Pie or Cake?

Strategy involves defending your slice of pie, or growing it bigger.

Innovation involves saying, “hey, we have some pie, why don’t we bake a cake or some cookies to go with it.”

Some companies spend so much time trying to get more pie, that they never get a chance to enjoy a second dish.

Business (like life) should be enjoyed.

What’s on your menu this month?

You, Humans and Life

When a baby is born it knows nothing about the world.

So little, in fact, that it has no concept of self.

The baby, its mother, and the world are one.

As the baby grows it discovers the world for the first time. Hands, feet, pee, poop, mumma and dada. 

The baby’s mother whispers “you are special!”, and the baby establishes a sense of self.

I exist!

A few years later, the education process begins and the young child learns that she is part of a larger human community.

We exist!

And we are great!

For thousands of years though, the “we are great!” part was not assured.

Terrifying and wild beasts roamed the countryside. And men, the natural protectors of the family, could establish their courage and manhood by going out to hunt them.

The problem though is that times have changed.

The greatness of humanity is no longer in question, and our numbers are now 7 billion strong and counting.

Hunting no longer represents courage or manhood, any more than dueling, jousting or sword fighting.

Wild animals were once a threat to humanity, but it is now we who threaten them.

And as the times continue to change, we need to evolve our thinking if we hope to continue thriving.

We would do well to adopt a more balanced approach, and appreciate that while humans may be pretty great, we’re not half as great as life is!

Have An Idea?

If you are subscribed to this blog, then you either have an interest in management consulting, a passion for strategic thinking, or you just love reading along to see what I might come up with.

This blog is invariable upbeat (with the exception of yesterday’s post, which was an unfortunate diversion, and comes with my apologies).

But as you read this blog you may have found yourself thinking one of the following:

  1. I knew that;
  2. I have a better idea; or
  3. Tom doesn’t know what he’s talking about.

All of these criticisms could apply from time to time (despite my best efforts to inform, delight and motivate).

And so, this leads to the obvious question: do you have an idea that you would like to share with over 2,000 smart people?

If you are interested in writing a guest post, I would love to hear from you.

You don’t need to write a lengthy tome; an article which is between 50 and 1,000 words in length would do the trick nicely.

If you are interested in writing an article, please send me an email now (tom [at] spencertom [dot] com).

I look forward to hearing from you.

Olswang – The name says it all

I recently had the dubious honour of meeting with two partners from London based law firm Olswang.

Olswang is a firm which holds itself out to the market as being an expert in technology, media and telecommunications, and so I was quite looking forward to meeting them.

Unfortunately, I was sadly disappointed.

It was interesting to learn that, despite being apparent technology experts, the firm’s partners still use an old version of the Blackberry.

And in a world where technology startups is a growth industry, I was edified to learn from Partner Charles Kerrigan that he has no growth strategy for his practice, no desire to develop one, and moreover the firm as a whole appears to have limited interest in using its legal skills in the technology arena for the benefit of genuine technology startups.

As Paul Keating might have put it, “Olswang – all tip, no iceberg.”

Navigating Business Partnerships

Navigating Business Partnerships

(Source: 드림포유)

This is a guest post from Archie Ward.

Business partnerships can be an integral part of start-up success and growth of a new venture. If properly implemented and executed, partnerships can be an effective way to grow your enterprise without having to implement time consuming and difficult changes or having to make costly investments.

Each partner brings expertise and assets which can help to increase your market share and competitive advantage. However, just like marriage, business partnerships can be difficult and getting out of one can be messy.

The winning strategy is to ensure that you conduct due diligence prior to getting into a partnership. If you are starting a partnership and wondering how to navigate through these murky waters, consider the five (5) pointers below.

1. Don’t rush into it

The adage “fools rush in” was never truer than when it comes to business partnerships.

Cash-strapped entrepreneurs will often stop exploring their options as soon as they find a person who can write them a big check, but it is important that you don’t overlook potential opportunities.

Remain uncommitted and stay flexible until you have explored your options. Cultivate your alternatives actively and do not be too quick to ignore potential business partners. Take time to compare the relative benefits and disadvantages of every alternative. And at the end of the day, ask yourself, “is this the best option for my business”?

Take time to calculate the opportunity costs of entering into a business partnership, and remember that you will also assume any liabilities of the partnership.

2. Don’t overlook the importance of shared values and integrity

Your values and those of your business partners need to be aligned.

A potential business partner may be extremely smart or have a proven track record, but they may also have engaged in shady business deals to get where they are.

If you enter into a partnership with someone who has no regard for ethics and integrity then you can expect strife. Many big businesses (think Arthur Andersen) have come undone as a result of engaging in unethical practices.

3. Have an exit strategy

Having an exit strategy is not jinxing your business, it’s just good common sense.

The reality is that conflict is inevitable, and you can never predict how severe a conflict might get. By putting measures in place ahead of time you can help to ensure that you are not the loser if things head south.

While the partnership may not disintegrate, better opportunities may emerge, and so you need to have an exit strategy that will allow you to change with the times.

How will the partnership assets be shared in the event that the partnership is dissolved? What happens if a business partner dies?

When considering your exit strategies you need to consider all of the possible eventualities.

4. Map Out Mutual Expectations

What expectations do you have for the business partnership? Are these the same as the expectations of your prospective business partners?

It is best to have your expectations written down before you meet with potential partners. This will serve as a road map for the partnership, and will provide several advantages:

  • It will act as a partnership draft which will also be presented to the lawyers once the partnership kicks off.
  • Your expectations will give you a guideline within which you can experiment with the different potential partners before you make up your mind.
  • It will give you a clear vision of what you want from the partnership, which will help you to avoid getting sidelined even if you meet a potential partner with huge financial muscle.
  • A list of expectations should distinguish legal matters from partnership issues, and you can discuss the legal ones with a business lawyer.

5. Seek legal advice early

When starting a partnership, it is a good idea to seek legal advice right from the outset, and certainly prior to any negotiations between you and potential investors.

You need to let your lawyer know your expectations for the venture so that they can assess how realistic they are. They will also assist you in strategising the negotiations, and ensuring that you ask all the right questions. Your partner will also have a lawyer and it is best to be prepared because each of the attorneys will pursue the best interests of their client.

6. Don’t Overlook The Details

As an entrepreneur, you are likely to have an eye for the bigger picture; however, overlooking the details can have dire consequences.

There are several bases that you need to cover before you begin:

  • Establish your objectives and match them against those of your partners.
  • Determine the contribution to be made by each partner.
  • Assign the roles and duties of each partner; for instance, who will hire and train the employees and who will manage the enterprise?
  • Agree on a dispute resolution mechanism for the partnership such as arbitration or mediation.

By paying attention to the above key pointers, you can give your partnership the best chance of success.

Do you have an opinion? Are there other factors that you think are important when entering into a partnership? Respond in the forums, by email, on Facebook or via Twitter.

Archie Ward is a business consultant and social media strategist. Archie splits his time each year between Asia and Australia. While he is hard at work helping other people make their businesses successful, he hopes to launch his own by year end.

Culture vs Strategy

Strategy involves understanding your current position, deciding on a destination, and charting a course from here to there.

Culture is about who you are, and why you do things.

Culture is arguably more important than strategy because, if you look at it over the lifetime of a product or an organisation, the culture is the only thing that will really matter. The strategy and the products are today’s strategy and today’s products, but over time the strategies and the products will change while the culture will remain.

Creating a successful culture won’t happen accidentally, but the key to creating a winning culture is to understand that culture matters.

And in the long run, it may be the only thing that matters.

Cannibalisation Is Not A Useful Choice Of Language

Phil Libin, CEO of Evernote, doesn’t like the word “cannibalisation” because it’s zero sum. It implies that you’re the guy doing the eating or being eaten.

He says being in business is not like playing a sport or being in warfare. It’s more like music, it’s more like art. It’s not a zero sum game.

I absolutely agree with Libin, and in the long run his view is the only healthy and constructive way to think about business. However, this doesn’t account for the popularity of books among business people like Sun Tzu’s “The Art of War” or Machiavelli’s “The Prince”.

What’s going on here?

Why does Libin think about business as music, whereas many others think only of warfare?

A first explanation is that most people who think and write about business are not C-suite executives or founders of successful companies, and so they are typically exposed to the hostilities that are inevitable in trying to rise upwards. Even in the friendliest of work environments employee performance will be reviewed annually and productivity will be compared against other employees working at the same level.

Large professional service firms typically place employees in a kind of tournament like dynamic where they are shown the promise of a small number of well-paid managerial roles and the implicit threat of being fired if they fail to perform better than their peers.

A second explanation is that some industries are more zero sum than others.

Any industries dealing in the real world of atoms (for example, mining, farming or transportation) are likely to see the world in a more zero sum way. The customer either buys my coal, corn or transportation or they buy someone else’s.

Industries dealing in the virtual world of information on the other hand (for example, tech start-ups) are likely to see the world in a more collaborative way. After all, there is always more information and goodwill to go around.

That being said, I would suggest that Libin’s view of business should apply not just to the technology industry but to all sectors.

Economists have coloured our thinking by painting traditional business as a place where firms compete to maximise profits through the sale of goods and services, forgetting of course that businesses can only sell their products by first engaging in some form of marketing. And what is marketing, if not the pure and free exchange of information.

Libin is in the technology industry, but in a strange and unexpected way, so are we all. And as a result, talk of “cannibalisation” is not a useful choice of language.

Love vs Lock In

Economists love to talk about “scarcity” and the fact that we live in a world of limited resources.

However, in the digital world this need not necessarily be the case.

Phil Libin of Evernote is of the view that if you’re in a traditional industry like minerals extraction or transportation, then customers will either go for your stuff or your competitors stuff, but almost certainly not both. And so it’s more or less a zero sum game.

However, Libin believes that in the world of technology it’s really not zero sum. There is room for people to use multiple products. It’s not a scarcity based economy. If anything, it’s a love based economy. It’s an economy where the affinity that people have towards your products and towards your brand controls how much money you make. If you’re in the technology industry it’s a mistake to think about the world in terms of scarcity.

Libin believes that while the tech world does lend itself towards having one business dominate in a particular segment (for example, Google in search), this is only because the tech world is becoming more of a meritocracy than it’s ever been. Libin asks, quite reasonably, why would you use the second best product when you can use the best?

The problem with Libin’s view about meritocracy (apart from the fact that it seemingly contradicts his view that there is room for everyone in Silicon Valley’s love based economy) is that it’s only a half truth. One of the strongest forces that enable (or inhibit) many technology companies are network effects. Companies that have lots of users can be extremely valuable because users benefit from each other rather than from anything that the company itself provides.

A case in point is Facebook. There is not a month that goes by that I don’t consider leaving the network, or don’t talk to a friend who is thinking about doing the same. But people typically return when they realise that, despite Facebook being a horrible and pointless waste of time, everybody else they know is on there too.

Network effects can protect incumbents long after their time has passed and this explains not only the persistence of Facebook but also that of other technology products including Microsoft Office and Whatsapp.

The technology industry may not be a zero sum game, but nor is it quite the meritocracy that Libin would have us believe.

Free Services vs Privacy Online

Big data (combined with data analytics and machine learning) offers exciting opportunities to decipher patterns and solve complex problems more quickly and cheaply than ever before, but it also has the potential to infringe the privacy of individual users.

Looking at a company like Evernote, which uses a freemium business model to help tens of millions of people be more productive at work, it would be easy to think that there is an inherent trade off between providing a free service and dealing with issues like surveillance and data oversight.

CEO Phil Libin rejects the idea that there has to be a trade off between free services and privacy online.

“We don’t have a big data problem”, he told Stephen Chambers in 2013, “we have millions of small data problems … Everything that people put into Evernote is yours, is private and it should be completely up to you what you want to do with it.”

A few years ago, Evernote published three principles of data protection:

  1. Your data is yours,
  2. Your data is protected (that is, it is not data mined or used for affiliate marketing), and
  3. Your data is portable (that is, you can easily take your data and leave).

Libin’s principles for data protection are admirable, and they certainly provide a level of comfort for Evernote users that doesn’t exist everywhere elsewhere.

Facebook, for instance, has been pretty cavalier with user data over the years. Whether it be adding features that share a user’s location, preventing users from easily downloading their own data, or it’s recent and widely criticised Internet.org initiative to provide a limited number of free internet services in developing markets which digital rights groups have argued undermines net neutrality, freedom of expression and the privacy of users.

While Evernote actively favours data protection, there are strong indications that Facebook definitely doesn’t.

Why do Evernote and Facebook have such a different approach to data protection?

The answer appears to lie in the different business models that the two companies have chosen to adopt. Facebook is a free service and apparently always will be. It makes money through ads, and exploits user data in order to serve those ads more effectively. On the other hand, Evernote has adopted a freemium model. It offers a free product to all users and offers a more premium version of the product to paying customers. Happy customers can upgrade if they want to, and this is where Evernote makes all of its money.

There is money to be made online through targeted ads, and this is how Google and Facebook make money. There is also money to be made by providing products that people are willing to pay for, and this is how Netflix, Audible and Evernote make money.

The issue with the targeted ad approach is not that it lacks profitability, but that it requires the companies involved to harvest and analyse user data, and these companies are often elusive about exactly what data they are collecting and how they are using it.

Transparency would restore a lot of trust.

Porter’s Five Forces

Porter's Five Forces 2

(Source: Flickr)

The Porter’s Five Forces framework is used to determine the competitive intensity and attractiveness of an industry, and is relevant in the context of entering a new market, M&A, or starting a new business.

The intensity of competition will depend on the strength of the five competitive forces, however the significance of the forces will vary by industry.

1. Existing competition

How strong is the rivalry among existing firms?

Factors contributing to competitive rivalry include:

  • Increased number of firms;
  • Slower market growth;
  • Low product differentiation;
  • Low switching costs;
  • Industry wide excess capacity;
  • High fixed costs; and
  • High exit barriers.

2. Substitutes

What is the price performance of substitutes? Do customers have high switching costs?

3. Barriers to entry

What is the threat posed by new entrants?

Barriers to entry might include capital requirements, economies of scale, network effects, government policy, switching costs, access to suppliers, access to distribution channels, product differentiation, and proprietary product technology.

4. Supplier bargaining power

How much bargaining power do suppliers have?

5. Customer bargaining power

How much bargaining power do customers have?

[For more information on the consulting interview, download “The HUB’s Guide to the Consulting Interview“.]

Three C’s Framework

Three C's Framework

(Source: Flickr)

The Three C’s Framework may prove extremely valuable for consulting case questions.

It can help to assess the business situation in the context of entering a new market, M&A, product development, and starting a new business.

It involves examining customers, competition, and the company.

1. Customers

Eight (8) factors to consider when examining the customer.

1. Customer Identification

In general terms, who is the customer?

In trying to identify the customer, remember that the person who makes the purchase decision, the person who pays (the customer), and the end user may all be different people. For example, a doctor may prescribe medicine, paid for by an insurance company, and used by the patient.

2. Customer Segmentation

Customer segmentation can make it easier to understand customer needs and preferences, and the size and growth rate of different revenue streams.

It may make sense to segment customers by:

  1. Age group;
  2. Gender;
  3. Income level;
  4. Employment status;
  5. Distribution channel;
  6. Region;
  7. Product or product line;
  8. New versus existing customers; or
  9. Large versus small customers.

3. Size

How big is the market? How big is each customer segment?

4. Growth

How fast is the market growing? What is the growth rate of each customer segment?

5. Customer Preferences

What do customers want? Do different customer segments want different things? Are the needs and preferences of customers changing over time?

6. Willingness to Pay

How much is each customer segment willing to pay?

How price sensitive is each customer segment?

7. Bargaining Power

What is the concentration of customers in the market relative to the concentration of firms?

Do customers face high switching costs?

8. Distribution

What is the best way to reach customers (mail order, online store, factory outlet, retail store, supermarket, department stores, or network marketing)? Does each customer segment have a preferred distribution channel?

2. Competition

Competition can come from firms within an industry, or from firms in other industries who produce substitutes.

Competition can also come from suppliers and customers within the supply chain who exert bargaining power to extract a larger share of industry profits.

Eleven (11) factors to consider when examining the competition.

1. Competitor Identification

Who are the company’s major competitors? What products and services do they offer?

Who are the company’s indirect competitors? That is, which firms are producing substitutes?

2. Competitor Segmentation

Is it possible to segment the competition? This might be done by distribution channel, region, product line, or customer segment.

3. Size and Concentration

What are the revenues and market shares of major competitors? What is the concentration of competitors in the industry?

4. Performance

What is the historical performance of the competition? Relevant performance metrics might include profit margins, net income, and return on investment.

5. Industry Lifecycle

Where is the industry in its lifecycle? Early stage, growth, maturity or decline?

6. Industry Drivers

What drives the industry: brand, product quality, scale, or technology?

7. Competitive Advantage

What is the competition good at? How sustainable are these advantages?

What are their weaknesses? How easily can these weaknesses be exploited?

8. Competitive Strategy

What competitive strategy is the competition pursuing? Is the competition producing products that are low cost or differentiated? What customer segments is the competition targeting?

What is the competition’s pricing strategy, distribution strategy and growth strategy?

9. Barriers to Entry

The threat posed by potential competitors depends on the level of barriers to entry.

Barriers to entry make it more difficult for potential competitors to enter, and so reduces competitive rivalry and allows existing firms to maintain higher prices than would otherwise be possible.

Key barriers to entry might include capital requirements, economies of scale, network effects, government policy, switching costs, access to suppliers, access to distribution channels, product differentiation, and proprietary product technology.

10. Supplier bargaining power

Factors that affect the bargaining power of suppliers might include:

  1. The number of available suppliers and the strength of competition between them;
  2. Whether suppliers produce homogenous or differentiated products;
  3. The brand recognition of a supplier and its products;
  4. The importance of sales volume to the supplier;
  5. The cost to the firm of switching suppliers;
  6. The availability of supplier substitutes; and
  7. The threat of forward integration by the supplier relative to the threat of backward integration by firms in the industry.

11. Customer bargaining power

Factors that affect the bargaining power of customers might include:

  1. The number of customers;
  2. The volume a customer demands relative to a firm’s total output;
  3. The availability of substitutes;
  4. Customer switching costs;
  5. Access to product comparison information; and
  6. The threat of backward integration by the customer relative to the threat of forwards integration by firms in the industry.

3. Company

Ten (10) factors to consider when examining the company.

1. Performance

What is the historical performance of the company? What is its market share?

2. Competitive Advantage

What are the company’s resources and capabilities? How sustainable are the company’s advantages? What are the company’s weaknesses and can they be remedied?

3. Competitive Strategy

What is the company’s competitive strategy? Does the company focus on producing products that are low cost or differentiated? Which customer segments does the company target?

4. Products

What does the company offer and how does it benefit customers? Does the product have any downsides or side effects?

Is the product a commodity or differentiated?

How does the company’s product offering compare with the competition? Are there substitutes available?

Where does the product fall within its product lifecycle?

What is bundled with the product? For example, customer service, warranties, or spare parts. Are there opportunities to bundle or unbundle the product in order to increase sales volume?

5. Finances

If the company is considering a certain course of action, does it have sufficient funds available to undertake the project? What’s the break even analysis?

6. Cost Structure

Consider the cost structure of the business. This can be done by segmenting costs into value chain activities: inbound logistics, operations, outbound logistics, sales & marketing, customer service.

Value Chain

Consider also fixed costs and variable costs. Have there been any significant changes in the company’s cost drivers? How do costs compare to the competition?

7. Organisational Cohesiveness

Understanding a company’s inner workings can be important since competitive strategies can fail if they conflict with a firm’s general way of doing business. Analysing the inner workings of an organisation can be done by using the McKinsey 7 S Model.

8. Marketing

What does the company stand for? How do customers perceive the company and its products? How does the company communicate with customers?

9. Distribution Channels

What distribution channels does the company use to reach customers (mail order, online store, factory outlet, retail store, supermarket, department stores, or network marketing)?

10. Customer Service

How does the company interact with and support customers? Does the company have a customer loyalty program?

[For more information on consulting interviews, please download “The HUB’s Guide to Consulting Interviews“.]

Profitability Framework

The profitability framework is probably the most important framework for solving consulting case questions

Profitability Framework

Profit equals revenue minus cost.

1. Revenue

Revenue is normally thought of as being a function of price per unit and units sold.

Declining revenue can derive from a fall in prices or a reduction in units sold, and can be examined in four steps.

Step 1: Segmentation

What are the major revenue streams? It will typically be a good idea to segment units sold, and this might be done by:

  1. Product;
  2. Product line;
  3. Distribution channel;
  4. Region;
  5. Customer type (new/old, big/small); or
  6. Industry vertical.

Step 2: Examination

What percentage of total revenue does each revenue stream represent? Compare current and historical figures to identify how these percentages have changed over time.

Step 3: Diagnosis

What is the underlying cause of the problem?

Step 4: Response

Develop a strategic response.

1.1 Diagnosis

If faced with declining prices or volume, factors to consider include the following.

1. Macro Economy

  • PEST Analysis: Political upheaval; Economic decline; Socio-cultural factors; Technology. Have there been any recent or impending changes?

2. Customers

  • Market growth: Has market growth slowed forcing competitors to compete over market share?
  • Customer needs and preferences: Have customer needs and preferences changed?
  • Distribution Channels: What channels are used to reach customers? Has there been a change in the cost effectiveness of these channels?
  • Price Discrimination: Can the company distinguish between customers and charge different prices to different customer segments?

3. Competition

  • Rivalry: Have competitors lowered their prices? How does the company’s product mix, product quality, and cost structure compare to the competition?
  • Substitutes: Has the price performance of substitutes improved?
  • Barriers to entry: Has it become easier for new competitors to enter the industry?
  • Buyer bargaining power: Has there been an increase in customer bargaining power?

4. Company

  • Market Power: Does the company have market power (product differentiation, proprietary technology, economies of scale, network effects)?
  • Products: What products and product mix does the company offer? How do these compare to the competition? Is there something different about the products that might allow the company to raise prices?
  • Value chain analysis: Consider value chain activities: access to raw materials; operating capacity; inventory handling and distribution.

1.2 Response

Declining prices

In response to declining prices, there are three pricing strategies to consider.

  1. Competitive pricing: How do prices compare with the competition? Is the pricing appropriate given the product’s quality and relative position within the market? How is the competition likely to respond to the firm’s pricing strategy?
  2. Cost based pricing: What is the company’s cost structure? What percentage of costs are fixed and variable? A company that has high fixed cost and low variable costs will benefit from economies of scale and so may want to lower prices to increase market share.
  3. Value based pricing: Is the product a commodity or differentiated? Do different customer segments have a different willingness to pay? Are customers price sensitive (see “Price elasticity of demand”)? If prices are changed, how will this affect sales volume and product perception?

Declining sales volume

Faced with falling sales volume, there are four growth strategies that a business might choose to employ: market penetration, market development, product development, and diversification.

Product Market Expansion Matrix

  1. Market penetration: A strategy to increase sales to existing customers and increase market share. Market penetration can be pursued through a combination of initiatives relating to pricing, product, placement and promotion (see “Four P’s Analysis”).
  2. Market development: A strategy to sell existing products to new markets which might include new regions, customer segments, or distribution channels.
  3. Product development: A strategy to sell new products to existing customers to increase share-of-wallet.
  4. Diversification: A strategy to develop new products for new markets. This is the highest risk option. Look for markets with strong market growth and high levels of industry attractiveness (see “Porter’s Five Forces”).

2. Costs

The third driver of declining profitability (after prices and volume) is rising costs.

2.1 Diagnosis

Examine the cost structure of the business to locate the source of rising costs. This might be done by segmenting costs into value chain activities: inbound logistics, operations, outbound logistics, sales & marketing, customer service.

Consider also fixed costs and variable costs. Have there been any significant changes in the company’s cost drivers? How do costs compare to the competition?

2.2 Response

In responding to rising costs, there are three questions that a firm should consider:

  1. How long will it take to reduce major cost drivers?
  2. Are the activities strategically important?
  3. To what extent do the activities contribute to operational performance?

Outsourcing Matrix

A company will want to eliminate or outsource costly activities that have low strategic importance. If the activity has a low contribution to operational performance it should be eliminated, and if it has a high contribution to operational performance it should be outsourced.

A company will want to retain control of activities that have high strategic importance. This can be done by forming a strategic alliance or increasing efficiency.

If a company wants to increase efficiency, then it will need to find ways to reduce costs.

Common cost reduction techniques include:

1. Procurement

  • Consolidate procurement or renegotiate supply contracts.

2. HR Management

  • Reduce labour costs through decreasing salaries, training, overtime, benefits and healthcare, introducing employee stock ownership, and right sizing.

3. Technology Development

  • Use IT and digital technology to reduce communication and organisational costs.
  • Employ more advanced production technology.

4. Logistics

  • Partner with distribution companies (e.g. FedEx).

5. Operations

  • Outsource manufacturing to a lower cost jurisdiction (e.g. China/India/other).
  • Improve the utilisation rate of plant, property and equipment.
  • Relocate headquarters to lower cost city, region or country.

6. Finance

  • Reduce working capital including inventory and accounts receivable.
  • Refinance outstanding debt.
  • Divest non-core assets.

[For more information on the consulting interview, download “The HUB’s Guide to the Consulting Interview“.]

Overseas Business Expansion: The Promise and the Pitfalls

Overseas Business Expansion

This is a guest post from Archie Ward.

For most business owners, the dream is to one day expand beyond the original market. Whether a large corporation or an SME, many look for ways to scale and develop additional revenue streams. One of the most popular options is to expand overseas, where they can tap into additional groups of consumers that want their product or service. However, while expanding overseas may not sound any more complicated than adding additional cities to your network, there are many cultural, political and economic factors to consider when expanding internationally.

Before attempting to begin an overseas expansion, it might be wise to outline clear and realistic expectations about the new markets in question. Sometimes even the best-laid plans can go awry because of some oversight or cultural ignorance.

Timelines have proved to get drawn out, which can lead to delays like those experienced by Xiamoi Corp in starting operations in a foreign nation.

Another area that should not be overlooked is the money needed for the expansion. Because overseas expansion involves dealing in foreign currencies, it’s always smart to collect as much payment as possible in advance to avoid any potential pitfalls regarding currency values or other misunderstandings. A mismatching between currencies can turn transactions unprofitable overnight, or even land you in the red.

Language barriers often present problems with an overseas business. Many companies in the past, those entering Brazil and China in particular, have had issues regarding how a popular product’s name translated in the native language, resulting in marketing plans having to be drastically altered or scrapped altogether. Before doing a business expansion overseas, make sure the country’s humor and use of slang language meets your own, and be prepared to adjust accordingly if necessary. A top priority should involve hiring someone who works as a translator, who is also versed in common sense of both countries involved, as well as a good ear for marketing.

Perhaps more so than any other aspect of how to expand business overseas, legal barriers must be taken care of well in advance. Obtaining a business visa as early as possible will get things off to a good start, and researching tax laws, import restrictions, liability laws and customs law will help to avoid any embarrassing or costly issues from arising. If the expansion will involve hiring employees within the new nation, a thorough knowledge of the country’s labor laws will be needed to make sure all policies are followed.

While expansion may seem like a natural fit with some countries, others may present a challenge when it comes to gaining access to raw materials or skilled labor. If these areas present any problems, expansion may need to take place elsewhere. In some cases, too many changes to a product will be needed in order to overcome these challenges, resulting in too great a sacrifice of the business format.

Whenever a move is made into a new country, questions may arise surrounding intellectual property laws and quality control issues. When operating abroad, being able to protect a trademark or trade name is vital to a company’s success. This can greatly affect the ability of a company to grow, so strategies should be in place to not only protect intellectual property rights, but also to go after those who violate those rights.

When deciding on market penetration, one area that is at the forefront of those discussions is government regulations. A process that is difficult enough at the best of times, and in many overseas situations it can become a nightmare if not properly researched in advance. While many foreign governments are quite receptive to expansion from western companies, others may object to the idea based on past experiences or disagreements regarding political philosophy. This is where having the services of a local liaison can make all the difference. A liaison, in addition to understanding cultural differences and local laws, can also explain differences in protocol, etiquette, and customs to a company seeking expansion, allowing it to have a better understanding of the proper approach to take with government officials.

Finally, the success or failure of most products or services in foreign nations will usually be determined by the marketing strategy. A great example of this is fast food chains, which while serving food that has proven to be popular with foreign customers, have found themselves needing to de-emphasise their focus on speed in some countries due to a cultural emphasis on leisure and being able to relax during a meal rather than eating on the go. In fact, consuming fast food may be seen as a status symbol of wealth in certain developing markets, and so the whole idea of getting in quickly and leaving with a bundle of cheap calories may need to go out the window. McDonald’s, in particular, has shown to be an innovator in the fast food stakes abroad, with food offerings which respect local dietary laws, varying tastes and seasonal changes. Another example is coupon advertising, which while widely accepted in the West, is viewed as offensive in some nations that have fixed pricing. For success to occur, a marketing strategy needs to be put to the test to ensure plans contain elements of flexibility so that any changes which need to be made, can be made, and at short notice to boot.

While expanding a business overseas might entail extremely precise planning and will almost certainly involve many unexpected surprises along the way, those companies that take the time to plan the smallest of details will often find that the process results in growth which would have been unimaginable by simply trying to penetrate further into current markets.

Archie Ward is a business consultant and social media strategist. Archie splits his time each year between Asia and Australia. While he is hard at work helping other people make their businesses successful, he hopes to launch his own by year end.

Case Math

Case Math

(Source: Flickr)

In this post we outline some mathematical concepts that may prove useful for solving consulting case questions.

1. Break Even Analysis:

Relevant when trying to decide whether to launch a new product or invest in a project with high fixed costs.

Break Even Analysis

2. Customer Lifetime Value:

Customer lifetime value is a prediction of the entire future value that a company expects to derive from its relationship with a customer. It is a useful tool for a company that is trying to decide which customer segments to target and how much to spend on customer acquisition.

Customer Lifetime Value

3. Net Present Value:

The NPV of an investment is the present value of the series of expected future cash flows generated by the investment minus the cost of the initial investment.

Net Present Value

Where r = discount rate; CFt = expected cash flow in year t; CFn = expected cash flow in final year; g = long term cash flow growth rate.

4. Perpetuity:

A perpetuity is a constant stream of identical cash flows with no end.

Perpetuity

5. Price elasticity of demand:

Price elasticity of demand is a measure of the responsiveness of quantity demanded to a change in price, and is relevant when formulating pricing strategy.

Price elasticity of demand

If demand is elastic (Ed > 1) then changes in price will have a relatively large effect on the quantity demanded, and total revenue will rise if prices are lowered.

If demand is inelastic (Ed < 1) then changes in price will have a relatively small effect on the quantity demanded, and total revenue will rise if prices are raised.

6. Product life cycle:

The product life cycle is relevant when calculating the expected lifetime revenue of a product.

Product Life Cycle Product Revenue 2

7. Profit Margin:

Gross Profit Margin: Gross profit margin measures how much of every dollar of sales revenue remains after subtracting the cost of goods sold.

Gross Profit Margin

Net Profit Margin: Net profit margin measures how much out of every dollar of sales revenue a company actually keeps. Net profit margin is useful when comparing companies in similar industries. A higher net profit margin indicates a more profitable company that has better control over its costs compared to its competitors.

Net Profit Margin

Contribution Margin: A cost accounting concept that allows a company to determine the profitability of individual products.

Contribution Margin

8. Return on Investment:

ROI is a performance measure that a company can use to evaluate the efficiency of an investment or to compare a number of different investments.

Return on Investment

9. Rule of 70:

The Rule of 70 is a simple rule of thumb that can be used to figure out roughly how long it will take for an investment to double, given an expected growth rate.

The rule can be described by the following equation:

Rule of 70

 

[For more information on the consulting interview, download “The HUB’s Guide to the Consulting Interview“.]

Conversation with North Highland

North HighlandI was grateful for the recent opportunity to communicate with Jennifer Marsh, Global Head of Public Relations Strategy, and Cheryl Coulthurst, Global Head of Talent Acquisition, at North Highland.

Founded in 1992, North Highland is an employee-owned global management consulting firm that has been named as a Best Firm to Work For every year since 2007 by Consulting Magazine.

Please read the edited transcript of my communication with Jennifer and Cheryl below. This will be of particular interest for students and recent graduates who are looking to pursue a career in the management consulting industry.

Tom: North Highland offers a range of solutions including Data and Analytics, Managed Services, Operating Efficiency Ratio, People and Change, Professionalising IT, Social Insights Lab and Strategy and Advisory.

Where does North Highland do the bulk of its work?

North Highland: Our engagements focus on multiple functions and industries and we continue to see a fairly broad variety in all of these areas from our clients. While we do the majority of our work in core consulting, we’ve also added divisions, offerings and solutions where we see a client need and opportunity. Examples of this include our strategy and advisory group, launched in 2014, and we’ve seen tremendous interest in that offering. Our Managed Services offering was launched in the U.S. last year as well and we’ve seen substantial growth in that area.

Tom: Do graduates gain exposure to more than one service area?

North Highland: It often depends on client need, but typically, unless there is a strong interest in specialisation early on, we aim to provide a well-rounded experience and provide a broad view of management consulting to recent graduates.

Tom: Is there a rotation program within or between practice areas?

North Highland: Again, it depends, but if there is interest to rotate between or within practice areas, we certainly work to develop a career path for an individual that aligns with their professional goals.

Tom: North Highland has a broad range of industry expertise including in Energy and Utilities, Financial Services, Healthcare, Life Sciences, Media, Entertainment and Telecommunications, Public Sector, Retail and CPG, and Transportation, Travel and Leisure.

Are graduates expected to pick an industry specialisation?

How quickly are graduates expected to specialise?

North Highland: In terms of industry specialisation, it often depends on the interest of the individual. We do have Global Expertise Networks set-up for many of our industry and functional areas and encourage recent graduate hires to be involved in several to get a feel for what each one does. It doesn’t mean that an individual has to work only on business in that industry, but, for example, if you have an interest in retail, you can gain some exposure to what we do for clients in that space. Some of our people know what they want to specialise in early on, such as Data and Analytics; for others, they may prefer to be more of a generalist. Our successful business model is dependent on having both types of consultants to serve our clients.

Tom: North Highland has around 60 offices worldwide including an office in London and headquarters in Atlanta.

Is it possible for consultants to transfer between offices?

North Highland: Absolutely! We have several team members who started in our London office and are now working in one of our US offices (Seattle and LA come to mind) and vice versa. We have both short and long-term assignments available between the US and the UK, depending on client needs, firm leadership roles, career goals, etc.

Tom: What kind of training and mentoring can graduates expect to receive at North Highland?

North Highland: North Highland has a strong learning and development capability and everyone is required to meet certain levels of training each year, both inside the firm and outside. During year one, our consultants participate in orientation and various other courses, facilitated by firm leaders, all of which provide detail on what we do and how we do it. Additionally, we offer courses in consulting essentials, business analysis, negotiation, and more. Each employee-owner is also partnered with a career coach to help navigate their journey at North Highland. We also encourage informal mentorships.

Tom: How much partner and client contact can junior consultants expect to have?

North Highland: Unlike some larger firms, our consultants are often on-site at client locations and interact daily with the client. Of course, it depends on the engagement, but our consultants typically have client-facing roles early on in their career at North Highland working along side consultants at all grades.

Tom: What are the typical working hours for a consultant at North Highland?

North Highland: Work/life balance is different for every individual and our aim is for our consultants to have access to the tools and resources they need so they can achieve the right balance for them. This could include office and team outings or get-togethers, ability to work-from-home, laptops, technology, etc. We are flexible to ensure our people get the right balance.

Tom: What is the firm’s travel model?

North Highland: The vast majority of consultants work on site with the client in their own cities (and this is very much the case for our London office), and we have a specific team who travel more frequently and want to travel.

Through this approach, we’re able to form lasting and meaningful relationships with our clients because the same people are on site each day, but we can also tap into our global network of experts.

Tom: What would you say distinguishes North Highland from other management consulting firms?

North Highland: North Highland is known for helping our clients solve the complex – we don’t come in already knowing the answer, but work with our clients to define the right approach. We pull from our past experiences in terms of best practices, but we don’t apply a cookie-cutter solution. We are highly collaborative with our clients and continually noted for delivering more value than our competitors. Plus, we have fun whilst doing it!

Tom: Does North Highland employ an “up or out” policy?

How are consultants reviewed?

North Highland: We have several different career paths available to fit the needs, desires and skills of our consultants. We recently reviewed our career progression guidelines and expectations and updated to reflect our current environment and our growth plan in the market. One of the main goals of this review, and the subsequent changes, was to ensure that each consultant has clear expectations of their role, achievable and meaningful goals, and a path to navigate.

Tom: Jennifer and Cheryl, thanks for answering my questions and providing valuable insights about North Highland. I am sure this will prove useful for aspiring consultants who are trying to understand the management consulting industry and make decisions about their future career path.

Maintaining Market Power Online

In an age of rapid digital disruption, how can you retain market power and continue to prosper online?

There is a lot of misinformation and confusion about how to compete in the digital landscape, and one of the points of confusion is about the power and value of content.

There is a new company called The Grid, which you may have seen advertised on Facebook, which is planning to sell AI websites that design themselves. The company’s tagline is “content is power, power your content on The Grid.”

The company argues that if we each had our own unique personal corner of the web, then the Internet would be a better place. This is a compelling sales pitch but it also conveniently ignores the way that market dynamics work online.

As I highlighted yesterday, the Internet creates winner take all dynamics whereby companies that can establish brand recognition, sufficient scale and strong network effects will often be able to dominate their market segment online.

Consider also the fact that companies like Narrative Science have managed to produced natural language algorithms that can create high quality pieces of writing. This technology has the potential to put most journalists out of work and, perhaps a little bit further down the line, lawyers and technical writers too.

Content is not power, but if it can be used to connect with people and bring them together in a scaleable way then that would be powerful indeed.

Monopolies on the Internet

Monopolies on the Internet

(Source: Flickr)

When the Internet was still a toy a decade or so ago, many business leaders and strategists didn’t believe that it would be possible to create a profitable business online.

The reasons given to support this belief were many and various.

Some argued that business on the Internet would never work because it is impossible to establish trust online. However, businesses like eBay, Amazon, Paypal, and LinkedIn have all proven this argument wrong.

Others argued more persuasively that business on the Internet would never work because, since anyone can have a website, the large number of websites would lead to a kind of hyper-competition resulting in the destruction of profits online; a boon for consumers but not so great for Internet-based businesses.

As it happens, this second argument also turned out to be wrong. But why?

If everyone can have a website why is it possible for some Internet-based businesses to compete successfully?

The answer is an ancient one, and appears to have been discovered in the early days of civilisation by the priests and then later by the universities.

In short, it is possible to establish a monopoly online with the help of three simple concepts: brand, scale, and network effects.

Brand is your level of social recognition, or share of mind. Since websites are typically free (in whole or in part) they are uniquely well suited for brand building.

Scale is how many people you can reach, and since websites can be accessed anywhere in the world, instantly and free of charge, the Internet is the most effective tool ever devised for reaching people at scale.

Network effects is when you bring people together around a common interest or shared purpose. Amazon and eBay connect buyers and sellers, Facebook connects friends, LinkedIn connects colleagues, and so on. The Internet enables online businesses to build monopolies by connecting enough people in a particular market segment to establish strong network effects.

Brand, scale, and network effects are three powerful barriers to entry that every Internet-based business needs to be aware of, and which can be used to build monopolies online.

Do you have assets?

Do You Have Assets

(Source: Flickr)

When can you consider something that you have to be an asset?

This may sound like a funny question, but it is particularly important for the success of organisations and your success as an individual.

The answer turns out to be largely a matter of perspective.

If you are an accountant, then your goal is to categorise resources into groups: assets, liabilities, and equity.

From this perspective, assets will be resources that are owned or controlled by an organisation, and which can be used to better operate the business. These might include things like cash, inventory, property, plant and equipment.

If you are a financier, however, then your goal is a little bit different.  You are not trying to categorise resources into groups but rather to maximise your return on investment.

Looking at it this way, assets will be resources that increase in value or generate cash flow. This would include things like stocks (preferably dividend paying), interest bearing loans, bonds, and rental property. However, this perspective will tend to undervalue assets that don’t produce returns sufficiently quickly, and will basically ignore any value produced more than five years in the future.

If you are a strategist, then your goal is different again. You may have one eye on cash flows, but you are basically trying to ensure your organisation’s long term survival and prosperity.

With this in mind, assets will include resources that help the organisation maintain and strengthen its position over the longer term. This will include things like brand recognition, scale of operations and proprietary technology.

If you take the perspective of the financier, then you would rightly conclude that the paid subscriber base of media companies like The Australian, The New York Times and The New Yorker are assets since they undoubtedly generate a healthy stream of short term cash flows.

If you take the perspective of the strategist, however, then you may start to feel slightly uneasy.  In the world of digital media scale of operations is a critical strategic asset, and so steps that artificially limit subscriber numbers (by, for example, charging a subscription fee) are likely to inflict damage on the value of these organisations over time.

An asset may be an asset, but from whose perspective?

It may be a good time to take stock.

Emulate vs Imitate

Emulate vs Imitate

(Source: Flickr)

When we imitate someone the goal is to copy what we see; to replicate; to produce more of the same. Think Rocket Internet or cheap Japanese electronics from the 70’s.

When we emulate, on the other hand, we take inspiration from a role model, a hero. And with effort we might one day hope to acquire their qualities, and to equal or surpass their level of skill and recognition.

We can learn from the successes and failures of our role models, and use these lessons to guide us on our personal journey.

In time we might create something worthy of recognition, and become a role model for the people who are seeking to emulate the success of the people who have gone before them.

The New Philanthropy: The Push For A Renewable Capital Innovation Fund

The New Philanthropy

This post is a collaboration between BROSO™ and Tom Spencer, and was originally posted on Truth Has No Temperature.

Why is the Australian venture capital industry almost non-existent and irrelevant on a global scale?

Three reasons:

  1. A massive misallocation of capital, particularly when it comes to Australia’s $1.7 trillion superannuation bolstered capital pool, the fourth largest capital pool in the world.
  2. An attitude of risk-lethargy that impedes any real innovation from happening within Australia.
  3. An ingrained fear of failure that extends to the commercial world and business start-ups, to the point where in Australia there is a very negative attitude towards anyone who declares bankruptcy, the net result of which is less risk-takers, less innovators, less venture capitalists, and most importantly less GDP growth and a diminished tax base.

Many of the start-up opportunities for venture capital exist in the digital or online space, and these ventures by their very nature belong in an international market. Failure of Australia to play in this global sandpit means that Australia is experiencing a flight of human and intellectual capital.

In order to have a functional venture capital industry you need quality start-ups.

So where do these come from, exactly? Generally in the US and Europe it is from within high-quality University programs.

So where are the incentives to start new ventures in Australia’s vibrant University culture? Perhaps the answer is that Australia has a much too generous University and accompanying welfare system that fosters a sense of entitlement and robs young Australians of the desire to create, or take on any risk.

Why does this matter?

With the level of imagination, commercial creativity and desire to innovate in Australia there are all the ingredients for a thriving startup culture and venture capital industry.

But of course there’s the other side to the coin: capital. This is where the Australian venture capital industry has bordered upon impotence.

They simply can’t seem to raise serious capital.

Here are the facts:

  • Total venture capital investment in Australia in 2013 was barely AU$150 million; and
  • Total venture capital investment in Australia in 2014 increased significantly but still only amounted to AU$516 million.

Compare this with the total venture capital investment in Europe and the US:

  • Total venture capital investment in Europe in 2013 was AU$9.5 billion (63 times the amount of Australian venture capital investment over the same period); and
  • Total venture capital investment in the US in 2013 was AU$42.3 billion (282 times the amount of Australian venture capital investment over the same period).

An interesting comparison is to consider the total investment by Chinese Investors in Australian residential property:

  • Chinese investors pumped AU$5.9 billion into Australian residential property in 2013 (40 times the amount of Australian venture capital investment over the same period); and
  • Chinese investors pumped AU$12.4 billion into Australian residential property in 2014 (24 times the amount of Australian venture capital investment over the same period).

But a lack of capital is absolutely NOT the problem. It’s where Australia is deploying that capital.

Australia has one of the largest wealth markets in the world. Australia’s capital pool has grown at an annual compound growth rate of 12% p.a. since 1992.

The unprecedented growth in Australia’s capital pool has obviously been underpinned by its superannuation system which requires a portion of all Australian workers’ incomes to be contributed to a retirement pension fund.

Are there unintended consequences of the private and public sector both ignoring venture capital as an asset class in Australia?

One of the unintended consequences of ignoring the venture capital industry in Australia is human capital flight. What we mean by this is that if the money is not available to invest in new initiatives and to enable young entrepreneurs to start and grow their ventures in Australia then many of these people will simply leave the country. If the government invests in 13 years of school education and then 3 to 5 years of university education only to see the best people leave the country, then this is a huge gift to the rest of the world and represents both lost opportunity and a huge drain on the Australian economy.

A lack of venture capital money means that it will be difficult for innovative young Australians to launch new ventures and manage to survive long enough to reach profitability.

Consider the enormous tax losses suffered by the ATO and the general reduction of the Australian tax base as a result of losing an entire multi-billion dollar asset class to another hemisphere.

Australia could realistically expect to have a $5 billion a year VC industry.

Now let’s make some assumptions about income tax, corporate tax, and GST.

Assuming there are 250 investee companies and on average each of them generates revenues of $20 million per year that equates to $5 billion in annual revenues overall. If the average company has 20% net margins, then this would produce earnings of $2.4 million and the government could hope to collect $180 million in corporate tax revenues. The government would also pocket $500 million in GST revenues (more than what the VC industry invested in Australia in 2013).

Assuming that salary and wages for each company represents 30% of gross revenues and that the blended income tax rate is 28% then this would also mean that the 250 investee companies would produce $420 million in income tax revenues.

All in all, the government is missing out on a potential $1.1 billion in tax revenues per year.

What are the problems with the ingrained culture of the Australian venture capital industry?

American VC funds are willing to invest serious money in early stage ventures because they know how profitable it can be.

The US sees more exits, at higher valuations, and the success of American VC funds has attracted more VC players, more money, and more entrepreneurial ventures.

Part of the problem in Australia is that there is less money available, which means that it is harder for Australian startup founders to get meetings with investors and harder for them to secure investment.

But lack of money is only part of the problem. Another problem is that startup founders typically have to work harder and wait longer to secure investment. At the early stage of a venture where every day counts, delays in securing funding can mean the difference between success and failure, and distract founders from the vital task of growing the business.

Lack of money and longer waiting times are not the only problems though. The main problem is that the Australian VC industry lacks the visionary mind set required to grow successful new companies in Australia.

In the States, the VC industry is enthusiastic about investing in early stage ventures, whereas the mood in Australia is sceptical and hesitant. American VC investors look for passion and market potential, and know that asking for financial forecasts from a seed stage company is pointless. Down under it is a different story. Australian investors typically require a full blown business model with financial forecasts, which is genuinely impossible to provide if the venture hasn’t proven its business model and doesn’t yet have any customers.

What is the New Philanthropy?

Philanthropy is defined by the Merriam-Webster Dictionary as the practice of giving money and time to help make life better for other people.

The push for a more significant, better funded venture capital industry in Australian can be framed as a type of New Philanthropy.

We believe business is about solving problems and delighting people, and this becomes viable when businesses manage to do this in a financially sustainable way.

In any case, the New Philanthropy is not a new concept: this is basically what Richard Branson already does when he says he believes in supporting new entrepreneurial ventures and to our knowledge he signed Bill Gates’ giving pledge on that basis, which means he is not conforming to the way that most people would delineate business and philanthropy/charity.

Australia requires the New Philanthropy, and the push for a Renewable Capital Innovation Fund.

By Benjamin S. Broso B.Bus LL.B (Hons) and Thomas D. Spencer B.Com LL.B (Hons) (Sydney) MSc Financial Economics (Oxon).
Tom Spencer Ben Broso

Sample Consulting Case Questions

Sample Consulting Case Questions

(Source: Flickr)

Below we provide a selection of sample consulting case questions.

The questions are broken down into seven (7) question types to make them easier to digest.

1. Declining Profitability

  1. Our client is eBay. Its share price fell from $310 to $200 per share on reports of declining profits. What’s going on and how can we turn this around?
  2. A large American beverage company acquired a fruit juice company for $350 million five years ago with the goal to increase revenues tenfold. Revenues have instead fallen 50% to $20 million. What’s going on and how can we turn this around?
  3. Our client is a mid-sized retail bank in Kazakhstan. The bank has achieved sustained revenue growth over the last two years but its profits have consistently declined. What is causing the decline in profits? What can we do about it?

2. Entering a New Market

  1. Your client is a low-cost airline headquartered in Philadelphia with frequent service to cities along the East Coast of the United States. The CEO is interested in expanding service into a small town in the Midwest; let’s call it Greenville. What is your recommendation?
  2. A large Korean electronics company is thinking about entering the market for tablet computers. Is this a good idea?
  3. A South Korean company is acquiring a U.S. smart phone maker. What factors do they need to take into account?

3. Pricing Strategy

  1. The CEO of a large Asian electronics firm has come out with a new smart phone, which is much like the iPhone. How should it price this product?
  2. Dr Pepper is trying to boost profitability by raising prices. It’s focusing on supermarkets. How is raising prices likely to affect profitability? Should it go ahead with the plan?
  3. Toyota has invented a car with incredible durability, it can be driven a thousand times further than cars currently on the market before needing to be serviced. The CEO asks you, “How should Toyota price this car?”

4. Growth Strategy

  1. Our client is the Museum of Fine Arts in Boston. They want to develop a growth strategy for the next five years. What would you advise them to look at, and what are your recommendations for growth?
  2. You have been brought in as the CEO of Blackberry. The company started making handheld wireless devices in 1999 and gained substantial market share in the initial smart phone market prior to the release of the iPhone in 2007. The company missed the trend towards touchscreen smart phones and has fallen into serious financial difficulty. How can we regain market share, and return Blackberry to its former glory?
  3. Emirates Airline is considering signing an agreement with Ben and Jerries Ice-cream, which would allow them to serve several flavours of ice cream on Emirates flights. Is it a good idea for Emirates to sign this agreement?
  4. Virgin Galactic has developed a new rocket that can take off and land like a normal plane. Virgin Galactic wants to give customers the opportunity to see the earth from space and experience low gravity on a five hour flight. The prototype rocket will cost $1 billion to produce. Each additional rocket will cost $100 million.
    • Estimate the size of the global market
    • What price should Virgin Galactic charge for a ticket?
    • How many rockets should it produce?
    • Should it sell rockets to competitors?
  5. P&G has just discovered a new lightweight metallic compound that could be used to produce metal containers like soft drink cans. What should they do with it?

5. Operations

  1. Coca Cola has a bottling plant in Mumbai. Over the past three months, inventory has tripled and customer complaints have doubled. What should the company do?
  2. Cabana Surfboards manufactures surfboards at a factory in California. It is currently summer, and Cabana is having trouble meeting demand. Cabana’s surfboards are distributed through surf shops located near popular tourist beaches and, in recent years, Cabana has developed a strong reputation among first time surfers. What should the company do to keep up with demand?
  3. A leading financial services company is trying to reduce operating expenditures. How can it achieve its savings target?

6. Competitive Response

  1. CanadaCo, the largest discount retailer in Canada, currently holds the dominant market share in the industry. USCo, the largest discount retailer in the United States, has decided to expand into Canada by purchasing CanadaCo’s competition. How should the CEO of CanadaCo respond?
  2. Our client, let’s call them AcmeCo, is a specialty shoe manufacturer with retail stores in New York, San Francisco and London. AcmeCo has discovered that Nike is planning to enter its segment of the market. What should it do?
  3. Our client is Kellogg’s, a leading international manufacturer of branded cereals. Over the past five years, supermarkets and distributors in America have started selling private label goods including private label cereals. Private label goods are produced by manufacturers and sold by retailers and supermarkets directly to the end user. The private label trend has started to impact Kellogg’s market share. How should Kellogg’s respond to this competitive threat?

7. Turnarounds

  1. Radioshack, an American consumer electronics giant of yesteryear, faced chaotic trading on Wednesday as analysts predicted the company would report its 10th straight quarter of losses. Assuming RadioShack averts bankruptcy and achieves a successful refinancing, what should the strategy be to turnaround and save this iconic company?

[For more information on consulting interviews, please download “The HUB’s Guide to Consulting Interviews“.]

Concluding A Consulting Case Question

Concluding a Consulting Case Question

(Source: Flickr)

At the end of a case question it is important to provide a summary of the problem and a set of actionable recommendations that answer the question.

Recommendations should be justified with the key findings that you had been noting down as you progressed through the case.

For example, you might say something like “the company is trying to decide whether to enter the Canadian market. Our recommendation is that the company should enter this new market because they will capture significant market share, face limited competition, and break even within 3 years.”

[For more information on consulting interviews, please download “The HUB’s Guide to Consulting Interviews“.]

Tackling A Consulting Case Question

Tackling the Case Interview

(Source: Flickr)

The second stage of a consulting case question, after setting it up, is to solve the problem.

Here are six (6) tips for successfully tackling a case question:

  1. Find the source of the problem – You might get asked a question such as “Profits have declined, what should we do?” Before diving head long into an analysis of the company’s revenue and cost drivers, try to better understand the source of the problem. What’s been happening in the economy? Is the problem company specific or industry wide?
  2. Find the trend – If you are given figures for a particular year, it is important to understand how things have changed over time. You might say, “I understand that industry growth for 2015 was 10%, how does that compare with growth in prior years?”
  3. Break things down – Aggregate figures can hide important details. For example, you might know that total revenues have been flat. Can you segment revenues by product line, distribution channel, customer type or region? When looking at costs, can you segment by value chain activities or into fixed and variable costs?
  4. Think out loud – State your hypothesis, and state your assumptions as you progress through the case. The interviewer is trying to assess the quality of your thinking, and you can’t score points for things that you think but don’t say.
  5. Keep it simple – When doing numerical calculations, use round numbers where ever possible. For example, assume that the population of America is 300 million not 316.1 million.
  6. Highlight key findings – As you progress through the case, record key findings so that you can refer back to them later. You might do this by noting key findings on a separate piece of paper, or by circling or highlighting them as you progress through the case.

[For more information on consulting interviews, please download “The HUB’s Guide to Consulting Interviews“.]