Ross - Case Book - 2012

ROSS CASEBOOK 2012
Ross Consulting Club

December, 2012
Table of Contents
 Introduction & Acknowledgements 2

 Firm Overview 4
 Industry Overview 18
 Case Interview Basics 26
 Cases 44
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Note to the reader
We are proud present the RCC 2012 casebook. This document is meant to provide a brief overview of case
interviews and a series of practice cases. For each case, we have specified the source, difficulty level, and
industry. In this case book, the difficulty level for all cases are medium or hard. Therefore, we recommend
that you refer to previous Ross casebooks for easier cases if you just started preparing for case interviews.
For the first time, we have added firm and industry overview sections to the RCC casebook. The material is
a starting point in your effort to learn more about firms and different industries that could give you some
insights while saving you a lot of time. However, it is only a first step and we encourage you to build upon
the information by doing your own research on industries and engaging with firms to gain a deeper
understanding.
Best of luck in the upcoming recruiting season!

RCC 2012 Casebook Team
Pouya Zangeneh (MBA 2013) Joydeep Mukherjee(MBA 2013)
Philip Anselmino (MBA 2014) Deovrat Kajwadkar(MBA (2014)
Aditya Kapoor(MBA 2014)
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Acknowledgements
Many people contributed to this year’s casebook. We are really grateful for your help and
support:
• Alexis Jay • Mohammed Dhedhi

• Aris Kalfayan • Puneet Dixit
• Bryant Tang • Raj Sharan
• Guilherme Dogliani • Seth Goodman
• John Ranz • Vineeth Vijaykumar
• Kenny Cao • Welson Li
• Kim Carter
• Michael Trudeau
Special thanks to Bain & Co and Booz & Co for providing full cases which will help Ross
candidates gain a better understanding of the firm’s expectation in a case interview.
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FIRMS OVERVIEW
Accenture
Accenture is a large global management consulting firm specializing in executable solutions and organizational
transformation.
About Quick Facts
 Focused on practical solutions that clients can implement  Number of consultants: 17,000
 Balance of strategy and implementation  Number of offices: 200
 Rapidly growing management consulting division  Services: 18
 Internal Strategy College offers consultants the opportunity for
professional growth
 New consultants hire into the global operating model or a specific
industry
Career path
Interview process overview  Consultant

First Round:  Manager
 Two 45- minute interviews consisting of a fit portion and a 30 minute  Senior manager
case
 Senior Executive
 Second Round:
 Three 45- minute interviews consisting of a fit portion and a 30 minute
case
Source: www.accenture.com
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A.T. Kearney
A.T. Kearney is a global team of forward-thinking, collaborative partners that delivers immediate, meaningful
results and a long-term transformational advantage to clients and colleagues.
About Quick Facts
 Traditional strengths are strategy and operational consulting  Number of consultants: 2200
 Increased presence in private equity work  57 offices in 39 countries
 Diverse work environment and friendly colleagues  13 Industry groups
 Strongest industry verticals: Industrial and Consumer Retail, Energy,  10 practice areas
and Public Sector
 Recent Managing Director change and aggressive growth strategy has
been announced for the firm
Career path
Interview process overview
 First Round  Associate
 Manager
 Two back-to-back 45 min interviews, each includes fit and case
 Conducted by a Manager/Principal  Principal
 Partner
 Second Round
 15 min email writing test
 Written case (60 min prep, 30 min presentation)
 45 minute fit interview
 45 minute full case
Source : www.atkearney.com
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Bain & Company
Bain & Company is a global management consulting firm differentiating itself in solving business problems for
clients by working with the clients’ team as business partners and focusing on results.
About Quick Facts
 Expertise across all major industries and across functions  Number of consultants: 5500
 Bain redefined the boundaries of traditional strategy consulting in  Number of offices: 48
working with companies such as: Tied Economics, BridgeSpan Group,
PE consulting, Bain Capital
 Emphasis on people – opportunities to balance work –life, international
transfers, externships, private equity rotations
 Leading consulting firm used by major private equity firms
Career Path

First Round:  Case Team Leader
 Two-45 minute interviews including a brief fit interview (5-10min) and a  Manager
case interview
 Principal
Second Round:
 Partner
 45 min behavioral interview
 45 minute interviews case interview
 Written case: Interviewee has 60 min to review a written case following
30 min presentation/Q&A by interviewer
Source: www.bain.com
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Booz & Company
Booz & Company is a global management consulting firm known for its functional expertise, industry
foresight, and “sleeves rolled up” approach to working with clients.
About Quick Facts
 Booz & Company has always been known for deep industry and  Number of consultants: 3000
functional expertise across public and private sectors, influential global  Number of offices: 58
studies and books, and management magazine “strategy + business”
 Emphasis on mentoring and assessment – senior mentor, junior mentor,
360 degree performance assessment
 Expertise across diverse industries and functional areas
Career Path
Interview process overview  Associate

First Round:  Senior Associate
 Two 45- minute interviews consisting of a fit portion and a 30 minute  Principal
case
 Vice President, Partner
Second Round:
 Two 45 minute interviews with partners following the same format as the
first round.
Source: www.booz.com
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Boston Consulting Group
BCG is a global management consulting firm and one of the world's leading advisor on business strategy.
Commitment to both clients' success and its own standards is what sets BCG apart.
About Quick Facts
 Regional Staffing model  Number of consultants: 5600
 Creative and supportive environment  77 offices in 42 countries
 BCG provides one of the lowest leverage ratios in the consulting  19 Industry groups
industry; senior management works closely with junior consultants  18 practice areas
 Emphasis on a generalist approach. Consultants are not required to
specialize in an industry or service line until reaching the Principal level
Career path

• First Round  Project Leader
• Two Case Interviews (Includes a section for behavioral)  Principal
• Conducted typically by 2nd year Consultants to Principals  Partner
• Second Round
• Three Case Interviews typically conducted by senior
representatives
• All Interviews are 45 min with at least 25 min dedicated to the case
• Some offices (such as Chicago) piloting a written case
Source : www.BCG.com
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Deloitte
Deloitte is a global management consulting firm specializing in strategy and implementation across a broad
range of industries and functions.
About Quick Facts
 National staffing model provides flexibility to work in a variety of  Number of consultants: 20,000
industries regardless of office location  Number of offices: 89 US Offices
 Focused on executable strategy that offers opportunities in both strategy  Practices
and implementation
 Strategy & Operations
 Job flexibility and culture encourage work-life balance
 Technology
 Recently invested $300M in Deloitte University, a leadership center near
Dallas  Human Capital
 Pending acquisition of Monitor Group will expand strategy practice and
capabilities
Interview process overview Career path

First Round:
 Senior Consultant
 Manager
 30 min case interview
 Senior Manager
Second Round:
 Partner or director
 60 min individual case interview
 90 min group case interview
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Ernst & Young
Ernst & Young (EY) is one of the largest professional service firms in the world service delivering capabilities
to help companies turn innovation into action, information into insight and risk into results.
About Quick Facts
 One of the Big Four Accounting +consulting firms  Number of consultants: 167,000 1
 Prominent Advisory practices are
 PI (Performance Improvements, includes all operations related
work and a strategy function known as “strategic direction
 TAS (Transaction Advisory Services) – includes Commercial
Advisory (valuation, due diligence) and Operational
Transformation Services (Post Merger Integration)
Career Path
 Senior Consultant
 Manager
First Round:
 Senior Manager
 On campus, consisting of two sessions, a behavioral interview and a case
interview  Partner
Second Round:
 Behavioral interview
 Case interview
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McKinsey & Company
McKinsey & Co is a large global management consulting firm focusing on high profile studies for businesses,
governments, and institutions.
About Quick Facts
 Strong research department supporting consultants  Number of consultants: 17,500
 National staffing model  Number of global offices: 99
 High profile clients and studies  Industry Practices: 22
 Teams with diverse backgrounds (MBAs, PhDs, JDs)  Functional Practices: 8
 A culture that promotes work-life balance
 Encourages active discussion; individuals have “obligation to dissent”
Career path
Interview process overview  Associate

Selected candidates have to take Problem-Solving test: 26 questions, 60 min  Engagement Manager
First Round:  Associate Principal
 Two 45-60 minute interviews consisting of a case and fit questions  Partner
Second Round:  Director
 Three 45-60 minute interviews consisting of a case and fit questions
Note: Fit questions address three main points: personal impact, leadership,
and problem solving skills
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Oliver Wyman
Oliver Wyman is one of the world's fastest-growing strategy consulting firms with specialized expertise in
strategy, operations, risk management, organizational transformation, and leadership development.
About Quick Facts
• Specialized industry and functional expertise  Number of consultants: 2000
• Rigorous, proven strategy and operational improvement methodologies  Number of offices: 20
• Collaborative working style  Career Tracks
• Agenda-setting research  Financial Services consulting
• Work-life balance  General Management consulting
 Organization transformation
consulting
Career Path
 Associate
 Senior associate
First Round:
 Job Manager
• One behavioral interview – 45 min
 Senior Job Manager
• One case interview – 45 min
 Associate Partner
Second Round:
 Partner
• Behavioral interview - 1 hr
• Case interview – 1 hr
Source: www.oliverwyman.com
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PwC Advisory
PwC Advisory is a rapidly growing consulting organization backed by the stability and strength of the PwC
brand. They support clients in designing, managing and executing lasting beneficial change.
About Quick Facts
 National Staffing model  Practice areas:
 Focus on four industry verticals: Financial Services, Health Care,  Strategy
Product and Services, Public Sector  Finance
 Consulting practice projected to double in the next two years  Operation
 High investment by the firm on internal networking events to develop  People & Change
strong intra-company bonds
 Risk
 New employees recruit for a specific industry focus rather than a
generalist role Career path
Interview process over view  Senior Associate

 First Round (On-campus, 2 sections, 45 min each)  Manager
 Behavioral  Principal
 Mini-Case and Fit  Partner
 Second Round (3 sections, 45 min each)
 Behavioral
 Content interview: Industry Focus Interview
 Case interview: a presentation based on a case emailed 48 hours
in advance
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Roland Berger
Roland Berger is one of the top international consultancies. It prides itself on developing creative strategies and
implementing practical solutions.
About Quick Facts
 Values entrepreneurial spirit and individuality of consultants  Number of consultants: 2700
 Three core values: entrepreneurship, partnership and excellence  49 offices in 35 countries
 Deep Understanding of diverse cultures and markets  25 Industry groups and 26 functional
areas worldwide
 Internal transfer policy that allows consultants to permanently change
offices if they have suitable language skills  3 industry groups and 4 functional
areas in North America
 Every new hire is assigned a senior mentor to help with the transition
and personal development
Career path
Interview process overview  Senior Consultant

 First Round  Project Manager
 45 min interview which includes fit and short case  Principal
 Conducted by 1-2 consultants  Partner
 Second Round
 Personal fit interview
 Business knowledge interview
 Case interview that includes a presentation
 Conducted by consultants and members of management team
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The Cambridge Group
The Cambridge Group is a management consulting firm specializing in helping clients identify and capture
market demand.
About Quick Facts
 Acquired by The Nielsen Company in 2009 enables access to key  Number of consultants: 115
customer insights  Number of offices: 1 (Chicago)
 Emphasis on helping Growth strategy – top line growth
 Major industries include retail, CPG, and financial services
 Office-based consulting model limits frequency of travel
Career path
 Consultant
 Project Manager
Single Round:  Project Manager
 Project Director
 3 consecutive interviews totaling 2 hours consisting of a case and fit  Project Director
 Principal
questions.  Principal
Source: www.vault.com
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ZS Associates
ZS Associates is a global management consulting firm specializing in using data driven strategies to provide
sales and marketing solutions.
About Quick Facts
 Expertise in marketing and sales with a focus in healthcare  Number of consultants: 2000
 Partnership with clients to design and implement solutions  Number of offices: 20
 ZS services include consulting, outsourcing, technology, and software  Practices
 Project-specific and formal training provide opportunities for continued  Business consulting
professional development  Business operations
 Business technology
Career path

First Round:  Manager
 On campus consisting of two sessions, a behavioral interview and a case  Associate Principal
interview
 Principal
 Second Round:
 Behavioral interview
 Case interview
 Business presentation interview – evaluation of communication skills
Source: www.zsassociates.com/about.aspx
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INDUSTRY OVERVIEW
Airline Industry
Revenue Streams Cost Structure Market Trends
 Ticket sales  Labor – 11%  Airlines are consolidating
 Charges for bags and on-board  Fuel – 32%  Proliferation of low cost carriers
services  Aircraft depreciation/rentals - 12% offering pay per service options
 Fuel surcharges  Airport gates/ facility rentals – 6%  Flexible capacity is an important
 Capacity optimization is key for factor in airline profitability
 Maintenance – 5%
profitability  Average annual growth: 5.1%
 Weather resulted in cancelled
flights can be a significant expense  Online booking and checking to
reduce administrative expenses
 Profit margins around 1.6-2.5%
Customer  Leisure travelers – 71%, generally price sensitive

 Business travelers – 25%
Segments  Freight Transportation – 4%
 Online travel agencies (Orbitz, Expedia, Kayak, etc.)
Channels  Airlines’ sales team: call centers, online, or kiosk
 Travel management companies (TMCs) serving corporate clients
 Changes in fuel prices have a major impact on profitability
Risk  Economic conditions greatly impact amount of leisure travelers
 Highly susceptible to threats of terrorist activity

Misc.  Disease outbreaks also limit airline demand
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Auto Industry
 Vehicle sales  Materials – 78%, Long term  Focus on fuel improving efficiency
 Vehicle financing contracts with key suppliers are  Increased popularity of hybrid and
common electric vehicles
 Extended Warranties
 Labor – 5%, Relationship with the  Top 8 firms control 80% of the
 Branding is key for selling similar UAW is critical
product at differing price points market
 Marketing – 3.6%  Average annual growth: 3.3%
 Depreciation – 2.1%  Profit margin around 2.4%
 Significant model redesigns occur
approximately every 5 years
Customer  Large and midsize

 Small and compact
Segments  SUVs and light trucks
 Dealership networks – largest domestic segment
Channels  Wholesalers – purchase fleets of vehicles for businesses and resale to dealerships
 Rental companies
 Relationship with United Auto Workers (UAW) union a major factor in industry profitability
Risk
 Purchase decisions influenced by current fuel prices

Misc.  Plant capacity utilization is very important, over 80% utilization required for profitability
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Commercial Banking Industry
 Loan interest  Wages – 26%  Industry consolidation, especially
 Fee based services  Bad debt expense – 21%, recent in the wake of subprime mortgage
levels are significantly higher than crisis
 Credit cards
historical average (5%)  Increased government regulation
 Revenue is dependent on prime
rate and aggregate household debt  Interest expense – 15%  Mobile banking is increasing more
 Facilities – 7% important to long term success
 Average annual growth: 5.2%
 Profit margin: 20%
Customer  Retail customers – 56%

 Corporate clients – 39%
Segments
 Branch offices
Channels  Stand alone ATMs
 Mobile banking
 Non traditional competitors are beginning to offer banking services - Retail Co.
Risk
 New legislation limits banking fees and requires banks to maintain higher capital reserves, both
Misc. have decreased industry profitability
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Pharmaceuticals
 Pharmaceutical manufacturing  The manufacturing cost of  Healthcare reform is expected to
industry is highly capital intensive pharmaceuticals is the largest boost sales as more individuals
with high revenue volatility share of the industry’s cost - gain prescription drug coverage in
 The effect of seasonality is high 31.5% 2014
on certain products (vaccines and  Research & Development- 20%  Tariff barriers are no longer a
cold medicine) and low on other  Marketing costs – 7% relevant form of protection
products (pain medicines)  Wages account for 11% in the cost  Demographic shifts will increase
 Federal government grants for structure sales over next five years to 2017
R&D  The industry also faces high  Loss of patent on key drugs for
liability insurance costs and high many large pharma companies.
legal fees and settlements around 2010-11
Customer  Patients/consumers who need these drugs/medicines

 The targeting strategy has to consider two other stakeholders: 1. Doctors who prescribe these
Segments
medicines 2. Insurance companies that pay for them
 Over-the-counter (can be sold without prescription): Retail outlets – CVS, Walgreens; Mail order
Channels  Prescription drugs: Hospitals, pharmacies
 Mail order pharmacy: Express Scripts, Walgreens
 Price competition from generic drug manufacturers
Risk  Change in drug utilization and mix patterns
 Government healthcare polices that are not favorable
 Key success factor : Blockbuster Drug (>$1B in annual sales)
Misc.  FDA approval required before any sales can be made
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Retail
 Women’s Apparel sale accounts for  Industry costs are similar for most  Over the five years to 2017, retail
the major share of revenues at 21% operators, but vary between firms of sector revenue is forecast to grow at an
 Drugs & Cosmetics and Furniture & different operating sizes and average rate of 4.5% per year
Household appliances contribute 16% specialties  Employment in the industry is
each to total revenue  Largest expense for the industry is projected to grow slowly
 Children and Men's wear are each Cost of Goods Sold which has  Consolidation is expected to
10% of retail revenue increased due to weak sales continue within this industry
 Toys - 8%, Footwear – 5% and misc.  Employee wages account for 13%  The industry's contribution to the
items - 13% are other sources of  Rental costs are 5% GDP is expected to underperform
revenue  Marketing costs are close to 10% compared to the US economy
Customer  The industry is consumer-oriented and, due to the spectrum of products, its markets are generally
segmented into different age groups
Segments
 Segment shares of the revenue have remained relatively unchanged over the past five years
 Big-Box Retailers
Channels  Specialty Retail stores
 Discount Department stores
 Changes in consumer disposable income can cause consumers to defer purchasing products from
Risk retailers as industry is sensitive to changes in economic activity
 Major players are Retail Co. , Sears, Macy’s, Target and JC Penny. Together these companies account
Misc. for 81% of market share
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Telecommunication
 Plain old telephone calls, and  Investment and investment-related  Expectations of always-on service
increasing text and images. High- costs are 65-70 percent of the costs of everywhere forcing operators to boost
speed internet access, broadband production network capacity and connectivity
information services and interactive  Wage shares are at about 25% Increased demand of a variety of new
entertainment A notable part of the investments are services like mobile payment
The fastest growth comes from what economists refer to as “sunk platforms and cloud computing
services delivered over mobile costs”. These are long term Revenue increase forecast for
networks. investments which can be used only Internet services is 7.9% per annum till
Advertising income accounts for for specific economic activities. 2017 and for wireless telecom to
about 5% of total industry revenue. increase by 4.8% till 2017
Customer  Residential and small business markets

 The corporate market - less price-sensitive than residential customers. Large multinationals, premium
Segments
service buyers include those opting for high-security private networks and videoconferencing.
 Retail Channels
 Read more: http://www.investopedia.com/features/industryhandbook/telecom.asp#ixzz2BnRRtxjT
Channels  Direct Sales
 Capital-intensive telecom industry the biggest barrier to entry is access to finance

Risk  New technology is prompting a raft of substitute services, with lower prices and more exciting
services driving down industry profitability
 Average Revenue Per User (ARPU): Measure of growth performance.
Misc.
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Utilities
 Transmitted electricity is separated  Purchased power accounts for the  Overall growth over the next five
into two categories, base load and largest component of this industry's years is anticipated to be positive
intermittent electricity cost structure – 44%  In the short term, the recession's
 Base load electricity is expected to  Wages - 9% , wage growth has fallen lingering negative effects are
account for the bulk of industry due to slower rate increases and anticipated to constrain growth
revenue [95%] ( Coal – 36%, Natural industry consolidation  Renewable power, such as solar and
gas – 25%, Nuclear – 17%, Others –  High depreciation costs because wind, are projected to grow strongly
17%) infrastructure requires significant over the next five years
 Intermittent electricity is generated capital investments  Public utility commissions (PUC)
from renewable energy sources [5%  Marketing, maintenance contracts are expected to grant rate increases,
revenue share] and other costs – 15% fueling revenue and profit growth.
Customer  Residential
 Commercial
Segments
 Industrial and Transportation
 Transmission grids
Channels
 The Utilities industry is in the mature stage of its life cycle and is associated with low risk s
Risk  Seasonality of electricity consumption (due to weather shifts) can squeeze revenues in the short term
 Advanced metering technology will become a consistent feature of this industry over the next five
Misc. years
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Case Interview Basics
Case Structure
The overall structure of the case interview takes the following form:
Understand the Develop Form

Analyze
Question Framework Recommendation
(~20 minutes)
(~1-2 minutes) (~1-2 minutes) (~1-2 minutes)
• LISTEN • Ask for a moment to • Refer back to the • State your
• Summarize the problem plan your structure framework as you move recommendation as a
statement to make sure • Develop 3-4 areas to through each of the main direct response to the
you understand the analyze along with a few areas problem/objective – it
situation and objectives tailored sub-topics • Use one sheet of paper should not come as a
• Ask 1-2 clarifying • Structure the framework per topic – think of the surprise to the
questions around the in a logical fashion – it case as a PowerPoint interviewer
topic and/or metrics to should open with the deck • Incorporate key
be used for the analysis most important topic • Tie back each piece of metrics/findings as a
• The questions posed and provide the analysis to the main part of your
should necessitate a interviewer with a objective/problem recommendation
short response – you roadmap of where you statement • Include risks and next
don’ plan to take the case • Walk through the steps
• Engage the interviewer calculations /analysis
by turning the • Drive insights whenever
framework towards possible!
them
Porter’s Five Forces
Porter’s Five Forces Analysis
Threat of New
Entrants
Bargaining Power of Internal Bargaining Power of

Suppliers Rivalry Customers
Threat of Substitutes
Porter’s Five Forces
Concept Key Drivers
Internal Rivalry Concentration and balance
Industry growth
Product differences
Exit barriers
Overcapacity
Threat of New Entry Economies of scale
(Barriers to Entry) Capital requirements
Access to distribution channels
Competitor response
Brand identity
Proprietary product differences
Threat of Substitutes Switching costs
Relative pricing
Availability of and consumer propensity to substitute products
Bargaining Power of Suppliers Supplier concentration
Switching costs
Threat of forward integration
Product differentiation
Bargaining Power of Customers Buyer concentration
Buyer volume
Buyer switching costs
Ability to backward integrate
Substitute products
Key Marketing Concepts
4Ps Considerations
Product Features and capabilities
Quality and reputation
Service and warranties
Packaging and size
Positioning and market segmentation
Differentiated versus commodity
Promotion “Pull” versus “push”
Consumer awareness
Loyalty
Advertising medium
Public relations
Buying process
Trial/Repurchase
Price Perceived value
Willingness to pay
Retail/Discounts
Economic incentives
Skimming
Strategy  relation to market size, product lifecycle, and competition
Place (Distribution) Channels
Coverage
Inventory  levels, turnover, carrying costs
Transportation  alternatives, efficiencies, costs
Key Marketing Concepts
3Cs Considerations
Company Strengths/Weaknesses/Opportunities/Threats
Strategy and vision
Available resources/Capacity
Experience/Learning Curve
Financial
Culture/Organizational structure
Competition Industry
Size/Number/Market share
Economies of Scale/Scope
Capabilities/Experience
Resources  financial, distribution
Customer Perceptions
Loyalty
Switching costs
Purchase behavior
Segmentation
Market characteristics/trends
To make this a 5Cs analysis, one would also evaluate costs and channels. Data for these two
dimensions is covered elsewhere in the casebook.
General Frameworks
Topic Key Drivers
Revenue Volume
• Internal Price, Customer Service, Distribution/Inventory/Capacity
• External Competition, Substitutes/Complements, Market Forces/Demand
Price  Competition, Elasticity, Differentiation, Segments
Product Mix  Attributes (e.g. niche, patent), Quality, % of Revenue, Variety
Alternative Revenue Streams
Number of Stores
Costs Fixed Costs  Manufacturing, Labor, Marketing, Overhead, IT, SG&A, PP&E
Variable Costs  Inputs, Distribution, Marketing, Maintenance, Packaging, Inventory
Balance Sheet Items
Benchmark Opportunity Cost/Cost Accounting/Capacity Utilization
External  Union strikes, Technology, Currency Fluctuations, Tariffs, De-
/Regulation
Competition Rivals (structure)
New Entrants
Substitutes
Reaction
Position
General Frameworks
Topic Key Drivers
Customers Market Size
Segments
Needs
Purchase Drivers
Price Elasticity
Retention/Loyalty
Processes Manufacturing
Marketing
Sales
Distribution
Customer Service
IT
R&D
Forecasting
Company Core Competencies
Cost of Capital
Brand
Organization / Incentives
Controls
Financial Capability
Management Capability
General Frameworks
Topic Key Drivers
Macro Legislation
Unions
Technology
Economy  Oil, Interest Rates, Unemployment
International Issues  Politics, Regulations, Taxes, Tariffs
Environment
Socio-Cultural
Demographics
Supply Chain Suppliers
Distributions
Industry Barriers to Entry/Exit
Lifecycle
Consolidation
Government Policy
Capital Costs
Access to Technology, Distribution, etc.
Key Formula Review
Topic Formula
Time Value of Money
Rule of 72
Little’s Law
Inventory
Profitability
Breakeven
Margin
Markup
Key Formula Review
Topic Formula
Return on Assets (ROA)
Return on Equity (ROE)
DuPont Analysis
Working Capital
Income Statement Sales

− COGS
= Gross Profit
− SG&A
= EBITDA
− Depreciation/Amortization
= Operating Profit
− Interest Expense
= EBIT
− Tax Expense
= Net Income
Economics Review
Concept Definition
Adverse Selection Situation in which an individual’s demand for insurance is aligned to their risk of loss
(i.e. people with the highest expected value will buy insurance) and the insurer
cannot account for this correlation in the price.
• Restrict choice
• Equalize information
• Signaling
Consumer Surplus Economic gain achieved when consumers purchase a product for a price less than
their willingness to pay.
• Consumer Surplus = Willingness to Pay - Price
Economies of Scale The average cost per unit for a business entity is reduced by increasing the scale of
production.
Economies of Scope The average cost for a business entity is reduced by producing two or more products.
Elasticity • If E>1, decrease price to increase revenue

• If E<1, decreased price leads to lower revenue
Insurance Form of risk management used to hedge against the risk of a loss in which the cost is
equal to expected loss.
Law of Diminishing Returns At some point in the production process, the addition of one more unit of output ,
while holding everything else constant, will eventually lead to a decrease in per unit
returns.
Marginal Cost Cost of one more unit of output.
Economics Review
Concept Definition
Monopoly Entity is the only supplier of a particular good.
• Lack of competition  produce less and charge more
• Barriers may include government regulation, networks, patents, etc.
• Revenue is the midpoint of the demand curve
Moral Hazard The unobservable actions and risks that humans may take once a contract is signed since they don’t
bear consequences. It is a special case of information asymmetry that affects the cost of transaction.
Oligopoly Market is dominated by a small number of sellers.

• Dominant strategy is always better
• Sequential games – commitments help
Perfect Competition • Firms take price  MR = P
• Maximum profit = MR = MC
• P<AVC  shut down
Price Discrimination Situation in which identical goods are sold at different prices from the same provider.
• 1sr degree  Different price for different willingness to pay
• 2nd degree  Different price for different quantities
• 3rd degree  Different price for different segments (attributes)
Risk Averse Individuals who prefer certainty over the uncertain for the same expected value (EV).
Risk Neutral Individuals who are indifferent on risk taking if the EV is the same.
Risk Seeking Individuals who prefer risk even if the EV for a certain event and the risk is the same.
Glossary
Term Definition
Arbitrage The purchase of securities on one market for immediate resale on another market in order to
profit from a price discrepancy.
Break-Even Total amount of revenue needed to offset the sum of a firm's costs. Implies that the firm's
profit will be $0.
CAGR Compound Annual Growth Rate: (Ending value/beginning value)^(1/# of years)-1. Most likely
to show up in a case with graphs and exhibits.
Capacity The maximum level of output of goods and/or services that a given system can potentially
produce over a set period of time.
Competitive When a firm is able to deliver benefits equal to competitors but at a lower cost OR able to
Advantage deliver greater benefits than competitors.
Contribution C=P-V, where P is unit price, and V is variable cost per unit.
Margin
Core Competencies The activities that a firm does well to create competitive advantage.
Customer Subdivision of a market into discrete groups that share similar characteristics.
Segmentation
Glossary
Term Definition
Discount Rate Also known as cost of capital. There is an opportunity cost associated with every
investment, with the cost being the expected return on an alternate investment.
Entering New Market Three main methods: start from scratch, form joint venture, acquire an existing
player.
Five Cs Company, Customer, Cost, Channels, Competition
Fixed Costs Costs that do not change with an increase or decrease in the amount of goods or
services produced.
Four Ps Product, Price, Promotion and Place
Gross Margin A Company’s total sales minus its cost of goods sold, divided by the total sales
revenue, expressed as a percentage.
Horizontal Integration The acquisition of additional business activities at the same level of the value chain.
International Expansion Main mechanisms: exporting, licensing, franchising, joint venture, foreign direct
investment (acquisition or startup).
Glossary
Term Definition
Inventory Turnover A ratio showing how many times a company's inventory is sold and replaced over a
period. Should be compared to industry averages: low turnover implies poor sales or
excess inventory; high ratio implies either strong sales or ineffective buying.
Learning Curve Visually shows how new skills or knowledge can be quickly acquired initially, but
subsequent learning becomes much slower. A steeper curve indicates faster, easier
learning and a flatter curve indicates slower, more difficult learning.
Market Share The percentage of market size controlled by an individual firm.
Payback Period The length of time required to recover the cost of an investment.
Market Size Total size of a population (usually measured in number of people or actual dollar value)
that would purchase a company's goods or services. Market size is always relevant and is
a question that should be asked.
Product Lifecycle Four main stages: market introduction, growth, maturity, decline.
NPV The difference between present value cash inflows and present value cash outflows.
Product Mix Total number of product lines that a company offers to its customers. Often an important
area to explore in profitability cases to identify loss-making products.
Glossary
Term Definition
Porter’s Five Forces Buyer Power, Supplier Power, Threat of new entrants, Substitutes, Internal
Competition. Used for evaluating markets. Also key to think about complements
even though that's not mentioned by Porter.
Profit Revenue minus cost.
Promotion Coupons, discounts, trials, etc. designed to increase sales of a product or service.
Rule of 72 Also known as the rule of 70, AKA rule of 69. Simply put 72, 70 or 69 in the
numerator and the projected annual growth rate in the denominator to give you the
amount of time until the investment doubles.
Sales per Square Foot The average revenue a business creates for every square foot of sales space. Used in
the retail industry as a measure of efficiency.
Same Store Sales A statistic used in retail industry to determine what portion of new sales has come
from sales growth and what portion from the opening of new stores.
SWOT Analysis Strengths, Weaknesses, Opportunities and Threats. Very basic framework, probably
not a good idea to put down as your case framework, but good to have as a mental
checklist.
Glossary
Term Definition
Synergies The idea that the value and performance of two companies combined will be greater
than the sum of the separate individual parts. Used mostly in M&A.
Value Chain Another concept from Michael Porter. His Value chain: Inbound Logistics,
Operations, Outbound logistics, Marketing and Sales.
Variable Costs Costs that vary depending on a company's production volume; they rise as
production increases and fall as production decreases.
Vertical Integration Degree to which a firm owns its backward suppliers or forward buyers.
Weighted Average An average in which each quantity is assigned a weight. These weightings
determine the relative importance of each quantity on the average.
Cases
Case List
1. LawnCo – Bain Original 46
2. Credit Card Processor – Bain Round 1 56
3. Little Bud Co – Bain Final Round 63
4. Digital Expansion Prescott Publishing – Booz Original 73
5. V-Formulae – BCG Round 1 79
6. Retail Co – Accenture Talent and Organization Round 1 88
7. Melsen Medical Scanner – McKinsey Final Round 92
8. Bolsen Pharma – Bain Final Round 97
9. African Call Center – McKinsey Round 1 104
10. Burger Chain – Ross Original 112
11. Fitness Startup Kiosks – Ross Original 118
12. Barley Inc. Cosmetics – Ross Original 124
13. PE Services Firm – Booz Round 1 131
14. PD Gas Buyout 136
15. Ocular Implant – BCG Final Round 143
16. Shipping Company – McKinsey Final Round 146
17. Seaworthly Floating Hotel – Ross Original 155
18. Big Trucks – McKinsey Final Round 165
19. Delson Hard Drive – BCG Final Round 173
- 45 -
Lawn Co. Case Overview
Original case and solution from Bain & Company
Situation
Lawn Co. specializes in residential lawn fertilization, weed control, and disease prevention
Lawn Co. is a large US residential lawn care company with ~20% market share
Lawn Co is highly profitable with margins driven through an aggressive focus on cost
Complication
However, Lawn Co. has seen little top line revenue growth in recent years
Key Question
Should Lawn Co. focus on organic growth or should it pursue inorganic acquisitions to grow?
- 46 -
The lawn and landscaping market has been growing at ~5%
p.a. since 2004
Lawn & Landscaping Market
(Residential & Commercial)
CAGR CAGR
$60B 89-04 04-07
40
3.6% 5.1%
20
0
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
Source: Bain & Co.
- 47 -
Lawn Co. has grown at ~4% p.a. since 2004
Total revenue US & Canada

CAGR
04-07
$1.3B
1.10
1.02 1.05
1.0 0.98
0.8
3.9%
0.5
0.3
0.0
2004 2005 2006 2007
Source: Bain & Co.

- 48 -
Lawn Co. leads the lawn services
market with ~20% share
Percent of market revenue (2008)

$4.9B
100%
80
All others
60
40
Care Co.
Weed Co.
Fertilizer Co.
20
Lawn Co.
0
Source: Bain & Co.

- 49 -
In 2007, Lawn Co spent a total of
$120M to acquire ~1.1M new customers
New customers in 2007 2007 customer acquisition costs
Number of new Total cost to acquire

customers new customers
1.3M $125M
1.050 102
1.0 100
0.8 75
0.5 50
0.3 25 18
0.048
0.0 0
Organic Inorganic Organic Inorganic
Source: Bain & Co. - 50 -
Customers acquired inorganically
spend less per year than organic customers
Average spend per year
$500
403
400 378
300
200
100
Organic
Inorganic
0
2004 2005 2006 2007
Source: Bain & Co.

- 51 -
Customers acquired inorganically
stay Lawn Co. customers for slightly longer
Average customer lifetime (years)
3.0
2.1
2.0 1.9
1.0
0.0
Organic Inorganic
Source: Bain & Co.

- 52 -
Interviewer Guide: Case Overview
High-Level Model Answer Other

1. Understanding customer lifetime value is key: Though the interviewee does not Key Concepts Tested
need to know the name of the concept, it is crucial he/she understands that each 1. Profit tree
option’s attractiveness depends on the cost to acquire and the contribution they
2. Customer lifetime
will bring in
value
2. Calculating the cost to acquire each type of customer is the first step.
Interviewees will see this is driven by the purchase price per customer acquired
for acquisitions and total marketing spend divided by new customers for organic
customers. A reasonable answer is $360 for acquired customers and $100 for Required Calculations
organic customers. 1. Cost to acquire for
organic vs. inorganic
3. The interviewee should then examine the revenue side of each customer. The
interviewee should ask if both types of customers spend the same amount and 2. Spend for organic vs.
stay for the same length of time. A reasonable answer is $760 for acquired inorganic
customers and $800 for organic customers. 3. Profit or contribution
for organic vs. inorganic
4. Finally, the interviewee should assess the net benefit of each type of customer.
Subtracting the acquisition cost from the potential revenue yields that organic
customers are more attractive. A reasonable answer is $700 for organic
customers and $400 for inorganic customers
Source: Bain & Co.

- 53 -
Interviewer Answer Key : Part 1
Set-up Key questions Model answer
• Show Handout 1: “Lawn Co. Case • What is a good way to approach this • Identify that customer “profitability” (lifetime
Overview” question? value) is key to understanding which growth
- Other “Handout 1’s” are option is better. Strong interviewees should lay
available if the interviewee out a profit tree-like framework
requests the data version of • Some interviewees may first ask about how
what is prevented in the fragmented the market is to assess the
“Overview” slide feasibility of pursuing an acquisitive strategy
• Show Handout 5: “New customer • How much does it cost to acquire one • Cost to acquire in both cases is total acquisition
counts and acquisition costs” new customer organically? costs / number of new customers acquired
• How much does it cost to acquire on - Interviewees should round both the
new customer inorganically? number of customers and total costs to
numbers easy to work with
• Reasonable answers are $360 for inorganic
customers ($18M / 50K) and $100 for organic
customers ($100M / 1M)
• Show Handout 5: “New customer • Why might inorganic customers cost • The best candidates here might discuss
counts and acquisition costs” more to acquire? purchase premiums or customer attrition
during the sale process (e.g. don’t want to be a
Lawn Co. customer)
Source: Bain & Co.
- 54 -
Interviewer Answer Key : Part 2
Set-up Key questions Model answer
• Show Handout 6: “Customer • How much does each type of • Total spend in both cases is average spend
annual spend” and Handout 7: customer spend over the course of per year * total lifetime
“Customer lifetime” their tenure? - Interviewees should round all numbers
to numbers easy to work with
• Reasonable answers are $800 for organic
customers ($400 * 2 years) and $760 for
inorganic customers ($380 * 2 years)
• Answer and wrap-up • Given the information you know, • Interviewees should calculate the “profit” or
which type of customers are better “contribution” for each customer type by
for Lawn Co.? subtracting the acquisition costs they
calculated from the potential revenue
- Yields $700 for organic customers and
$360 for inorganic customers
• The strongest candidates here might first
ask if the cost to serve both types of
customers is the same to see if subtracting
the two values gives you a good proxy for
relative attractiveness
• Interviewees should identify organically
acquired customers as more attractive
- 55 -
Credit Card Processor
Bain, Round 1
Situation
Our client is a portfolio firm, a credit card (CC) processor with two sets of clients
• Corporate (e.g. Papa John’s)
• Small and Medium Businesses (e.g. Joe’s Pizza Shack)
Complication
Client profitability and revenue has been decreasing for the past few years even though market has been growing
Key Question
We have been hired to determine the reason for the decline and to recommend ways to increase profitability
Difficulty: Medium Graph Heavy Industry: Financial Services Type:

Profitability
- 56 -
Guidance for interviewer and information provided upon request
How does a credit card processor work?

• Candidate should at least talk about how the industry works, but provide following information if asked
• Processor doesn’t provide CCs or handle cash debit/credit; it only enables the transactions by processing them when
swiped on CC machines (point of sale)
• Client has large sales force that is in the field selling to both Corporate and Small and Medium Businesses (SMB)
• Typically 2 ways to make money
• Leasing fees of equipment
• $ or % per transaction
• Our client only makes money with a fixed $ per transaction (not from leasing or %)
Solution Guide
• Interviewee should draw a customized profitability framework but should include some of these important items.
• Price: Different pricing for corporate vs. SMB (Small & Medium Businesses)
• Quantity: Market size, market demand, growth in online vs. stable or reduction in offline due to recession
• Fixed Cost: IT system, overhead
• Variable Cost: Sales team
• Context: There is shift from in-store retail to online, could explain drop in client revenue and profit. Intense
competition. Recession. Square, PayPal.
- 57 -
Additional Questions to Steer Discussion
Questions for the candidate
• Show exhibits to interviewee and then ask for trends (non-obvious trends highlighted):
• Exhibit 1: Even though SMB sector is growing fast, it’s still a very small % of Corporate
• Exhibit 2: Should mention that in 2012/2013 cost > revenue for client, resulting in losses. Why client costs not
going down ? No economies of scale, high sales cost
• Exhibit 3: Considerably higher margin compared to Corporate – why? Bargaining power of big clients reduces
price in that sector but SMBs don’t have choice
• Ask to calculate profit for each sector: $30M for both. Interviewee should have an “Aha!” moment and say this is the
segment to focus on to grow profits
• Then ask for what to do with corporate client where we would start losing money. Offer information that we are stuck
in multi-year contracts where clients only pay industry average, hence we start losing money on each transaction
starting 2012/2013. What do we do?
• Get rid of corporate clients, buy out most expensive clients, spin-off bad business unit, like GM, and declare
managed bankruptcy, outsource, sell division, renegotiate, acquire lower cost competition
- 58 -
Exhibit 1:
Total # of Credit Card Transactions
250
200B
200
# of transactions 150
in 2011
(in Billions) 100
50
2B
0
Corporate SMB
YoY Industry Growth: 2% 10%
Client Market Share: 0.5% 5%
- 59 -
Exhibit 2:
Cost vs. Revenue for Corporate Customers
$0.50
$0.45
$0.40
$0.35
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$-
2008 2009 2010 2011
Revenue / transaction Client cost / transaction
Cost / transaction (industry average)
- 60 -
Exhibit 3:
Cost vs. Revenue for Small & Medium Business Customers
$0.90
$0.80
$0.70
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
$0.00
2008 2009 2010 2011
Revenue / transaction Client cost / transaction
Cost / transaction (industry average)
- 61 -
Conclusion
Recommendation
• Drop Corporate customers to prevent losses from overwhelming and bankrupting client
• Reduce cost of sales by moving to telesales, online, or lower cost model
• Build relationships with banks for debit card processing for new growth
Next Steps
• Finalize steps to drop Corporate customers
• Overhaul sales model and start socializing new plan
• Move sales team from salaried to independent contractors
• Invest in SMB segment
Risks
• Inability to drop/renegotiate customers
• No/negative growth in non-online retail
- 62 -
Little Bud Co - Beer Company
Bain, Final Round
Situation
Our client, Little Bud Co, is a beer company in a small country in Latin America. Little Bud and its main competitor,
Geineken, are the only players in the market. Geineken is significantly bigger than Little Bud.
Key Question
Little Bud’s CEO asked us to provide him with strategic options for the company and a recommendation on what he
should do.
Comment
If interviewee asks “What are the CEO goals?”, turn the question back: What are the goals of a company? Then
rapidly lead conversation to the goal of maximizing shareholder's value
Difficulty: Medium Quant Heavy Industry: Food + Beverages Type: Growth Strategy
- 63 -
• This case is focused on a discussion on how scale economies create competitive advantage and will touch on
valuation principles at the end
• It’s important for the candidate to rapidly start comparing the two companies
• For the purpose of this case, other competitors can be disregarded. The analysis should be focused on Little Bud
and Geineken
• Market characteristics:
• Market is mature (growth is low)
• 10% of sales are made through large retailers and 90% through bars, restaurants and small retailers
• Market of regular beer: market for small brewers/specialty beers should be disregarded (very small market)
• At the beginning of the case (after candidate presents his framework):

• What are the two most relevant information that you need to start this analysis? Suggested answer: market
size and P&L for Little Bud and main competitor
• Once the candidate asks for market size data, present exhibit 1 and ask for initial insights
• After presenting exhibit 1:
• What are the margins for each player? What are the possible reasons for the margin differences?
(suggested answer: Geineken could have higher margins due to higher prices, lower costs or both). When
candidate raises the price hypothesis, hand over exhibit 3.
• What are the strategies that Little Bud should consider? (suggested answer: go to niche market, go to
related markets, sell to competitor)
• After analyzing both companies (refer to next page for more details on this analysis), the interviewer should focus
on discussing the company valuation
- 64 -
Calculation and Discussion: Comparative Analysis
Comparative Analysis of Little Bud and Geineken
At this point, the candidate should try to compare the two players, in order to identify the possible sources of
competitive advantage. The table below presents information on Geineken costs as a percentage of sales (so the
candidate can calculate the P&L) and the rational behind the cost differences between Little Bud and Geineken.
The interviewer should ask the candidate to provide hypothesis on the rational before explaining Geineneken’s
competitive advantages
P&L Item As % of Rational

Revenues
G&A 10% The assumption here is that Little Bud already operates in a scale in which there are no
more scale economies in G&A. The candidate might make the valid argument that "the
bigger, the better", but should recognize that scale economies have a limit
Sales & 25% Info: Due to market regulations, there is a limit in the truck size. Both companies operate
Distribution with similar trucks and sell through the same point of sales (or through point of sales
located in the same regions)
Rational: The analysis here is about utilization: due to its larger share, Geineken achieves
higher asset utilization (consider one truck: at Little Bud, this truck would take a whole
day to delivery the products, given the low number of units per location. At Geineken, this
same truck can deliver the full load faster and go back to the distribution center, pick up
more products and get back to the road)
Marketing 18.1% Rational: even with a lower percentage, the marketing expenses are much higher in
absolute terms. More advertising gives more brand recognition, reinforcing higher market
shares
- 65 -
Calculations and Discussion:
Conclusion of Comparative P&L
Options for Little Bud Business
• After comparing both companies, the candidate should understand that scale economies are a major source of
competitive advantage in this market and propose some strategic alternatives to Little Bud. The interviewer should
rapidly move the discussion towards selling the company. Below are some arguments against other possible alternatives:
• Increase market share:
• Product innovation: consumer taste is already well defined. There is no room for new products
• Price war: it’s virtually impossible for Little Bud to enter a price war against Geineken. It’s more likely for the
opposite to happen
• Marketing: Geineken spends 5x more in marketing. Trying to compete against this big player on marketing
expenditures is not a good strategy
• Reduce costs: interviewer should state that different assessments on cost reductions have already been conducted.
There are no opportunities for further reducing costs
• Focus on niche market (e.g.: premium beers): interviewer should remind candidate that niche market for beer in this
country is very small. It’s not a good strategy for sustainable long term growth
• Move into related markets (e.g.: carbonated soda, juices, etc.): interviewer should say that the company has already
conducted analysis on these markets and decided it’s not a good alternative, due to intense competition
- 66 -
Calculations and Discussion: Valuation
Valuation of Little Bud Business
• The interviewer should propose to focus on the valuation of the business and ask the candidate to propose how to
value the company with the information given in the case
• The candidate should be able to propose at least the two most common valuation methods: discounted cash flows
and multiples: multiples are use for quick assessments and we have EBITDA figures. Once asked for it, the
interviewer should give the multiple to be used: EV/EBITDA = 10x
• Going back to our initial questions regarding valuation. The goal now is to test the candidate business sense:
• What is the market value for Little Bud? Suggested answer: based on the multiple and EBITDA figures,
$50M
• What is Little Bud’s value to Geineken? Suggested answer: considering Geineken margins and Little Bud
revenues, Little Bud’s value to its competitor is $214 (potentially higher, due to the fact that Geineken
would become a monopoly and be able to increase price and further squeeze suppliers)
• How to “force” Geineken to pay more than $214? Suggested answer: Little Bud should open bid to other
companies. Geineken has the incentive to maintain its market dominance and doesn’t want a big
international player to enter the market
- 67 -
Calculation for Comparative P&L
P&L Calculations
P&L Comparison Pricing

Little Bud % of Rev Geineken % of Rev Little Bud Geineken
Revenues 100 700 Unit Price 1,00 1,10
COGS 30 30,0% 178 25,5% COGS 0,30 0,28
Gross Profit 70 70,0% 522 74,5% Gross Profit 70% 75%
G&A 10 10,0% 70 10,0%
Sales & Distribution 30 30,0% 175 25,0%
Marketing 25 25,0% 127 18,1%
EBITDA 5 5,0% 150 21,4%
- 68 -
Conclusion
Recommendation
• The candidate should recommend the CEO to sell Little Bud

• The company currently operates in a market in which it has no competitive advantage. Geineken has margins
high enough to enter a price war that would lead Little Bud to bankruptcy.
• Also, through an open bid to the market, Little Bud could force it main target buyer to increase a potential offer
Next Steps
• Hire an investment bank to structure the deal
• Evaluate risk of ruling from antitrust agencies
• Identify potential cost savings opportunities that could be pursued in case Geineken responds by reducing prices
- 69 -
Exhibit 1:
Revenues per Channel
Figures in USD millions
- 70 -
Exhibit 2:
P&L for Little Bud and Geineken
P&L Comparison
Little Bud Geineken
Revenues 100 700
COGS 30
Gross Profit 70
G&A 10
Sales & Distribution 30
Marketing 25
EBITDA 5 150
- 71 -
Exhibit 3:
Gross Profit Detail
Average Price and Cost Per Unit

Little Bud Geineken
Unit Price 1,00 1,10
COGS 0,30 0,28
Gross Profit
- 72 -
Digital Expansion Prescott Publishing
Original case and solution from Booz & Co.
Business Problem Statement
Your client is Prescott Publishing, a major business media company. They have a wide range of product offerings, including
general business magazines, industry trade letters and branded television programming. Performance has suffered recently, as
print circulation has declined. The client leadership team wants to reboot their offerings with a new premium digital product.
It wants to specifically target business executives with a paid web news offering. They would like your help to understand the
opportunity and whether you would recommend they go forward with an investment?
• Company is focused solely on the U.S. market

• Company is focused on a subscription model, any other revenue could be explored but will initially be immaterial
• Opportunity should elicit a negative recommendation.
• Given time, push the candidate to identify ways to improve the concept
• Framework should include:

• Market Size/Revenue Opportunity
• Potential Customers
• Subscription Pricing and Other Revenue
• Cost (infrastructure, talent, etc.)
• Could also include Competition, Risks, etc.
- 73 -
Guidance for interviewer and
information provided upon request
Additional Question Guidance for Interviewer
What kind of product is it? The client wants to become the ‘Home Page’ of the
modern executive, providing them with current
insights and trends on their industry, deep subject
Do they know what price they want to charge? matter expertise, and relevant data.
Give the candidate competitive exhibit and ask their
What does the company think defines ‘an executive’? opinion. They should want to focus between the $75
and $350 options given the product description. After
they make an estimate, tell them the client thinks
What does the company expect it will cost? customers would pay $10/month
To the client, an executive is either someone in the top
five leadership positions (CXOs), one of the top 6
direct reports to those positions, or one of their 6 direct
reports (5x6x6=180 per company). They’ll also
typically work for a large public company.
Push the candidate to identify different buckets of
costs for such a product (e.g., infrastructure, labor
costs, marketing, etc.) The company anticipates the
construction and launch of the product would cost up
to $30M, and would remain that significant going
forward
- 74 -
Exhibit 1:
Competitive Landscape
Competitor Pricing Model Offering Description
– Company financial reports

Wahoo Free
– General Business News
– SEC filings
Froogle Free
– Company news
– Executive-focused lifestyle articles and general

Wealth Publishing $24.99/year
news
– In-depth business articles

Lews Corp $74.99/year
– Industry Analysis
– Customized research reports on specific

Woodson Research $350.00/year
industries/companies
- 75 -
Sample candidate response
Sample Solution
I’d like to start by clarifying exactly what the product is so we can then size its potential market and evaluate whether
we’ll pursue the opportunity
The product will be the executive’s home page
• Provides deep industry insights and knowledge
• Analysis of breaking events impacting their company
• Provides equivalent to a ‘Morning Briefing’, all the critical information an executive needs for the day
• Premium, will focus on revenue through paid subscriptions, little if any emphasis on advertising
Now that we know a little more about the product and its revenue model, we can develop estimates of what it can
generate
• Based on competitive landscape and company research (to be provided) a monthly subscription price of
$10 seems reasonable, of $120 annually
• Based on the client’s target market, we can estimate that there are 180,000 people in the target audience
(As noted in next pages: 5x6x6=180 per company, x Fortune 1000, 180,000)
• From these two estimates we can establish a potential market opportunity of about $22M
• However, we should also consider that people outside the target market may be likely subscribers as
well
- 76 -
Sample candidate response
Sample Solution
With a $22M potential market size, we should now turn our attention to the investment’s cost
• Costs will include infrastructure for a new web site, design, technical and reporting staff, maintenance,
and marketing
• The initial estimate of costs places the new site at $30M annually
At that projected cost, the new product will require many more subscribers than our target market. This is before
accounting for any competitive risks. As such, we would not recommend investment.
To make the investment case more attractive, there are several potential levers that could make it a stronger
opportunity
• Mobile App complements
• Higher pricing (for a premium product)
• Broader targeting (small and medium size businesses)
• Advertising (keeping in mind a premium position)
• Providing additional value beyond media (e.g., networking, industry events)
- 77 -
Sample calculations
Revenue/Customer - $10/Month x 12 Months = $120/customer/year

Customers – (5x6x6)=180 X 1000 (Number of Companies) = 180,000
Total Target Market Size = $120 x 180,000 = $21.6M per year
OR
Breakeven customer number = $30M/120 = 250k customers (ask how many companies you’d need to target),
250k/180 = ~1400 companies
What a strong interviewee should consider
Additional revenue through advertising, mobile apps, other creative ideas

Opportunity cost of investing in this product
Risk of new competition providing information for free
Adoption of product by non-executives (i.e., those outside the target audience)
- 78 -
V-Formulae Overview
BCG Round 1
Situation
Our client “V-Formulae” is a baby food formulae producer. The client’s main ingredient in most of the products that it sells is
milk. The client has machinery that pasteurizes the milk and evaporates it to create the powder, which is then used in most V-
FORMULAE products available in the market.
Complication
The client’s profits have declined over the last three quarters, and the client suspects that the cost of milk is affecting the
margins.
Key Question
A supplier approached our client and has offered a five year fixed contract to supply milk at 10% below the current market
price. We need to help our client figure out if they should enter into this contract with the supplier.
Difficulty: Medium Industry: Food + Beverages Type: Profitability, Supply + Demand equilibrium
- 79 -
Interviewer Guide: Case Overview
Background Additional Information
• Industry – CPG Our client is US based and all of
• Concepts tested – Ability to thinking laterally and macroeconomic concepts its sales are only in the US.
• Level of Difficulty – Hard
We are the market leaders
however there are two other
major competitors who have a
High-Level Model Answer significant market share.
The candidate should be given time to brainstorm and come up with an approach. A
good candidate will immediately grasp, that the problem is to figure out if the market There are numerous smaller
prices of milk will remain constant, increase or decrease over the five year period. players but they do not have
A good structure would focus and touch on the following points: more than 10% of the market.
• Reason for Increase in cost of milk
• Supply vs. Demand of milk
• The type of milk the company uses ( goat, cow etc.) other alternatives
• Sourcing strategy for milk
• Possibility for backward Integration into milk production
• Historical prices for milk
• Realizing that milk is a commodity and that prices will be dictated by the
market
• Recognizing that if we do not sign the contract our competitors may sign up the
contract
• Demand in the emerging economies driving up the prices for milk
- 80 -
Interviewer Answer Key : Step 1
Set-up Model answer
• Allow the interviewee to think broadly and come up • The average price of end product has more or less remained stable
with major macroeconomic issues indicating this is price elastic and V-FORMULAE does not have a lot
• Provide the information on cost structure and of leeway with increasing the prices
margins Exhibit 1 • The price for milk has increased by 28.5% over the last five years.
After this table the candidate gets brownie points if they bring up reasons on why the price has gone up. The next step for
the interviewer is to focus on reasons why this price increase has happened. Brainstorm with the candidate to figure out the
major reasons for the increase in price of the milk. A good candidate will clarify if the chart showed above was only for a
certain kind of milk e.g. goat vs. other. In which case clarify that our company only sources Cow’s milk today.
A good candidate will touch upon the following points while discussing the major reasons for increase in price of the milk
• Increase in demand in the global market because of demand in emerging economies
• Supply side difficulty e.g. draught causing livestock maintenance prices to increase
• Analysis of who are the major producing states for milk and if there are opportunities to import it
• Output / cow and possible reasons for its decline? Health issues affecting output
• Livestock feed costs increasing.
• Decrease in farmland and hence number of cows producing milk
- 81 -
Exhibit 1
2008 2009 2010 2011 2012
Milk Price 14 14.7 15 16.5 18
Average Product
21 21.25 22.25 22.50 22.50
Selling price
Milk Avg. Product Selling Price
21 21.25 22.25 22.5 22.5

16.5 18
14 14.7 15
2008 2009 2010 2011 2012

- 82 -
Set-up Model answer
The interviewer should at this point present • The milk prices crossed the historical highs in 2005 and since then
Exhibit 2 to the candidate have been rising continuously
• The candidate should ideally talk about their hypothesis on why the
rates shot up so high. The demand in the global market that would be
a good point to explain the rise of prices
• After spending a few minutes and letting the candidate brainstorm
and talk about this chart
- 83 -
Exhibit 2
- 84 -
Set-up Model answer
The interviewer should at this point present • Clarify if the candidate asks that corn is the major livestock feed
Exhibit 3 to the candidate used across all cow farms and the chart indicate its historical prices
• A good candidate infers that it has been the increase in corn prices
that has led to increase in the price for milk
• Interviewer Guidance
• A government mandate to use Corn for Ethanol in 2008 drove up
the prices of corn across the board.
Direction for interviewer: The government mandate expires in 2012 and the prices of corn are expected to fall
- 85 -
Exhibit 3
Price of corn/Bushel
12
10
- 86 -
Conclusion
Recommendation/Next steps
The current offer price for the five year contract is $16.20, while the terms are attractive the falling livestock feed prices
indicates that the milk prices will come down sooner than later
The client could explore the possibility of using alternate sources of milk like goat milk – provided the nutrient content
level is the same and it does not pose any nutritional hazard
Five year is a very long time horizon and probably a 1- 2 year time horizon would make more sense to enter the contract
The client should work very closely with the milk farms to understand their cost structure and help them reduce cost by
possibly using alternative feeds like soybean
- 87 -
Retail Co. HR Structure
Accenture Talent & Organization (Human Capital), 1st Round
Problem statement narrative
Background:
From 2007-2009, Retail Co. had the largest revenue ($400B) in the world. For the purposes of this case, let’s just focus on
U.S. operations. In the U.S., Retail Co. has 1.3M employees who work in 4100 facilities across every state. These facilities
include Super Centers, Neighborhood markets, regular stores, Sam’s Clubs, distribution centers, and corporate. Retail Co. ’s
strategy is to be the low price leader, and it has core competencies in supply chain, distribution, manufacturing, analytics,
and negotiating low costs with suppliers.
Case:
Retail Co. ’s HR department structure has not changed much since the 1970s. HR is not organized well as compared to
Retail Co. ’s other departments. The typical cost in a large corporation to provide HR services should be $1500-
1700/employee/year, but at Retail Co. the cost is currently $2100-2200/employee/year. Additionally, a corporation of Retail
Co. ’s size generally has a 1:100 ratio of HR: employee support, but at Retail Co. the ratio is 1:33. The CEO has hired you
to provide recommendations as to how to lower HR costs and increase efficiencies. Specifically, he is looking for ways to
decrease HR operational expenses while increasing overall revenues.
Difficulty: Medium Industry: Retail Type: HR/Admin
- 88 -
Interview Guidance
• What are the causes of high HR costs?

• Retail Co. ’s HR operations are very labor-intensive. Very little automation or outsourcing (e.g., Fidelity handling
401K); almost everything is handled in-house.
• Does Retail Co. utilize HR technology for support?

• Retail Co. is currently not using technology, but the CEO has indicated that he is interested in exploring this
option.
• What is the current structure of the HR organization?

• There are currently 7K full-time HR professionals (both corporate and regional). Additionally, there is an
additional 26K FTE HR work being completed by 104K store managers (in ~25% of their time). The CEO is
especially concerned about the 26K FTE because this has opened up Retail Co. to compliance risks since these
store managers are not skilled or certified HR professionals.
• What is the salary for the HR professionals?

• HR professionals make ~$40K/year
• Store managers make ~$100K/year
• Managers need to spend at least 12.5% of their time on HR related activities
- 89 -
Discussion Questions and Solution
Solution
Reduce manager HR workload and reallocate work to HR specialists

Current HR costs:
• 7K*$40K = $280M
• 26k*$100K = $2.6B
• Total: $2.88B
HR Costs with work transferred from store managers to HR professionals
• (7K+13K)*$40K = $800M
• 13K*$100K = $1.3B
• Total: $2.1B
• HR cost per employee: $2.1B/1.3M employees = $1600/employee
Candidate should also consider:
• Activities managers can do with freed time
• Outsourcing options
• Shared-service technology options and capabilities
• Compliance issues of having store managers work on HR activities
- 90 -
Conclusion
Recommendation Next Steps
• Increase the number of HR specialists and free • Increased use of technology to manage HR activities
managers to focus on selling between stores
• Approximately $800M in cost savings • Evaluate outsourcing options for new HR positions
• Reduced liability of store managers performing • Adjust metrics for manager performance
HR tasks
• New HR cost per employee consistent with
industry standards
• Risks
• Managers need to demonstrate value with
additional free time, otherwise the change cannot
be justified
- 91 -
Melson Medical Scanner
McKinsey, Final Round
Your client, Melson, is a dominant (98% market share) This is a interviewer-led case.
manufacturer and seller of CT scanners in the US hospital •CT scanners produce images of patients for doctor to
market. The market is quite stable, and the U.S. demand diagnose disease.
for images from a CT scan grows 5% every year. At the
beginning of last year, Melson launched a new CT •Melson only manufactures and sells one model at any
scanner model that is sold at the same price but can time. i.e., when the new model goes to market, they stop
produce 20% more images per year than the previous manufacturing and selling old models.
model. However, apart from the sales due to product •The life time of old and new model are both 8 years.
replacement, the sales growth of the new model has been
stagnant in the last year. •Hospitals match their number of scanners with the image
demand. There is no idle capacity, and new purchase will
The CEO has hired McKinsey to find out the reason for be driven by either replacement or increasing demand.
stagnant sales growth, and asked you how to increase
sales.
Difficulty: Medium Industry: Retail Type: Growth strategy
- 92 -
Discussion Questions & Solution
• Q1. Why has the sales growth of the new model been stagnant?
Solution Guide
• The image demand of CT scanning in the US only grows 5% every year, while the new model can produce
20% more images than the previous model.
• Conclusion: by introducing a new model, the total demand for CT scanner will actually go down!
- 93 -
• Q2. What is the new sales of the new model (i.e. total sales excluding replacement sales)
• Note: when interviewee asks about the revenue, sales price and volume, push her/him back to let her/him
assume some figures and figure out what can be calculated!
Solution Guide
• Before the new model launch (the year before last year):
• Let the total number of existing old-model scanners in all hospitals be X
• Let the number of images produced per old-model scanner per year be S
• In the last year:
• The replacement sales will be X*(1/8)
• New model can produce 1.2S images per scanner
• Let the new sales of new model be Y
• Last year’s image demand: X*S*(1+5%)
• Last year’s image production:
• From old models: X*(7/8)*S
• From replacement (using new model): X*(1/8)*1.2S
• From new sales of new model: Y*1.2S
• Demand = Production => X*S*(1+5%) = X*(7/8)*S + X*(1/8)*1.2S + Y*1.2S => Y = 2%X
• Conclusion: excl. replacement, the new sales of the new model is only 2% of existing old-model scanners
- 94 -
• Q3. How to increase sales

• Note: This is brainstorming, so keep asking “what else” until the interviewer runs out of ideas
Solution Guide
• Key to brainstorming is being structured. Creativity is always a great bonus!

• 1. Increase price
• We are in a monopoly, and we offer a new model that is better than old model. So increase price!
• 2. Increase volume
• Enter into new segments, e.g. new geographic regions, medical research center, clinic, etc.
• Focus on improvement on image quality rather than number of image produced.
• Shorten life time of scanner and educate hospitals on this. (by significantly improving quality, the
old models will be obsolete and needs to be replaced before it is not functioning)
• Increase demand of CT scanning: Partner with media, healthcare association, key opinion leader, etc,
to educate patients and physicians that CT scanning is safe to use, and the benefit of diagnosing
early-stage disease can save people from death.
• Improve marketing & sales force.
- 95 -
Conclusion
• Sales growth is stagnant because replacement are • Opportunities to grow quantity sold
more effective than previous models • Improve marketing and sales force
• How can Melson increase sales • Significantly improve quality, the old models
• Increase price for new models – new product is will be obsolete and need to be replaced before
superior and client has a monopoly it is not functioning
• Enter into new segments, e.g. new geographic • Increase demand of CT scanning: Partner with
regions, medical research center, clinic, etc. media, healthcare association, key opinion
• Focus on improvement on image quality rather leader, etc., to educate patients and physicians
than number of image produced. that CT scanning is safe to use, and the benefit
of diagnosing early-stage disease can save
• Risks people from death.
• Replacement rates drop as a result of the price
increase
- 96 -
Bolsen Pharma
Bain, Final Round
Suppose you are a Bain Consultant. In 30 minutes, you This is an interviewee-led case.
are schedule to meet with a Bain Partner and the CEO of a •Bolsen has mature products, high capitalization, but little
$35B Pharma client - Bolsen, and present your project growth, and confronts increased competition from generic
update. However, the CEO just called saying that he drug manufacturers driving down prices.
would like to change the topic of the meeting and asked
the Partner one question: should the company enter the •Bolsen will enter the oncology market if that new market
oncology (cancer) market? The CEO is eager to hear can help Bolsen gain double-digit growth on its overall
your ideas in 30 minutes. business.
Now you need to discuss with the Partner and prepare a •Bolsen currently has very basic R&D capability far
recommendation. below the required R&D level for oncology products.
•Bolsen operates in the US and is only concerned about
US market.
Difficulty: Hard Industry: Pharma Type: Market Entry
- 97 -
Information for Candidate
Further information to be provided upon request
Interviewee is expected to know that US population is 320M and life expectancy is 80 years.
Market size:
•Cause of death: cancer, heart disease, diabetes, etc. Assume that cancer accounts for 25% of all deaths every year.
•On average, cancer patients can live for 5 years from the time they are diagnosed with cancer to the time of death
•In that 5 years, each cancer patient gets 2 treatments on average.
•Drug expense per treatment: $18K
Competition:
•Concentrated. Strong player in the oncology market like Genentech has 5 great products and takes 35% market share.
•Basis of competition is product, technology.
Possible M&A target:
•All the strong market players including Genentech have been acquired by large Pharma, except for Selgen in New Jersey
•Selgen has 2 great products and 10% market share
Client capability
•Client has a lot of cash and access to capital market
- 98 -
Suggested Solution and Structure
Suggested Structure
• Oncology Market
• Size
• Growth
• Competition
• Share & concentration of current players
• Basis of competition
• Method of market entry
• Realizing that Bolsen’s basic R&D capability is far below the required R&D level for oncology
products, interviewee should suggest M&A and check with client’s financing capability
• Screening of M&A target
• Client capability
• Financing capability
• M&A experience
• Post-merger integration issue: culture, etc.
- 99 -
Suggested Solution
• Oncology Market
• Size
• Death per year: 320M/80=4M
• Death per year due to cancer=4M*25%=1M
• At any time, the number of people living with cancer=1M*5=5M
• Treatment per year=5M*2/5=2M
• Market size=2M*18K=$36B, a huge market
• Growth
• Ask interviewee to think about the drivers for growth
• Possible drivers: people take more frequent treatments and are more willing to pay;
people live longer with cancer because of the treatment and early diagnose of cancer.
• Conclusion: high growth rate (actually, over 20%)
• Conclusion: Attractive market. Market size is huge with high growth rate. If client can get 10% of the
oncology market, they will get $3-4B revenue to meet their double-digit revenue growth target.
- 100 -
Suggested Solution
• Competition
• From the example of Genentech and basis of competition, we can infer : 1 great product roughly
corresponds to 7% market share. (35%/5=7%)
• M&A
• We need to look at players ideally with 2 great products to get a 10%+ market share in oncology
• Selgen is an ideal target
• Client capability
• Client has very basic R&D capability far below the required R&D level for oncology products.
• Client has a lot of cash and access to capital market
• Conclusion: competition and client capability suggest that client pursue M&A. Selgen is an ideal target.
- 101 -
Additional Questions for the candidate
• We found that only Selgen meets the client’s requirements and hasn’t been acquired. But remember, all
large Pharmas go through the same logic like ours. Then, why don’t they buy Selgen?
Possible answers
• Selgen doesn’t wants to sell itself

• Selgen’s R&D people have already left the company
• Selgen’s patents will expire soon
• Selgen asks for very high price (this is the actual reason. They ask for X20 multiple, while normal case is
X10 multiple)
- 102 -
Conclusion
• Acquire Selgen to enter the oncology market • Help client conduct a due diligence of Selgen to
• $36B large market with high growth rate prepare M&A
• Client has no enough R&D capability but • Find ways to boost revenue of Selgen by 100%
enough cash ASAP, so that the actual multiple will be X10
• Selgen is the last chance for us to enter • Client needs to be committed to succeed in the
oncology oncology market. Many large Pharmas executed
acquisitions with no focus and poor results due to
• With Selgen, client can gain double-digit execution and integration issues
growth
• Risks
• Pay high price for Selgen
• Integration issue
• Past M&A experience
- 103 -
African Call Center
McKinsey, Round 1
Your client is a large retail bank in the U.S. looking to • Call center is focused on two types of calls:
move it’s current outsourced call center from India to • Customer Service Calls (typical ones like
Africa and is currently evaluating 3 possible countries as Account locked, password reset, etc.)
a target location • Sales Calls (pushing new services to new and
existing clients e.g. credit cards)
How would you evaluate each of these sites? • This is the Bank’s first time in Africa
• Candidate should recognize that this is a cost
reduction case primarily
• Bonus: Candidate should identify inherent upfront
risks of moving call center to brand new market and
should question rationale of the African market given
availability of infrastructure, political stability, etc.
Difficulty: Hard Quant, Graph Heavy Industry: Fin. Services, Outsourcing Type: Cost Reduction
- 104 -
• Question 1: What elements would you consider when evaluating the 3 countries?
Solution Guide
Financial
• All of the following should be focused on isolating the change from current to future to isolate the costs
savings
• Operating costs (Labor, Rent, Utilities, Transport for employees, Overhead)
• Investment Cost (Important that this can be recovered over a reasonable amount of time)
Other Considerations
• Firm
• Alignment with firm strategy
• Experience in Africa
• Opportunity Cost
• Risk to customers (quality)
• Market (Africa)
• Availability of Labor (English speaking, Banking knowledge)
• Political stability
• Availability of Infrastructure (Internet, Electricity, other basic needs)
• Competitors – have they already done this?
- 105 -
• Question 2 (Focused on Costs): What are some typical costs associated with running a call center? Which
of these would be lower in Africa?
Solution Guide
• Successful candidate will leverage key operational costs from structure

• Key insight is to identify (push candidate to drive towards Exhibit 1) that labor will be the key savings
from the initiative (all other costs will remain the same)
• Share with candidate that existing cost is $60M per year
• Candidate should move towards recognizing the number of calls that are made by the call center per day
and use that to determine the number of employees required and use the new labor costs to isolate the
differences
• In order to be just as effective, the same number of calls, must be made by each call center (i.e.
Utilization)
• Strong candidate will recognize that new call centers will not be effective but interviewer should
push candidate in that direction and share Exhibit B
• Candidate should work through solution to determine that financially, Country B is the best option. A
strong candidate will note this immediately, as the effectiveness of A and B are the same, but the cost is
lower by $2/hr
• Strong candidate will recognize that Utilization should increase over time (ignore during calculations)
• Bonus: Security may be an added cost given political environment in some countries – acknowledge but
inform candidate it is included
• Bonus: Cost of infrastructure may be higher – acknowledge but inform candidate it is included
- 106 -
• Question 3: If the investment in each country is $36M, what is the payback period for the country the
candidate selected?
Solution Guide
• This question will test basic finance concepts of payback period

• Strong candidate will mention discount rate (candidate can ignore it in calculations)
• Are there ways the Call Center can generate revenue?
• Candidate should brainstorm possibilities for revenue generation from the call center:
• Cafeteria that sells food to employees
• Day Care facilities for working parents
• Alternate use of facilities as a training center
• Advertising revenue from posters, etc.
• Internet café (leverage infrastructure)
• On-site bank/ATM
• Vending machines
• Gym
- 107 -
Math Solution
Call Demand Current Country A Country B Country C
Employees 400 600 600 1200
Avg. Call Duration (min/call) 4 4 4 4
Total Working time (hrs) 8 8 8 8
Utilization 75% 50% 50% 25%
Total Calls 36000 36000 36000 36000
Employee Cost $ 24,000,000 $ 14,400,000 $ 11,520,000 $ 17,280,000
Difference $ (9,600,000) $ (12,480,000) $ (6,720,000)
Cost/employee $ 60,000 $ 24,000 $ 19,200 $ 14,400
Employee Cost/hour $25 $10 $8 $6
Investment Cost $ 36,000,000

Savings per year $ 12,480,000
Payback period 2.88
- 108 -
Conclusion
• Client should move it’s call center to Country B as it • Work with local governments to gain support for
is the most cost effective based on employee rate and investment
productivity • Consider pilot/phased approach to address service
• Risks: quality
• Political Stability in the region • Work towards identifying other revenue
• Quality of Service – will it remain the same? opportunities and cost savings initiatives to offset
• No experience in Country B any rise in labor costs
• Long term ability to ensure low hourly rates • Implement measures to increase utilization of
Country B employees
- 109 -
Exhibit 1
120%
Typical Cost Structure for Call Center
20% 100%
100%
40%
80%
60%
10%
40%
30%
20%
0%
Rent Utilities Labor Misc. Total
- 110 -
Exhibit 2
Call Demand Current Country A Country B Country C

Utilization Rate 75% 50% 50% 25%
Labor Rate $25/hr $10/hr $8/hr $6/hr
Avg. Call Duration (min/call) 4 4 4 4
Total Working time (hrs) 8 8 8 8
Current call center has 400 employees
Assume 300 days/yr. in calculating annual cost of labor
- 111 -
Burger Chain (Private Equity)
Ross Original
• Our client is a private equity firm. They have come to • Fast food chain is 3rd largest in U.S. (no non-US
us for guidance regarding a possible acquisition of a operations)
large fast food burger chain. Should they make the • Operate 5,000 locations; corporate owns all the real
acquisition? What should they think about?
estate associated with locations
• *3-year investment period. • All locations are franchised
• Private equity client’s portfolio consists of multiple
residential/commercial real estate holdings as well as
a portfolio of gas stations across the U.S.
• PE firm requires a 15% return on any investments it
makes
Difficulty: Medium Quant Heavy Industry: PE, Hospitality Type: Acquisition
- 112 -
Possible Structures
Guidance for interviewer
• A great structure will include aspects regarding the acquisition price, a historical/projected financial
snapshot of the fast food company, and an industry piece.
• An excellent structure will also look to explore auxiliary pieces such as franchise agreement implications
and exploration into the fit within current PE company’s holdings could be explored as well.
• Once structure has been presented, ask candidate where they would like to start:
• Answers to possible questions post structure:
• Industry – Outlook is favorable, not many new players are entering the mature market
• Historical financial results of Burger Chain have been fine.
• Franchise agreement structure is great to explore but not relevant for this case.
- 113 -
Solution for brainstorming financial aspects
Solution Guide (require interviewee to brainstorm before providing answers)

(Pose this question to interviewee)
• Ok, now let’s brainstorm some of the financial aspects associated with this company’s structure, what
components go into the revenues and costs. How would our PE client receive cash flow?
Burger Chain’s financial structure
• Revenue (require candidate to brainstorm revenue pieces stemming from franchised locations prior to
giving the information)
• Franchised locations provide the corporate office with the following revenue pieces :
• Rent (as a % of sales) in this case 15%
• Royalties (as a % of sales) in this case 3%
• National advertising quota (as a % of sales) in this case 2%
• Initial franchise fee ($100K) for new stores
• Costs
• Franchised locations – all operating costs are assumed by the franchisee , corporate office – rent
for stores and headquarters, SG&A, labor, insurance, legal, etc.
- 114 -
Solution Guide
Year 1 2 3
Average Store Sales (give to interviewee) $ 500,000.00 $ 500,000.00 $ 500,000.00
New Franchises (give to interviewee) 100 100 100
Assume all new locations generate the average sales figure in the year they are brought on
Revenue
Rent $ 75,000.00 $ 75,000.00 $ 75,000.00
Royalties $ 15,000.00 $ 15,000.00 $ 15,000.00
Advertising $ 10,000.00 $ 10,000.00 $ 10,000.00
Average per store revenue $ 100,000.00 $ 100,000.00 $ 100,000.00
Locations 5,100 5,200 5,300
Total (3 revenue pieces * # of stores) $ 510,000,000.00 $ 520,000,000.00 $ 530,000,000.00
Franchise fees ($100K * new stores in that yr) $ 10,000,000.00 $ 10,000,000.00 $ 10,000,000.00
Total $ 520,000,000.00 $ 530,000,000.00 $ 540,000,000.00
Total Costs (give to interviewee) $ 507,000,000.00 $ 517,000,000.00 $ 526,000,000.00

Cash flow to PE firm $ 13,000,000.00 $ 13,000,000.00 $ 14,000,000.00
- 115 -
Suggested Solution
Solution Guide
(Pose this question to the interviewee)

• Now assume the PE firm knows it can sell the business for $600M at the start of year 4. Assuming a zero
percent discount rate, does the return on the investment meet the threshold set by our client?
Sell to Buyer at the start of Year 4 $620,000,000

Cash flow from 3 years of operation $40,000,000
Total Return $660,000,000
Initial Investment $550,000,000
Return on Investment 20%
Yes 20% > 15% required by client. It is not necessary for the interviewee to calculate the exact return, just
important that they realize it exceeds the threshold.
- 116 -
Conclusion
Acquire Burger Chain • Negotiate with seller for better price (lowering the
• Exceeds return requirement initial investment possibly)
• Doesn’t quite fit with current portfolio, • Attempt to keep high level managers in place post-
however, the real estate aspects of the deal acquisition (contracts, etc.)
are somewhat of a fit • Identify synergies with portfolio companies
• Risk associated with exit in year 4 (it’s not
guaranteed we can sell), however the annual
cash flow figures are good
- 117 -
Fitness Start Up – Kiosks
Ross Original
• Clients objective is be profitable in year 1
• The client is the CEO of a healthcare / fitness startup
company that has built a new kiosk related to weight
management, whereby there are user accounts and
people can track their weights, set goals etc. while on
the kiosk, as well as access the information online.
They have already Built this product.
• The Client is curious about whether and how to enter

the market and has hired you to advise him on this.
Difficulty: Medium Quant, Graph Heavy Industry: Fitness-Lifestyle Type: Market Entry
- 118 -
Possible Structures
Solution Guide
Sample Framework:
EXTERNAL
Markets & Market Sizes
1. Health Clubs - 35k in US.
2. Corporate Wellness Programs
Competitors
Mechanical Beam Scales, Consumer Internet Scales, and Electronic Scales
Customers
End-users, and market people
INTERNAL
Product
Price
Placement/Distribution - See EX 1
Promotion
Branding Stuff - how is that relevant (maybe as a next step)
- 119 -
Brainstorming financial aspects
Solution Guide (require interviewee to brainstorm before providing answers)
US Health Clubs Hospitals Corp Wellness Programs

# locations 35000 6000 unknown
# units/location 3 100 unkown
Price/Unit 1000 500
Derived TAM $105,000,000 $300,000,000
Ask Candidate what they think is the value proposition in each location before giving the answer
Unclear maybe healthier
Unclear maybe nurse employees or lower
Member Retention efficiency insurance cost
(industry has 40% attrition)
This is a MAJOR pain point This is a WEAK value prop This is a WEAK value prop
Ideally only provide # locations to interviewee and they should ask for the rest. Maybe also give them price
differential, as it should prompt them to ask re units/location
* TAM: Total annual market
- 120 -
Brainstorming
Solution Guide
Business Model
Have the candidate brainstorm possibilities:
1-time upfront fee
2-subscription service
3 - Other?
Pricing
Have the candidate explore options for pricing on open-ended basis
If asked, COGS = 500
Other Health Club comparable products are priced $1500-$3000
Purpose here is to test brainstorming, you can later provide them w data in Ex3 that answers these things
- 121 -
Calculations
Solution Guide
Exhibit 1:
Type (4) Tradeshows Online Leads / SEO Magazine Ad
Cost $5,000 $20,000 $5,000
# Eyeballs 1,000 15,000 10,000
% Eyeballs who buy 1.00% 0.50% 0.01%
Price/Unit $1,000 $1,000 $1,000
Hits in 12 month period 3 1 3
Calculations
Rev/Year $30,000 $75,000 $3,000
Cost/Year/Distribution $15,000 $20,000 $15,000
COGS $15,000 $37,500 $1,500
Net Income $0 $17,500 -$13,500
NI Without COGS $15,000 $55,000 ($12,000)
- 122 -
Conclusion
Recommendation Risks / Next Steps
• The client should enter market via healthcare • Website crash. Technical difficulties
market • exposure to competitor
• Online Leads / SEO only • don't gain brand recognition from other activities
• Net Income or Profit of $17,500 whereas that could serve as loss leader
Tradeshows will Net Flat and mag ads will be • Next Steps - move into online lead/seo marketing
negative efforts
- 123 -
Barlly Inc. Cosmetics
Ross Original
Your client is Barlly Inc., a cosmetic company based in • The client has had the inventory problem for quite a
the US. Barlly has business both in the US and globally. while, so it is a structure problem other than an one-off
Currently, the client is facing a high level of inventory in problem.
the US and is hiring McKinsey to help solve the problem. • The client sources raw materials from all over the world.
• The client has one manufacture site near Chicago and 4
distribution centers across the US.
• The client maintains its inventory at DCs, i.e. when
products are manufactured, they are directly sent to DCs.
• The client sells to all kinds of retailers across the US.
• Sales is seasonal with peaks before major holidays.
Difficulty: Hard Conceptual Industry: CPG Type: Operations
- 124 -
• How can the client reduce its inventory in the short-term?
Solution Guide
• Reduce production. (This is important)

• Increase sales. Some possible ways:
• Reduce price
• Use outlet
• Volume discount to buyers
• Marketing promotion
• Dump to overseas market
- 125 -
What are possible reasons for the high inventory level and how can the client improve in the long round?
This is a brainstorming case. Every step in the value chain can go wrong, so the interviewer can discuss
any step in the value chain according to interviewee’s reaction and probe deeper.
The purpose of the case is to see:

• How the interviewee comes up with a structure that can cover the whole value chain.
• How the interviewee use hypothesis driven method to discuss possible reasons for the problem.
• How the interviewee ask for information and use that information to prove or disprove the
hypothesis.
- 126 -
Solution Guide
• The interviewee should come up with a value chain that describe the end-to-end supply chain of the
client and analyze step by step through the value chain.
Forecast
• The client has an average forecast error of +/- 25%, which means improving forecast can improve
future inventory level.
• The closer to the sales date, the more accurate the forecast is. Therefore, the client should try to use
the latest possible forecast number for supply chain. However, the lead time for some of the raw
material is too long. Suggest to negotiate with suppliers to shorten lead time or build stock for such
raw materials.
- 127 -
Solution Guide
Procurement
• Some raw materials have very high minimum order quantity (MOQ) and large purchase for such
materials built up inventory. Negotiate with suppliers to lower MOQ.
• Some suppliers often miss delivery time and production window. Production is delayed and other raw
materials are sitting in the inventory and waiting for the missing ingredients. Improve supplier
compliance or switch suppliers.
• Procurement department is only evaluated by service level, so they tend to build up inventory to
ensure material availability. Introduce inventory level into the evaluation system.
Manufacturing
• There is mechanical constrain that a large quantity has to be made in a run (large batch size). Invest in
new equipment and R&D to reduce batch size.
- 128 -
Solution Guide
Distribution
• Safety stocks are maintained at every DC. Centralize inventory at manufacturing site can reduce
total safety stock by half. (square root of number of DC).
• The replenish cycle is currently a week. Increase replenish frequency could reduce cycle stock.
System Overall
• The client puts high emphasize on service level, so every step in the value chain increases its
“safety stock” to ensure high service level. Inventories then add up. Suggest to only maintain
safety stock at finished goods level and eliminate “safety stocks” at all the other steps.
• Bring inventory management mind set to clients’ employees and provide proper tools for
employees to manage inventory level.
- 129 -
Conclusion
Recommendation and Next Steps
• The client should reduce production and dump inventory in the short round.
• Systematically improve supply chain in the long round. Recommended solutions depend on
what were covered during the case process.
• Employee mind set change.
- 130 -
Booz Round 1: PE Services Firm

• Your client USCo is a firm that provides services to • How large are the US and EU businesses? –
private equity firms in the U.S. It recently acquired o 5M and 4.5M respectively
EUCo, a similar company in Europe.
• What was the reason behind the acquisition?
o Entry into European markets
• How can they realize synergies both quantitatively
and qualitatively over the next 1-2 years?
Difficulty: Medium Industry: PE Type: Merger Effectiveness
- 131 -
• Direct candidate away from revenue increases and other non-cost synergies – the focus should be cost
savings.
• Initial findings indicate that the bulk of the cost savings come from IT. Cost structure for the two
companies are in the exhibit.
• Focus on licensing and labor (FTE) costs: the main differences between USCo and EUCo is that USCo
develops its own software (hence the high labor cost and no licensing fee) whereas EUCo purchases its
software from software firms (hence lower labor cost but substantial licensing fees).
• Indicate that the two main approaches being considered are to adopt either the USCo approach or the
EUCo approach. Get candidate to determine which is quantitatively preferable.
• If USCo adopts the EU approach, there will be an additional 1B in licensing fees while FTE costs would
drop from 1.8B to 0.5B.
• If EUCo adopts the US approach, there will be an additional 0.4B in FTW costs while licensing costs
would drop to 0.
- 132 -
Solution Guide
Option A: Adopt USCo approach in EU

Original licensing + FTE costs = 1.5B + 0.7B = 2.2B
New costs = 0B + 0.7B + 0.4B = 1.1B
Cost savings using A: 2.2B – 1.1B = 1.1B
Option B: Adopt EUCo approach in US

Original licensing + FTE costs = 0B + 1.8B = 1.8B
New costs = 1B + 0.5B = 1.5B
Cost savings using A: 1.8B – 1.5B = 0.3B
Quantitatively, Option A is preferred. However, qualitative issues to note:

• Possible long-term software supplier contracts in EU
• Potential additional costs to localize US software in EU
• Need to train personnel in EU; potentially sending US personnel to train local staff
• Other factors to reduce the other IT cost buckets are good (e.g. adopting cloud computing to lower HW
costs)
- 133 -
Conclusion
Go with Option A and adopt the US model in EU due Determine additional migration and localization costs
to the quantitative costs savings of 1.1B vs. 0.3B for Verify if EU customers can use the same software as
Option B US customers
Identify potential regulatory concerns using US
software in EU
- 134 -
Provide info to Candidate,
as requested
Costs Breakdown
IT Costs USCo EUCo
Licensing Fees 0 1.5B
Hardware 300M 800M
FTE (Labor) 1.8B 0.7B
Others 600M 400M
- 135 -
PD Gas Buyout
Based on BCG & McKinsey, Round 2
This is a interviewee driven case in the first half and an
• Your client is PD Inc., a large US based grocery interviewer driven case in the second half. A few answers
supermarket chain. PD Inc. also runs 999 gas stations to general questions:
next to its retail stores. • PD Inc. has not been offered a specific price by the
• Last week, PD Inc. was approached by a large US buyer. Interviewee can be told to consider price as
based oil and gas distributor which offered to buy out part of his recommendations though. The key is to
the entire portfolio of 999 gas stations from your PD first decide whether the PD Inc. should sell or not.
Inc. • PD Inc. cannot choose to sell a part of the portfolio of
• Your PD Inc. immediately reached out to you and has gas stations. It will either sell the entire portfolio of
sought your advice on whether to sell these gas 999 gas stations or nothing at all.
stations or not and what factors to consider when • No information on competition is available.
making this decision. • No information on the buyer’s scale, geographic
presence or reason to buy is available
• PD Inc.'s stores are spread across the United States.
All stores have a gas station next to them.
Difficulty: Hard Industry: Retail Type: Divestiture
- 136 -
Answers to additional
Information for candidate to be provided upon request
questions
• A good candidate will identify that initially, PD Inc. needs to value it gas station • PD Inc. has been making
business based on cash-flows and also identify the synergies with the retail stores. losses in the gas station
Information to be provided upon request: business since the past 3-4
years
Revenue (In $ MM)
• There is no information on
Revenue for each gas station each year 60 the growth of the fuel and
Cost of fuel sold at gas stations (COGS) 59.98 the retail business for PD
Inc.
Cost of licensing fees paid to distributor 3.02
• The gas industry as a whole
Cost of rent of land and equipment 2 has a similar cost structure
Cost of labor, utilities, insurance and miscellaneous 1 • The gas station has no
Net Profit -6 additional revenue streams
(carwash/repair/convenienc
e store)
• Really good candidates identify that that the Gross Margin is extremely low either • PD Inc. has no other
because it’s a very low margin business or because PD Inc. is discount prices on business verticals other than
purpose to attract customers. In this case, PD Inc. is using its fuel stations as loss fuel and grocery retail
leaders
• Candidate should ideally then enquire about retail revenue and synergies.
- 137 -
Solution Guide: Revenue side
• For revenue on the retail (grocery) side, upon request, candidate should be told that fuel station revenue
accounts for 20% of overall revenue. Hence, retail revenue will be $240 million per store.
• Upon request, candidate should also be told that we are very proud of the way we manage our suppliers
and have fairly high profits margins relative to the retail (grocery) industry. The margins on the retail
(grocery) side are 16.66%. Candidates intuitively good with numbers will identify this as the fraction 1/6.
if they don’t, tell the candidate to consider it as 1/6.
• The consolidated revenue and cost figures for PD Inc.'s business are given below:
Revenue (In $ Mn) Cost (In $ Mn) Profit (In $ Mn)
Gas Stations 60 66 -6
Retail Stores 240 200 40
Total 300 266 34
After Sale 204 170 34
- 138 -
Solution Guide - Synergies
• Potential synergies are additional walk-ins to retail stores, joint loyalty program, supply chain synergies
(cheaper fuel for PD Inc.'s trucks, same trucks used to deliver goods etc.)
• Additional information on synergies:
- 15% ofInc.'snc’s customers on the retail side come to buy groceries only because they came to the gas
station to fill up gas
- 40% of PD Inc.'s customers on the retail side come to buy groceries but also end up buying gas at the gas
stations later (i.e., they don’t really care if there was no gas station next door)
Candidate should realize that the 15% of the customers who came to buy gas first are the one which account
for synergies on the retail side directly attributable to the gas station
Revenue (In $ M) Cost (In $ M) Profit (In $ M)
15% synergy impact 36 (15% of 240 Mn) 30 6 (16.66% of revenue)
• Candidate should now realize that the losses on the fuel business are getting covered by the synergies
from the fuel business on the retail side. Hence, it is a wash.
- 139 -
Solution Guide
• Now is when you turn the case into a discussion and ask the candidate to evaluate the positive and negatives for PD
Inc. if it chose to sell the business. It is important to keep questioning the candidate’s assumptions.
Positives from Sale Negatives from Sale
Increased cash flow due to cash received from sale Drop in economies of scale as PD Inc. no longer buys $30 B
worth of goods. This also results in excess warehouse,
transportation, store capacity hence downsizing costs
Lesser working capital (reduced by $5.5 B --- Annual cost of These 15% customers will go to competition which will get
$66Bn divided by 12 months = approx. $5.5 B in working capital) economies of scale hence lower prices and this may result in
further erosion of our customers
Increased focus on existing business Stock market may react negatively to drop in revenue
Leaner operation with higher margins (refer to next slide for May impact inventory turnover etc.
details)
• It is important to keep asking candidate for more positives and negatives and question the candidate. “Are there
really any negatives from the sale since there seems to be no impact on profits and for a business, profits are the best
metric to gauge impact?”, “Why will the 15% customers not come to the stores any more?” Etc.
- 140 -
Solution Guide – Loss of Revenue after transaction
• Most candidates will assume that PD Inc will lose the 15% of the customers once it sells the business but it is
important for them to identify the exact reason why PD Inc will lose these customers.
• Question the candidate’s assumption by stating that the gas station is still next door so why will the customers stop
coming.
• The correct reason is that PD Inc is currently selling the fuel at discounted prices to get customers to come to the fuel
station and then buy groceries but the buyer has no incentive for doing so and is likely to raise prices to market
levels and hence the customers will stop coming to the gas station.
• You can further question the candidate by showing him the resulting expected impact on margins after selling the
business. The actual impact will differ as this margin does not include downsizing and other costs. These figures are
given to candidate only to see if he/she can realize that the actual figures may be very different because of the
negatives listed in previous slide. The margins as %age of revenue are given below:
Revenue Cost Profit
Pre-sale 100% 88.66% 11.33%

Post-sale 100% 83.33% 16.66%
- 141 -
An ideal recommendation is to advise PD Inc to sell the 1. Conduct a market survey to test price sensitivity of
business but contractually obligate the buyer to three customer
conditions:
2. Discuss the stipulated conditions with buyer. The
1. The buyer will keep all fuel stations open/seek approval 40% of customers that end up buying fuel can be used
before closing stations as a leverage
2. The buyer will not open any competing establishment
3. Discuss potential for co-branded loyalty card to
(convenience stores) at the fuel stations
further increase customer overlap
3. The buyer will keep the prices discounted by allowing PD
Inc to subsidize the prices. (the key is to realize that PD
Inc does not have to discount so heavily since fuel is
highly price elastic. Even if the buyer sells fuel at prices
5% below competition (assuming competition sells to
entirely breakeven, i.e., at $66 Bn, buyer will sell it at ~ 63
Bn) the customers will still come. PD Inc. can reimburse ~
$ 3 B to buyer and hence still end up making a net profit
of ~ 3 B on the retail side along with getting benefits from
all the positives of selling the business.
- 142 -
Ocular Implant
BCG, Round 2
Problem statement narrative Guidance for interviewer
• Our client is a small medical startup company that has • Offer following information if candidate asks for it –
invented a new ocular product which it believes will • There are currently no buyers for this product
revolutionize the vision for people suffering from although some companies have expressed interest in
degenerative eye disease. investing in the technology for future rights
• The product has been patented however is yet to
undergo clinical trials.
• The final product would need the patients to undergo
a surgery and decrease the number of visits to the
doctor. The first two stages of clinical trial is expected
to cost our clients $14M.
• Our client is trying to decide if they should try and
sell this technology to a major player or should they
raise capital and go to market with the product.
Difficulty: Hard Industry: Healthcare Type: New Business Development
- 143 -
Comparison of current method with new ocular

Structure
implant
A good candidate will highlight the following points Today patients visit the doctors every quarter; each
in the structure visit costs them $350. The disease afflicts about 9%
of the US population.
1. Trying to differentiate the current treatment from
this new ocular implant and the value 1. Average age when this disease sets in is 30
proposition for the clients 2. This is a degenerative disease and patients usually
2. Realizing that clinical trials might take years and have to carry on the treatment for their lifetime
there is not guarantee for success and eventual 3. Assume an average life expectance of 60 years
FDA approval 4. The new ocular device implant surgery would be a
3. The tort implications if they decide to go to onetime cost of $37,250
market individually and also the amount capital 5. After the surgery the patient is required to visit the
that will be necessary to go to market with this doctor annually where the doctor checks and
product replaces a fluid which costs the patient $75 per visit
4. Possibly get funding from a major player to
Average cost for traditional method = 60-30 (average
undergo clinical trials since major bio-med
years of disease) * 4 (number of visits) * 350 (cost per
companies already spend billions on clinical trial
visit) = $42,000
and would not mind spending a few million to
see the efficacy of the device Average cost for new method = $37250 + (60-30) * 1
5. Will insurance cover this device (number of visits) * 75 = $ 39,500
- 144 -
Ask the candidate for his opinion on the cost difference
The cost is lower but not by a very high amount. However, revenues available at the present time is worth more than
the same amount in the future due to its potential earning capacity
It is important to determine the patients’ perspective as well; although there are fewer visits, does it imply a higher
satisfaction? (The client’s research indicates that even if the costs were higher patients would prefer the ocular implant
for not only does it offer lower visits but also much clearer vision than the traditional method)
Conclusion: What should the client do?
1. The company should approach major bio-med companies for investment to get the clinical trial and FDA approval
underway in return for exclusivity.
2. The company should explore other options of using the ocular implant, e.g. can it be used to deliver another drug
or treat another form of disease.
3. It will be difficult for the company to go to market by itself because it would necessitate a huge infrastructure and
hence they should value their product and sell their patent post clinical trials for exit
- 145 -
Shipping Company
McKinsey, Round 2
• Our client is a major shipping company and owns 200 • The objective here is to have the interviewee walk
ships and leases an additional 150 ships. Recently through the major reason for lower profitability,
they have noticed a steep decline in their profitability primarily declining revenues and increasing costs.
and would like to find out how to remedy the • A good structure would cover the following points
situation. (see next page)
• Our shipping company transports all kinds of goods
except oil and other liquids. We also do only port to
port transport which does not include ground
transportation from the port to/from client location
Difficulty: Medium Industry: Transportation Type: Profitability
- 146 -
Reasons for decline in Revenues Reasons for increase in Costs
1. Decrease in global trade owing to the slowdown 1. Increase in maintenance for ships
in Europe and China 2. Increase in insurance costs
2. Increased competition 3. Labor and material costs
3. Decrease in utilization (load factor) of ships 4. Fuel costs
4. Emergence of alternative transport mechanisms 5. Costs associated with route ( e.g. Piracy resulting
5. Types of service offered vis-à-vis product mix ( in longer hauls or weather related changes causing
e.g. shipping time vs. price) longer time to ship )
6. Brand image problems causing declining 6. Environmental costs
revenues 7. Costs resulting from underutilization of ships
7. Other problems associated with reputation e.g. 8. Increase in leasing costs
recent accidents 9. Duration and contract terms for leased ships
8. Security and reliability of delivery 10. Holding costs related to holding items in port
9. Competitors offering ground transportation in 11. Docking and transit costs paid to governments
addition to port to port transport
- 147 -
What would have been the impact on profits if fuel prices did not rise?
Our client conducted an in depth analysis and discovered that it’s cost for the current fiscal year were $1B. The
revenue has remained steady but the load factor of ships has decreased. 35% of this cost directly resulted from
payment made for fuel. The price of fuel has appreciated 300% since 2009. Assuming that the fuel price did not
appreciate what would be the net impact on our bottom line.
Fuel cost in 2012 = $350M
The fuel appreciated by 300% therefore fuel cost in 2009 = $87.5 M
If the price today was $87.5 M it would have meant an increase in profit of (350-87.5) = $262.5 M
Brainstorm: Given our discussion so far, how can profits be increased?
1. Given that revenue has remained steady and load factor has decreased implies we are making more runs, we
should identify ways to increase our load factor and decrease the number of runs
2. This would mean holding goods at the port for a longer duration
3. It is interesting that the fuels costs have increased by 300% whereas the oil prices in the market have not seen a
similar increase indicates the price must be a result of the refining cost. It will be important to investigate the
reason for increase in refining costs.
4. We could renegotiate our lease contracts and possibly terminate some of these
5. We could hedge fuel ( make sure the interviewee understands how and what they will be hedging – if the refining
cost increase is not permanent the hedging would be detrimental)
6. Explore replacing engines with ones that use electric motor’s
7. Optimize routes to take advantage of ocean currents thus saving on fuel and decreasing transit time
8. Ensure optimum vessel size and optimize route so that there is commonality between refueling stops and port calls
for transfer of goods.
- 148 -
Dog Daycare
Ross Original
• Your client is a dog daycare based in the northeast • Your client currently has only one store
U.S. She has recently been approached by a pet retail • Their services include daycare and grooming
chain requesting to buy her business.
• The retail chain is not capital constrained
• Should she sell it? If so, how much should she ask for
the business? If not, what should she do to grow the • Daycare capacity is 80 dogs a day. Current utilization
business herself. is 60% on weekdays, 40% on weekends. They charge
$40/day for daycare
• Grooming capacity is 10 dogs a day. Current
utilization is 70% on weekdays, 10% on weekends.
They charge $60 for grooming
• Assume 250 weekdays/year and 100 weekend
days/year
• Use a 10% discount rate
Difficulty: Medium Industry: Pet Care Type: Strategy, Valuation
- 149 -
1) How would you value this business?

• Look at current free cash flow, apply a discount rate and assume it is a perpetuity
2) Assuming you decided not to sell the business, how else could you grow your business?
• Add new products/services such as: training, boarding, retail, walking, vet services
• Look for opportunities to open new stores/acquire existing stores in the area
• Seek outside investment to expand
- 150 -
Solution Guide
1) Client’s current revenue/costs

• Revenue
• Daycare Weekdays = 48 dogs/day x $40/day x 250 days=$480,000
• Daycare Weekends = 32 dogs/day x $40/day x 100 days=$128,000
• Grooming Weekdays = 7 dogs/day x $60/day x 250 days=$105,000
• Grooming Weekends = 1 dog/day x $60/day x 100 days=$6,000
• Total=$719,000
• Costs
• Labor = 3 employees/day x $10/hr x 12 hours/day x 350 days/yr=$126,000
• Rent = $12,000/month x 12 months=$144,000
• Supplies = $2,000/week x 50 weeks/yr=$100,000
• Insurance = $30,000/yr
• Total=$400,000
• Subtract $99,000 to account for taxes and other items, resulting in free cash flow of $220,000
- 151 -
Solution Guide
2) Acquisition Details
• Current free cash flow is $220,000
• Assume no growth in free cash flow
• Assume the free cash flow represents a perpetuity
• Assume 10% discount rate
• Present value of the perpetuity=$220,000/10%=$2.2M is the present value of the client’s business
• Since the client is negotiating with the retail chain, she should ask for a premium of ~20%
• The client should offer to sell her business for $2.64M
- 152 -
Solution Guide
3) Client grows business organically

• Ask interviewee to brainstorm new products or services that could be added
• Assume new products and services could add $400,000 of free cash flow/year
• The store’s new free cash flow would be $620,000
• After the new services are added, the value of the perpetuity goes to $6.2M, far greater then the
$2.64M the client was originally hoping to get for the business
- 153 -
Conclusion
• Try to get the retail chain to pay at the higher • Negotiate with retail chain
valuation, despite not having the • Create business case for implementing new
products/services in place yet products/services
• If the chain is not willing to pay the higher value, • Investigate competing stores in area to see if they
client should implement new products/services on are open to acquisition by the client
their own
• With additional cash, client could look to acquire
new stores on her own
- 154 -
Seaworthy Floating Hotel
Ross Original
• Your client is a successful entrepreneur based in • If the candidate finds the case odd, let him/her know
Manhattan. She is always thinking of creative ways the entrepreneur‘s success rate is 100%, and the hotel
to start new businesses. Her latest idea is to build a project is vapid compared to previous endeavours
floating hotel . (Think of a skyscraper on a barge, and • Potential clarifying responses (only provide if asked):
the combined structure is seaworthy.)
• The hotel can travel on water like a sea vessel
• Today is Oct.1, and she must make a decision ASAP – • Time for construction and validation: 1 year
her preferred construction company and barge • Location for hotel & barge fabrication: New Jersey
manufacturer conveniently have openings on Nov.1 • $20M is a sunk investment and represents all labour,
for projects. If she misses this window it will be material and testing costs to manufacture and validate
another two years before both companies can the seaworthy floating hotel
simultaneously work together. • The financial objective is 20% ROI in the first year
• She wants to begin operating the hotel as soon as
• The entrepreneur hires you to assess whether she
construction and testing conclude; that is, Nov.1 of the
should spend $20M to build a ‘floating hotel that is
following year
seaworthy’
• Assume no construction delays
• Assume the client has sufficient funds
Difficulty: Hard Quant, Graph Heavy Industry: Hospitality Type: New Business Development
- 155 -
Part 1: Background Info and Basic Market Analysis
Market Analysis
• The candidate may want to start with ROI. Guide him/her to the Market Analysis first
• Please ensure the candidate explains why s/he wants information before providing it
• Market Analysis
 Travel & Tourism Industry: good growth in tourist cities
 Competitors: there are no other seaworthy floating hotels in the US (east or west coast)
 Other Competitors and Substitutes: numerous & fragmented – chain hotels & motels, small business operators, bed &
breakfast, campers/RVs, weekly apartment rentals, etc.
 The exact size of the industry is unknown, ditto for market share
• The client is only considering the US market (east coast to be specific)
• Government regulations will be addressed and met during the construction and validation phases
• Once the candidate sufficiently addresses the market and any potential regulations, ask him/her what location(s) the client
should consider for the hotel?
(Proceed to the next slide)
- 156 -
Part 2: What Location(s) Should the Client Consider?
Where to Locate?
• The aim here is to test the candidate’s business knowledge of the travel & tourism industry; specifically, high and low
seasons (in other words, the seasonality effect)
• The candidate’s objective is to identify two locations that take advantage of seasonality (recall, the hotel is seaworthy
and can travel to different destinations via the Atlantic ocean)
• Please ensure the candidate explains why s/he wants certain data before providing the information
Possible Candidate Questions The Interviewer's Response
How many locations is the client considering? Two (no more, no less)
How many trips a year will the hotel make? Two (no more, no less)
At what time during the year will the trips occur? The client is looking for your guidance
( If required, guide the candidate towards seasonality )
What locations is the client considering? 1st Response) What do you think?
2nd Response) How can the client maximise revenue with different locations?
( Here, the candidate should combine locations and seasonality to maximise
revenues. Specifically, the locations are Miami and Manhattan )
When is high season in Manhattan? What do you think?
( In general, the candidate should indicate late spring, summer and early fall.
The specific response is May 1 to October 31 )
When is high season in Miami? What do you think?
( In general, the candidate should indicate late fall, winter and early spring.
The specific response is November 1 to April 30 )
• Ideal Conclusion / Synthesis from Candidate: The client should locate the hotel in Miami from 11/1 to 4/30 and
Manhattan from 5/1 to 10/31. Both periods are high season and will maximise revenues
• Next, guide the candidate to determine if the seaworthy hotel meets the client’s financial target
- 157 -
Part 3A: Will the Hotel Meet the Client’s Objective?
Data for Revenues
• Ask the candidate how s/he would assess ROI

• Part A: After a sufficient explanation, start with revenues
• Please ensure the candidate explains why s/he wants information before providing it
Possible Candidate Questions The Interviewer's Response
How many floors does the hotel have 26
How many floors have rooms Floors 2 through 26 have rooms (25 floors have rooms)
Is there any room segmentation Good question! Assume all rooms are the same.
How many rooms per floor Each floor layout is the same: a five-by-five grid
( Candidate should immediately calculate 25 rooms per floor )
What is the room's daily rate High season: $200 / room / day (both cities)
Low season: $133 / room / day (both cities) /1
Hotel occupancy rate High season: 80.00% (both cities)
Low season: 53.67% (both cities) /1
What's on the first floor Restaurant, bar / discotheque, convenience shop
In aggregate, what is the first floor's revenue High season: $200,000 / month (both cities)
Low season: $ 97,613 / month (both cities) /1
How many days does the hotel operate The entire time it is docked in the city
How many days does it take to travel from 2.5 days in either direction
Manhattan to Miami (and vice versa) Candidate should recognise the hotel operates 360 days a year,
and
1/ Low season numbers are provided to distract the candidate
• Proceed to the next page for the annual revenue calculation

- 158 -
Part 3A: Will the Hotel Meet the Client’s Objective?
The Top Line: Calculating Total Annual Revenue
• Part A: Continued… Annual revenue calculation

• Ideally, the candidate will realize the computation only involves high season. Additionally, revenue is identical in
Miami & Manhattan and, as such, calculations can be shortened
• Proceed to the next page for the cost analysis

- 159 -
Part 3B: Will the Hotel Meet the Client’s Objective?
Discussing VC and FC
• Part B: Cost Analysis

• Ask the candidate what cost buckets s/he would consider for the seaworthy floating hotel
• For VC, guide the candidate to external house keeping if it is omitted
• For FC, docking fees and insurance are significant. Guide the candidate to these topics if they are omitted
Variable Costs (VC) Fixed Costs (FC)

House Keeping Docking fees (significant)
External House Keeping Insurance (massive!)
(Daily exterior inspections)
Food & drink Yearly regulatroy fees
Etc. Etc.
• Proceed to the next page for the cost data
- 160 -
Reviewing the Cost Data
• Part B: Continued… Cost data

• Based on the cost bucket discussion, the candidate comprehends the key drivers. Please provide the following data
Manhattan Miami
VC $150 / day / rm $100 / day / rm
FC $3M / season $1M / season
Note 1: Seasonality doesn't affect VC or FC
Note 2: Federal regulations mandate that
internal & external house keeping
is required regardless of occupancy
• Ideally, the candidate will understand Notes 1 & 2 without further clarification. If not,
 Note 1 indicates VC and FC are the same in high and low seasons
 Note 2 indicates VC impacts all rooms every day (assume house keeping is 100% of VC)
• Proceed to the next page for the cost calculation

- 161 -
Calculating the Costs
• Part B: Continued… Cost calculations

• The candidate should first calculate each city’s total cost, and then the total annual amount
Miami
Total Cost
= Total VC + Total FC
Miami Floors with Rooms VC per room Days Fixed

Total Cost
=
Rooms
X
per Floor
X
per day
X
per Season + Cost
Miami
Total Cost
= 25 X 25 X $100 X 180 + $1,000,000
Miami
= $12,250,000
Total Cost
Manhattan Floors with Rooms VC per room Days Fixed

Total Cost
=
Rooms
X
per Floor
X
per day
X
per Season + Cost
Manhattan
Total Cost
= 25 X 25 X $150 X 180 + $3,000,000
Manhattan
= $19,875,000
Total Cost
Total Annual Manhattan Miami

Costs
=
Total Cost + Total Cost
= $32,125,000
• Proceed to the next page for ROI analysis

- 162 -
Part 3C: Will the Hotel Meet the Client’s Objective?
Calculating ROI
• Part C: ROI
• The ROI is calculated as follows:
• Investment = $20,000,000
• Profit = Total Revenue -Total Cost = $38,400,000 - $32,125,000 = $6,275,000
• ROI = Profit / Investment x 100% = [ $6.275M / $20M ] x 100% = 31.375%
• Client’s Target = 20% ROI within the first year
• Once the ROI is complete, instruct the candidate that the client wants the final report in 60 seconds. Please prepare a
one page presentation
• One page presentation entails Recommendation, Risks and Next Steps
- 163 -
Recommendation, Risks & Next Steps
Recommendation Risks
Examples of risks and mitigating factors:

The candidate’s recommendation should follow a
similar format: 1) Risk of being the first seaworthy floating hotel and
not achieving the anticipated 80% occupancy rate
• Client’s target = 20% ROI within one year
# Promotions and advanced sales to secure early
• Resulting ROI = > 31% in the first year bookings. Since the ROI > objective, the client can
trim the top line to achieve the desired occupancy rate
Based on surpassing the financial objective, the client while maintaining the financial target
should proceed with construction on Nov.1 to fabricate
a seaworthy floating hotel. 2) Competitors will enter the market due to the strong
profits. As a result, docking fees may increase and
The hotel’s unique feature to operate as a sea vessel upset the profit equation
enables it to capitalise on the high tourism seasons in
# Since the client is first to market and has, at least, a
Miami and Manhattan.
one year lead, she should secure a multi year contract
Additionally, the client has adequate funding to for docking fees in Miami and Manhattan
finance such a project.
Next Steps
1) Ensure contracts are drawn up for hotel and barge manufacturers

2) Scout port locations in Manhattan and Miami
3) Begin advertising campaign at least 6 months in advance of the hotel’s opening
- 164 -
Big Trucks
McKinsey, Round 2
• Our client is a manufacturer and dealer of heavy •This case is a McKinsey 2nd round interview case, it
industrial trucks. The currently offer three brands of should be given as a command and control style case
trucks. Each brand offers trucks in the light-, mid- and •Candidate should brainstorm aloud – a good
heavy duty class. candidate will note their hypothesis for future
• The client currently sells trucks directly to end users reference
and typically includes a clause to repurchase the •Interviewer should push until candidate identifies
trucks after a few years. repurchase agreement, this is the largest factor
• What are some areas our client should be concerned •It is important to review this case extensively
about?
•Additional Information
•Market is composed of three players(Companies
not brands)
•Players are fairly equal in market share
•Client’s brands are not distinguished and direct
competitors
Difficulty: Hard Quant, Graph Heavy Industry: Automotive Type: Profitability
- 165 -
Solution Guide
• Good brainstorming will highlight the following areas:

• Repurchase agreement – Key Driver and Step 1 after brainstorming
• Brand proliferation – opportunity to streamline to one brand
• In-house and procured materials – area for improvement Step 2 after repurchase exercise
• Others – Allow candidate to identify as many as the wish, interviewer should question unrealistic
guesses and then have candidate indicate which is likely the most important factor
- 166 -
Repurchase Agreement
Data
 Length of service – 3 Years
 Repurchase Price - $25,000
 Trucks to be Repurchased
Year 1 – 20,000
Year 2 – 30,000
Year 3 – 40,000
 Resale Price
- Year 1 – $24,000
- Year 2 – $22,000
- Year 2 – $20,000
- 167 -
Suggested Solution
Repurchase Agreement
- Candidate should note that repurchase agreement creates liability for company
- Follow up and have candidate size the liability
- Year 1 – 20K trucks X $1K loss/truck - $20M
- Year 2 – 30K trucks X $3K loss/truck - $90M
- Year 3 – 40K trucks X $5k loss/truck - $200M
- Total Liability of $310M
- Candidate should suggest the following potential solutions
- Accelerate repurchases to reduced liability (should note this could cannibalize new sales with increases used trucks on
the market)
- If candidate assumes 50% of years 2 and 3 are repurchased a year earlier
- Total Savings 35K trucks X $2K loss reduction/truck - $70M liability reduction – Other feasible
acceleration plans are acceptable
- Increase resale price through refurbishment (only if net positive)
- 168 -
In-house vs. Procured Parts
- Sale Price of Truck - $50,000
- Total Cost of Truck - $40,000
Percentage of Parts
Client Competitor A Competitor B
In-House 40% 50% 25%
Purchased 60% 50% 75%
Relative Costs per Part

In-House 100% 80% 105%
Purchased 120% 140% 80%
- 169 -
Suggested Solution
Part Procurement
- Ask candidate to calculate costs of in-house and procured parts

- In-house - $40K X 40% - $16K
- Procured - $40K X 60% - $24K
- Have candidate hypothesis why competitors have better costs structures and how client could achieve these:
- Economies of Scale
- Attempting to move to price leadership of one would hurt the other
- Opportunity to increase internal production and sell (Purchase Supplier)
- Have candidate calculate new price if they were able to match price leader for both in-house and procured
parts
- In-House – Savings of 20% X $16K – $3.2K
- Procured – Savings of 33% X $24K - $8K (40% reduction of 120% total is 1/3 savings)
- Total - $11.2K = 28% - Huge opportunity, but is it feasible?
- 170 -
Suggested Solution
Part Procurement – Implied Costs
Candidates will not be required to calculate competitor costs
Implied Total Costs

In-House $16K $16K $10.5K
Purchased $24K $23.3K $20K
Total $40K $39.3K $30.5K
- 171 -
Conclusion
Recommendation Interviewer Assessment
Client should look to accelerate repurchases to It is important for the candidate to note that these
reduce liability. Additionally, client should strategies could negative impact one another. More
investigate changing their part procurement strategy. readily available used trucks could reduce demand
There may be opportunities to reduce costs. for new trucks, while cheaper new trucks(if margin
isn’t increased) will make used trucks less appealing
and could increase the repurchase liability.
Next Steps
Better understand market elasticity for used/new

trucks as these strategies will cannibalize sales from
one another.
- 172 -
Delson Hard Drive
BCG, Round 2
Your client, Delson, is a $20B hard drive company that •The case presents a very open-ended prompt to test
manufactures and sells hard drives to OEMs (e.g., HP). candidate’s ability of dealing with ambiguity and focusing
OEMs sell computers and data systems to consumers and on the most important issue (CEO approach).
all kinds of businesses. Hard drive industry’s profitability •Keep pressing the candidate until she/he realizes that
has been cyclical, and recently seen a decline due to how to get customers for SSS is the first step to the
increasing competition and slow sales in computers. success of such a new business.
Therefore, the CFO of Delson decided to acquire a start-
up company, Small Storage Systems (SSS). SSS •Candidate should understand that Delson currently has
purchases hard drives and then manufactures and sells no sales force to reach large companies, but OEMs have
data storage equipment for large companies to store and the sales force. Therefore, client can consider building
manage data efficiently. Software solutions are included own sales force or leveraging OEMs as a channel. When
with the equipment. candidates comes to this point, give Exhibit 1.
Now, the CFO meets the BCG Partner at a dinner and Info to be given upon request:
asks for advice: what issues should we be concerned •They are few companies in the OEM space, but many
about the newly acquired start-up SSS? What should we hard drive manufacturers.
do?
•Hard drive industry has a very high fixed cost. Major
players have very thin profit margin and need to
maximize utilization in order to stay profitable.
Difficulty: Hard Industry: Computer Hardware Type: Acquisition effectiveness

- 173 -
Candidate Handout: to be given after candidate identifies OEMs as potential channels
Exhibit 1: SSS’ Profit Margin via own sales force V.S. via OEM channel
OWN * OEM *
List price 100 100
Price to OEM ---- 75
COGS -60 -60
Sales -15 -5
G&A -10 -3
Profit Margin 15 7
* All the figures are in %
- 174 -
Suggested Solution
• Q1. How to interpret Exhibit 1 and what are your insights?

• Note for interviewer: Some OEMs also sell data systems to businesses. Such OEMs are called
“Enterprise OEM”. Building own sales force will change the current supplier-buyer relationship with
Enterprise OEMs to direct competitor relationship. Keep pressing candidate until she/he gets to this. Then
give Exhibit 2.
Solution Guide
• Key insights
• While OEMs offer excellent channels for our client, they also charge a 25% discount of our list
price, leaving us only 7% profit margin.
• The profit margin via own sales force is 15%, but client probably can’t sell as many equipment as
they could through OEMs, because client is building sales force from scratch and lacks relevant
experience.
• Most critical insight
• If client sell via own sales force, they turn themselves into direct competitors against some OEMs!
- 175 -
Candidate Handout: to be given after candidate identifies negative impact of building own sales force
Exhibit 2: Delson’s revenue & profit margin
Total revenue $20B
Overall profit margin 6%
Profit Margin on Enterprise OEMs 10%
Enterprise OEMs’ share of total

20%
revenue
Top 3 Enterprise OEMs’ share of

40%
total Enterprise OEMs revenue
Note: top 3 Enterprise OEMs will switch to other drive manufacturers if Delson builds own sales force for SSS
- 176 -
Suggested Solution
• Q2. With Exhibit 2, how would you evaluate whether or not to build own sales force?
Solution Guide
• Profit loss due to top 3 Enterprise OEMs switching to other drive manufacturers:
• $20B * 20% * 40% * 10% = $160M
• Calculate how many equipment SSS needs to sell to compensate the above loss of hard drive sales profit:
• Profit margin difference between own sales force and OEM channel is 15%-7%=8%
• In order to compensate the loss, SSS needs to sell X dollars of equipment via own sales force, then:
X * 8% = 160M => X = $2B
• Insight: as a new start-up, SSS may not be able to achieve $2B sales in its first year of sales; therefore,
building own sales force is not a good idea.
- 177 -
Suggested Solution
• Q3. If SSS can sell more than $2B in its first year, how would you change your idea?
• Note for interviewer: can ask candidate to make a final recommendation after this question.
Solution Guide
• Hard drive industry has a very high fixed cost. Major players have very thin profit margin and need to
maximize utilization in order to stay profitable.
• Therefore, if client loses top 3 Enterprise OEMs ($20B*20%*40%=1.6B), their hard drive’s profit margin
may go down to negative.
• A rough estimation (just for illustrative purpose here):
• Current total costs: $20B*(1-6%)=$18.8B
• Revenue after losing top 3 Enterprise OEMs: $18.4B
• Because client is highly fixed-cost based, the total costs without serving top 3 Enterprise OEMs may
be still above 18.4B, leading to negative margin.
• Insight: client can’t grow the unpredictable SSS start-up at the risk of losing the whole hard drive business.
- 178 -

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ROSS CASEBOOK 2012

Ross Consulting Club

 Introduction & Acknowledgements 2

Best of luck in the upcoming recruiting season!

• Alexis Jay • Mohammed Dhedhi

Interview process overview  Consultant

Interview process overview  Consultant

Interview process overview  Associate

Interview process overview  Consultant

Interview process overview Career path

Interview process overview  Associate

Interview process over view  Senior Associate

Interview process overview  Senior Consultant

Interview process overview  Consultant

Customer  Leisure travelers – 71%, generally price sensitive

 Highly susceptible to threats of terrorist activity

Customer  Large and midsize

 Purchase decisions influenced by current fuel prices

Customer  Retail customers – 56%

Customer  Patients/consumers who need these drugs/medicines

Customer  Residential and small business markets

 Capital-intensive telecom industry the biggest barrier to entry is access to finance

Understand the Develop Form

Porter’s Five Forces Analysis

Bargaining Power of Internal Bargaining Power of

Return on Equity (ROE)

Income Statement Sales

Elasticity • If E>1, decrease price to increase revenue

Oligopoly Market is dominated by a small number of sellers.

Five Cs Company, Customer, Cost, Channels, Competition

Total revenue US & Canada

Source: Bain & Co.

Percent of market revenue (2008)

Source: Bain & Co.

Number of new Total cost to acquire

Average spend per year

Source: Bain & Co.

Average customer lifetime (years)

Source: Bain & Co.

High-Level Model Answer Other

Source: Bain & Co.

Set-up Key questions Model answer

Set-up Key questions Model answer

Difficulty: Medium Graph Heavy Industry: Financial Services Type:

How does a credit card processor work?

Questions for the candidate

Client Market Share: 0.5% 5%

Questions for the candidate

• At the beginning of the case (after candidate presents his framework):

Comparative Analysis of Little Bud and Geineken

P&L Item As % of Rational

Options for Little Bud Business

Valuation of Little Bud Business

P&L Comparison Pricing

• The candidate should recommend the CEO to sell Little Bud

Figures in USD millions

Average Price and Cost Per Unit

Business Problem Statement

Guidance for interviewer and information provided upon request