Bain-Chicago Practice Casebook
Consultant / Summer Associate
Fall 2004
Introduction
Practice Case: Office Products
Practice Case: Utility Marketing Strategy
Practice Case: Office Vending Services
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Practice casebook - Consultant / SA
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Introduction
The Case Interview
The case interview is only one dimension of the recruiting process, but it is typically the part that raises the most anxiety. This casebook is designed to help you prepare for doing well in your case interviews, and therefore relieve some of that anxiety.
Bain uses the case interview to test a candidate's analytical skills and business judgment. The case is generally a real business problem, based on disguised Bain work.
To do well, you will need to provide a clear structure to your analysis and drive to an answer for the client. Initially you will be given limited case facts, and it is up to you to identify and ask for the most leveraged new information you need to develop your recommendation. There is never a clear cut solution to the problem presented to you. What is important is not your answer, but how you get to it and the logical arguments you use to support it.
Practice casebook - Consultant / SA
This Casebook
This book presents sample case problems and walks you through the process of developing an answer. The goal for these materials is not to present every possible type of case you may encounter. Rather, each case is thoroughly dissected to illustrate a solid analytic approach and the level of detailed analysis which a candidate is expected to bring to the discussion.
Each case is structured in 3 sections:
1. An overview that lays out the keys to success on the case 2. Background data slides to set up the problem
3. A 5-part analysis that drives to recommendations for the client
At each step in the analysis, good answers to the case questions are provided, along with pitfalls candidates commonly encounter. The suggested approach (and the pitfalls) should generalize to most of the cases you will encounter, so this casebook should help provide a good introduction for your case practice efforts.
“Practice makes perfect.”
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Case Interview Tips
•Don’t get thrown by the interviewer’s questions. The
interviewer is your ally and uses questions to get a better
understanding of your thought process -- not to stump you.
•Be concise. If asked for the two top issues, confine your
response to two items.
•Provide logical backup for your answers. Be sure to explain
what case facts led you to a conclusion, and how you
reasoned from those facts to your conclusion.
•Don’t be afraid to ask clarifying questions. If you don’t
understand the case facts, it will be tough to ace the
interview.
•Relax and have fun. Try to approach the case as an
interesting problem to be solved and an opportunity to
create value for the client.
•Good luck!
Case overview: office products
•There are 5 background slides in this case. A large amount of data
is presented up front, but the problem itself is not clearly stated.
Thus, an important aspect of this case is for the candidate to quickly
identify the critical issue(s) to be analyzed.
•There is more than one framework that can be applied successfully
in this case. The traditional revenue/cost breakdown approach will
work, as will a 3Cs-oriented structure.
•Recognizing which factors the client can influence or control is key to
developing a good hypothesis in this case.
•The ultimate goal is to drive to specific, actionable recommendations
for the client to improve profitability.
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Background Slide 1
Client profile
•Acme Office Supplies is one of the largest diversified manufacturers
of office products, with sales of $300M in 1991
- strong brands
- significant advertising and marketing expense to support these brands
- historical growth generated by product line extensions and 4 key acquisitions
•Company is organized into 5 autonomous operating divisions, but
with shared manufacturing and marketing functions
- shared costs (45% of total) are allocated to products on a percent of sales method (e.g. if product X is 1% of total Acme sales, it is allocated 1% of indirect manufacturing costs, distribution expenses, marketing costs, and corporate overhead)
- current manufacturing capacity utilization is ~50%
•Stock is publicly traded
- current P/E is 8 - low long-term debt
- industry analysts are predicting that Acme will become an acquisition target in the near future given a strong balance sheet but weakening earnings
Note: In a case interview, this information may
be presented verbally
Background Slide 2
Acme financials
Source: Acme Financials
Sales Pre-Tax Profit 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 0 100 200 300 $400M $Millions
Acme experienced consistent revenue and profit growth during the
1980s.
1980-1989 CAGR 15% 15% 1989-1991 CAGR (8%) (40%)9
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Background Slide 3
Competitive product lines
Source: Competitor Research; Acme Marketing Department
Acme Competitor A Competitor B
12,500 5,000 3,400 0 5,000 10,000 15,000
Number of Different Products Manufactured (SKUs)
Background Slide 4
Distribution channels
Source: Acme Sales Database; Wholesaler interviews (n = 19)
Acme
Wholesalers
Dealers /
Small Retailers Superstores
End Customers 75%
50% 25%
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Background Slide 5
Market trends
Source: Acme Product Marketing; Analyst Reports; Market Research
• The US office supplies market grew at a 5% CAGR during the 1980s.
In 1990 and 1991, however, the market declined 5% per year
• Superstore channel is becoming increasingly critical
- superstores have gained 10 share points in the last 2 years
- superstores typically offer products at 30% discount to small retailers / dealers
• Superstores are aggressively substituting private label products for
traditional brand names
- For example, Staples, Inc. is currently negotiating with private label stapler manufacturers in China
- Acme’s most profitable product is a high-end branded stapler - Staples, Inc. is now Acme’s largest single customer
Step 1: Identify the critical issues
Interviewer: “What do you think are the critical issues facing this client?”
(or) “Where would you focus your efforts at this client?”
Reasonable answers
Better answer
Potential pitfalls
•“There are a lot of issues
here, but I’d like to focus
first on the near-term
profitability problem.”
•“Given that the client has
seen such a dramatic
decrease in profits, I want to
examine what’s been driving
the erosion here.”
•“From a strategic
perspective, there are some
worrisome trends:
- channels shifting toward mass retailers
- emergence of private label”
•“These trends are both
negative from Acme’s
perspective:
- increasing price pressures from superstores
- threat to Acme’s core branded business”
•“But, decreasing profitability
is making Acme highly
vulnerable in the short run,
so profitability must be
directly addressed, and
quickly. This is where I
would focus initially.”
•Not taking the general
manager or investor’s
perspective
•Focusing on a relevant
issue but missing the big
picture
- “I think this private label problem is really a threat, so I’d like to focus my efforts here.”
•Picking an area which you
know a lot about, but which
isn’t central to the case
- “Let’s talk about Acme’s capital structure….”
•Not using background facts
to support your arguments
•Failing to ask clarifying
questions to ensure
understanding of
background data (as
appropriate)
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Step 2: Specify an analytic framework
Interviewer: “How would you approach this problem?”
(or) “Specifically, what would be the key elements of your analysis?”
Potential pitfalls
•“I’d like to break this out in terms of
revenues and costs”
- revenues: price and volume
8price: pressure from discounters, likely
eroding premium with emergence of private label
8volume: market decline, share loss to
private label
- costs: variable and fixed
8variable / fixed: product line complexity 8fixed: capacity utilization
•“I’d approach the profit erosion issue by
grouping the key issues around customers,
competitors, and costs”
- customers: recession driving lower market volumes, switching to low-price / lower-margin channels, shift away from branded to private label products
- competitors: emergence of low-cost offshore players
- costs: product line complexity, excess capacity
•Not specifying a framework (scattershot
approach)
•Digging deep into one area (e.g. share
loss) before laying out the overall
structure
•Applying a framework that will not help
you decompose the problem (e.g. SWOT
analysis is not particularly useful for
profitability problems)
•Applying a framework that causes you to
spend a lot of time on issues that aren’t
highly leveraged (e.g. with Porter’s 5
Forces, you could end up wasting a lot of
time on entry barriers in this case)
Step 3: Prioritize/develop hypothesis
• “It is unlikely Acme can do much about customer and market trends:
- macro economic factors are obviously out of Acme’s control - given the superior value-proposition of the superstores, I
don’t think Acme will be able to stop channel migration - if the superstores are aggressively moving to private label,
and the customer base is becoming increasingly price-sensitive, additional advertising / marketing efforts will probably not prevent the shift away from traditional brands to private label -- especially given spending levels here that are already high”
• “The competitive development of low-cost offshore producers would seem to be driven by these
customer and market trends, and also isn’t under Acme’s control.”
• “Therefore, Acme should focus on cost reduction to improve profitability:
- most actionable by the client (e.g. complexity reduction) - much faster payback than brand-building or a major
strategic shift (e.g. vertical integration)
- cost cutting will become increasingly critical as our margins are squeezed by superstores and price premium falls against private label”
• Reluctance to develop a hypothesis in the absence of perfect information
• Neglecting to explain to the interviewer why you are focusing on a given area
• Not using the facts from the case to support your arguments
• Losing sight of the big picture / most critical issue • Not differentiating between internal and external
factors: what can the client actually influence and what is out of their control?
Interviewer: “So, what issue would you pursue first?”
(or) “Which do you think is the most leveraged area for analysis?”
Potential pitfalls
Good response (based on 3Cs framework)
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Step 4: Structure/execute analysis
• “The most important analysis necessary to reduce complexity in the various product lines is to develop an accurate picture of product profitability from a managerial perspective.”
• “Product-specific revenues and direct costs (e.g. direct labor) are relatively easy to obtain. Therefore, product cost allocation for indirect costs (45% of total) becomes critical in this case.”
• “One good way to allocate indirect costs is to first identify the key cost drivers in each cost area, and then allocate costs to specific products based on their usage of those drivers.
- for example, the key cost driver in the area of warehousing rent and utilities is square footage. Therefore, I would allocate these costs to products based on the amount of space they require for storage in the warehouse.”
• “Of course, it is also important to consider market-oriented factors. So, I would want to do a customer impact analysis to identify any loss leaders and determine where carrying a full product line is necessary to compete. We also need to develop a transition plan to minimize unmet customer
expectations as we cancel specific products. These analyses need to be done for each major channel, and on end-user impact as well.”
• “Finally, I would want to understand the impact of complexity reduction in the factories (production scheduling, capacity utilization issues, etc.)”
• Being unable to explain why an analysis you suggest is important or how it could be executed
• Not following your framework / jumping around in your structure without a clear plan of attack
• Getting caught up in academic theory and losing sight of the practical application (e.g. accounting conventions)
• Failing to adjust your answer based on additional data provided by the interviewer
• Not doing the math (as appropriate to the case)
Interviewer: “What analysis would you need to perform to address the issue?”
(or) “How would you develop your hypothesis on reducing costs?”
Potential pitfalls
Good response (complexity reduction)
Step 5: Drive to recommendations
• Reluctance to make recommendations in the absence of perfect information
- “I’d prefer to do more analysis first.”
• Providing a generic answer that doesn’t drive to specific client actions
- “The client should increase capacity utilization.”
• Unrealistic / too optimistic:
- “I don’t see how the union could be an obstacle.”
• Ignoring the client as relevant to solving the problem
- “This is clearly the right answer, so I don’t think the COO’s objections are all that important.”
• Specific and action-oriented:
- “Given the situation with capacity utilization and the cost advantages in Mexico, Acme should close the New Jersey and Michigan plants and consolidate production in
Chihuahua.”
• Realistic and pragmatic:
- “The implementation timeframe for the plant closure is probably 8 to 12 months.”
• Acknowledge difficulties in implementing change:
- “This will be a major change for the organization. We will need a carefully developed transition plan that considers the problem comprehensively: relationships with the union, customer impacts, changes in distribution and warehousing, public relations, and impact on the supplier base.”
• Sensitive to client capabilities, biases, politics:
- “Right now there isn’t a strong central purchasing
department. If we are going to shift from local to corporate-wide sourcing with the plant consolidations, the client will have to invest in this capability.”
- “Given what you’ve told me about the culture at this firm, this is likely to be highly controversial. We need to be careful how and when this is communicated to the organization.”
Interviewer: “What actions would you recommend to the client?”
(or) “Based on your analysis, what should the client do?”
Potential pitfalls
Good response (capacity utilization)
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Case overview: utility marketing strategy
Keys to the Case
•The background slide to the case does not clearly state the issue to
be addressed. You must decide where the leverage is without getting
distracted by the existence of the gas business or delving into
regulatory concerns.
•There is really only one framework that works for this case and it is
not a “standard” framework. The critical variables to prioritize
customers are value and vulnerability (or risk of defection). A simple
2 X 2 matrix works best.
•There are not a lot of numbers to use in this case but they can help
you develop your hypothesis.
•Be comprehensive and creative in the approach for analyzing the
value of a customer. It is critical to consider the lifetime value vs.
just the margin. A methodology can be created where you calculate
actual inputs for most variables of the equation.
•Driving recommendations to discussion on deploying actual sales,
service and marketing resources is the point of the case. The
prioritization is interesting but the question is what do you do once
you understand how to prioritize.
Background Slide 1
•In 1993, a combination gas and electric utility (regulated monopoly)
was preparing for a change in the regulatory environment when
electric power generation would become a competitive business
•A new VP of Marketing and Sales was put in place to prepare that
organization for the competitive marketplace
•Composition of the customer base:
Residential Customers Major Industrial and Commercial (I&C) Customers Remaining I&C Customers Number of customers: Share of 1992 Revenues: (1992 Revenues = $1.0B) 1.8M 50% 1000 30% 199K 20%
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Step 1: Identify the critical issues
Interviewer: “Given this information, where do you think the case team should
focus?”
Good Initial Questions
•Are the gas and electric
businesses inter-related?
- Do they serve the same customers? (some overlap) - Will the de-regulation of electric
power generation impact the gas business? (no)
- What is the relative size of the businesses? (electric = 80% of revenues and 85% of profits)
•Is it therefore safe to assume
that the composition of the
overall customer base reflects
the electric business as well?
(yes)
Good Answer
•Given the size and the dynamics
of the electric power market I
will focus on that part of the
business
•With the emerging
de-regulation, the key marketing
issue is customer retention
•Since the utility will lose some
customers with deregulation
(starting with a monopoly they
only have one direction to move)
the key question is which
segments of customers the
utility should invest in retaining
•For extra credit articulate
additional questions which drive
to actions: what are their needs,
how is the organization aligned
to meet those needs today and
what organizational and
strategic changes should be
made to improve the way we
serve target segments
Potential Pitfalls
•Getting caught up in trying to
understand dynamics of gas
and electric businesses
- a few simple questions can make it clear that the electric business is what matters
•Digging into detailed
regulatory issues
•Not identifying retention as
the critical issue
•Trying to develop strategies
to retain all customers rather
than focusing on segments
Step 2: Specify an analytic framework
Interviewer: “How would you determine on which segments the
utility should focus?”
•Customer segments should be ranked
based on two criteria:
- Value: profitability of power generation to the utility
- Vulnerability: risk of losing the customers (segments) to competitors
•“Value” should be based on lifetime value
of the customer segment. This
incorporates the investment required to
acquire the customers, their annual
profitability, and the expected “life” of a
customer
•Vulnerability would capture the likelihood
of different segments of customers
switching to competitive offerings once
deregulation occurs
•Extra Credit Observation: there is likely
to be some correlation between value and
vulnerability as new entrants will probably
attempt to target the highest value
customer segments first
•Trying to apply a “standard” framework to
this fairly focused question--Keep it simple
•Not considering all components of lifetime
value (e.g., acquisition costs and lifetime)
as that ranking can vary considerably from
a ranking based on current margin
Potential pitfalls
Useful frameworks
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Step 3: Prioritize/develop hypothesis
• The first step would be to further segment the customer base. Specifically, I am most
interested in understanding any sub-segments within major I&C customers (avg. revenue of $300K) where needs probably vary dramatically by industry (i.e., government, retail, process industries, etc.) There are probably not major distinctions in the needs of residential customers by segment
• I would therefore hypothesize the following customer prioritization:
- Large Industrial customers should be the initial focus because they will be most valuable (high electric usage in one location for a long time translates into low acquisition costs, high margins and a long life) and the most vulnerable (easy to target and valuable to
competitors)
- Large Commercial customers will rank second because large commercial customers (e.g., grocery chains) are heavy users but harder to serve because of multiple locations and higher turnover (high acquisition costs and shorter customer life)
- Small I&C and Residential customers are of lower value and are less vulnerable to competition because their usage is relatively low, they are more costly for a competitor to target and for most individuals, the electric bill is a relatively small expense so they will not go out of their way to seek an alternative provider.
• Failing to further segment customers misses a lot of the potential richness of the case
• Digging into residential customer issues because that is what you understand best
• Forgetting to consider the acquisition costs and customer life issues
• Not clearly explaining any assumptions you are making
Potential pitfalls
Good hypothesis
Step 4: Structure/execute analysis
Interviewer: “What analysis would you have the team perform to test your hypothesis?”
• Conduct customer research to further segment customers by needs and to assess the
vulnerability of segments based on propensity to switch/loyalty behavior
• To prioritize segments the team must first
estimate each of the major elements of the value equation:
- Acquisition cost based on sales and marketing costs devoted to that segment (either tracked directly or estimated through interviews/surveys of sales and marketing depts.)
- Volume based on usage for that segment (or in the case of 1000 Major I&C customers can track actual historic usage by specific customers)
- Profitability margin based on usage patterns (peak loads, timing of peaks, etc.) developed in conjunction with technical and finance resources from the client - Customer life based on industry research regarding the
typical life of that type of business
• To assess vulnerability utilize output of research and supplement with an assessment of the attractiveness of segments to likely new competitors (qualitative assessment)
• Create 2X2 matrix plotting segments based on value and vulnerability
• Not being creative in places and ways to gather data and conduct analysis
• Not attempting to get actual data or at least samples of actual data wherever possible and instead relying on assumptions for critical drivers of value
• Not articulating framework for visually capturing output of analysis to articulate/demonstrate the answer
Potential pitfalls
Good response
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Step 5: Drive to recommendations
Interviewer: “Based on your analysis, what should the client do?”
•Now that we have prioritized customer
segments, the issue is how the utility
should apply sales, marketing and
potentially technical resources differentially
against the highest priority segments
•Definite recommended actions:
- Focus marketing activities against developing programs that meet critical needs identified in research (i.e., devices/programs to increase energy efficiency)
- Dedicate more sales/non-technical service support to highest priority segments (e.g., improved billing services)
•Potential recommended actions (evaluate
cost/benefit tradeoffs):
- Invest more to deliver higher technical service (less downtime) to highest priority segments
8More backup generators/systems where
high priority customers may be clustered (areas with a lot of process plants, for example)
8More technical personnel on duty to make
repairs whenever system does go down
•General/non-specific recommendations
(e.g., improve service without describing
how)
•Not distinguishing with actions you can
definitely recommend now vs. actions that
would require additional research because
of the investment required
•Being unrealistic in recommendations
Potential pitfalls
Case overview: Office Vending Services
•There is only one background slide in this case (Situation /
Complication). It is up to the interviewee to ask the right
questions to uncover the data necessary to formulate a
reasonable hypothesis. The additional data slides are then
provided to the interviewee as data is requested.
•There is more than one framework that can be applied
successfully in this case. The traditional revenue/cost
breakdown approach will work, as will a 3Cs-oriented
structure.
•Due to the open-ended nature of the problem posed, the
key to this case is to remain focused on addressing the
client’s key question.
•The ultimate goal is to drive to specific, actionable
recommendations for the client to improve profitability.
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Background Slide 1
Situation/complication
•Office Vending Services, Inc. is the
market leader in office vending
machine services
•The business services provided include
sales and delivery of product,
restocking of machines, and repair of
faulty equipment
Situation:
•Profits are substantially down in the
business
Complication:
•The CEO of Office Vending Services
needs Bain to assess the root causes of
the profitability decline
Office Vending Services revenue
(1996-1998)
Source: Office Vending Services, Inc. Financial Statements
1996 1997 1998 250 230 200 0 50 100 150 200 250 $300M
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Office Vending Services cost
(1996-1998)
1996 1997 1998 225 216 200 0 50 100 150 200 250 $300MOffice Vending Services Costs
Office Vending Services volume sold
(1995-1998)
Source: Office Vending Services Financial Reports
1995 1996 1997 1998 0.0 0.5 1.0 1.5 2.0 2.5 3.0M
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Office Vending Services historical pricing
(1995-1998)
Source: Office Vending Services Pricing Data
1995 1996 1997 1998 0 25 50 75 100 $125
Office Vending Services Average Price (Dollars per Delivery)
Office Vending Services market trend
(1996-1998)
Source: Market Research; Company Annual Reports; Office Vending Services Financials Office Vending Services
Vend International Candy & Pop Co
Others 1996 1997 1998 0 100 200 300 400 $500M
Total Market Sales
Percentage Change (1996-1998) Total: 3% 17% 22% 44% (20%)
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Customer satisfaction
Source: Bain Customer/Market Research for Office Vending Services (n=3500)
Price
Product
Variety/Selection
Delivery Reliability
Machine Service/Repair
Complaint Resolution
Importance/Performance: 1=Low, 10=High
10
6
9
3
5
4
10
5
9
7
8
5
10
4
5
7
6
8
5
4
Office Vending
Services
Importance
Attribute
Vend
International
Candy & Pop
Co.
Customer satisfaction
Source: Bain Customer/Market Research for Office Vending Services (n=3500)
Price Product Variety/Selection Delivery Reliability Machine Service/Repair Complaint Resolution 10 6 9 3 5 0 2 4 6 8 10
Customer Rating of Importance/Performance
Importance Office Vending Services Vend
International Cand & Pop Co
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Competitor comparison (1998)
Source: Financial Statements & Annual Reports
Office Vending
Services
$110M
$60M
Competitor
Revenue
Cost of
goods sold
SG&A
expense
Direct labor
(repair)
Direct labor
(delivery)
$200M
$130M
Vend
International
Candy &
Pop Co.
Other costs
$32M
$35M
$70M
$22M
$30M
$23M
$30M
$30M
$15M
$17M
$30M
$6M
$5M
$10M
Office Vending Services cost per delivery
(Versus competitors)
Other Repair Delivery SG&A COGSOffice Vending Services Vend International Cand & Pop Co 105.3 94.7 93.8 0 25 50 75 100 $125
Cost per delivery
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Office Vending Services cost structure
(Historical trend, 1996-1998)
Other Repair Delivery SG&A COGS 1996 1997 1998 225 216 200 0 50 100 150 200 250 $300M CostsSource: Office Vending Services Financial Statements
Percentage Change (1996-1998) Total: (11%) 0% (14%) (25%) (8%) (7%)
Step 1: Identify the critical issues
Reasonable Answers
Better Answer
Potential Pitfalls
•“The client has identified
the decline in profitability
as the most important
issue
- I’d like to investigate how revenues and costs have changed to answer this question.”
•“The client has identified
the decline in profitability
as the most important
issue.
- I’d like to investigate how revenues and costs have changed over time to answer this question
- After we understand what has changed from a financial perspective, I’d like to look at how the customer
base/preferences have changed in addition to competitive forces in the industry to understand the root cause of the client’s decline in profitability.”
•Ignoring or missing key
information presented up
front
- “I think the most critical issue is determining how the client can grow their business.”
•Jumping to a conclusion
without supporting data.
- “A decline in profitability must be due to their failure to control costs.”
•Failing to summarize the
situation and diving into
a detailed data request
- “I’d like to look at the income statements for the past 8 quarters.”
Interviewer: “What do you think are the critical issues facing this client?”
(or) “Where would you focus your efforts at this client?”
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Step 2: Specify an analytic framework
Interviewer: “How would you approach this problem?”
(or) “Specifically, what would be the key elements of your analysis?”
• After identifying profitability as the key issue under consideration, the interviewee should be very explicit about how they would like to
proceed to answer the question. There are two frameworks which an interviewee may find useful in this case :
• Profitability Framework
- Interviewees which use this framework will quickly uncover that a decline in unit sales has caused a decline in revenue and will likely hypothesize that a failure to cover fixed costs is causing costs (as a percentage of sales) to increase
- Interviewees which use this framework will be less likely to fully investigate the change in customer preferences or competitive landscape to which the client must respond
• 3 Cs
- Users of this framework may have a more difficult time driving towards the sales decline and fixed cost
leverage issues than those which use the profitability framework
- However, the 3Cs framework is a great way to explore the customer and competitor issues here
• Picking an inappropriate framework
- Using Porter’s Five forces would indicate that the interviewee likely does not grasp the key issues in the case
• Not fully exploring one portion of the framework before moving on / jumping around in your framework
- For instance, asking about price, moving to COGS, then returning to sales volume and finishing with SGA
Potential pitfalls
Useful frameworks
Step 3: Prioritize/develop hypothesis
•When this question is asked, it is a sign that the
interviewee has uncovered what has changed
with respect to revenue and costs and is being
prompted to suggest a line of analysis which will
help them drive toward a recommendation
- “I think the most important issue facing the client is the decline in unit sales which are responsible for the decrease in revenue. My hypothesis is that this decline in demand is responsible for a decrease in capacity utilization and/or leverage of other fixed costs which is ultimately responsible for the decline in profitability.”
- “If nothing can be done to address the decline in unit sales (for instance, market-wide demand change), it will be necessary to aggressively manage costs to improve profitability. For this reason, I would next like to investigate the client’s major cost
components.”
•Touching on issues rather than driving to the
essence of the case
- “I’d like to know how much the company spent on advertising over the last year compared to other industry players”
•Failing to directly answer the interviewer’s
question
- “How many other players are there in this industry?”
Potential pitfalls
Good response (based on the profitability framework)
Interviewer: “So, what issue would you pursue first?”
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Step 4: Structure/execute analysis
• Here, the interviewer is looking for specific analytics which would enable the case team to make an actionable, data-driven
recommendation
• “On the revenue side, I’d like to investigate why unit sales have fallen and on the cost side, I’d like to understand how our costs compare to those of competitors
- It is clear that falling unit sales are driving the decline in revenue. I’d like to understand whether a customer or competitor shift is driving this trend, or the market is simply contracting
8 I’d like to see how our market share has changed
relative to other industry players. If everyone’s sales have declined, that implies a need to aggressively manage costs in the face of a shrinking market.
8 On the other hand, if other competitors have
gained share at our expense, I’d like to know why. I’d like to see what features or characteristics customers value most (especially price) and how our client stacks up with other industry players - I’d like to compare the client’s major cost elements
with those of the other two competitors.”
• Failure to suggest an actionable course of analysis
- “I’d like to understand why sales have declined”
- Interviewer - “Ok, so what data do you want/how would you actually go about this?”
• Suggesting a course of analysis which will not directly lead to an answer for the key question in the case
- “First we need to estimate customer price elasticities for each service provided….”
Interviewer: “What analysis would you need to perform to address the issue?”
(or) “How would you develop your hypothesis on reducing costs?”
Potential pitfalls
Good response
Step 5: Drive to recommendations
• Making a recommendation which is not specific
- “The client should cut costs” - Interviewer : “How?”
• Making a recommendation which does not address the key issue facing the client
- “I think they should consider using a pay-for-performance scheme to better motivate employees”
• Making a recommendation with no factual support
- “I think our client should invest more in advertising” - Interviewer : “Why?”
• At this point, the interview is either running short or you have reached a point where you have all the information you need to present a
recommendation to the client.
• “The root cause of the decline in profitability is that our client is offering the wrong set of products to customers. Specifically, customers now buy on price and reliability, not on product variety and repair capabilities. For our client to effectively reverse the trend in profitability, they should immediately do the following three things :
- Reduce the number of products offered. Do this by looking at products with the lowest sales volumes and total gross margin contribution. The client should seriously consider keeping only those products which account for 80% of its sales or gross margin dollars. This will reduce manufacturing costs (COGS) and the overhead associated with managing such a large product line (SG&A)
- I’d look next at the repair department to determine if costs could be removed from this area. OVS apparently has very strong capabilities in this area but customers do not appear to be willing to pay more for this
- The cost savings should be used to reduce price and improve delivery reliability in order to preserve their market share.”
Interviewer: “What actions would you recommend to the client?”
(or) “Based on your analysis, what should the client do?”
Potential pitfalls
Good response
41 CHI
Question tree
Why have profits declined?How has revenue changed?
How has total cost changed?
2 60ASVM003
bc
CHI
Office Vending Services Revenue (1996-1998) Office Vending Services, Inc.
Source: Office Vending Services, Inc. Financial Statements
1996 1997 1998 $250MM $230MM $200MM $0MM $50MM $100MM $150MM $200MM $250MM $300MM
Office Vending Services Revnues
How has sales volume
changed?
How has unit price changed? 1 60ASVM003 bc CHI
Office Vending Services Volume Sold (1995-1998) Office Vending Services, Inc.
Source: Office Vending Services Financial Reports
1995 1996 1997 1998 0.0MM 0.5MM 1.0MM 1.5MM 2.0MM 2.5MM 3.0MM
Volume Sold (Millions of Deliveries)
5 60ASVM003
bc
CHI
Office Vending Services Historical Pricing (1995-1998) Office Vending Services, Inc.
Source: Office Vending Services Pricing Data
1995 1996 1997 1998 $0 $25 $50 $75 $100 $125
Office Vending Services Average
Price (Dollars per Delivery)
3 60ASVM003
bc
CHI
Office Vending Services Cost (1996-1998) Office Vending Services, Inc.
1996 1997 1998 $225MM $216MM $200MM $0MM $50MM $100MM $150MM $200MM $250MM $300MM
Office Vending Services Costs
Source: Office Vending Services, Inc. Financial Statements
What are the key components of cost? 1 1 60ASVM003 bc CHI
Office Vending Services Cost Structure (Historical Trend, 1996-1998) Office Vending Services, Inc.
Other Repair Delivery SG&A COGS 1996 1997 1998 $225MM $216MM $200MM $0MM $50MM $100MM $150MM $200MM $250MM $300MM
Costs (Millions of Dollars)
Source: Office Vending Services Financial Statements
Percentage Change (1996-1998) Total: (11%) 0% (14%) (25%) (8%) (7%) 9 60ASVM003 bc CHI Competitor Comparison (1998) Office Vending Services, Inc.
Source: Financial Statements & Annual Reports
Revenue Competitor Direct Labor (Delivery) SG&A Expense
Office Vending Services Vend International Candy & Pop Co.
Cost of Goods Sold $200MM $130MM $110MM $70MM $35MM $32MM $60MM $30MM $22MM $30MM $30MM $23MM Direct Labor (Repair) $30MM $17MM $15MM Other Costs $10MM $5MM $6MM
How does each compare to
competitor costs?
The following tree illustrates how a candidate might use the profitability framework
to work through the case.
Is this decline the result of a market trend or has a competitor been stealing share? 60ASVM0036 bc C H I
Office Vending Services Market Trend (1996-1998) Office Vending Services, Inc.
Source: Market Research; Company Annual Reports; Office Vending Services Financials Office Vending Services
Vend International Candy & Pop Co
Others 1996 1997 1998 $0MM $100MM $200MM $300MM $400MM $500MM
Total Market Sales (Millions of Dollars)
Percentage Change (1996-1998) Total: 3% 17% 22% 44% (20%)
• Our client is at a cost
disadvantage relative to other industry players
• Our client does not have much flexibility to adjust price because of their high relative cost position • The cost disadvantage comes
primarily from SG&A and COGS implying inefficient manufacturing practices and high overhead
relative to competitors
• OVS appears to be investing less in its delivery capabilities than competitors
Cost Insights
(Next Page)
Question tree (con’t)
Is this decline the result of a market trend or has a competitor been stealing share? 60ASVM0036 bc C H IOffice Vending Services Market Trend (1996-1998) Office Vending Services, Inc.
Source: Market Research; Company Annual Reports; Office Vending Services Financials Office Vending Services
Vend International Candy & Pop Co
Others 1996 1997 1998 $0MM $100MM $200MM $300MM $400MM $500MM
Total Market Sales (Millions of Dollars)
Percentage Change (1996-1998) Total: 3% 17% 22% 44% (20%)
• Our client has the wrong cost/quality configuration • They are perceived as dead
last in the two categories listed as most important to end customers (price and delivery reliability)
• Our client’s perceived strengths (large product selection and repair services) are not
particularly important to end customers Revenue Insights Have competitors taken share by offering a superior value proposition or by cutting price?
What attributes are most important to
end customers?
How does our client deliver on these attributes? 7 60ASVM003 bc C H I Customer Satisfaction Office Vending Services, Inc.
Source: Bain Customer/Market Research for Office Vending Services (n=3500)
Importance
Attribute InternationalVend Candy &Pop Co.
Price Product Variety/Selection Delivery Reliability Machine Service/Repair Complaint Resolution Office Vending Services
Importance/Performance: 1=Low, 10=High 10 6 9 3 5 4 10 5 9 7 8 5 10 4 5 7 6 8 5 4 8 60ASVM003 bc C H I Customer Satisfaction Office Vending Services, Inc.
Source: Bain Customer/Market Research for Office Vending Services (n=3500) Price Product Variety/Selection Delivery Reliability Machine Service/Repair Complaint Resolution 10 6 9 3 5 0 2 4 6 8 10
Customer Rating of Importance/Performance
Cand & Pop Co Vend International Office Vending Services Importance Importance/Performance: 1=Low, 10=High
