction or the percentage for the asset management
- Segment the market and differentiate depending on customer
Decrease costs:
- Fixed costs:
o IT seems to be the highest: outsource it because it can also bring some other benefits like
expertise from an IT firm, risk dispersion if it breaks down
o Use cheaper systems, less qualified labor
- Variable costs:
o Decrease the commission for brokers
o Get the asset management in house
o Link the commission of the brokers to the performance; create an incentive system to
actually make them bring more business
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Case 4: Slot City -medium- Bain&Company, Round 1
Context:
Game Co. currently owns four casinos in Slot City. Competitors are contemplating opening up a rival
casino in Libertyville.
Game Co has hired Bain to assess the ramifications of a competitor opening a casino in Libertyville and
Game Co.’s strategic options
Initial facts:
• Currently there are no casinos in Libertyville. There are competing casinos in Slot City but they
are not relevant because it is a mature market.
• Slot City has a 25% tax on revenue. Libertyville has a 50% tax on revenues.
Question 1: What are the ramifications for existing revenue if a casino opens in Libertyville?
Question 2: What are Game Co’s options?
For Question 1:
In order to assess the implications of a new casino in Libertyville on Game Co we need to understand:
- Revenues: What are the revenues of Game Co and where this revenue comes from ( type of
services, etc)
- Geographic location: where is Libertyville located in relation to Slot City. Where are the
revenues from Slot City coming from geographically
- Customers: Who are the customers of Game Co and how this customers may consider going to
competition in Libertyville; how many are they and how many they can lose to competition
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Case 4: Slot City -medium- Bain&Company, Round 1
35%
30%
25%
20%
15%
10%
5%
0%
Motor City Slot City Garden City Libertyville
Customer segmentation
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Case 4: Slot City -medium- Bain&Company, Round 1
Plug and Chuggers: Hard Core gamblers who only want to gamble and care most about convenience
(assume casino payouts are identical across the board)
Vacationers: want to “get away” and leave the area for a week or weekend
Experiencers: want to live the casino experience ( lights, shows, action, etc. ) and are interested in the
casino itself and what it has to offer
Other information given upon request:
Conversion information:(before giving this information ask the candidate for his/her opinions)
Plug and Chuggers will shun Slot City for the new, closer casino (100% conversion)
Vacationers want to get away so would not go to the Libertyville casino (0% conversion)
Experiencers may to may not go somewhere else – a range of answers is accepted but assume 50% for
the calculations
Important: assume the additional drive time from MC or GC to LV will deter any significant number of
those customers from defecting to Libertyville
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Case 4: Slot City -medium- Bain&Company, Round 1
For Question 2:
The options that Game Co has are:
- Do nothing
- Open a casino in Libertyville
(Candidate should understand that it is more desirable to cannibalize within the company than to
allow outside competitors to steal the revenue)
Recommendation:
Game Co should open a new casino in Libertyville. The new casino will only affect the customers in
Libertyville due to the geographic area. The customers depending on the segment will react very
differently to the opening and all these needs to be assessed. However there are some risks associated:
competitor opens the casino first and gets the 1st mover advantage by opening their casino earlier and
there may be high costs of construction / operation of the new casino.
Bonus question:
How can Game Co. make up for the lost revenues?
FUN FACT: Based on a real case with Slot City = Atlantic City, Libertyville = Philadelphia, Motor City =
New York, Garden City = New Jersey
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Case 5: PlastiCo -medium- The Boston Consulting Group, Round 2
Context:
PlastiCo currently sells thin lamination film used to make advertisements and signs (think ads on the
side of the city busses, buildings or billboards) – sold in all manners of colors and finishes (matte,
gloss, shiny, etc)
PlastiCo currently sells its material in the USA at 10cents / sq. ft.
A European competitor has just finished building a lamination factory in Los Angeles and is
approaching our customers and offering to sell them product at 9cents /sq. ft.
PlastiCo hired BCG to help them figure out if they should match the competitor’s price.
Interviewer:
This plastic film is manufactured in giant rolls and cannot be economically transported by air and
cannot survive the harsh conditions of shipment by sea.
Currently the majority of sales are to independent regional suppliers. The reminder of sales is shipped
directly to major accounts (major Ad Companies, Home Dept., etc).
This lamination film is essentially a commodity (the candidate should immediately know that it means
that the customers are sensitive to price and would switch to a cheaper version)
The new competing plant has only capacity to produce 250 million sq. ft. per year (25% of the market)
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Case 5:PlastiCo -medium- The Boston Consulting Group, Round 2
75% of PlastiCo’s products can be manufactured by the competitor with no discernable difference. The
candidate should realize that 25% of the products are differentiated products b/c it uses high tech
coating process that prevents colors from fading.
Because it is a Monopoly, our client should attempt to price as high as possible to consume all
customer’s willingness to pay.
Our client should concentrate on the 25% of the product that cannot be copied:
• Increase the price of these specialty items
• Without substitutes, higher margins here can offset the lost revenue on the other 75% of the
products
Do we have any information about the profit margins, so we can estimate the profits?
Profit Margins
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Case 5:PlastiCo -medium- The Boston Consulting Group, Round 2
Long term implications: This situation leaves PlastiCo open to further mkt. erosion if competitor
increases capacity. Margins can also be eroded due to loss of scale (not a good long term solution)
Match Price:
Profit loss: 1c/sq. ft. on every sale
= 1,000M sq. ft * $0.01 = $10M
We made the assumption that no market share will be lost (which is not necessarily true)
Long term implications: it is more expensive in the short run but defends the market position
Bonus questions: how much market share would need to be lost before it would cost more (in the
short term) to match the 9c/sq ft. price?
Solution:
1,000M * $0.035 * (x%) = $10M
X = 28.57%
Recommendation:
PlastiCo must match prices to stave off possible market share decline of 25% in the first year and
potentially more if competition expands its existing plant. The remaining 25% of products should retain
their high prices and perhaps even raise them to maximize producer surplus. There are some risks
though as even with the price match, they can lose some market share.
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Case 6: Small Drug Manufacturer -medium- Bain&Company, Round 2
Context:
The client is a small drug manufacturer, DevCo, based in the United States. DevCo currently has one
drug on the market sold mainly in the United States, but has also sold to a lesser degree in the U.K.
and Germany.
DevCo is looking to increase its presence in Europe and is considering expanding into Poland, Spain,
and France, specifically.
DevCo is interested in knowing which country it should expand into and what the criteria should be
for choosing a country.
I would need some more information before going further. First I would like to know what the drug our
client sells is and what it is used for. Second, I would like to know why its presence in UK and Germany is
low and why the company is considering Poland, Spain and France and no other country.
The drug is an anti-clotting drug used during angioplasties, a type of heart surgery.
In Europe, when a patient has heart problems, they have one of three options:
(1) open-heart surgery (a very invasive surgery)
(2) angioplasty (a less invasive surgery)
(3) over-the-counter or prescription medicine
DevCo has a lesser presence in the U.K. and Germany because they only recently entered those
markets
DevCo is considering entering Poland, Spain, and France because those countries have the next 3
largest populations in Europe behind the U.K. and Germany
DevCo only wants to enter 1 country and intends to stay in that country for at least 5 years.
Buying decisions are made by the physician and the insurance companies and patient have little input.
(when the interviewer asks for the number of angioplasties, before showing the slide, ask to
brainstorm: )
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Case 6:Small Drug Manufacturer -medium- Bain&Company, Round 2
General Information on DevCo and Each of its competitors to be given upon request:
PharmaCo:
• Drug used in high risk surgeries (~40% of surgeries)
• Price $400 / drug
Kiltzer Inc.:
• Drug used in low risk surgeries (~40% of surgeries)
• Price $400 / drug
Mork&Co:
• Drug used in very high risk surgeries (~10% of surgeries)
• Price $2,000 / drug
DevCo
• Drug used for high and low risk surgeries
• Claims less blood clothing
• Price $400 / drug
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Case 6:Small Drug Manufacturer -medium- Bain&Company, Round 2
(Either France or Spain is a good answer as long as the candidate supports it)
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Case 6:Small Drug Manufacturer -medium- Bain&Company, Round 2
27
Case 6:Small Drug Manufacturer -medium- Bain&Company, Round 2
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Case 7: Fast Food Chain -medium- The Boston Consulting Group, Mock
Context:
Our client is a fast food chain; they hired us to analyze their idea of implementing a new promotion: a
frequent diner program similar to the airplane ones:
• for every $1 spend - 1 point
• for every 20 points – a free movie ticket
No of locations: 500
No of customers: 20,000
The price of a meal: $4
Current margin: 50%
Cost of a movie ticket $1 (ask first the candidate about their opinion on how much it would cost)
The redemption percentage of the movie tickets = 50%
They will only pay for the redeemed tickets.
Enrollment:
- 20% of the frequent customers will join the program
- 5% of the occasional customers will join the program
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Case 7: Fast Food Chain -medium- The Boston Consulting Group, Mock
Solution:
Additional costs = additional costs of the extra meals sold + cost of the movie tickets
= 50% * $45,600 + 50% * (36*1,600*4 +12*600*4) / 20
= $35,760
I recommend they should go further with the program as it provides the company ~ $10,000 additional
profits. However, there are some risks involved that needs to be investigated before the actual
implementation like:
• Implementation costs (cards, staff to help people signing up, handling the movie tickets, filling
reports, etc.)
• Longer waiting lines due to the additional tasks
• If margins decrease the program becomes unprofitable (ex 30%)
We would need to investigate these aspects before going further with the implementation
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Case 8: Apache Helicopters -hard- Bain&Company, Round 1
Context:
Our client is a US defense contractor and one of its divisions manufactures Apache helicopters for
military operations. The company is considering setting up a new plant to meet increasing demand in
the attack helicopter space. These helicopters are fully equipped with guns and ammo when delivered
to the client. The client has considered three sites where to setup operations – Brazil, France and US.
Q1. How would you go about defining the parameters for decision?
Q2. Where should they setup the plant based on that analysis?
(Provide the interviewee with the information she/he asks for, but don’t volunteer any information.
The case itself isn’t very hard, but the critical thinking around how a country might alter purchases
based on country of origin is a thought that good interviewees will bring up. The other key aspect is
the interviewee’s ability to capture data and not get lost in it.)
Company Information
• The client has 3 plants in the US; 2 in Kansas and 1 in Michigan
• The plants operate at full capacity today.
• One of the US plants can accommodate an additional assembly line at the cost of $500M; the
other 2 are landlocked in residential areas and cannot be expanded.
Cost Information
• Initial plant setup costs are $500M (US), $2B (BR), $3B (FR)
• Fixed Costs are $100M annually in all three countries
• Variable costs are $15M (US), $20M (BR), $25M (FR)
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Case 8: Apache Helicopter - hard- Bain&Company,Round 1
Sales information
The helicopter sell for $100M a piece, but if they are imported into the US, then the US Govt. require
them to be certified and the certification process costs $15M per chopper.
SOLUTION:
Costs (5 years)
Initial Setup $500M $2B $3B
Revenues (5 years)
US $20B $20B $20B
BR 0 50% x 15B = $7.5B 0
FR 0 0 50% x $10B = $5B
TOTAL REVENUE (over $20B $27.5B $25B
5 years)
32
Case 8: Apache Helicopter - hard- Bain&Company,Round 1
If plant in US
US revenues over 5 years = 20% of 100B = 20B
# of choppers = $20B / $100M = 200 helicopters
Total Cost = 500M + 500M + (200) x ($15M) = $4B
PROFIT = $16B
If plant in BR
US revenues over 5 years = 20% of 100B = 20B
BR revenues over 5 years = 50% of 15B = 7.5B
# of US-bound choppers = $20B / $100M = 200 helicopters
# of BR-bound choppers = $7.5B / $100M = 75 helicopters
TOTAL COST = 2B + 500M + {(# of US bound units) x ($20M + $15M} +
{(# of BR bound units) x ($20M)}
= 2B + 500M + (200) (35M) + (75) (20M)
= 2B + 500M + 7B + 1500M
= $11B
PROFIT = $16.5B
Having the plant in Brazil will give us profits higher than the US by $500M
Based on the financials, Brazil appears to be a more attractive candidate for setting up the new plant
because:
- our profits over 5 years will be higher by $500M
- we won’t be entirely dependent on one single country (US) for sales
However, we need to also explore the following:
- what is the potential for selling choppers outside of these 3 countries to the worldwide
market
- what will labor reaction at our existing plants be if we off shore production to Brazil
- are US relations with Brazil likely to be cordial over the next 5 years for us to benefit from
export control laws and sales to both nations
(Case writers tip: This case is not overly complicated, but allows for the opportunity to bring in your
own knowledge from reading about companies in the Defense space. E.g. The issues with EADS and
Airbus reference labor relations and plant locations in France can be a point of discussion for bonus
point.)
33
Case 9:Electronics Warehouse -medium- McKinsey&Company, Round 2
Context:
Our client is an electronic warehouse selling all kinds of electronics and home appliances. It was
founded in 1990 and currently owns 375 stores located in all major cities across the US.
They have a healthy profit margin and represent a major player in the electronics retail market, but
the CEO hired us to help them grow even quicker.
Recently they opened a number of smaller conceptual stores and these stores are less profitable than
the regular ones.
We have the task to help them grow aggressively while maintaining the profitability.
Interviewer: What are the key areas to investigate in order to determine why the new stores are not
profitable?
Interviewer: How many stores do they need to open in order to secure a 20% market share in 5 years?
34
Case 9: Electronics Warehouse -medium- McKinsey&Company,Round 1
(for simplicity of the calculation take into account that the current stores are all of the same revenue
size and the future ones will have the same average revenues; the candidate should realize that this
calculation would be different if that was not being considered)
Current state:
Market = $150B
Market share = 10%
⇒ Revenue = 10% * $150B = $15B
⇒ Revenue per store = $15B/ 375 = $40M
In 5 years:
Market = $200B
Market share = 20%
⇒ Revenue = 20% * $200B = $40B
Possible options:
- Open only the old type of stores
- Choose locations with a specific type of inhabitants ( income, family status, hobbies, etc)
- Introduce new products and use the customer database to sell them
- Implement marketing campaigns, loyalty cards
- Make contracts with schools, institutions, hotels, etc
- Become a distributor for small electronics stores
- Raise prices on non price-sensitive products
- Acquire/merge with a competitor
- Get into other channels like online sales, door to door sales
- Start selling services (repairs, installations, etc)
35
Case 10:Grocery Chain -medium- McKinsey&Company, Round 1
Context:
Our client is a grocery chain having 200 stores spread all over US. They have been enjoying good
profits and great results, though in the last 2 years they have seen a slowdown in the growth of the
market share and the profits and same store sales have gone down.
As a matter of fact, Wal-Mart has opened a store exactly 2 years ago and 3 more in the past two years
in the client geography.
Our client also started, 5 years ago, to open smaller stores closer to where there is a high density of
people.
We have the task to help them overcome their current issues.
Interviewer: What can be the reasons behind their low performance lately?
Profit decrease can come either from revenue decrease or from cost increase
Decreased revenues due to:
- Competition: need to assess the entry of new competitors of significant investments from the
existing ones that might have stolen the consumers from our stores
- Change in consumer needs that were not spotted by ous client and have affected the traffic in
the store(e.g.: focus on organic products, need for additional services to be provided by the
store, etc)
- Change in pricing(specifically increase ) that might have decrease the spending of the consumers
or determined them to go to another competitor
- Change in the assortment of the store that might have determined some loyal customers to look
for those products in another place
- Change in the promotions that the client used to have(e.g. reduction of promotions, elimination
of loyalty programs, etc)
Increased costs due to:
- Opening of new smaller stores have a lot bigger costs per unit sold than the old stores
- A reduction in prices that provides lower profitability
- A change in the mix of products sold ( e.g. now the customer is selling more low margin
products)
Interviewer: How can they address the threat of Wal-Mart and the other competitors?
Information to be provided upon request:
• Wal-Mart carries 75% of the grocery items our client has at much lower prices
• Studies have showed that consumers perceive the prices in our client store as being higher
than both the ones in Wal-Mart and the ones in another close competitor
36
Case 10: Grocery Chain - medium- McKinsey&Company, Round 1
• The reality is that they are 20% higher than the ones in Wal-Mart and equal to the ones in the
other competitor
I do not think the Wal-Mart is a real threat based on the number of stores that they have yet (3 as
opposed to 200 of our client). But Wal-Mart can become a real threat once they expand.
Then it is very important to differentiate versus Wal-Mart. Our client will not be able to compete on low
prices with Wal-Mart but they can perform a market research and identify other needs that customers
have and Wal-Mart cannot provide and work on those attributes.
As for the other competitors, our client has to work on building its pricing image. There is clearly a
problem coming from the fact that they are perceived more expensive than the next competitor. Maybe
their prices are not following a good pricing strategy. They should probably conduct a price sensitiveness
analysis in order to properly identify the products that should have low prices and the ones that can
carry higher margins.
Interviewer: As a strategy to overcome their problems they decided to reduce the prices by 15%.
Based on the information below how many new stores should they open in the next 2 years to break
even?
The sales/store for the stores opened in the last 5 years is lower than the sales from the older stores.
For the simplicity of the calculation we consider the stores equal.
(This information should help the candidate assess the validity of the price reduction)
Solution:
37
Case 10: Grocery Chain - medium- McKinsey&Company, Round 1
Interviewer: They have performed another study to see the customer perception over a series of
factors. Based on this information, what do you think they should do?
Quickness
Customer service
Organic products
Factor tested
Fresh products
Competitor
Promotions
Price
0 20 40 60 80 100 120
A good candidate will recognize that the closeness to home is the factor that they can work on as
our client is a better performer than its competitors.
It looks like on the fresh/organic assortment it has an advantage but a good candidate will recognize
that this advantage is easy to be copied by competitors
Example of recommendation:
Based on the findings so far, I think that for our client is critical to start concentrating on the attributes
where it has an advantage versus competition and that are also important to consumers (closeness to
home) and build its marketing campaign and future communication strategy on those identified
strengths. Another current advantage is the fresh/organic assortment but because it can be easily
copied, it will be difficult for the client to differentiate here. The risk is in the short term as building a
new brand image is not something that can be achieved very quickly but it will be critical to help them
recover the lost market share.
38
Case 11: Paper Company -medium- Accenture, Round 1
Context:
Company:
- What are the products they are selling and how they fit into the overall market
- What is the value chain for our client and where is the problem that causes the loss in
profitability
Customers:
- Who are the customers
- What are the need of these customers and how our client meets these needs
Final goal: look at the profitability and assess how much we need to increase revenues, decrease costs
to become profitable.
39
Case 11: Paper Company - medium- Accenture, Round 1
Looking at the revenues coming from the two products and the situation in their respective markets,
there appears to be little opportunity for improvement in revenues. Although the profit in carbonless
paper is higher, the market is shrinking.
In order to look at the cost side I would like to better understand the value chain for the products.
Procurement -> Manufacturing -> Distribution -> Sales and marketing
(The candidate should notice that the client has little room to move on the purchase of commodities;
upon further questioning, the candidate should be told that the service level is important to their
customers; a manufacturing discussion is important, but should be saved for the next part. Therefore,
the important point here is the wasted money in distribution. )
Based on these information there is a lot of waste in their cost structure and there are lots of ways to
decrease costs:
- Purchasing the raw materials at lower costs ( new contracts/ consolidate suppliers for more
buying power, etc)
- New technology could help them reduce the cost of manufacturing paper
- Distribution seems to be the quickest win that can provide great savings by moving from
trucking to rail and/or by making sure that trucks run at full capacity.
Interviewer: The CEO notifies you that he is considering purchasing up to 3 additional mills
• East Coast Mill: has 2 lines that are older technology, comes with its own distribution center
• Mid-West Mill: has 4 lines that are state of the art, and produces its own pulp
• West Coast Mill: similar to East Coast Mill
How does this affect the analysis?
40
Case 11: Paper Company - medium- Accenture, Round 1
Recommendation:
Good answers:
• At this point, it should be clear to the candidate that the firm’s major problems lie on the cost side
and that the two largest buckets that need to be addressed are raw materials and distribution; plant
efficiency is also a tertiary issue
• A good candidate will suggest purchasing at a minimum the Mid-West plant for the distribution
advantage and possibly the East Coast plant because of the distribution center
• The West Coast plant is a red herring
Better answers:
• Better answers would recommend purchasing the Mid-West plant and closing down the current WI
plant since over-capacity is an issue
• This enables more efficient production and better access to cheaper distribution
• The firm should set-up distribution centers to allow slower & cheaper distribution by rail but at the
same time enable the maintenance of the high service level customers require
• Any distribution centers should be geographically located near high concentrations of
customers; since the plants will be in the Mid-West & PA, this would likely be in the South
• The East Coast plant should not be purchased since the real attractive piece is the distribution
center, not the plant itself, and it is much cheaper to set-up distribution centers than spend $70MM
on a plant
41
Case 12: Pharma Acquisition -medium- McKinsey&Company, Round 1
Context:
Our client is a global pharmaceutical company that produces over the counter drugs and has its
headquarter in Frankfurt, Germany.
They are thinking of acquiring another pharmaceutical company located in San Francisco, that
produces nutritional drugs (for weight loss, diabetes, etc).
The CEO hired us to advise whether they should acquire the company or not.
Interviewer: What are the key areas to investigate in order to determine whether the acquisition is a
good idea or not?
42
Case 12: Pharma Acquisition - medium- McKinsey&Company, Round 1
Interviewer: We just discovered that we can improve the yield form phase 2 to phase 3 by investing
$150K in the R&D technology.
By how much should the yield increase so as to break even?
Solution guide:
To break even, cost needs to be equal to revenue
If x = the increase in the success rate from phase 2 to phase 3 then:
$150,000 = x * 70% * 90% * $1,500,000
=> x = 15.8%
(it means that the success rate should increase by approximately 15.8%/40% = 40%)
43
Case 13: National Magazine -easy- The Boston Consulting Group, Mock
Context:
Our client is a national monthly magazine that wants to restructure its printing division. They
currently have 2 facilities where they print their magazines and want to move to only one facility.
They hired us to tell them if this is a good idea or not.
I have a question before going further with the case. What is the reason behind deciding to restructure
the printing division?
In order to assess the validity of their idea I would start by looking into the cost structure of the
company, specifically for the printing division. I would assess both the fixed and variable costs involved.
Then I would like to identify the cost savings that a consolidation would give to the company, if the
company has the capability to do the consolidation both in terms of capacity or infrastructure involved
by such a transition (distribution, operations, and feasibility of the move).
Finally I would like to assess the risks involved (regulations, market situation)
(Interviewer should direct the candidate to answer the following question: What will be the total cost
per unit after the consolidation? What facility should they keep if at all?)
44
Case 13: National Magazine -easy- The Boston Consulting Group, Mock
(If not prompted by the interviewee, the interviewer should ask the following question: What are the
risks involved in moving to only one printing facility?)
Possible solution might include:
• unemployment in New Jersey
• local regulations
• operational: gas price
• delivery time
• cost of closing the other facility
• cost of materials
• Future increases in sales
I suggest they close the Idaho printing facility because the New Jersey one offers them the best cost per
unit. However they need to understand that there are other things to consider when taking this decision
as the ones I mentioned in the risks involved.
45
Case 14: Wind Turbines -hard- Booz&Company, Round 1
Context:
Our client is the largest European manufacturer of wind turbines (used to generate electricity by
harnessing wind power). The client currently has production capability in the US and has elicited your
help to determine:
1. Where to build its manufacturing plant?
2. How many plants to build?
This problem only concerns North American Operations.
Wind energy is currently growing in China and the US. By 2009, there will be capacity issues in the US.
We first need to understand the demand for wind turbines and the market share that our customer can
achieve. Being a growing market I would also want to assess the market growth. This will help us
understand if we need additional capacity.
Then I would continue by assessing if we actually need a plant in the US. Maybe we can import wind
turbines from other locations at cheaper cost that opening a plant.
In order to try to suggest a location for the plant we need to understand some of the factors that will
influence this location:
- Where the supply will be coming form, taking into account infrastructure, labor, taxes,
competition, shipping costs
- Where the customers are located
- What level of service we need to provide to these customers
- Is it possible to outsource manufacturing
- Where are manufacturing costs cheapest
The last component that cannot be ignored is competition. We need to know how segmented the
market is and how the competition is doing.
Taking into account that China is the second growing market I would also like to assess the possibility of
exporting turbines to China.
46
Case 14: Wind Turbines -hard- Booz&Company,Round 1
47
Case 14: Wind Turbines -hard- Booz&Company,Round 1
Economies of scale:
Candidate should immediately ask how economies of scale affect the production costs of each turbine.
11.45
11.4
11.35
11.3
Cost Per Unit
11.25
11.2
11.15
11.1
11.05
11
10.95
0 1000 2000 3000 4000 5000
Annual Plant Capacity
Other information given upon request:
A 1,500 units plant would cost $40 million dollars investment ( $30 million being the building). Each
additional 500 units in capacity will increase the costs by $15M
If 2 plants were built, the additional operation costs would be 15M/ year. The transportation savings
would be 7M per year.
Note that we cannot build a plant with a lower than 1,500 units capacity
For 3,000 units capacity( the capacity that the client will need to have by 2017 with a 10% increase in
the market size and same market share):
If 2 plants built:
Cost = $40M*2 + ($15M-$7M)*8 years= $144M
With all these information my recommendation is for them to build 1 plant that should be located near
but to the southwest of the mid west supply base. I suggest only one plant because the costs associated
with building and operating 2 plants are higher than for only one plant. However this plant needs to be
sized to accommodate the future growth (approx 100% increase by 2017 given no increase in share).
Even in this case, the costs are a lot higher for having two plants over one plant. There are some other
risk associated that were not taken into account here, like competition. We would need to assess the
competitive response and the effect it will have on the market share.
49
Case 15:Engine Manufacturer -medium- Accenture, Round 2
Context
The client is an engine manufacturer that designs and builds engines for large commercial trucks. They
have designed a new engine with significant new technology and significant new content. It will meet
all federal guidelines for at least 10 years.
The client has spent significant R&D money on this engine and expects to be able to charge a premium
price to recoup the investment. However, the client’s largest customer, representing 60% of all sales,
has been complaining about quality.
Our research has shown that although our client promised their customers in terms of soot emissions
less than 3k ppm, but they are currently seeing 20k ppm. (ppm=parts per million)
What is wrong and what should they do?
Ok, so in order to identify the problem we need to assess all the stages that the new product is going
through from the design to the moment it is ready to be sold to the customers.
- We first need to understand what is changed in the design vs. the last model and if the new
design is meeting the customer requirements.
- Then we need to look at the manufacturing process in terms of technology used, labor, if there
is something that was needed to be changed and was not.
- We also need to investigate the parts supply for the product and understand if anything
changed in regards to the components that we are using for the new engine.
- Last but not least I would like to see the main symptoms that customers claimed and compare
them with the previous engine.
Product Design: Design process was unchanged for this engine. All testing was done the same as with
historical products. However, the FMEA analysis (Failure, Modes, and Effects Analysis -Used to
identify and assess the ramifications of possible product defects) was skimped on. The significant new
technological components of the engine were developed according to the client’s standard process.
Manufacturing: Plant uses a highly skilled and educated workforce. There is no learning curve
associated with the assembly of this product.
Service: Client utilizes field technicians at the customer site. They are the ones reporting the warranty
data to the client. They are well educated on the product.
Sub-assembly procurement: Traditionally, client used few suppliers who delivered large sub-
assemblies. Now, in an effort to save costs, they have sourced many more suppliers to get the best
price for each component and are choosing to do more of the assembly themselves. However, all of
these suppliers are delivering products that meet the specifications delivered by engineering.
Defect Details: See next slide for Pareto detailing top warranty issues.
From the information provided it seems that there is nothing wrong with the new technology.
I believe that one major change that the company made is in the base of suppliers, going from a limited
number of suppliers to a bigger number of suppliers. Is the fact that they have more suppliers and are
assembling the components in house a cause of the claims that we see in the warranty claim chart?
Interviewer: Yes. You are right. Although each supplier is delivering to specification, there are
tolerances in these specifications.
• Since the client is accustomed to specifying sub-assemblies, the tolerances were not
tight enough for all of the individual components
• Therefore, the stack-up of tolerances causes the parts to have poor fit resulting in
leaks and lost parts
Ok. So the root cause for the problems is the stack-up of tolerances.
(the interviewer needs to lead the candidate to identify this problem which is the stack-up of
tolerances; all the other information given initially is a red herring meant to throw the interviewee off;
after the interviewee has identified the problem, no matter how much help he/she gets, they need to
come up with a list of recommendations and their risks on how to solve the problem)
The company can reduce its warranty claims by increasing tolerances on procured parts, increasing end-
product testing, or revising procurement agreement to order sub-assemblies. The first opportunity is
more expensive but we could look at ways to minimize costs. The second will increase mfg time but
would definitely decrease our warranty claims. The third option is more expensive but we could
perform a cost-benefit analysis between the 1st and 3rd options.
51
Case 16:Tax Preparer -medium- Diamond Management Consultants, Round 1
Context:
Our client is a tax preparer working in the US. They make the most part of their revenues between
January and April. They currently operate 65,000 stores, 20% of them being located in Wal-Mart
supercenters.
They have been growing through franchise model for the last 15-20 years.
The CEO is concerned with the growth of the business in the recent years and wants us to investigate
ways to stimulate growth through distribution footprint and same store sales.
- Revenues: We need to investigate where the revenues are coming from; what type of services
they are offering
- Costs: what are the main buckets of costs and the value of them
- Operation mode: how do they operate the stores
- Competition: operating model; market share
- Customers: segments of customers and their needs
Provide the following information to the interviewee (no need to wait for the interviewee to ask for
the data; this case is testing the ability of the candidate to handle a large amount of data)
- Franchising practices:
o they are franchising territories ( currently 5,000 in US and they are present in two
thirds of them; the rest are considered not to be important)
o They have on average 2 stores per territory
- Revenues in this case come from:
o $25,000 / territory
o 15% of the revenues
- Their current contract do not allow them to impose a minimum number of stores per territory
to their franchisees
- They offer two types of services:
o tax preparation
o Refund anticipation loan (government gives money back after 4-6 weeks )
- Revenues come from two different services:
- Tax preparation: two thirds
- Refund anticipation loan: one third
- 40% of every year’s customers do not come back the next year
- Market share: 4% - no 3 player in the market
- Revenues 20% higher in the stores located in Wal-Mart
- Competition is operating on a corporate model ( they own their stores)
- The number one competitor has a triple market share vs. our client
- Market is very fragmented
- No of current customers: 3.7M
52
Case 16: Tax Preparer -medium- Diamond Management Consultants, Round 1
Possible options:
- Change the franchising contracts as to impose a certain number of stores
- Implement a field sales force to cover part of the territories not in the vicinity of the current stores
- Start online operations
- Start opening stores in other mass merchandisers
- Open stores in the other territories where not present
- Buy some of the competitors
- Incentivize franchisees to open more stores in their territories
Possible options:
- Start selling packages of both services
- Incentivize customers to recommend the services
- Start selling the services remotely
- Try to attract the other customer segment not currently present in our client’s stores
- Train the franchisees on how to increase their business
- Advertise the services
- Start offering new services
- Investigate the causes of the lost customers every year and try to overcome the issue; offer an
incentive to come back the next year
- Implement a field sales force attached to each store
53
Case 17:State Social Service -medium- Bain&Company, Mock
Context:
Your client is a U.S. state’s social services agency. The agency is responsible for administering the
state’s social work programs.
Recently, the state legislature passed a law that will change the agency’s funding structure.
Previously, the agency had been funded at a fixed dollar amount. Now, under the new law, the agency
will be paid according to performance, as measured by the number of interviews they conduct with
state social work clients.
The agency has hired you to determine how the change will affect them and what they should do
about it.
Interviewee: Before we going into the problem of the case I would like to understand how this agency is
functioning, what are the activities that are performed by the agency.
Interviewer: For the purpose of simplicity, the agency’s only activity is conducting interviews.
(The key to this case is figuring out how the funding change will affect the agency, then identifying the
issues resulting from the change.
A strong candidate will first try to understand the agency’s previous funding structure, then ask about
the new funding structure, then recognize that the agency will experience a budget shortfall, then
make data-driven recommendations for closing the shortfall. )
I would start by looking at the funding process and here I would like to first understand how the agency
was previously funded, then I would like to look at the new funding procedure and how the change
between the two is going to affect them. After identifying the effect, we can look into ways to improve
the current status and other options to get funding.
Interviewer: Previously, the agency received $50,000 per employee per year.
Interviewee: How much of that cost went to salary and how much to overhead and other costs?
Interviewee: How many interviews does each state social worker conduct per day?
Interviewer: Currently each social worker conducts an average of 5 interviews per day.
54
Case 17: Social State Service -medium- Bain&Company, Mock
Interviewee:
They should try to find ways to close this funding gap, either by boosting revenues (e.g. increase the
number of interviews, seek other funding sources) or by cutting existing costs.
Interviewee: Can the agency increase the number of interviews it conducts per social worker per day?
Interviewer: Under the current system, the agency could boost the number of interviews from 5 to 6
per day.
Interviewee:
250 work days/year * $25 *6 interviews per day = $37,500
This will bring the shortfall in revenues to $12,000 per employee per year
Interviewer: It takes one hour; 40 min of ehich is the interview and 20 min is follow-up data entry
Interviewee: It seems that it takes a lot of time to enter the data in the system. Is there any way to
reduce this 20 min ( using a better note-taking technology for ex.) ?
Interviewer: The agency has found a very inexpensive transcription software program that would
allow them to cut the 20 minutes to 10
Interviewee:
10 min saved * 6 interviews per day = 60 minutes saved in a day
This will provide an extra interview per day =>
250 work days per year * 7 interviews per day * $25 = $43,750
This will bring the gap to $6,250 per employee per year
Interviewer: the agency can garner $1,000 per employee per year from a private charitable trust
Interviewee: It still leaves us with a gap of $5,250 per employee per year. I would continue now by
looking into ways to reduce costs. And I would especially look into trying to reduce overhead cost.
Can the agency merge some of its facilities usage with other state agencies to reduce overhead costs?
55
Case 17: Social State Service -medium- Bain&Company, Mock
Interviewer: Yes, the agency can consolidate its offices into other state agency buildings at a savings
of $4,000 per employee per year.
Interviewee:
We are now at $1,250 gap per employee per year.
Are all social workers paid evenly? If not, maybe we can reduce the salaries of the higher paid
employees.
Interviewer: No and Yes. 30% are paid only $25K/year 40% are paid $30K/year And 30% are paid
$35K/year. We’ve determined that the agency can convert half of the workers at the highest pay
grade to the lowest pay grade.
Interviewee:
So the new salary structure will be:
45% at $25K/year
40% at 30K/year
15% at $35K/year
Saving : 15% *($35K - $25K) = $1,500 per employee per year
( a good candidate will now summarize the case and will provide recommendations)
The funding change will result in a budget shortfall of $18,750 per employee per year if we continue to
operate as we have been.
56
Case 18: Mutual Fund -medium- McKinsey&Company, Round 2
Context:
Our client is an asset management firm with flat revenue and profits. We have been asked to help
them to remedy this condition.
Revenue:
• $2 billion in revenue based on 1% management fee of $200B of assets
Costs:
• Overhead: $200M
• Money management: $800M, 50% based on assets
• Distribution/ brokers: $800M, 100% based on assets (i.e. 40% commission of total revenue).
All sales are made through independent brokers (they also sell funds from other companies).
Fund strategy
• US equities
Interviewer: At what level of assets will the fund owner begin to lose money?
(This is a question of fixed and variable costs)
Solution:
Currently our fund has a $200M in general overhead; I assume that is not going to change with asset
size.
The brokers are paid purely on commission, so all of their costs are variable.
The money managers are paid 50% on commission, meaning $400mm are fixed.
57
Case 18: Mutual Fund -medium- McKinsey&Company, Round 2
Interviewer: Based on what you have found, what would you recommend to the fund manager?
- We need to look at ways to drive revenue first. We could change the incentive structure for the
money managers, adjusted more to the fund’s performance.
- With the brokers, we could pay them a higher commission to try to encourage them to sell our
fund over another (we would have to tease out the quantity/price relationship to see if this
makes sense.
- There probably is not much to gain with overhead.
- Additionally, this is a US fund only. We should consider launching an additional fund- perhaps
focusing on international markets- to drive up revenues and leverage our brand.
- We are a $200B fund- we probably have a strong brand that we could use to sell more to our
existing customers (i.e. new fund) and possibly bring in new customers as well.
- Look into new distribution methods
- Look into asking brokers to do cold calls
- Have the brokers in house (this will increase fixed costs but might provide better productivity)
58
Case 19:Acquisition Diagnostics -medium- Siemens Management Consulting, Round 1
Context:
The client is a large industrial medical supply firm (i.e. Siemens) who has made 2 simultaneous
acquisitions in order to fill a void in their product portfolio in the area of diagnostics instruments.
• Firm 1 is Bayer Diagnostics with $1.4BB in revenue per year
• Firm 2 is DPC with $300MM in revenue per year
What are the things the client should consider during the post-merger integration phase of these
acquisitions?
(the case is intended to be very conversational without a rigid direction; the candidate needs to
demonstrate that they can think of all the important areas to consider after a post merger)
We need to start by understanding what are the products that each of the two companies are producing
and how these products are going to be integrated in the mother company.
The main focus will be in trying to consolidate as many functions as possible in order to save some
money and to use the distribution channels from each company to try to increase the revenues.
- We need to understand the markets in which these products are playing and look at the
customer base
- I would also look at the location of the plants and the distance between these plants and the
customers of the company.
Finally one other thing that needs attention is the cultural aspect of the integration. We should assess
how close or different the cultures of the firms are and how easy it will be for them to integrate into one
company.
(the candidate should focus on identifying possible functions to consolidate and make sure the
integration will play a very important role in the success of the integration)
60
Case 20:Casino Game -easy- Accenture, Round 1
Context:
You own a Casino and are considering unveiling a new game. The rules of the game are as follows:
• The player pays an amount X to play the game
• The player than rolls a single standard 6-sided die
• After the 1st roll, the player is awarded the amount on the die times $1000 (i.e., if you roll a 4,
you win $4000)
• The player then has the option to give up that prize and roll a 2nd time
• The player can again accept the amount on the die in thousands or choose to roll a 3rd time
• The maximum number of rolls is 3, and the player only gets the amount of money in
thousands shown on the die on the last roll
The goal of the case is to determine the minimum amount X that the Casino should charge to play the
game
(This case has no additional information; it is simply a look at the interviewee’s approach to a real
options/statistical analysis problem.
Do not let the interviewee veer off into tangents about other miscellaneous concepts.
Assume that all parties act rationally, and although it is obvious the casino will charge some amount
of margin above the expected value of the game, the goal is to simply find the minimum amount they
would be willing to charge, which is the expected value.
It is helpful to understand the concept of “Real Options”, but is not necessary to solve the case.)
Solution:
1 Roll Game:
1+2+3+4+5+6
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑜𝑜𝑜𝑜 𝑎𝑎 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 = = 3.5
6
2 Roll Game:
The price of a 2 roll game will be higher than the price of a 1 roll game
We will assume a certain price P for 1 roll game and will further determine the expected value of a 2 roll
game.
At P=$4,000, 1/3 of the players ( those who roll a 5 or 6) will quit after the first roll. The expected payout
5+6
for these players is = ∗ $1,000 = $5,500
2
Therefore 2/3 of the players will continue to play the 2nd roll. The expected value of their roll (which is
now a single roll game), as established before is $3,500.
61
Case 20: Casino Game - easy- Accenture, Round 1
3 Roll Game:
The price of a 3 roll game will be higher than the price of a 2 roll game
We will assume a certain price P for 2 roll game and will further determine the expected value of a 3 roll
game.
At P=$4,500, 1/3 of the players ( those who roll a 5 or 6) will quit after the first roll. The expected payout
5+6
for these players is = ∗ $1,000 = $5,500
2
Therefore 2/3 of the players will continue to play the 2nd roll. The expected value of their roll (which is
now a single roll game), as established before is $3,500.
62