Consulting Cases

8/8/2019 Consulting Cases

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Consulting Cases

"Crack The Case - Design firm growth strategy - Strategies "

Category: Strategies

Growth Decisions ± A company wants to venture into new territories:

Typical possibilities:

o New Geography with same product/ service line

o Same geography but with new service or product line (but within same industry ,for eg. Within FMmultinational cos.

o A domestic company going global ± With new or same product line

o Totally new industry ± (for eg. From automobile to retail sector) - Unrelated diversification

o Mix of above all possibilities

Typical approach to above cases (will be elaborated for each subsequently):

1. Desirability:

Find out the business logic to enter that busness or try find answer to why does the client want to venturThis basically help u define the success parameter for that entry. Typical motives could be:

o Increase in top-line

o To survive in dynamic market

o Emulate the industry leader

o Future growth (not in near future but at the horizon or new era)

2. Feasibility:

How feasible is to enter in the market in context with following things : Timing, offering mix, manpower etc. This can be typical looked from various angles like :

o Demand ± Market sizing, price and cross elasticity

o Growth ± Growth drivers and dampers

o Competition: Number and relative size of competitors, this drives profit-levels, and strength: chanc

(steel/ auto) or monopoly (microsoft) or perfect competition (agriculture) etc.

o Barriers-to-entry: cost of entry, access to resources, economies of scale, regulations, strength of e

o Internal synergy : Do we have any expertise (management, machinery, geographical exposure, brthat can be leveraged

o Value chain : Our position in the value chain, Availability of suppliers and distributors, cost and avamaterial or semi finished goods)

o Expectations for the future ± Scalability and stability of this business



o Product life cycle ± The stage of the cycle at which the product or service is operatings

Roll out plan:

Strategic Plan

- Exact product or service design along with desired customer value proposition- Timing to enter

- Organisational/ Management Structure for that market

- Long term targets and milestones along with Success parameters or KPIs

- Exit strategy (if required)

- Need for any tie-up any member of the value chain

Marketing Plan

- Segmenting, Targeting and positioning

- Marketing budget

- Advertising or business development strategy

Operational Plan

- Schedules for delivery or development of delivery centre

- Vendors and other value chain member selection

- Decision to setup new unit or leverage existing infrastructure

- Modifications on the production setup to incorporate customisation of your products, for

Financial Plan

- Cost estimation

- Revenue forecasting, NVP analysis

- Arranging finances ± Equity or debt (cost of capital)

- Budgeting

- Any special accounting methods

- Tax planning , Tax holidays or tax breaks (SEZs or IT Zones etc)

Case Specific Issues

New Geography with same product/ service line

o Political factors in the region ± Is the government supportive to industries, how proactive are the fiministries etc.

o Legal Aspects ± How friendly are the labour laws, what are the penalties for defaults (especially Instructure, corporate governance laws etc.

o Economic conditions of the region ± Market stability, financial availability, exchange rate (fixed or f



import and export promotions etc.

o Are we already present in that region or a region similar to it.

o What is the availability of resources ± Manpower as well as raw materials

o Infrastructure ± Physical and IT

o Climatic conditions ± For production setup as well as for service industry

o Cultural aspects and purchase power of that region (it helps in deciding the pay structures as well a

Same geography but with new service or product line (but within same industry)

o Is it operational need (Vertical integration) or a strategic need (Horizontal integration)

o Is the product totally new or just an extension.

o Business logic of making such move ± Market and target audience

o Its synergy with previous offering

o Effect on the previous offering (cannibalisation or support)

o Issue related to brand dilution of both new or existing brand

o Existing customers or new customer base (how to reach them if they are new)

o Leveraging ± Production facility, domain expertise(in service industry) ± this can be due to workingindustry

o Are other players of similar business nature also going for such move ± If yes, why and if no, why

Totally new industry ± (for eg. From automobile to retail sector)

The ones mentioned for second possibility

o Find a strong reason, why the company wants to enter into totally new area. This could be due to

o Cash rich position and thus looking to invest in newer opportunities (eg. Reliance)

o The new opportunity is the thing of future

o The current opportunities have saturated

o Do we have any internal resistance to it? Is it a temporary move or a long term strategic plan?

o Will it benefit the existing business, how will the efforts currently put in the previous business chanexit the current business line?)

o Is market big enough to accept players like us who are traditionally not expert in this market?

o Changes required in the management structure ± Do we need separate management, or a new buwill be the reporting structure for it?

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"Crack The Case - Firm Competitive Position Analysis - Strategie


Key Things to be done

Your competitive position - Try to identify your position in the market in both absolute (with the targets sets by

as relative terms (relative to the competitors).

1. Consider the 5 C¶s: Competition: How many? Who are they? Comparison w.r.t. the following.

o Customer: ability to handle customers¶ needs, current and future, w.r.t. product and price o Competencies/ Capabilities/ Strengths/ Weaknesses

Cost structure: fixed and variable

o Channels: for both resources and distribution

2. Summarize with a SWOT analysis: strengths, weaknesses, opportunities and threats

Once you have gauged your own position, now you are in the best platform to identify your competitors in respewith, the scarce resources for which you compete, the customer value proposition that you offer along with pric

Competition Identification ± competitor can be identified on the following basis :

1. Customer base :

Same customer base? And whats the overlap

2. Product/ service mix:

o Same product? Or Better?o Varied product mix (i.e., package consisting of several products)?

3. Price:

Same or different? And How much?Cross price elasticity.

4. Brand loyalty

5. Cost advantage

Fixed & Variable? The break-up of the same.Economies of scale/ scope?

6. Access to resources

o Supply chain with respect to raw materials, and supplier base

Labor and other talent pool Patents

7. Promotion:

o Where? And How much? And to the extent directly against your product?

8. Distribution:

Visibility

Access to customers Shelf-space, etc. Relationships with distributors

Buyer (distributor) power



Once the competitor has been identified, one must also identify the extent to which it is a threat .i.e. the magnicanbe seen on the basis of three steps:

Tangible Threat

o Overlap in customer base ± Percentage contribution of these customers to our revenues

o Supply demand comparison of the resources considering the current situation and situation absent This defines our cost as well price structure

In-tangible Threat

This deal with the promotion and visibility of the products. o Measured through the change in brand loyality and also effects the price elasticity

Combined Threat

o The first threat decide the price structure , combining this with customer¶s brand loyality anthe magnitude of competition.

Once the real threat has been identified it¶s the time to deal with it.

Deal with competition - It can be done on two fundamental approaches.

o Quit that Market or ± This might seem to be strategy not generally followed, however it can ben

§ When the firm has not been doing very well in that sector in general too.

§ It has other sectors to shift focus

§ There is too much of competition and may lead to consolidation and the firm might lose itsfirms) ± In this case it is better to sell of that particular business at right valuation.

§ When the forecast of the industry is not very promising (due to change in demand pattern

o Try overcome the competition ± This can be done through three ways:

ustomer Focused strategy

· Expand/Improve the offerings , target higher value or untouched customer bcomplimentary/supplementary products

· Improve pricing (better pricing, or smaller/affordable packaging)

· Better promotional strategy ± More visibility, discounts or similar price promo

§ Cost or Resource Focus Strategy ± It also helps in achieving the first strategy

· Better and efficient supply chain

· Adopting cheaper raw material (without compromising on costs) and cost effi

· Reach economy of scale or scope by expansion or a strategic tie-up with othe

· Develop Talent pool

ompetitor Focus Strategy

· If the company is small enough to be bought, go for it (try keep synergy in m

· Keep track of the company and try develop strategy to mitigate their moves.



· Poach talent pool.

Create barriers for new competitors

o Customer Focus

reate strong brand loyalty

orm long term contracts

§ Provide VAS ± Like service and maintenance contracts, easy renewal of contracts etc.

§ Keep educating the customer about benefits of the products

§ Indulge in CSR to create a brand equity for the company as whole

§ Rather than product provider, try to sell respective solutions.

§ Keep coming up with newer versions and upgradations.

o Resource Focus

§ Form long term supply contracts to gain cost advantage

§ Try to develop strategic tie-ups with important members of the value chain in terms of owtalent pool, raw material or knowledge base etc.

§ Vertically integrate to reduce cost margins.

o Environment Focus

§ Form govt. influencing lobbies and thus be always on the favourable side of the trade polic

artelisation

§ Form industry associations to garner collective support to form barriers to new entrants

§ Be vary of international competition ± If you cannot beat them, try joining hands with themnational presence etc.

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"Crack The Case - Market Sizing: Product/Service - Strategies "


Why is it required?

To realise the optimum profit potential of your products and services you need to know the size of understand what trends are shaping the development of those markets.

What all is covered in it?

· Market Size (volume as well as value)

· Your own expected revenue (this differs from market size, until it is a monopoly)

· New trends ± That helps in forecasting the market size

· Assumptions and scenarios (most optimistic to most pessimistic) ± need some probabilities (generally

Application of market sizing ± Where all it can be used?

· Identify key objectives

· Set realistic targets

· Plan your sales and marketing activity

· Tailor differing marketing action according to the characteristics of particular market groups

· Maximise revenue and profit potential

Key Stages of Market Sizing

1. Defining the 'universe' in which your market exists by listing all the sectors to which your product/serv

2. Conducting secondary as well as primary research to assess the potential penetration of the prodplayers already present in that market

3. Grossing the figure up to produce an estimate of total expected revenue

4. Researching shifts in behaviours and attitudes amongst key market players across time, to identify var

Key issues that should be considered during stage 2 include:

· Identifying current and potential customers by company size and type

· Identifying competing offerings and how they may impact your own market

· Placing specific offerings at the appropriate place along their life cycle curve, and identifying the ssimilar products ramp up? how long do they sustain high growth rates?) and time span of the curve

· Identifying specific obstacles to success (usually related to specific customer categories) that will or m

· Considering bandwidth or resource issues such as too few distributors or an insufficient number of sale

Ways to perform step 3 (actual guesstimate):



Top Down Vs Bottom Up - Top-down (what percent of the market can we reasonably expect to penetrate) anunits can we expect to sell at what price)

To calculate market size or your market share

1. Top Down Method : (to calculate your expected revenue) ± ³A top down approach starts data. It takes a close look at a geographic market area and profiles the consumers and/or busi

Steps:

a. Calculate the market size (this can be further calculated by different approaches mentioned

b. Find out or estimate the expected market share. (based on barriers to entry as well as numservices)

c. Calculate the expected penetration that you can achieve based on ur product¶s features athe customers. (Pricing of the product also governs the penetration)

Tip:

Ø Used when you are very short on time and require a quick estimate of market.

Ø It takes into consideration lots of assumptions and thus is slightly off the mark.

2. Bottom Up Method ± ³A bottom up approach to market sizing starts with your customers.they buy? What is their profile? How many potential customers do you have in the market profiles? How can you reach them?´

Steps:

a. Identify the customers or customer base / or count the number of sales point you have (ssales persons)

b. Try sketch the consumption pattern of your customers (frequency of purchase)/ or find o

sales point (number of units they expect to sell).

c. Multiply the number of sales point or customers with their selling capacity or purchase freque

d. In the customer frequency method, take into account the presence of other competitoexpected from the market size.

Tip:

Ø Used when you are very sure of the targeted customers and their behaviours.

Ø More précised than the top down, but requires more tedious work.

To calculate sales expected in a given time frame (number of units that can be sold in one/n year or y

1. Extrapolate the growth by extending the previous years¶ performance. The difference between the curregive you the expected sales during that period. This is the simplest method, but has a major assumpactive in the past period are active and acting in a similar pattern as they did last year or during the past

2. Calculate the current market (based on the approaches explained above) and then multiply it with tsimilar to what you expect your market to grow at. If you cannot figure this, try taking the rate at whichan average. The change will give you the sales expected during that period.This method can be applied confidently find a proxy to fix the growth rates. However, it also runs a risk of assumptions taken during

3. List down all the factors that you have considered while calculating the market size, consider the patte



over the period in consideration. Make the relevant changes, this will give you the new parameters for thfind the market size and the difference gives you the sales expectations.This is the most exhaustive memost accurate result too. Try forecast each factor independently to get the maximum advantage of this m

P

"Crack The Case - Firm Profitability Improvement - Strategies


Profitability is derived from two aspects:

· Top Line : Revenue model

· Bottom Line: Cost structure

By this we mean that profitability in an ideal situation given by:

nP = nR ± (F+nV) Where:

- n (number of units sold)

- P (Profit per unit sale)

- R (Revenue per unit)

- F (Fixed cost)

- V (Variable cost)

To improve the profitability of the organisation we shall consider Top line and Bottom line aspects separately. Hanalysis, we must set the context of the analysis. By setting the context, we mean, to answer following question

Situation

· The profitability has been declining over a significant period

· The profitability has been constant, but the management wants to accelerate the profitability

Scale

· The profit situation is observed across the company

· The profit situation is observed for only a particular product or service of the company (if it is a multi

Top Line Considerations

Factor to beimproved

Reason for current situation Steps that can be taken Issues and

S ales volume (n) Low market penetration · Improved marketing focus

· Product improvement with· Higher adve· Lack of supp



High competition additional features/technology improvement

· Reduction of prices value chain m(unavailabilit

· High fixed cothe features

· May lead to

Low acceptance of the product

Small market size · Expand to adjacentmarkets

· Add features to theproduct to increase marketscope and target customerbase

· High entry bmarkets

· Company mcurrent mark

· Perceived vafeatures mayprice paid by

Market Saturation

Limited firm capacity · Increase the capacity toattain economy of scale · This may no

or physically firm

P rice (R) High competition · Improve product offering todifferentiate and thus chargepremiums

· Position to a niche segment,who can pay premium(advertising strategy)

· Should adopt variable pricingcatering to different markets

· May leadin volume

· Companmay get

High price elasticity · No clear option, · Try to move to newer markets

and focus on cost reductions Low purchase power of existingcustomer base Low brand image · Spend on

marketing/advertising to buildbrand image

· Introduction of new/advancedproducts

· Increasecosts

· Returns clearly vis

Lower end product range Focus more on the volumes Limited scoexpansion

Bottom Line Considerations

Factor to be

improved Reason for current situation Steps that can be taken Issues and

F ixed Costs ( F ) Industry norm · Focus on economy of scale

(focus on volume andreduce profit per unit)

· Control on variable costs(avoid wastage)

· See if higher prices arefeasible

· Limited mark· Variable cost

their lowest le· Customer m

higher prices,features are o

Invested in costly technology · Fully utilize the technologyto produce differentiatedproducts and chargepremium

· Explore/develop newmarkets for such productsto achieve economy of scale

· The technololimitations to variants

· These prodube acceptablecurrent mark



V ariable Costs ( V ) Poor technology (high

consumption of resources) · Invest in new/efficient

technology · Better preventive

maintenance

· New technolbe afforded borganisation

· Increase in p

High wastage · Tighter quality controls · Change in manufacturing

processes · Improve labour training · Process the waste to

develop by-products

· Increased coimplementaticontrol metho

on labour tra· Returns from

may not justiincurred for wprocessing.

Higher cost of raw material & labour

· Improve bargaining power(through high volumepurchase, identify moresuppliers)

· Reduce logistic costs · Benchmark the labour

wages · Improve labour

productivity

· Limited numsuppliers (higpower)

· Resistance frunions and IR

Higher overhead cost · Rework power/water

consumption patterns of the plant

· Promote re-usage(wherever possible)

· Reduction inadministrative costs (cutdown on non value addingactivities like travellingetc.)

· Scope of sucimprovement

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"Crack The Case - Prepartion of Firm Exit strategy - Strategies


1. Problem Definition phase

Desirability - Identify the motive to exit

The investment has given the value expected or has one past the harvest period.

The returns have started declining and show no signs of improving

A better opportunity has arrived and you require cash for investment ± Require partial or full liquidity

Any personal disputes with the management or any other stakeholder

Feasibility:- Identify the roadblocks and possible issues

Is the identified reason for exit justified?

Is there a complete consensus between all the decision makers on the exit plan

What are the HR policies post exit ± Any resistance from the workforce

Any legal issues that can create a roadblock

Decision Levers for this stage (Data points that will help you do the desirability process, mentioned above)

Intention to invest initially Sector comparison - Expectations from a particular sector, general trend of the sector, vis-à-vis environmental c

stability, competition, and capital market performance.

Company Comparison - It is used as a benchmarking tool and also finding out alternative investment opportunit

Performance benchmarks ± Expectations the client had while investing in the company.

Harvest Time - Timeline as committed to the investors for achieving the expected returns.

1. Planning Phase



The above stage gives us the brief idea about the whole scenario. Now we look at the key decisions thatthat the objectives set in the first stage are met. These decisions are:

How to sell ± (Exit Route): Various exit routes are:

IPO ROUTE, OTC ROUTE M& A OPTION

STRATEGIC SALE

SECONDARY SALE

PROMOTER BUYBACK

MBOs

We look at the feasibility of various exit routes by further answering following questions :

When to sell: Determine the right timing for selling the portfolio company to ensure maximum value extraction

decision could be driven by three important factors namely:

Industry (product/sector cycle),

Economic outlook, and

Confidence on captive management after decoupling.

What to sell: A particular business line, entire company, certain assets etc.

How much to sell:

Percentage of management control ± If business line or company being sold or

Quantum of assets

This is driven by

Amount of liquidity required, confidence in management and expected further improvement in valuation post pa

1. Execution Phase

Pre exit phase ± Preparation for exit

Make the company or the assets attractive enough to attract the buyers (Focus on bringing the operational and

benchmark level)

Correctly value your business (Don¶t under value or over value)- COnsirder the following aspect while doin the b

Its size, future growth prospects, diversification, customer base, profitability and cash flow, as well as financial m

Identify suitable buyers considering three basic parameters ±

Alignment with future business strategy,

Correct market valuation by the buyer

Future strategy for the bought assets

Prepare a befitting and convincing sales pitch taking care of aspects such as:

Justification for exit from portfolio company

Future outlook of the company

Decision on management retention

Synergies expected from the buyout

Provide full financial disclosure to the buyers

Appoint professional advisors such as solicitors, accountants and specialist tax advisers early in the sales proces

terms are agreed.

Post exit phase - Ensure that the true value out of an ³exit´ has been derived

Correctly evaluate the investment opportunities again

Stay associated with the previous investment and ensure a gradual phase out (of management or technical kno



good market image.

Try invest in similar opportunities (if available) to ensure leverage of past learnings.

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