Case interview 分析工具/框架 来源： 张旭的日志
最近在准备CASE INTERVIEW ，刚接触这个，对里面涉及到的FRAMEWORK 和STRATEGY 非常不熟悉，偶获珍宝，与诸君共享。顺便攒RP ！！
案例面试分析工具/框架
一．Business Strategy
1． 市场进入类
2． 行业分析类
3． 新产品引入类 ● 行业分析（波特5力，市场趋势，市场规模，市场份额，市场壁垒等） ● 公司宏观环境（人口，经济，自然，技术，政治），公司微观环境（公司，供应商，市场中介，顾客，竞争对手，大众） ● 3C （Competitor, Consumer, Company/Capabilities） ● Cost-revenue 固定成本，可变成本 收入怎么计算？时间序列估计，可比公司估计 ● 市场细分很重要，niche market A. 地理细分 B. 人口细分（年龄及生命周期阶段细分，性别细分，收入细分） C. 心理细分（社会阶层，生活方式，个性特征） D. 行为细分（购买时机-柯达，利益细分-牙膏，用户状况，使用率，忠诚度） ● 市场（市场规模，市场细分，产品需求/趋势分析，客户需求） ● 竞争（竞争对手的经济情况，产品差异化，市场整合度，产业集中度） ● 顾客/供应商关系（谈判能力，替代者，评估垂直整合） ● 进入/离开的障碍（评估公司进入/离开。对新加入者的反应，经济规模，预测学习曲线，研究政府调控） ● 资金金融（主要金融资金来源，产业风险因素，可变成本/固定成本） ● 风险预测与防范
● 营销调研
● 产品？价格？即4P
● 4C (Customer, Competition, Cost, Capabilities)
● 市场促销，分校渠道（渠道选择，库存，运输，仓储）
● STP 和4P （Product, Price, Place, Promotion ）
● 产品生命周期
二．Business Operation
1．市场容量扩张（竞争对手，消费者，自己实力）
2．利润改善型
● Revenue, Cost 分析，到底是销售额下降造成，还是成本
上升造成
● 如果销售额下降，看4P 了（是价格过高？产品质量问题？
分校渠道问题？还是promotion 的efficacy 有问题？）
● 如果成本上升，看固定成本or 可变成本是否有问题？（固
定成本过高，设备是否老化，需要关闭生产线、厂房，降
低管理者工资等，可变成本过高，看原材料价格是否上升，
有没有降低的可能，switch suppliers? 还是人员工资过
高，需要裁员等）
● 成本结构是否合理，产能利用率如何（闲置率）
3. 推销任何一种产品/服务
● 4P ，3c
4. 定价
● 以成本为基础的定价
成本加成定价，以目标利润（盈亏平衡定价）
● 以价值为基础定价
● 以竞争为基础定价
三．Market Sizing/Estimation
● 市场趋势，市场规模，市场份额，市场壁垒等
● 市场集中度
● 市场驱动因素（价格，服务，质量，外观）
● 关键成功要素KSF
四．M&A类
● 整合原因（synergy, scale, management impulse, Tax
consideration, Diversification, Breakup Value ）
● 5C （Character, Capacity, Capital, Conditions, Compet
itive Advantage ）
● 类型：horizontal, vertical, congeneric, conglomerate
● 估值方法：DFC ，Market Multiple( EBITDA ，P/E，P/B)
● DFC ：Pro Forma Cash Flow Statement ，Discount Ra
te
● Hostile
VS Friendly takeovers
所有咨询公司面试可能用到的分析结构
Advanced concepts & frameworks
MBAs and other candidates with business background, take note - interviewers will expect you to have a more detailed take on your case than an undergrad uate would have. Here are some commonly used case concepts.
Net present value
Perhaps the most important type of decision company managers must make o n a daily basis is whether to undertake a proposed investment. For example, should the company buy a certain piece of equipment? Build a particular facto ry? Invest in a new project? These types of decisions are called capital budget ing decisions. The consultant makes such decisions by calculating the net pres ent value of each proposed investment and making only those investments tha t have positive net present values.
Example: Hernandez is the CFO of Western Manufacturing Corp., an automobil e manufacturer. The company is considering opening a new factory in Ohio th at will require an initial investment of $1 million. The company forecasts that t he factory will generate after-tax cash flows of $100,000 in Year 1, $200,000 in Year 2, $400,000 in Year 3, and $400,000 in Year 4. At the end of Year 4, the company would then sell the factory for $200,000. The company uses a discount rate of 12 percent. Hernandez must determine whether the company should go ahead and build the factory. To make this decision, Hernandez must calculate the net present value of the investment. The cash flows associated with the factory are as follows:
Hernandez then calculates the NPV of the factory as follows:
Since the factory has a negative net present value, Hernandez correctly decide s that the factory should not be built.
The net present value rule
Note from the example above that once the consultant has figured out the NP V of a proposed investment, she then decides whether to undertake the invest ment by applying the net present value rule:
Make only those investments that have a positive net present value.
As long as the consultant follows this rule, she can be confident that each inv estment is making a positive net contribution to the company.
The Capital Asset Pricing Model (CAPM)
In the above example, we assumed a given discount rate. However, part of a consultant's job is to determine an appropriate discount rate (r) to use when c alculating net present values. The discount rate may vary depending on the in vestment.
Beta
The first step in arriving at an appropriate discount rate for a given investmen t is determining the investments riskiness. The market risk of an investment i
s measured by its "beta" (?), which measures riskiness when compared to the market as a whole. An investment with a beta of 1 has the same riskiness a s the market as a whole (so, for example, when the market moves down 10 percent, the value of the investment will on average fall 10 percent as well). An investment with beta of 2 will be twice as risky as the market (so when th e market falls 10 percent, the value of the investment will on average fall 20 percent).
CAPM
Once the consultant has determined the beta of a proposed investment, he ca n use the Capital Asset Pricing Model (CAPM) to calculate the appropriate disc ount rate (r):
The risk-free rate of return is the return the company could receive by makin g a risk-free investment (for example, by investing in U.S. Treasury bills). The market rate of return is the return the company could receive by investing in a well-diversified portfolio of stocks (for example, S&P 500).
Example: Shen, Inc., a coal producer, is considering investing in a new ventur e that would manufacture and market carbon filters. Shen's chief financial offic er, Apelbaum, wants to calculate the NPV of the proposed venture in order to determine whether the company should make the investment. After studying t he riskiness of the proposed venture, Apelbaum determines that the beta of th e investment is 1.5. A U.S. Treasury note of comparable maturity currently yie lds 7 percent, while the return on the S&P 500 stock index is 12 percent. The refore, the discount rate Apelbaum will use when calculating the NPV of the in vestment will be:
Although this is an overly simplified discussion of how consultants calculate dis count rate to use in their cash-flow analysis, it does give you an overview of how consultants incorporate the notion of an investment's market to select the appropriate discount rate.
Porter's Five Forces
Developed by Harvard Business School professor Michael Porter in his book Co mpetitive Strategy, the Porter's Five Forces framework helps determine the att ractiveness of an industry. Before any company expands into new markets, di vests product lines, acquires new businesses, or sells divisions, it should ask it self, "Is the industry we're entering or exiting attractive?" By using Porter's Fi ve Forces, a company can begin to develop a thoughtful answer. Consultants f requently utilize Porter's Five Forces as a starting point to help companies eval uate industry attractiveness.
Take, for example, entry into the copy store market (like Kinko's). How attract ive is the copy store market?
Potential entrants: What is the threat of new entrants into the market? Copy s tores are not very expensive to open - you can conceivably open a copy store with one copier and one employee. Therefore, barriers to entry are low, so th ere's a high risk of potential new entrants.
Buyer power: How much bargaining power do buyers have? Copy store custo mers are relatively price sensitive. Between the choice of a copy store that ch arges 5 cents a copy and a store that charges 6 cents a copy, buyers will usu ally head for the cheaper store. Because copy stores are common, buyers hav e the leverage to bargain with copy store owners on large print jobs, threateni ng to take their business elsewhere. The only mitigating factors are location a nd hours. On the other hand, price is not the only factor. Copy stores that ar e willing to stay open 24 hours may be able to charge a premium, and custo mers may simply patronize the copy store closest to them if other locations ar e relatively inconvenient.
Supplier power: How much bargaining power do suppliers have? While paper p rices may be on the rise, copier prices continue to fall. The skill level employe es need to operate a copy shop (for basic services, like copying, collating, etc.) are relatively low as well, meaning that employees will have little bargaining power. Suppliers in this situation have low bargaining power.
Threat of substitutes: What is the risk of substitution? For basic copying jobs, more people now possess color printers at home. Additionally, fax machines h ave the capability to fulfill copy functions as well. Large companies will normal ly have their own copying facilities. However, for large-scale projects, most in dividuals and employees at small companies will still use the services of a cop y shop. The Internet is a potential threat to copy stores as well, because som e documents that formerly would be distributed in hard copy will now be post ed on the Web or sent through e-mail. However, for the time being, there is s till relatively strong demand for copy store services.
Competition: Competition within the industry appears to be intense. Stores oft en compete on price, and are willing to "underbid" one another to win printing contracts. Stores continue to add new features to compete as well, such as e xpanding hours to 24-hour service and offering free delivery.
From this analysis, you can ascertain that copy stores are something of a com modity market. Consumers are very price-sensitive, copy stores are inexpensiv e to set up, and the market is relatively easily entered by competitors. Advan ces in technology may reduce the size of the copy store market. Value-added services, such as late hours, convenient locations, or additional services such as creating calendars or stickers, may help copy stores differentiate themselve s. But overall, the copy store industry does not appear to be an attractive one.
As dot-coms come under fire, one case question we've heard increasingly is " How would you create barriers to entry as an Internet Startup?"
Product life cycle curve
If you're considering a product case, figure out how "mature" your product or service is
Strategy tool/framework chart
Here's one way to think about the choice between being the lowest-cost provi der or carving out a higher-end market niche - what consultants call differenti ation.
The Four Ps
This is a useful framework for evaluating marketing cases. It can be applied t o both products and services. The Four Ps consist of:
Price
The price a firm sets for its product/service can be a strategic advantage. For example, it can be predatory (set very low to undercut the competition), or it can be set slightly above market average to convey a "premium" image. Consi der how pricing is being used in the context of the case presented to you. Product
The product (or service) may provide strategic advantage if it is the only prod uct/service that satisfies a particular intersection of customer needs. Or it may simply be an extension of already existing products, and therefore not much of a benefit. Try to tease out the value of the product in the marketplace bas ed on the case details you have been given.
Position/Place
The physical location of a product/service can provide an advantage if it is sup erior to its competition, if it is easier or more convenient for people to consu me, or if it makes the consumer more aware of the product/service over its c ompetition. In the context of a business case, you may want to determine the placement of the product or service compared to its competition.
Promotion
With so much noise in today's consumer (and business to business) marketpla ce, it is difficult for any one product/service to stand out in a category. Promo tional activity (including advertising, discounting to consumers and suppliers, c elebrity appearances, etc.) can be used to create or maintain consumer aware ness, open new markets, or target a specific competitor. You may want to sug gest a promotional strategy in the context of the case you are presented relati ve to the promotional activity of other competing products/services.
The Four Cs
The Four Cs are especially useful for analyzing new product introductions and for industry analysis.
Customers
How is the market segmented?
What are the purchase criteria that customers use?
Competition
What is the market share of the clients?
What is its market position?
What is its strategy?
What is its cost position?
Does he/she have any market advantages?
Cost
What kind of economies of scale does the client have?
What is the client's experience curve?
Will increased production lower cost?
Capabilities
What resources can the client draw from?
How is the client organized?
What is the production system?
The Five Cs
This framework is mostly applied to financial cases and to companies (although it can be applied to individuals). You may employ it in other situations if yo u think it is appropriate.
Character
Evaluate the dedication, track record, and overall consumer perception of the company. Are there any legal actions pending against the company? If so, for what reason? Is the company progressive about its waste disposal, quality of l ife for its employees, and charitable contributions? What sort of impact would this have on the case you are evaluating?
Capacity
If you are dealing with a manufacturing entity, are its factories at, above, or below capacity, and for what reasons? Are there plans to add new plants, imp rove the technology in existing plants, or close underperforming plants? What about production overseas?
Capital
What is the company's cost of capital relative to its competitors? How healthy are its cash flows, revenues, and debt load relative to its competition? Conditions
What is the current business climate the company (and its industry) faces? W hat is the short- and long-term growth potential in the industry? How is the market characterized? Is it emerging or mature? These questions can assist yo u in evaluating the facts of the case against the environment that the compan y/industry inhabits.
Competitive Advantage
This is the unique edge a company possesses over its competitors. It can be
an unparalleled set of business processes, the ability to produce a product/service at a lower cost, charge a market premium, or any number of other asset s that create an advantage over other market players. Whatever the case, the se advantages are usually defensible and not easily copied.
In evaluating business cases using the Five Cs framework, you should look for those unique qualities that a company possesses and identify any that meet t he criteria mentioned above. You may suggest that the company leverage its competitive advantage more aggressively or recommend alternatives if that co mpany has no discernible advantage.
Value Chain Analysis
This approach involves assessing a company's overall business processes and i dentifying where that company actually adds value to a product or service. Th e total margin of profit will be the value of the product or service to buyers, l ess the cost of its production, as determined by the value chain.
In most cases, a competitive advantage is only temporary for many of today's products/services. Being first to market, having a unique formula or configura tion, or having exclusivity in a market were once long-term defensible strategi es. But today, businesses are globally connected by lightning-fast communicati ons and knowledge-sharing systems and manufacturing technologies are gettin g better and faster at reacting to and anticipating market conditions. Thus the se advantages are only fleeting or may not exist at all.
Value Chain Analysis attempts to identify a competitive advantage by deconstr ucting the various "changes" a company's business processes perform on a set of raw materials or other inputs. Most can be easily copied by other competit ors, but there is usually a unique subset that represents the "value-added" qu alities only the company under scrutiny possesses. This set is that company's competitive advantage, or "value chain." Sometimes this set can be copied, bu t a unique set of circumstances may still allow the company in question to per form them at a lower cost, charge a premium in the market, or retain higher market share than its competitors.
In the context of a business case, you can use this framework to identify a co mpany's overall business processes set and then determine if one or more of t he processes are defensible competitive advantages.
For example, a manufacturer of fruit juice might have the following value chai n elements:
•Research and development (Will mango really taste good with cloudberry juic e?)
•Cost of goods sold (How much does it cost to manufacture the fruit juice? Is there a frost in Florida that drives up the costs of oranges? Is the currency c risis in Indonesia making papaya very cheap? Are per-volume purchases lower than, for example, those of Tropicana?)
•Packaging and shipping (How much does that new banana -shaped container c ost? Are many bottles lost in transit? What are the fixed costs of shipping?)
•Manufacturing (How much do those juice pulpers cost? How often do factories need to be reengineered?)
•Labor (How many employees do we have? Where are they located? Are they unionized?)
•Distribution (Where are the distribution centers? Where are the products distri buted?)
•Advertising (Billboards, TV, magazines?)
•Margin (How profitable is the juice company?)
For more detailed information on this type of analysis, you may want to consi der the authoritative text on competitive strategy: Competitive Strategy: Tech niques for Analyzing Industries and Competitors, by Michael E. Porter.
Core competencies
"Core competencies" is the idea that each firm has a limited number of things it is very good at (that is, its core competence or competencies).
When restructuring or reengineering, one of the starting points for a company should be identifying its core competencies. A firm should define its core com petencies broadly in order to be flexible enough to adapt to changes in the m arketplace. (For instance, when Xerox defined itself as a "document company," rather than a maker of copy machines, it was able to take advantage of the more lucrative business of document handling and outsourcing for major corpo rations, as well as of the market for fax machines, scanners, and other docum ent-handling equipment.)
Companies should seriously consider selling/spinning off business units that ar e not part of their "core" business. For instance, Pepsi recently spun off its re staurant operations after it concluded that its expertise was in manufacturing and marketing beverages, not in managing restaurants.
Benchmarking and "best practices"
A commonly used concept in consulting (especially in operations and implemen tation engagements) is "benchmarking." Benchmarking basically means researc hing what other companies in the industry are doing (usually in order to evalu ate whether your client is operating efficiently or to identify areas where the c lient can cut costs). For example, if a mail-order company wants to reduce its order-processing costs, it would want to compare its order processing costs w ith those of other mail-order companies, breaking down its costs for each part of the process (including order-taking and shipping) and comparing them with industry averages. It can then pinpoint those areas where its costs are higher than average for the industry.
A related concept is "best practices": once you've benchmarked what other co mpanies are doing, you want to focus on those companies that have particular low costs or which otherwise operate particularly well. What are they doing ri ght (i.e., what are their "best practices")? And how can our client (in the case) emulate or copy what they're doing? Remember to look outside your client's
particular industry, if necessary, to find the best practices for a particular proc ess or operation.
The 2x2 matrix
The 2x2 matrix is a good framework to use any time you have two factors th at, when combined, yield different outcomes. A very rudimentary example wou ld be what happens when you turn on your bathroom faucets, as follows:
A more business-appropriate example would involve acquiring a company. Let? s say a company is interested in understanding the difficulty of acquiring or b uilding a distribution center and it is considering financing this decision with ei ther stock or debt. The potential outcomes might look like this:
The BCG Matrix
The BCG Matrix, named after the Boston Consulting Group (BCG), is perhaps t he most famous 2x2 matrix. The matrix measures a company's relative marke t share on the horizontal axis and its growth rate on the vertical axis.
M&A cases: Determining the value of an acquisition
Case interviews aren't just for consultants. Mergers & acquisition cases are wil dly popular at investment banks. Here's how to analyze a potential acquisition.
Value Drivers (M&A) Framework
In order to understand value, we need to understand the three primary value drivers:
The value components can be further broken out into specific "value drivers":
M&A Cases: Data Gathering and Analysis
Market Analysis Tools
• Competitive position framework
• Relative value versus competitors to customer through supply chain • Product life cycle
• Supply and demand analysis
- Industry capacity
- Industry utilization
- Demand drivers
- Regressions
• Segmentation analysis
• Porter's Five Forces
• Experience curves
• Trends and outlook
• Key success factors
Target Analysis Tools
• Business system - comparison with competitors
• Market share (over time and by segment)
• Capacity (growth and utilization of)
• Customer's key purchase criteria and relative performance
• Financial history
• Sales and profitability by segment
• Cash flow analysis
• Margin and expense structure
• Relative cost position
• Cost benchmarking
Your data gathering strategy will vary depending on industry:
A framework caution
All the frameworks detailed above are widely used, and most U.S. business sc hools teach them as part of their core curriculums. Your interviewers will insta ntly recognize when you are applying them, since they are already familiar wit h the techniques. While this is OK, consider that you are trying to demonstrat e your unique analytical and deductive reasoning skills that set you apart from other candidates. You must be creative and original in analyzing case questio ns. Use these frameworks sparingly. (Another note: No interviewer will be imp ressed if you proudly proclaim, "I'm going to apply Porters Five Forces now." Apply frameworks without identifying them.)
Case interview 分析工具/框架 来源： 张旭的日志
最近在准备CASE INTERVIEW ，刚接触这个，对里面涉及到的FRAMEWORK 和STRATEGY 非常不熟悉，偶获珍宝，与诸君共享。顺便攒RP ！！
案例面试分析工具/框架
一．Business Strategy
1． 市场进入类
2． 行业分析类
3． 新产品引入类 ● 行业分析（波特5力，市场趋势，市场规模，市场份额，市场壁垒等） ● 公司宏观环境（人口，经济，自然，技术，政治），公司微观环境（公司，供应商，市场中介，顾客，竞争对手，大众） ● 3C （Competitor, Consumer, Company/Capabilities） ● Cost-revenue 固定成本，可变成本 收入怎么计算？时间序列估计，可比公司估计 ● 市场细分很重要，niche market A. 地理细分 B. 人口细分（年龄及生命周期阶段细分，性别细分，收入细分） C. 心理细分（社会阶层，生活方式，个性特征） D. 行为细分（购买时机-柯达，利益细分-牙膏，用户状况，使用率，忠诚度） ● 市场（市场规模，市场细分，产品需求/趋势分析，客户需求） ● 竞争（竞争对手的经济情况，产品差异化，市场整合度，产业集中度） ● 顾客/供应商关系（谈判能力，替代者，评估垂直整合） ● 进入/离开的障碍（评估公司进入/离开。对新加入者的反应，经济规模，预测学习曲线，研究政府调控） ● 资金金融（主要金融资金来源，产业风险因素，可变成本/固定成本） ● 风险预测与防范
● 营销调研
● 产品？价格？即4P
● 4C (Customer, Competition, Cost, Capabilities)
● 市场促销，分校渠道（渠道选择，库存，运输，仓储）
● STP 和4P （Product, Price, Place, Promotion ）
● 产品生命周期
二．Business Operation
1．市场容量扩张（竞争对手，消费者，自己实力）
2．利润改善型
● Revenue, Cost 分析，到底是销售额下降造成，还是成本
上升造成
● 如果销售额下降，看4P 了（是价格过高？产品质量问题？
分校渠道问题？还是promotion 的efficacy 有问题？）
● 如果成本上升，看固定成本or 可变成本是否有问题？（固
定成本过高，设备是否老化，需要关闭生产线、厂房，降
低管理者工资等，可变成本过高，看原材料价格是否上升，
有没有降低的可能，switch suppliers? 还是人员工资过
高，需要裁员等）
● 成本结构是否合理，产能利用率如何（闲置率）
3. 推销任何一种产品/服务
● 4P ，3c
4. 定价
● 以成本为基础的定价
成本加成定价，以目标利润（盈亏平衡定价）
● 以价值为基础定价
● 以竞争为基础定价
三．Market Sizing/Estimation
● 市场趋势，市场规模，市场份额，市场壁垒等
● 市场集中度
● 市场驱动因素（价格，服务，质量，外观）
● 关键成功要素KSF
四．M&A类
● 整合原因（synergy, scale, management impulse, Tax
consideration, Diversification, Breakup Value ）
● 5C （Character, Capacity, Capital, Conditions, Compet
itive Advantage ）
● 类型：horizontal, vertical, congeneric, conglomerate
● 估值方法：DFC ，Market Multiple( EBITDA ，P/E，P/B)
● DFC ：Pro Forma Cash Flow Statement ，Discount Ra
te
● Hostile
VS Friendly takeovers
所有咨询公司面试可能用到的分析结构
Advanced concepts & frameworks
MBAs and other candidates with business background, take note - interviewers will expect you to have a more detailed take on your case than an undergrad uate would have. Here are some commonly used case concepts.
Net present value
Perhaps the most important type of decision company managers must make o n a daily basis is whether to undertake a proposed investment. For example, should the company buy a certain piece of equipment? Build a particular facto ry? Invest in a new project? These types of decisions are called capital budget ing decisions. The consultant makes such decisions by calculating the net pres ent value of each proposed investment and making only those investments tha t have positive net present values.
Example: Hernandez is the CFO of Western Manufacturing Corp., an automobil e manufacturer. The company is considering opening a new factory in Ohio th at will require an initial investment of $1 million. The company forecasts that t he factory will generate after-tax cash flows of $100,000 in Year 1, $200,000 in Year 2, $400,000 in Year 3, and $400,000 in Year 4. At the end of Year 4, the company would then sell the factory for $200,000. The company uses a discount rate of 12 percent. Hernandez must determine whether the company should go ahead and build the factory. To make this decision, Hernandez must calculate the net present value of the investment. The cash flows associated with the factory are as follows:
Hernandez then calculates the NPV of the factory as follows:
Since the factory has a negative net present value, Hernandez correctly decide s that the factory should not be built.
The net present value rule
Note from the example above that once the consultant has figured out the NP V of a proposed investment, she then decides whether to undertake the invest ment by applying the net present value rule:
Make only those investments that have a positive net present value.
As long as the consultant follows this rule, she can be confident that each inv estment is making a positive net contribution to the company.
The Capital Asset Pricing Model (CAPM)
In the above example, we assumed a given discount rate. However, part of a consultant's job is to determine an appropriate discount rate (r) to use when c alculating net present values. The discount rate may vary depending on the in vestment.
Beta
The first step in arriving at an appropriate discount rate for a given investmen t is determining the investments riskiness. The market risk of an investment i
s measured by its "beta" (?), which measures riskiness when compared to the market as a whole. An investment with a beta of 1 has the same riskiness a s the market as a whole (so, for example, when the market moves down 10 percent, the value of the investment will on average fall 10 percent as well). An investment with beta of 2 will be twice as risky as the market (so when th e market falls 10 percent, the value of the investment will on average fall 20 percent).
CAPM
Once the consultant has determined the beta of a proposed investment, he ca n use the Capital Asset Pricing Model (CAPM) to calculate the appropriate disc ount rate (r):
The risk-free rate of return is the return the company could receive by makin g a risk-free investment (for example, by investing in U.S. Treasury bills). The market rate of return is the return the company could receive by investing in a well-diversified portfolio of stocks (for example, S&P 500).
Example: Shen, Inc., a coal producer, is considering investing in a new ventur e that would manufacture and market carbon filters. Shen's chief financial offic er, Apelbaum, wants to calculate the NPV of the proposed venture in order to determine whether the company should make the investment. After studying t he riskiness of the proposed venture, Apelbaum determines that the beta of th e investment is 1.5. A U.S. Treasury note of comparable maturity currently yie lds 7 percent, while the return on the S&P 500 stock index is 12 percent. The refore, the discount rate Apelbaum will use when calculating the NPV of the in vestment will be:
Although this is an overly simplified discussion of how consultants calculate dis count rate to use in their cash-flow analysis, it does give you an overview of how consultants incorporate the notion of an investment's market to select the appropriate discount rate.
Porter's Five Forces
Developed by Harvard Business School professor Michael Porter in his book Co mpetitive Strategy, the Porter's Five Forces framework helps determine the att ractiveness of an industry. Before any company expands into new markets, di vests product lines, acquires new businesses, or sells divisions, it should ask it self, "Is the industry we're entering or exiting attractive?" By using Porter's Fi ve Forces, a company can begin to develop a thoughtful answer. Consultants f requently utilize Porter's Five Forces as a starting point to help companies eval uate industry attractiveness.
Take, for example, entry into the copy store market (like Kinko's). How attract ive is the copy store market?
Potential entrants: What is the threat of new entrants into the market? Copy s tores are not very expensive to open - you can conceivably open a copy store with one copier and one employee. Therefore, barriers to entry are low, so th ere's a high risk of potential new entrants.
Buyer power: How much bargaining power do buyers have? Copy store custo mers are relatively price sensitive. Between the choice of a copy store that ch arges 5 cents a copy and a store that charges 6 cents a copy, buyers will usu ally head for the cheaper store. Because copy stores are common, buyers hav e the leverage to bargain with copy store owners on large print jobs, threateni ng to take their business elsewhere. The only mitigating factors are location a nd hours. On the other hand, price is not the only factor. Copy stores that ar e willing to stay open 24 hours may be able to charge a premium, and custo mers may simply patronize the copy store closest to them if other locations ar e relatively inconvenient.
Supplier power: How much bargaining power do suppliers have? While paper p rices may be on the rise, copier prices continue to fall. The skill level employe es need to operate a copy shop (for basic services, like copying, collating, etc.) are relatively low as well, meaning that employees will have little bargaining power. Suppliers in this situation have low bargaining power.
Threat of substitutes: What is the risk of substitution? For basic copying jobs, more people now possess color printers at home. Additionally, fax machines h ave the capability to fulfill copy functions as well. Large companies will normal ly have their own copying facilities. However, for large-scale projects, most in dividuals and employees at small companies will still use the services of a cop y shop. The Internet is a potential threat to copy stores as well, because som e documents that formerly would be distributed in hard copy will now be post ed on the Web or sent through e-mail. However, for the time being, there is s till relatively strong demand for copy store services.
Competition: Competition within the industry appears to be intense. Stores oft en compete on price, and are willing to "underbid" one another to win printing contracts. Stores continue to add new features to compete as well, such as e xpanding hours to 24-hour service and offering free delivery.
From this analysis, you can ascertain that copy stores are something of a com modity market. Consumers are very price-sensitive, copy stores are inexpensiv e to set up, and the market is relatively easily entered by competitors. Advan ces in technology may reduce the size of the copy store market. Value-added services, such as late hours, convenient locations, or additional services such as creating calendars or stickers, may help copy stores differentiate themselve s. But overall, the copy store industry does not appear to be an attractive one.
As dot-coms come under fire, one case question we've heard increasingly is " How would you create barriers to entry as an Internet Startup?"
Product life cycle curve
If you're considering a product case, figure out how "mature" your product or service is
Strategy tool/framework chart
Here's one way to think about the choice between being the lowest-cost provi der or carving out a higher-end market niche - what consultants call differenti ation.
The Four Ps
This is a useful framework for evaluating marketing cases. It can be applied t o both products and services. The Four Ps consist of:
Price
The price a firm sets for its product/service can be a strategic advantage. For example, it can be predatory (set very low to undercut the competition), or it can be set slightly above market average to convey a "premium" image. Consi der how pricing is being used in the context of the case presented to you. Product
The product (or service) may provide strategic advantage if it is the only prod uct/service that satisfies a particular intersection of customer needs. Or it may simply be an extension of already existing products, and therefore not much of a benefit. Try to tease out the value of the product in the marketplace bas ed on the case details you have been given.
Position/Place
The physical location of a product/service can provide an advantage if it is sup erior to its competition, if it is easier or more convenient for people to consu me, or if it makes the consumer more aware of the product/service over its c ompetition. In the context of a business case, you may want to determine the placement of the product or service compared to its competition.
Promotion
With so much noise in today's consumer (and business to business) marketpla ce, it is difficult for any one product/service to stand out in a category. Promo tional activity (including advertising, discounting to consumers and suppliers, c elebrity appearances, etc.) can be used to create or maintain consumer aware ness, open new markets, or target a specific competitor. You may want to sug gest a promotional strategy in the context of the case you are presented relati ve to the promotional activity of other competing products/services.
The Four Cs
The Four Cs are especially useful for analyzing new product introductions and for industry analysis.
Customers
How is the market segmented?
What are the purchase criteria that customers use?
Competition
What is the market share of the clients?
What is its market position?
What is its strategy?
What is its cost position?
Does he/she have any market advantages?
Cost
What kind of economies of scale does the client have?
What is the client's experience curve?
Will increased production lower cost?
Capabilities
What resources can the client draw from?
How is the client organized?
What is the production system?
The Five Cs
This framework is mostly applied to financial cases and to companies (although it can be applied to individuals). You may employ it in other situations if yo u think it is appropriate.
Character
Evaluate the dedication, track record, and overall consumer perception of the company. Are there any legal actions pending against the company? If so, for what reason? Is the company progressive about its waste disposal, quality of l ife for its employees, and charitable contributions? What sort of impact would this have on the case you are evaluating?
Capacity
If you are dealing with a manufacturing entity, are its factories at, above, or below capacity, and for what reasons? Are there plans to add new plants, imp rove the technology in existing plants, or close underperforming plants? What about production overseas?
Capital
What is the company's cost of capital relative to its competitors? How healthy are its cash flows, revenues, and debt load relative to its competition? Conditions
What is the current business climate the company (and its industry) faces? W hat is the short- and long-term growth potential in the industry? How is the market characterized? Is it emerging or mature? These questions can assist yo u in evaluating the facts of the case against the environment that the compan y/industry inhabits.
Competitive Advantage
This is the unique edge a company possesses over its competitors. It can be
an unparalleled set of business processes, the ability to produce a product/service at a lower cost, charge a market premium, or any number of other asset s that create an advantage over other market players. Whatever the case, the se advantages are usually defensible and not easily copied.
In evaluating business cases using the Five Cs framework, you should look for those unique qualities that a company possesses and identify any that meet t he criteria mentioned above. You may suggest that the company leverage its competitive advantage more aggressively or recommend alternatives if that co mpany has no discernible advantage.
Value Chain Analysis
This approach involves assessing a company's overall business processes and i dentifying where that company actually adds value to a product or service. Th e total margin of profit will be the value of the product or service to buyers, l ess the cost of its production, as determined by the value chain.
In most cases, a competitive advantage is only temporary for many of today's products/services. Being first to market, having a unique formula or configura tion, or having exclusivity in a market were once long-term defensible strategi es. But today, businesses are globally connected by lightning-fast communicati ons and knowledge-sharing systems and manufacturing technologies are gettin g better and faster at reacting to and anticipating market conditions. Thus the se advantages are only fleeting or may not exist at all.
Value Chain Analysis attempts to identify a competitive advantage by deconstr ucting the various "changes" a company's business processes perform on a set of raw materials or other inputs. Most can be easily copied by other competit ors, but there is usually a unique subset that represents the "value-added" qu alities only the company under scrutiny possesses. This set is that company's competitive advantage, or "value chain." Sometimes this set can be copied, bu t a unique set of circumstances may still allow the company in question to per form them at a lower cost, charge a premium in the market, or retain higher market share than its competitors.
In the context of a business case, you can use this framework to identify a co mpany's overall business processes set and then determine if one or more of t he processes are defensible competitive advantages.
For example, a manufacturer of fruit juice might have the following value chai n elements:
•Research and development (Will mango really taste good with cloudberry juic e?)
•Cost of goods sold (How much does it cost to manufacture the fruit juice? Is there a frost in Florida that drives up the costs of oranges? Is the currency c risis in Indonesia making papaya very cheap? Are per-volume purchases lower than, for example, those of Tropicana?)
•Packaging and shipping (How much does that new banana -shaped container c ost? Are many bottles lost in transit? What are the fixed costs of shipping?)
•Manufacturing (How much do those juice pulpers cost? How often do factories need to be reengineered?)
•Labor (How many employees do we have? Where are they located? Are they unionized?)
•Distribution (Where are the distribution centers? Where are the products distri buted?)
•Advertising (Billboards, TV, magazines?)
•Margin (How profitable is the juice company?)
For more detailed information on this type of analysis, you may want to consi der the authoritative text on competitive strategy: Competitive Strategy: Tech niques for Analyzing Industries and Competitors, by Michael E. Porter.
Core competencies
"Core competencies" is the idea that each firm has a limited number of things it is very good at (that is, its core competence or competencies).
When restructuring or reengineering, one of the starting points for a company should be identifying its core competencies. A firm should define its core com petencies broadly in order to be flexible enough to adapt to changes in the m arketplace. (For instance, when Xerox defined itself as a "document company," rather than a maker of copy machines, it was able to take advantage of the more lucrative business of document handling and outsourcing for major corpo rations, as well as of the market for fax machines, scanners, and other docum ent-handling equipment.)
Companies should seriously consider selling/spinning off business units that ar e not part of their "core" business. For instance, Pepsi recently spun off its re staurant operations after it concluded that its expertise was in manufacturing and marketing beverages, not in managing restaurants.
Benchmarking and "best practices"
A commonly used concept in consulting (especially in operations and implemen tation engagements) is "benchmarking." Benchmarking basically means researc hing what other companies in the industry are doing (usually in order to evalu ate whether your client is operating efficiently or to identify areas where the c lient can cut costs). For example, if a mail-order company wants to reduce its order-processing costs, it would want to compare its order processing costs w ith those of other mail-order companies, breaking down its costs for each part of the process (including order-taking and shipping) and comparing them with industry averages. It can then pinpoint those areas where its costs are higher than average for the industry.
A related concept is "best practices": once you've benchmarked what other co mpanies are doing, you want to focus on those companies that have particular low costs or which otherwise operate particularly well. What are they doing ri ght (i.e., what are their "best practices")? And how can our client (in the case) emulate or copy what they're doing? Remember to look outside your client's
particular industry, if necessary, to find the best practices for a particular proc ess or operation.
The 2x2 matrix
The 2x2 matrix is a good framework to use any time you have two factors th at, when combined, yield different outcomes. A very rudimentary example wou ld be what happens when you turn on your bathroom faucets, as follows:
A more business-appropriate example would involve acquiring a company. Let? s say a company is interested in understanding the difficulty of acquiring or b uilding a distribution center and it is considering financing this decision with ei ther stock or debt. The potential outcomes might look like this:
The BCG Matrix
The BCG Matrix, named after the Boston Consulting Group (BCG), is perhaps t he most famous 2x2 matrix. The matrix measures a company's relative marke t share on the horizontal axis and its growth rate on the vertical axis.
M&A cases: Determining the value of an acquisition
Case interviews aren't just for consultants. Mergers & acquisition cases are wil dly popular at investment banks. Here's how to analyze a potential acquisition.
Value Drivers (M&A) Framework
In order to understand value, we need to understand the three primary value drivers:
The value components can be further broken out into specific "value drivers":
M&A Cases: Data Gathering and Analysis
Market Analysis Tools
• Competitive position framework
• Relative value versus competitors to customer through supply chain • Product life cycle
• Supply and demand analysis
- Industry capacity
- Industry utilization
- Demand drivers
- Regressions
• Segmentation analysis
• Porter's Five Forces
• Experience curves
• Trends and outlook
• Key success factors
Target Analysis Tools
• Business system - comparison with competitors
• Market share (over time and by segment)
• Capacity (growth and utilization of)
• Customer's key purchase criteria and relative performance
• Financial history
• Sales and profitability by segment
• Cash flow analysis
• Margin and expense structure
• Relative cost position
• Cost benchmarking
Your data gathering strategy will vary depending on industry:
A framework caution
All the frameworks detailed above are widely used, and most U.S. business sc hools teach them as part of their core curriculums. Your interviewers will insta ntly recognize when you are applying them, since they are already familiar wit h the techniques. While this is OK, consider that you are trying to demonstrat e your unique analytical and deductive reasoning skills that set you apart from other candidates. You must be creative and original in analyzing case questio ns. Use these frameworks sparingly. (Another note: No interviewer will be imp ressed if you proudly proclaim, "I'm going to apply Porters Five Forces now." Apply frameworks without identifying them.)