GENERAL CASE TIPS

Repeat the question

State your hypothesis / key decision criteria
Explain the framework to be used
Walk the interviewer through your analysis
Draw visuals if possible -- charts (e.g., waterfalls, bubbles) 2x2 matrices, pies, etc.
Summarize conclusions and explain what additional analyses may be relevant
Generate options and alternatives
If you get stuck, restate what facts you know

REMEMBER:
Try and make the interview an interactive dialogue between you and the interviewer. The interviewer is
not an adversary; you are working together to solve the clients problem.
Relax and have fun!

PRICING
Estimate demand (pricing is largely demand driven)
Analyze customers willingness to pay for companys product / service
Target customer segment(s)
Price elasticity
Price of substitute products / services
Value-added of companys product / service (either real or perceived)
Consider costs, but dont let costs dictate the outcome.
Adjust for anticipated competitor response.
Analyze companys strategy:
Premium vs. value product / service
Niche vs. large market share
Capabilities in positioning product / service
Consider various pricing strategies:
Price discrimination
Two-part tariff
Bundling
Warranties

PRODUCT / LINE MIX

Understand the product mix and features -- variety, design, packaging, substitutes, product crosselasticities
Identify the size of the product portfolio mix -- could the company be spreading its resources too thin
across a large product portfolio?
Analyze product profitability mix:
Profit margin of each product line
Product breakdown as a % of revenues, cost, profits, growth rates, etc.
Consider discontinuing unprofitable products in the mix
Explore possibility of introducing new products
Consider issues of cannibalization and effect on brand equity
Evaluate pricing strategy -- premium vs. value products (see PRICING card)
Examine companys core competencies, ability to leverage economies of scope and scale, potential issues
of capacity constraints
Analyze market direction and threat of new entrants

ECONOMICS
GNP = C + I + G + X
C = personal consumption
I = corporate investment
G = government purchases
X = net (exports - imports)
Market equilibrium: Price -- Quantity point where demand equals supply (does not change unless
demand or supply shifts).
Marginal Costs < Average Costs implies economies of scale
Marginal Costs = Average Costs implies constant returns to scale
Marginal Costs > Average Costs implies dis-economies of scale
Price elasticity of demand = (% change in Quantity / % change in Price)
if > 1 implies elastic
if < 1 implies inelastic
Consider diminishing marginal utility and diminishing returns

CUSTOMERS
Conduct segmentation of customer base -- who is the target customer?
Existing customers (companys or competitors)
New customers
Profitability of target customer segments vs. other potential segments
Identify what the customers needs are and what they value
Commodity vs. premium products
Assess needs and perceptions against companys product mix
Market trends
Analyze relative buying power -- most powerful when:
few customers exist and they purchase in large volumes
products are standardized and represent high % of final products total costs
profits of buyer are low
buyers present credible threat of backward integration
Consider other key issues:
Product substitutes / complements and switching costs
Demand elasticity
Cost of retaining and acquiring a customer (e.g., use of loyalty programs because its cheaper to
retain customers than to acquire new customers)

COMPANY ANALYSIS
Consider the companys vision / mission / stakeholders
Examine the companys capabilities:
Firm resources (people, capital, technology, etc.)
Core competencies (economies of scope)
Capacity issues (e.g., manufacturing, distribution, human resources) -- how flexible are
facilities / labor?
Understand the companys cost structure:
e.g., how is the marginal cost impacted by building new capacity (i.e., marginal costs will
increase if new capacity is not fully utilized OR marginal costs increase if capacity is
greater than minimum efficient size)
Economies of scale
Analyze the companys financing options:
Access to capital / financing capabilities
Alternatives to internal financing
NPV of alternative options
Consider the impact of external factors (e.g., technology, regulation, competitors, likely competitive
responses, etc.)

DISTRIBUTION
Understand current structure -- is it overly complex?
Draw a map (e.g., show plants, distributors, customers)
Outline the value chain (suppliers, manufacturers, distributors, wholesalers, retailers,
customers, etc. -- break down each as a percentage of total costs)
Analyze the objectives of distribution chain for specific case
Channels
Coverage
Flexibility
Speed
Barriers to Entry
Consider various tradeoffs:
Cost vs. proximity
Service vs. product implications
JIT vs. inventory
Internal vs. external distribution issues
Evaluate impact of trends (IT, deconstruction of value chain)
Consider cost-benefit analysis of alternative distribution methods

PROMOTION
Analyze segments (who, what, where, how, value)
Understand audience needs / perceptions (conjoint surveys, trends, etc.)
Benchmark with other industries
Estimate potential per segment
Demand

Price

Growth

Competition

Profitability

Consider various issues in companys advertising and PR strategy including:

Differentiation and sustainability of promotion
Dilution of message
Use of specials, discounts, etc.
Sales force effectiveness
Identify opportunities to differentiate product (based on dimensions of quality, design, location, service,
advertising, price, etc.) in order to:
Expand feasible set of strategies (not limited to 1 dimension / product attribute)
Make demand less elastic
Avoid price warfare
REMEMBER: The goal is to send the right message to the right people in the right way!

REGULATORY
Understand key regulatory issues:
Pricing guidelines (e.g., as % of costs) --> no monopoly pricing
Tariffs
Anti-trust
Patent infringement, intellectual property rights
Assess regulation as a barrier to entry (through procurement, as well as environmental and safety
standards
Prohibitive costs of compliance for new entrants
Control of licenses by a public authority (approved supplier status)
Trade barriers
Analyze impact on the company as well as the competitors
Leverage regulatory asymmetries (in your own market, other countries, etc.)
Look to the past for precedents

FRAGMENTED MARKET
Understand why the market is fragmented
low barriers to entry and / or high barriers to exit
absence of economies of scale or learning curve effect
high transportation costs
high inventory costs or erratic sales fluctuations
diverse market needs (i.e., need for customized offering)
high product differentiation
government prohibition of concentration / local regulations
newness of industry
Examine whether or not fragmentation can be overcome
(Is consolidation feasible? See CONSOLIDATION card)
Determine if overcoming fragmentation is profitable for the company
If fragmentation is inevitable, identify best alternatives for coping with it
tightly managed decentralization
increased value added
specialization by product type, product segment, customer type, region, etc.
backward integration

GLOBAL ISSUES
Consider key issues in developing a global competitive strategy:
Factor cost differences among countries
Differing circumstances in foreign markets (i.e., 4 Ps)
Different roles of foreign governments
Differences in goals, resources, and ability to monitor foreign competitors
Evaluate various mechanisms for participation in global activities:
Licensing

Private labeling

Mergers and acquisitions

Exporting

Joint ventures

Foreign direct investment

Assess market conditions

National, economic, social, and political conditions and circumstances
Competitive landscape and competitive reaction (signaling?)
Analyze cost - benefit of participation (does it add shareholder value?)
Economies of scale
Transportation or storage costs and cost of labor, energy, raw materials, etc.
Access to established distribution channels
Ability to leverage value chain asymmetries
Consider management structure (i.e., multinational, centralized, transnational)

BUSINESS ESTIMATION STATISTICS

Outline your overall logic, identify key assumption drivers, use round numbers, show your work and
write it down! (be careful not to get too detailed)
United States
US population -- 300 million
US households -- 60 million
World population -- 6 billion
North America -- 450 million
South America -- 300 million
Europe -- 500 million
Asia -- 3.5 billion
Key cities
Tokyo, Japan -- 27 million
New York City -- 16 million
Los Angeles -- 12 million
Buenos Aires , Argentina -- 12 million
Beijing, China -- 11 million

VALUE CHAIN
Compare value chain to that of competitors and identify sources of differentiation
Construct value chain for the firm and the customer and identify drivers of uniqueness in each
activity
Support : Infrastructure, IT, HR, procurement
Primary : Suppliers, inbound logistics, operations, manufacturing, outbound logistics,
marketing and sales, support
Identify primary activities such as:
Outbound logistics: activities needed to convert inputs to outputs OR outputs to final
destination
Sales and marketing: activities necessary to inform / persuade customers to buy outputs
and order-taking processes necessary to complete sales (e.g., sales force effectiveness,
customer satisfaction, use of ads to enhance brand image)
Rate relative importance of each activity
Analyze cost drivers and cost interactions
Identify possible outsourcing opportunities
Select attributes that promise high differentiation between cost and price premium
Break down each activity as a % (i.e., as % of every incoming dollar)
Locate linkages between value chain and customers

NEW MARKET ENTRY

Ask if this fits the companys mission / culture -- e.g., why does the company want to expand?
Invest excess cash flow
Increase market share
Decline in existing market (shrinking sales, higher costs, lower margins)
Assess the firms resources and capabilities:
Economies of scope and scale
Ability to leverage current value chain components (infrastructure needed)
Capital, labor, and capacity constraints (see CAPACITY card)
Evaluate market conditions
Size and growth rate of new target market
Competitive profile / trends and likely competitive responses
Barriers to entry (and how to overcome them) and regulatory considerations
Consider complements with current product / markets, potential issues of cannibalization, and market
cross-elasticities
Analyze cost - benefit of new market entry
Niche vs. large market share
Consider methods of entry (e.g., JV, direct investment, exporting, acquisition)

INFORMATION TECHNOLOGY
Evaluate cost - benefits of IT investment
Is the project a strategic necessity? If so, dont evaluate IT investment based on current project
evaluation methods (i.e., 5 year payback, ROI criteria, etc.)
Outsource vs. develop in-house
Understand that IT infrastructure determines what a company will be able to do and not do in the
future
Defines a companys organizational capability
Must have close link between strategic planning and IT infrastructure planning
Assess competitor strategies with respect to IT investments
Consider impact of current IT issues (e.g., the Year 2000 problem) on the companys costs and
profitability
Avoid over-investing
Make sure that employees are prepared to learn and adopt new system
Identify the impact of IT infrastructure on redefining the value chain

FORMULAS
TOTAL ASSETS = Current assets + PPE + Investments + Other Assets
BALANCE SHEET = Assets = Liabilities + Stockholders Equity
STOCKHOLDERS EQUITY = Shareholders Equity + Common Stock + Retained Earnings
REAL INTEREST RATE = Nominal Interest Rate - Inflation
PROFIT BEFORE TAXES = Gross Revenue - Returns & Allowances - COGS - SG&A - Depreciation Interest Expense
GROSS MARGIN = Gross Revenue - Returns & Allowances - COGS
NET WORKING CAPITAL = Current Assets - Current Liabilities
BREAKEVEN VOLUME = Fixed Costs / (Price - Variable Costs)

MARKET SHARE
Consider changing market characteristics:
Long-term growth rate of existing
markets and new segments not currently
being served

Entry or exit of major firms

Diffusion of proprietary
knowledge

Customers and how they use the product

Regulatory changes

Product, process, and market innovation

Changes in cost structure

If the market is growing, the number of entrants increases and its easier for all players to achieve
improved performance (non-zero sum game); therefore its easier and cheaper to take
market share. Strategies include:
Maintain prices as costs and achieve high profitability (price effect)
Drop prices as costs to increase market share (market share effect)
Note: in a growing market you want to increase market share over the long-run
If the market is slowing, one firms gain is another firms loss (zero-sum game)
Price competition increases especially when there are large economies of scale, low marginal
costs, and learning curve effects
Check that market share is not from turnover of most profitable customers

COSTS
Analyze main cost components as a % of Total Costs (and % of Total Sales): Direct Labor (union vs.
non-union), Direct Material, Allocated Overhead (including SG&A and Depreciation),
Distribution Costs, Financing Costs
Consider potential flaws in the companys cost accounting method
Break down total costs into fixed and variable cost components
Fixed Cost Issues:

Variable Cost Issues:

- Capacity utilization (if its low, identify

- Suppliers (consolidate?)

cause, e.g., demand vs. efficiency)

- Break-even analysis
(BE volume = FC / (Price - VC))

- Cost control
mechanisms and
incentives in place?

- Economies of scope and scale

- Outsourcing alternatives

- NPV of fixed cost investment with

- Impact of horizontal or

sensitivity analysis

vertical integration

Determine slope of industry cost curve

Compare cost structure to that of competitors
Identify and leverage potential cost advantages (e.g., raw materials, labor, energy sources,
infrastructure, patents, location)

MERGERS & ACQUISITIONS

Assess goals and objectives for such consideration
Increase market access
Diversify horizontally or vertically
Pre-empt competition
Achieve operating synergies (e.g., economies of scope or scale)
Achieve financial synergies (e.g., lower cost of capital)
Realize tax gains (e.g., acquirer transfers tax losses of target to offset income)
Consider impact on acquirers financial condition
Comparison of margins

Ability to finance the acquisition

Issues of accretion / dilution on EPS

Tax issues

Evaluate impact on competitive environment

Competitive trends and likely competitive responses
Legal and regulatory implications (anti-trust)
Consider post-merger integration issues
Strategic fit

Exit strategies

Culture implications
Discuss M&A alternatives (e.g., outsourcing, JV, corporate restructuring, etc.)

VALUATION
Understand common methods of valuation:
Discounted Cash Flow (DCF) - projection of future earnings and selection of appropriate
discount rate (be prepared to estimate revenues and costs!)
Comparable Multiples - apply multiples of income or revenues of comparable companies to
establish purchase price
Asset-oriented Approaches - fair market value, fair value, book value, liquidation value
Consider the following factors in valuing a closely-held or private company:
nature and history of the business
economic and industry conditions
book value of target company and its financial conditions
earnings capacity of the company
dividend-paying capacity
evidence of goodwill or other intangibles
other sales of stock
prices of comparable stocks
Assess means of financing the transaction

COMPETITION
Analyze the competitors strengths, weaknesses, opportunities and threats (SWOT analysis)
Firm resources
Management profile and style
Product line (i.e., substitutes)
Clout and leverage with buyers and suppliers
Industry trends
Determine if there are any Barriers to Entry ?
Economies of scale

Product differentiation

Existence of learning curve effects

Capital requirements

Access to distribution channels

Governmental actions

Examine the cost structure of competitors (especially as it relates to the clients cost structure) -- cost
differences may be based on the degree of vertical integration (see COSTS
card)
Consider likely competitive responses to the clients actions and potential cooperative strategic
options

COMPETITOR INTENSIFICATION
Consider various responses in an intensified competitive environment:
Use resource advantages to raise barriers to entry
Raise switching costs for customers
Step up marketing effort
Increase promotional efforts (e.g., implement customer loyalty programs)
Consider price signaling (e.g., lower your price in a smaller market)
Leverage customer information to identify and steal most profitable customers away from
competitors (cream-skimming); likewise, protect your most profitable customers
Grow market share through mergers or acquisitions
Avoid price wars and other irrational behavior; remember that accommodating your competition
sometimes makes the most sense
Establish long-term contracts to lock in customers

PROFITS AND MARGINS

GROSS PROFITS = REVENUES - COSTS
Identify root causes of decline in profitability (e.g., margins vs. quantity)
Break down Revenue component (see REVENUE card):
Price
Quantity
Break down Cost component (see COST card):
Fixed Costs vs. Variable Costs
Direct Labor, Direct Material, Allocated Overhead (including SG&A and Depreciation),
Distribution Costs, Financing Costs -- all as a % of Total Costs and Total Sales
Analyze product profitability and product mix (i.e., look at volume shifts)
Identify mix of customer segments and associated segment profitability
Explore trends in overall industry profitability (competitors profitability?)
Examine the impact of any unusual charges (e.g., one-time capital outlays, contingent liabilities,
litigation charges, environmental charges, etc.)
Consider changing market factors (demographics, tastes, economy, changes in technology, regulatory
actions)

REVENUE
REVENUES = PRICE x QUANTITY
Break down factors which influence Price (see PRICING card):
Analyze customers willingness to pay for companys product / service
Target customer segment(s)
Price elasticity
Price of substitute products / services
Value-added of companys product / service (either real or perceived)
Evaluate product mix and ability to differentiate product (based on dimensions of quality, design,
location, service, advertising, price)
Consider competitors pricing strategies and relative market pricing power
Break down factors which influence Quantity (see MARKET SHARE card):
Consider market share vs. market demand (and growth patterns)
Explore inability to meet market demand based on capacity constraints (demand vs. capacity
utilization vs. throughput)
Analyze types of customers gained / lost (protect most profitable customers)
Evaluate impact of product substitutes vs. complements
Consider the cyclical or seasonal nature of the business, if applicable

CONSOLIDATION
Examine feasibility and objectives of industry consolidation
create economies of scale or learning curve effects
standardize diverse market needs
make acquisitions for critical mass
recognize industry trends early
Evaluate impact of consolidation
achieve operational and financial synergies
capacity utilization vs. demand
cultural fit
Assess implications of vertical vs. horizontal consolidation
Understand regulatory issues
Analyze cost - benefit to the company

OUTSOURCING
Analyze the make vs. buy decision
Ignore fixed and other sunk costs, only consider variable costs
Examine the companys cost allocation method
Assess benefits of outsourcing:
lowers cost
increases flexibility and access to external capabilities
benefit from economies of scale and specialization of third-party provider
may reduce new product development cycle
Assess costs of outsourcing:
loss of control over manufacturing process, quality, turnaround time, etc.
increased difficulty associated with integrating different technologies and knowledge bases
(may diffuse the concept of core competencies which results in loss of a companys ability to
innovate and develop)
costs of monitoring the contractor and contract specifications may outweigh lower unit costs

OPERATIONS EFFICIENCY
Consider three components when evaluating plant efficiency:
Utilization: percent of total available time that plant is actually running
Identify causes of loss (e.g., lack of demand, labor problems, line breakdown)
Throughput rate: compare actual production rate to maximum potential rate
Identify causes of loss (e.g., calibration, labor performance, poor maintenance, other plant
functions)
Waste: measure what percentage of raw material inputs is lost in producing output
Identify causes of loss (e.g., calibration, quality of inputs, machinery breakdowns)

REMEMBER: When asked to analyze capacity utilization of a plant, consider ALL three of the
above points!

SUPPLIERS
Segment suppliers on basis of clients needs (e.g., quality, cost, value-added, timeliness, JIT, service,
etc.)
Identify key decision criteria in evaluating suppliers (e.g., low cost, high quality control, low defect
rates, quick turnaround times, etc.)
Evaluate companys relative bargaining power with suppliers based on % of suppliers total sales
Analyze supplier power -- greatest when:
dominated by a few suppliers
product is differentiated (high switching costs, few substitutes)
supplier poses credible threat of forward integration
Examine ways to lower overall supply costs:
consolidation of suppliers increases capacity utilization of suppliers which lowers suppliers
costs and thereby could lower the companys costs and prices (however, be careful of
supplier concentration)
economies of scope among suppliers
inventory vs. JIT

ALLIANCES & JOINT VENTURES

Assess benefits of such a strategy:
Ability to exploit critical internal resources and gain access to resources of partner quicker, at lower
cost, and with less uncertainty
Gain access to markets and technology in much shorter time than would result from firm going at it
alone
Share management responsibility
Assess potential problems and costs:
Agreement on the value of each partners contribution to the JV / alliance
Ability to achieve cooperation between firms that are also competitors
Conflicting objectives / divergent management styles
Disputes over quality and labor practices
Potential lack of control
Recognize that the sharing of benefits will depend on:
Strategic intent of the partners
Ability of each partner to capture and appropriate the skills of the other
Companys receptiveness to the partnership
Identify alternative strategies (e.g., outsourcing, M&A, etc.) -- explore as needed

DIVESTITURES & SPIN-OFFS

Evaluate reasons for a divestiture:
Poor strategic fit and/or poor performance of a division
Parts of a company are worth more than the whole (reverse synergy)
Capital market factors (greater access to capital markets post-divestiture)
Immediate infusion of cash from the sale
Evaluate reasons for a spin-off:
Redefinition of core business
Parts of a company are worth more than the whole (reverse synergy)
Capital market factors (greater access to capital markets post-divestiture)
Impact on cost of capital
Assess market conditions
Is timing right to sell?
Competitive response (i.e., lead to price or quality )
Conduct cost - benefit analysis
Can subsidiary inefficiency / high costs be turned around?
Effect on quality of product / service
Impact on economies of scale and scope
Current / future cost breakdown (fixed costs vs. variable costs, transition costs)

DIVERSIFICATION
Examine existing business situation and understand motivation behind diversification (invest free cash
flow?)
Avoid diversification strategy solely to smooth earnings
Analyze different types of diversification
Expand geographically (local, regional, national, international)
Integrate vertically (offsets power of suppliers, smoother production flow, better accessibility to
markets, distribution cost advantage)
Expand into related markets (product, business, distribution, managerial skill)
Expand into unrelated markets ( risk, benefits from economies of scale, acts as informal
market when external markets e.g., labor or capital, are weak)
Evaluate ability to leverage existing resources, value chain, infrastructure and economies of scope and
scale
Consider competition and likely competitor response (e.g., impact on pricing)
Conduct cost - benefit analysis of diversification strategy
Economic conditions
Market supply / demand
Regulatory issues

CAPACITY
Assess overall fixed asset effectiveness (see OPERATIONS EFFICIENCY card)
Utilization
Throughput against its theoretical potential
Product acceptance and waste levels
Compare to industry averages and recent trends
Identify causes of utilization loss
Lack of demand
Plant breakdowns
Staffing issues
Issues to consider in adding new capacity
Demand considerations
Ties up capital and may result in excess capacity
Evaluate companys minimum efficient plant size (MES) relative to total market output (its
easier to enter if MES as % of total market is smaller)
Estimate slope of industry cost curve -- its easier to bring a new plant on-line below capacity if
the cost curve is flat
REMEMBER: Importance of utilization as fixed costs as a % of total costs