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Copyright 2012 Tom Rochtus

All rights reserved.


The right of Tom Rochtus to be identified as Author of this work has been asserted by him in
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No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form
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contact@aceyourcase.com. This book may not be lent, resold, hired out or otherwise disposed of by
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permission of the author.
Library of Congress CIP Data is available.
ISBN-10: 1469935074
ISBN-13: 978-1469935072
eBook ISBN: 978-1-62110-750-7
The paper used in this publication meets the minimum requirements of the American National
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ANSI Z39.48-1992.

Table of Contents
Introduction
About this Book
Why this Book

Chapter I: Your Next Career Move


Consulting Careers
Management Consulting
Operations Consulting
Information Technology Consulting
Human Resources Consulting
Boutique Consulting Firms
Banking Careers
Corporate Careers

Chapter II: Real-life Interviews


Skills Assessed
Analytical Skills
Excellence
Client Skills
Organizational Skills
Creativity
Personality
Interview Progression

The Chitchat Phase


About the Interviewer
About Yourself
The Business Case
Questions and Answers

Chapter III: How to Crack Your Business Case


Introduction to Business Cases
What is a Business Case and Why Is it Used?
Different Types of Business Cases
What Your Interviewer Is Looking For
How to Practice Business Cases
How to Approach Your Business Case
Opening
Analyzing
Closing
Different Types of Business Case Frameworks
The Internal Profit-Problem Framework
The Business-Situation Framework
The Merger-and-Acquisition Framework
The Value Chain Framework
Business Case Examples
Profit-Problem Framework Examples
Business-Situation Framework Examples
Merger-and-Acquisition Framework Examples
Value-Chain Framework Examples
What if It Doesnt Fit?
How to Make Your Own Business Cases

10 Best Tips for Business Case Success

Chapter IV: Presentation Cases


Introduction to Presentation Cases
Structuring Your Presentation Cases
Tips for Presentation Cases

Chapter V: Guesstimates and Brainteasers


What are Guesstimates?
Guesstimate Examples and Suggested Solutions
What are Brainteasers?
Brainteaser Examples and Suggested Solutions

Chapter VI: Review of Critical Business Concepts


Introduction to Business Concepts
Overview of the Most Important Business Concepts and Ideas
Additional Readings on Business Concepts

Appendix A: Overview of Consulting Buzzwords


Appendix B: Basic Overview of the Financial Report
The Balance Sheet
The Income Statement
The Statement of Retained Earnings
The Statement of Cash Flow

Appendix C: Review of Other Sources on Cracking Consulting Interviews

Introduction

If you are thinking about a career in consulting, whether management, operational, or another area,
this book is for you. Throughout the following chapters, you will find practical advice, tips, and
concrete examples that will greatly improve your chances of success and will help you pass
interviews with ease and confidence, bringing you closer to the career you are dreaming of!
One major difference between traditional interviews and interviews for consulting companies,
investment banks, or renowned multinational corporations, is that for the latter the interview process
is generally far more complex and takes much more preparation. The focus of this book will
principally be on consulting interviews. One well-known example here is, for instance, the business
case, which involves a simulation of a business situation where you need to show your problemsolving capabilities.
Given this, it is crucial that you take your time preparing for the entire application process. First,
make sure your resume and cover letter are at their best before sending them to the companies you are
interested in. Once invited to interview, you need to allow several days of preparation for each
interview, especially during the initial stages of the application process. Keep in mind that you have
studied extensively over several years, mainly to get a chance to start an interesting career. Therefore,
make a good amount of time free to prepare, and take the interview process very seriously.

About this Book

Before authoring this book, I successfully applied for about all leading management consulting
positions. While preparing for the case interviews, I made several pages of notes that I felt could be
helpful, and went through these notes before each interview. After going through several applications
successfully, I realized that I had built a collection of notes containing valuable information, based on
research, experience, and advice from various experts in the field.
I eventually decided to aggregate all the information into a book by bundling the concepts and
frameworks that will provide the reader of this book with the necessary skills to succeed consulting
interviews. This eventually became the book you are holding right now. Always keep in mind that
case interview success is not about luck; it is about being prepared for every possible situation and
every possible question.

Why this Book

As you probably know, other books have been written on the topic of preparing for consulting
interviews; however, this book differs from those in several aspects. Some of the most important
differences this book has, compared to the other books on the topic of consulting interview
preparation, are listed below.
First, the most important difference between this book and the other books is that, here, the entire
interview process is covered. It has to be said that the business case is just one part of the interview,
and to move up to the next round, you will need to succeed along several other dimensions. It is for
this reason that the scope of the book also covers the behavioral and psychological aspects of being
on a case interview, and gives you a guide from the moment you walk in until the moment you walk
out the office doors. This bigger focus, however, does not diminish the importance and relevance of
this guide on how to solve business cases.
A second difference is that this book refers to other qualitative sources that supplement the
material in this book. My objective is essentially to make you succeed your case interviews, and not
to compete with other authors. Therefore I scanned several other sources, and listed the most
interesting ones at the end of this book.
Last, to my surprise, several authors of comparable books were never hired by a leading
consulting firm. This book is based upon actual successes during the case interview preparations, and
the ideas and concepts presented represent positive experiences I have acquired through passing the
interview rounds at various top consulting companies.

Chapter I

Your Next Career Move


Before getting into the preparation of your case interview, let us first take a look at the merits and
drawbacks of a career in consulting and discuss the different types of business consulting from which
you can choose.
It is important to keep in mind that a consulting career is just one of many desirable career
options. Without a doubt, when you are at the undergraduate level, you might be considering two or
three different career paths. The most common alternatives one considers to a consulting career
generally are a corporate career at a global organization or a banking career. Some undergraduates
also decide to immediately set out for graduate school, and some even decide to launch their own
business.
This chapter not only discusses consulting careers but also briefly covers other career options. It
is, however, recommended that you personally investigate each possible career track in greater depth.

CONSULTING CAREERS
Do you get excited about the idea of moving from one location to another or about meeting with
top executives? Well, most of the applicants for consulting positions love this idea. Furthermore, the
consulting profession is one of the best-paying jobs for recent graduates, offering a very lucrative
benefit package while working on some of the most important business issues in various industries.
Additionally, there are the many nights in nice hotels, high wage increases, the yearly bonus, and long
vacations. This all indeed sounds great, and it is.
It is, however, also important to consider the drawbacks of all this. Very often you will be
working in remote locations for four days a week, spending only little time in your hotel and a lot of
time with your client. Keep furthermore in mind that it can be a high-pressure job, and there is a
greater risk of being laid off during an economical downturn. Also, most weeks, you would be
working about 60 to 75 hours per week; some weeks on the other hand you could be working up to 90
hours per week. If you would then calculate your hourly wage, it might be lower than you expected.
When deciding to apply for a career in consulting, make sure you have understood and
considered all the merits and drawbacks related to this type of work. If you feel the advantages of a
consulting job significantly outweigh the disadvantages, then becoming a consultant might indeed be
something for you. However, always be honest with yourself; if these drawbacks send chills down

your spine, then maybe you should consider another career. In the end, the point is not about getting
that consulting job, but knowing what you are getting into and truly wanting to become a consultant.
Being motivated and assured of the fact that you would like to be a consultant of course does not
guarantee you a job in one of the leading consulting companies. You might have built an impressive
resume, but you will still need to prepare for your interview rounds with strong motivation. Always
keep in mind that the number of positions available each year is limited and that the number of
applicants is enormous. The Boston Consulting Group (BCG), for instance, increased its worldwide
consultant headcount by merely 2 percent up to 4,400 in 2009. Similar hiring percentages were found
for McKinsey & Company and Bain & Company in that year. Generally, leading consulting firms
eventually hire only about 1-4 percent of the applicants. This percentage, of course, strongly depends
on the economy and therefore varies from year to year. Take into account that most of these applicants
have impressive resumes, and you will understand how difficult it can be to land your dream
consulting job.
On the other hand, when you also look at all the other leading consulting firms, such as Booz &
Company, A.T. Kearney, Monitor Group, Towers Perrin, Deloitte Consulting LPP, Roland Berger
Strategy Consultants, Accenture and others, there are eventually a considerable amount of consulting
positions available each year. For an overview of the leading consulting firms, see Vaults Consulting
Firm Rankings: Top 50, which gives a very accurate view of the consulting firm landscape and is
freely available online at Vault.com. In the following, a brief overview of the leading consulting
companies worldwide is provided, categorized along the type of consulting.
It is important to understand that there are different categories of consulting, with management
consulting being probably the most well-known. Other well-known categories of consulting are
operations, information technology, and human resources consulting. Some consulting companies
specialize in one category; other bigger firms offer consulting services across multiple categories. A
last category is the consulting boutiques. These are the smaller consulting firms, which have a more
narrowed scope, and offer limited yet specialized consulting services. It should be noted that there
are also the internal consulting firms, which are basically corporate companies that have
incorporated a consulting unit within the organization. This unit focuses on internal consulting jobs,
given the corporations constant need for consulting services.
Understand that working for one of the best-regarded consulting companies in the industry
does not necessarily mean that firm is the best match for you. When you decide to pursue a career as a
consultant, you first need to make up your mind regarding what type of consulting work you would
like to do. Second, you should reflect on what you find is important to you in a job. Even though most
consulting firms in a particular category are essentially doing the same thing, the way they do things
as well as the office atmosphere can differ significantly.
Each of the above described categories, and the leading firms within them, are discussed in
more detail in the following. Consulting firms often focus their efforts in one specific category, but
often offer other additional consulting services. Additionally the line between these consulting
categories is often thin and unclear, for instance aligning the IT infrastructure with the corporate
strategy would be considered as IT consulting, but could sometimes also be seen as management
consulting.

Management Consulting
Management consulting aims to help organizations enhance their strategic performance. This is
primarily realized through the analysis of the clients key strategic challenges. During the assignments,
management consultants generally work with the clients senior management. Some of the challenges
they address are the following: completing a due diligence process, assisting in mergers and
acquisitions, setting the corporate strategy, or renewing an organizational structure.
Traditionally, management consulting firms made their analysis, and completed their assignment
with their final recommendations. Nowadays clients on the other hand often expect the consulting firm
to realize the implementation of their recommendations, thus increasing the engagement of the firm.
Generally, management consultants have a degree in management, economics, industrial
engineering, accounting, or finance. Many leading consulting firms also recruit high-potential
candidates with different academic backgrounds, as long as they demonstrate strong business insight.
Some of the most well-known management consulting firms include McKinsey & Company, Bain
& Company, and The Boston Consulting Group.

Operations Consulting
Operations consulting, or operational consulting, involves assessing the actual status of a
companys internal processes and procedures and improving the overall operational productivity of a
company. Some of the most important issues operations consultants address are enhancing
procurement, optimizing production processes, operating and inventory costs, and improving
customer service. Note that several of the major operations consulting firms now also have a sub
branch offering strategy-consulting services.
Operations consulting firms have almost always been involved in the actual implementation of
their recommendations. This involvement can both be passive or active. In some cases, consultants
remain within the firm managing and following-up the implementation process. In other cases the
consultant team might remain available to their client, but not be involved in the day-to-day
implementation.
Often operations consultants have a degree in business, management, operations, economics, or
industrial engineering. Having said this, operations consulting firms also recruit high-potential
candidates from different academic backgrounds, as long as they have demonstrated strong business
insight.
Some of the most well-known operations consulting firms include Deloitte Touche Tohmatsu
Limited and PricewaterhouseCoopers.

Information Technology Consulting


Overall, two types of information technology (IT) consulting can be distinguished. On one hand,
there are the IT consulting firms that focus on the technical issues. On the other hand, there are the IT
consulting firms that help organizations manage their business processes to meet their business
objectives through IT. Some of the main challenges of IT consulting firms are IT complexity
management, alignment of the IT structure with the business objectives, and IT outsourcing.

Although information technology consultants often have a background in computer science,


electronics, management of information systems, or technology, these firms often expect their
employees to also have strong business intuition or management backgrounds.
Some of the most well-known information technology consulting firms include Booz Allen
Hamilton, Tata Consulting Services, and Accenture.

Human Resources Consulting


Human resources (HR) consulting is currently on the upswing, being one of the most fashionable
consulting fields. It focuses its efforts on optimizing an organizations most important asset, namely,
its people. Over time, clients labor needs have become more specialized and demanding. Human
resources consulting firms are hired to close the gap between a firms HR needs and its workforce
capabilities. Some of the core fields that HR consulting firms specialize in are human capital
management, mergers and acquisitions, and HR outsourcing.
HR consultants often have academic backgrounds in business or management. Nevertheless,
human resources consulting firms are always on the lookout for talented candidates with strong
business intuition.
Some of the leading human resources consulting firms are Mercer Consulting, Hewitt
Associates, and Tower Watson.

Boutique Consulting Firms


Boutique consulting firms are consulting firms that focus their services on a small number of
industries, business issues, or methodologies. Instead of covering a wide range of consulting
services, boutiques dedicate their efforts to a small number of domains in which they build strong
expertise. Given this, they are generally smaller than the other types of consulting firms. Even though
there are some boutique consulting firms with more than 500 employees, most have 200 or fewer.
Notice that these firms are not necessarily less ambitious. Actually, for some specific services, these
boutique consulting firms are often more in demand than are the larger firms.
When investigating which consulting firms you want to apply to, it is always interesting to
investigate whether there are certain boutique consulting firms specialized in your specific domains
of interest. If you find a firm that matches your specific interests, working there would mean that you
could spend almost all your time on cases that match your profile, which is clearly more difficult to
do within the larger consulting firms.
Some of the most well-known boutique consulting firms include Charles River Associates,
L.E.K. Consulting, and Strategic Decisions Group.

BANKING CAREERS
Many graduates also aspire to a career at one of the leading financial corporations, and their
main motivations are often obvious. Think about the enormous payroll within the sector for the first
year: around $75.000 for new analysts up to $200,000 for investment bankers with MBAs.

Furthermore, gaining experience with a leading investment firm can lead to many other career
opportunities. Many people who spend some years at an investment bank, or a major financial
institution, move on to the top management of a leading corporation. Most jobs in the banking sector
are furthermore very high profile, given the media coverage on acquisitions and other deals
supervised by banking companies. The work you and your team do could be published in some of the
leading financial newspapers. Most jobs in the banking sector are in addition intellectually very
challenging and involve intensive training programs.
The first drawback always mentioned within the banking sector is the high amount of working
hours. Nonetheless, within the banking sector, significant differences in working hours exist. The
leading financial institutions, often referred to as bulge bracket banks, and the leading boutique
banks will often require their employees to work at least 80 hours per week, up to 100 working hours
and more. In this case, working all-nighters and on the weekend will become the rule rather than the
exception. This will even more be the case if you are based in one of the worlds leading financial
centers such as New York, London, or Hong Kong. On the other hand, where most positions in the
leading banking sector require a considerable number of working hours, you could also start at a less
renowned banking company with similar job tasks, but fewer hours. The latter would allow you to
have a better lifestyle, but the payroll will obviously be lower. It is interesting to note that most
professionals at leading financial institutions say that the biggest drawback is not the long working
hours but rather the unpredictability of working hours, which may take its toll on your personal life.
You might then ask yourself why financial institutions do not simply hire more staff to do the work.
The answer is that is simply part of the banking culture. Banking jobs also generally require less
traveling than consulting jobs. It is often only when you reach a more senior position that traveling
would become a more important part of the job. Depending on your lifestyle and personal
preferences, this could be seen as an advantage or a disadvantage.
Given that the number of employees at banking companies is generally higher relative to
consulting companies, there are more positions available in financial institutions. Regardless of that,
landing one of the top-positions at one of the bulge bracket banks will be very difficult, require an
impressive resume and a significant amount of interview preparation. For an overview of the leading
financial institutions, go to Vaults Banking Employers Ranking: Top 50. The ranking is based upon
prestige, job satisfaction, working hours, compensation package, and firm culture; and it gives a good
overview of the leading banking firms. Additionally, the website provides information on each
individual company.

CORPORATE CAREERS
Many graduates also consider launching their professional career at one of the major
multinational corporations. These firms have in general more positions available and are among the
biggest recruiters of MBA students and talented undergraduates.
The main difference with corporate careers relative to consulting or banking careers is that
generally you will be working and spending time with people within your organization, which makes
a corporate career more internally oriented. Consultants and bankers, on the other hand, are
continuously directly delivering services to their clients and are therefore much more externally

oriented. This, however, does not necessarily mean that you will never deal with external parties.
In general, corporate careers demand fewer working hours and provide better job security
relative to consulting or banking positions. Obviously, the amount of weekly working hours varies
from one corporation to another, but weeks of more than 60 working hours will definitely be the
exception. On the other hand, corporate careers often have lower starting salaries compared with
starting bankers or consultants. Furthermore, most corporate careers require less traveling on the job,
which again might be seen as an advantage for some and a drawback by others. It is nonetheless
difficult to generalize all corporate multinationals. Compare your profile with the corporate culture of
the firm you are considering, to see whether there is a match. You will discover a lot about the
companys culture during the interview, but additionally look for online and off-line sources for
supplementary information on the working environment and corporate culture of the specific
corporation.
Corporate careers can be synonymous with office bureaucracy, more so than consulting or
banking careers. Working through a firms hierarchy and office politics can be frustrating, but these
are, however, part of many global corporate organizations. While some corporations are well-known
for their office bureaucracy, others are doing all they can to eliminate organizational bureaucracy
inefficiencies as much as possible.
The career path is in general more obvious for corporate careers, but you would still have many
interesting opportunities. Multinational corporations have, for example, offices in several countries,
and international transfers are usually possible if desired. Furthermore, most corporations allow you
to switch between business units within one office, and some even allow you to completely change
job function through special training programs.
Nowadays, management trainee programs offered by many of the leading multinational
corporations are very much in demand by talented graduates. These entry-level programs offer a
significant amount of training and generally involve rotating among various positions within the
company for some months, allowing you to discover the business unit and role of your preference.
This allows you to have a taste of several job positions within the company before deciding on your
starting position. These programs often last one to two years and are designed to expedite your career
path within the firm.
Some examples of the leading corporations that are looking for the most talented graduates are
Nike, Google, Intel, 3M, Microsoft, Procter & Gamble, General Electric, Kraft, and IBM. All these
corporations offer exciting and challenging careers, with interesting career perspectives. When
considering a corporate career, it would be a good idea to first find out which sector you would
prefer to work in, such as for example utilities, consumer goods, electronics, or pharmaceuticals.
Then you can look more closely at all the companies within the sectors of your interest and decide
where you will apply.

Chapter II

Real-life Interviews
This chapter addresses the most important skills assessed during a case interview. The entire case
interview process is explained in greater detail. Each step of the interview process is analyzed
individually, and advice on how to be successful in each step is given. You will notice how several
small things can have a difference on the eventual outcome of your case interview performance.

SKILLS ASSESSED
In general, most interviewers receive a standard template from the HR department, which they
will use to assess your performance during the interview. Understanding what your interviewer will
be evaluating you on will obviously make you a better interviewee. For this reason, here is a list of
the most important skills/qualities that interviewers will be keeping an eye out for during the case
interview.

Analytical Skills
Arguably, the most important consulting skill is your analytical capacity. This essentially
encompasses your ability to break down a problem into its smaller parts, your understanding of each
part, and eventually using the acquired knowledge to come up with a sensible recommendation or
conclusion. You can demonstrate your analytical skills best through a solid understanding of the most
important business concepts, logical derivations, and spot-on questions necessary to progress through
your case.

Excellence
One of the biggest differences between academic life and professional life probably lies in
impeccable excellence. While it is acceptable at university to skip a course, to once have a lower
grade, or even to miss a deadline, it is not acceptable in professional life. During your career,
excellence in your work will thus always be key. For example incorrectly recommending that a firm
should close one of its manufacturing plants would have serious consequences.
During your interview, you can show your working excellence by demonstrating strong

quantitative skills and by using a data-driven approach to come to a conclusion. Make sure that your
recommendations are backed up by data that prove your point. Often, however, you might not have all
the data needed to prove your point fully. When you then have to make a recommendation, make sure
that your wording is correct. Two similar statements, such as The data suggest that instead of
The data clearly say that have, for instance, very different implications.

Client Skills
Consultants already get in contact with clients at a very early stage. Where client contact is
initially with the middle management, you might quickly be sitting with senior managers. Given this, a
question most interviewers will be asking themselves is, Can we go to the client with this guy? To
demonstrate strong client skills, you need to come across as mature and professional. Therefore, you
should be able to present yourself quickly, communicate effectively and correctly, and make sure you
come across as honest and humble. Too often, brilliant students come across as arrogant, for which
they failed the interview round. Last but not least, to show good client skills, your wording will again
be very important. Keep in mind that a correct answer is an answer that is not only accurate, but also
client-friendly.

Organizational Skills
Consultants generally have very busy schedules, but they need to be at their best at all times.
Therefore, they must consistently be extremely organized and structured. In the interview process, the
interviewer will be looking at whether you come across as a well-organized person. To demonstrate
that you are well-organized, make sure you are on time for the interview, have a pad of paper and a
pen at hand, take legible notes, and communicate in a logical and structured way. Additionally, during
the job consultants often get involved in delicate situations under pressure. Your interviewer,
therefore, will want to evaluate your ability to keep your cool during the interview. It is up to you to
demonstrate you are calm and have everything under control.

Creativity
Creativity and the ability to think outside of the box are also important consulting skills, and
will, thus, be evaluated. Your interviewer might be assessing your ability to identify multiple ways to
analyze or structure a problem by suddenly introducing new information that radically alters your
current methodology. It is then important for you to demonstrate your flexibility and creativity to work
around this problem and to come up with a newly suggested approach.

Personality
Clearly not all consulting firms are the same. Some firms are known to be very competitive;
others, more collaborative. Some firms are known to put their employees under serious pressure,
whereas others provide a better work/life balance. Many other differences among consulting firms

can be thought of. Therefore, every consulting firm clearly has a different working culture. During the
interview, your task is to assess whether you would like to work with your interviewer or work for
that particular firm. Your interviewer, however, will be doing the same evaluation to assess your fit
with the organization. The biggest advice here is to stay true to yourself, and not try to be what you
think the consulting firm expects of you.

INTERVIEW PROGRESSION
Interviews at consulting firms almost always have the same structure. Five critical steps in
which you will have to perform well to convince the interviewer you are the right person for the job
can be identified. The five-steps model, which is presented below, is used to explain in detail the
progress of consulting interviews.

Exhibit 1 - The five-steps interview progression model


Keep in mind that from the moment the interviewer walks in till he leaves the room, you will be
evaluated. Every question and every action has a precise reason, namely, to determine whether you
are a perfect fit for the consulting firm. Therefore, a detailed understanding of the entire interview
process will obviously give you a competitive advantage, as you will appear more confident. Keep in
mind that this five-steps model is a general guideline for the progress of most consulting interviews.
Nonetheless, some interviewers might take another approach and, for example, skip certain steps.
To get accustomed with this interview process, you should first interview at consulting
companies in which you are less interested. From these first interviews, you will learn a lot, without
blowing your chances with the companies you are most interested in.

The Chitchat Phase


From the moment an interviewer walks in the room, he or she is already observing you. Several
little things will be evaluated immediately, and the reason for this is quite obvious. When you would
be a consultant waiting in a clients room, you would also need to make a good impression to your
client from the start. Therefore, the interviewer will evaluate whether you make a pleasant and selfconfident first impression. Given that a strong start is often key for success, you better make a good
impression. The following explains each detail you will have to pay attention to from the start.
Practice this phase with other people, and you will become stronger over time. Generally this phase
will not take longer than one minute, but depends from interviewer to interviewer.

Offer a firm handshake, a genuine smile, and a simple opener


When your interviewer walks in the room, walk towards him at a normal pace and give him a

firm handshake, along with a genuine smile. Furthermore, introduce yourself. You could simply say,
Hi, my name is Robert Johnson; its really nice to meet you. Remember that this person is in a
position that you are applying for, and thus, meeting with him or her should be, by definition,
interesting for you. Additionally, look the interviewer in the eyes while you are talking, and also
when he or she is talking to you. After your opener, simply walk back to your chair at a normal pace.

Once sitting, make sure you sit in an upright position


Once you sit, adopt a good sitting posture. Make sure you are sitting relatively straight and feel
comfortable. You will consequently find your breathing to be better, and you will be more relaxed.
Try to maintain this posture throughout the interview. Keep in mind that sitting upright gives a more
professional impression and conveys you are confident and at ease during the interview.

Remember your appearance


Have you ever looked around in the office of a consulting firm and noticed how well-groomed
most consultants are? The reason behind this is that well-groomed people appear to be more vital, to
be better organized, and to have better eye for detail. As a consultant, you need to make several first
impressions on the job. For this, it is important to look neat not only at work but also, of course, when
going on an interview at the firm. Consulting firms generally expect their consultants to be shaven,
have a proper suit and buttoned-up shirt. Furthermore, take the effort to look your best when arriving
at the company. This will give yourself more confidence and will be well appreciated by your
interviewers.

Show you are happy to be there


First of all, the interviewer has an extremely busy schedule, so you should demonstrate
appreciation for him or her making time to interview you. Second, he or she will be evaluating
whether you look excited to be there or whether you are just at another consulting firm doing an
interview. Simply be friendly and show your respect for the interviewer. You could thank him or her
for making time for you, or give a nice comment on the office location or the offices view. The most
important thing here is that you mean it; if you dont, your interviewer might notice your insincerity,
and that would obviously give you bad points.

Be communicative and open for some small talk


Some interviewers prefer starting immediately; others want to chitchat for a minute. The reason
for this chitchat is evident. Clients of consulting companies often also chitchat about whatever topic.
The interviewer might evaluate whether or not you are a nice person to have a little small talk with.
Therefore, always be ready to talk about topics such as the weather, the office view, or how you came
to the office. Some interviewers may have attended the same university and/or exchange program as
you have, and will immediately start talking about their experiences. Be prepared to talk about it;

share his or her enthusiasm and demonstrate you had great times yourself. Furthermore, some
interviewers might be really passionate about a certain subject, such as the Super Bowl, an important
soccer game, the media, or whatever. Even if you do not know anything about the topic, show some
enthusiasm and be able to at least participate in some small talk about it. In general, your interviewer
will eventually take the lead to progress the interview to the next stage.

Develop a ready-to-start mentality


As mentioned, some interviewers enjoy the chitchat phase, but others think it is a waste of time.
Therefore, always be ready to start from the moment the interviewer walks in. When the interviewer,
for example, walks in and immediately presents him- or herself, or even directly fires a question at
you, make sure you are ready to start. At any point when the interviewer indicates the interview has
started, he is actually saying he wants to move to the next phase. You could then briefly state
something like Of course or That is why we are here.

Make sure you have everything you need


Keep in mind that for nearly all interviews, you will need a pad of paper and a pen. Some firms
will provide them, but most wont. Having to say you did not bring them will leave a terrible
impression. Furthermore, if you do forget it, you will most likely have to do the case without them.
Therefore, make sure you have them ready for the interview, preferably in a briefcase, and have them
close at hand for when you need them. You could additionally take some graph paper with you, which
could be useful when you have a business case for which you have to plot graphs. Generally, you are
not supposed to use a calculator during a business case. Some interviewers, however, do give
business cases for which a calculator is needed, and assume that their interviewees have brought one.
Therefore, having a calculator in your briefcase is recommended. Last, you should always have a
copy of your motivation letter and resume with you. Generally the HR department will provide the
interviewer with a copy of these two documents, but some interviewers expect their interviewees to
have them at hand.

About the Interviewer


In the second stage, the interviewer will briefly introduce him- or herself. Expect this to take
about two minutes. Nonetheless, this again will vary from interviewer to interviewer. Also during this
time, the interviewer will be evaluating you. Unfortunately, many applicants hardly pay attention in
this stage of their case interview, because they are already internally preparing for the business case
or curriculum-related questions.

Know who your interviewer is upfront


Many consulting companies give information to you upfront regarding who will be interviewing
you, as well as their position in the company. Some consulting firms even send a file with information

on your interviewers. Keep in mind that information about who is sitting in front of you can only help
you. Sometimes you might find out his or her preferred industries to work in, and then you might
expect a business case about this sector. Furthermore, you might find out your interviewer has similar
interests, went to the same university, or has similar previous work experiences as you do. If the
consulting firm can look up information about you, you could do the same.
Obviously, you can never directly say to your interviewer that you looked up information about
him or her. You could, however, put a subject on the table that would likely be of interest to your
interviewer, given what you found on the Internet. In addition, you might be able to extract information
on what the interviewer appreciates in prospective candidates.
This research prior to your actual interview is referred to as profiling. You can easily find
interesting information through Google, by looking up the name and surname of your interviewer.
Generally the most interesting information can be derived from websites such as LinkedIn or
Facebook. Additionally, several people within the consulting sector have written articles for
newspapers, their employer or a personal blog. Extract the interesting profiling information from
various information sources, and try to deduce his personal opinions and beliefs. For each
interviewer you profile, you should spend at least 30 minutes doing research. Exhibit 2 provides a
guideline you could use to structure this research.

Name:
Personal information:
Gender:
Age:
Country of origin:
Marital Status:
Work experience:
Company & Industry:
Specialisation:

Academic background:
Universities:
Exchange programs:
Articles published:
Hobbies & sports:

Other relevant information:

Exhibit 2 - Interviewer profiling sheet

Ask a question or ask for clarification


When the interviewer is presenting him- or herself, it is very important to show interest in his
career. A great way to do this is by asking for clarification while the interviewer presents himself. An
example could, for instance, be So you said you went for an MBA after three years; how did the
company support you in that? This question demonstrates that you are carefully listening to the
interviewer and are interested in his career path. The clarification should of course be positive and
about something not obvious, of which you are not supposed to know the answer. Again, show
enthusiasm while raising this question, and never just ask a question to ask one. On some occasions,
your interviewer would say you can ask these questions at the end of the interview, but often, he or
she will immediately answer and appreciate your interest.

Show enthusiasm and pay attention


When your interviewer is presenting him- or herself, just be calm, because there is definitely
nothing to be nervous about. This phase of the interview is a perfect opportunity to become
comfortable with the interview setting. The interviewer will do all the talking, and you only need to
sit back, relax, and listen while showing genuine enthusiasm for his or her career path. Clearly you
are the main character during the interview, but the interview is still about both of you. Therefore, try
to make sure that the interviewer has a good time with you as well. Almost everybody likes to talk
about his or her career and ambitions, so allow the interviewer to tell his or her story; you will have
plenty of time in the next phases to demonstrate your own skills.

About Yourself
When the interviewer has presented himself and announces it is time to get to know you better,
you know the interview is about to progress to the next step of the five-steps interview progression
model. From now on, most of the time will be dedicated to profoundly evaluate you and your skills.
Nonetheless, as explained, you have already been assessed on several skills. While in the first two
stages you are moreover assessed on your social skills set, you will now be assessed on your
leadership, entrepreneurial and analytical skills. In general the interviewer will start with some
questions along your cover letter or CV, and focus on your fit with the core consultant skills.

Have your core values prepared


Most consulting firms have their core values published on their websites. Typically, for
consulting firms, these core values are leadership, creativity, and excellence, or something similar. It
is advisable to look up the core values of the firm you are interviewing with, and to know them by
heart. Even more important is to have at least one example ready of a time when you showed this
particular value in the past. Very often, your interviewer would ask something like In our company,
this value is very important, can you give me a situation in which you have demonstrated this?

Notice that each value has its particular elements that should be included in your explanation. The
following list provides a brief overview of some of the most common core values, and some of their
respective elements:

Leadership: Strong project management skills, openness, clear


vision, motivational skills, and effective distribution of the work
Creativity: A quicker, a better or an alternative solution to a relevant
problem
Excellence: Respect for the quality/accurateness of work
The interviewer is not expecting you to have organized the Super Bowl or to have invented the
mobile phone. Just make sure you have your best personal example ready and are able to explain why
and how your example demonstrates that particular skill.

List 10 key projects you have accomplished


Before going to an interview, brainstorm the ten most important projects you have accomplished
during your life so far. Think about your participation in sports clubs and societies, your personal
projects, your academic career path, your professional experiences and so on. Then think about the
most important things you have realized there as a team or by yourself, and write it down. Cut down
your list to about 10 projects in case you had more examples. Make sure you have both individual and
team projects on your list, because it is important to show that you can work by yourself, but it is at
least as important to demonstrate you are a team player. Now memorize each project to make sure that
if the interviewer asks a question for which you do not have an answer immediately ready, you can
use this list to find an appropriate example. Note that the interviewer does not expect you to answer
his or her questions right away. It is perfectly fine to take a few seconds to think about your answer.

Know your curriculum vitae and cover letter


Generally, when the interviewer starts asking questions about you, he or she will start with
questions on your cover letter and curriculum vitae (CV). In most cases, the interviewer will have
received these documents from the HR responsible. Nonetheless, you should always have some
copies readily available, because in some cases, the interviewer might ask you whether you have
brought these documents with you for him to use it. Generally however, the interviewer has already
taken the time upfront to quickly go through your resume and cover letter, and has highlighted some
topics he would like to know more about. Make sure you know every line of your curriculum vitae by
heart, why you included it, as well as what you wrote in your cover letter. Be prepared upfront to talk
about everything you have written there, and note that the most important things on your CV and in
your cover letter will be asked about the most. Furthermore, interviewers sometimes ask about what
you are most proud of on your CV; make sure you have an answer prepared for this question as well.

Prepare for critical questions


Some questions just tend to come back all the time during interview rounds. For this, it is
important to have your best answer ready to make the best possible impression. Nonetheless, you
should always make sure your answer never feels premade; it should sound natural and fluent. The
following is a list of questions that have a much higher-than-average probability of being asked when
interviewing at a consulting firm. Note that your interviewer might ask variations of these questions.
Motivation

Why do you want to be a consultant?


Why do you want to work for our firm?
Problem-solving skills and creativity

Describe a situation you handled creatively.


Describe a situation in which you had to convince others that your
approach was right or appropriate.
Describe a tough problem and how you solved it.
Personal impact

In your experience with team work, what was your role and impact,
and what difficulties occurred?
Describe your relationships in a working context; how do you work
effectively, and how do you solve conflicts?
Describe a delicate situation in which your personal sensitivity made
a difference.
Leadership

Describe a situation where you recognized a problem/opportunity as


well as your response (actions and organization). Which obstacles
occurred and how did you overcome them?
What leadership roles have you played?
Have you ever had a goal to achieve that required actions by others?

Drive/aspirations

Where do you want to be in five years?


Describe a situation where you were aspiring to reach a goal and
how you reached it.
Describe a situation that demanded unusually hard work and how
you handled this.
Have one or two negative things about yourself ready
Another popular question is when interviewers ask you to tell something you would like to
change about yourself, or an area for improvement you might have. Clearly you should never say you
would not change anything about yourself. This question is nonetheless rather tricky, and is one that
should definitely be thought about before being interviewed. Try first to identify some skills that you
feel you could be better at. These areas for improvement should preferably not be analytical or
leadership related, given how important these are for a consulting position. Furthermore speak of the
weakness as an opportunity for improvement; say how you will improve this particular skill in the
near future or how you could potentially tackle this weakness.

The Business Case


The business case is generally by most interviewees considered the biggest challenge. This
phase is often the longest phase of all five (ranging from 20 minutes for a short business case to 45
minutes for a longer business case). It is this part of the interview you will need to prepare the most
to really succeed your interview. Studying intensively for the business case part of the interview can
help you outperform yourself and others. The following covers what you should and should not do in
this particular phase of the interview. The discussion of how to conceptualize and structure business
cases effectively can be found in the next chapter. Notice that in this phase the interviewer is mainly
trying to assess how structured and analytical you are in your problem solving.

Structure, structure, structure


The most important thing is to demonstrate to the interviewer your ability to structure your
thoughts. Set out a clear structure to solve the problem from the start, and clearly communicate this
methodology to your interviewer. Furthermore, it is strongly advised you confirm from the start
whether he or she finds your approach appropriate for the business case. You could do this by saying,
Now, if you agree with this approach, I suggest we start our analysis. In case the interviewer
believes this approach could be used to crack the case, he or she will confirm this, and you can
progress with solving the business case. In case the interviewer does not agree with your approach,
you could suggest another methodology or ask what his objections are. It could also happen that the
interviewer goes in a completely different direction after you presented your methodology to analyze

the case, for instance, by presenting a new document. Notice that this does not necessarily mean that
your interviewer does not like your suggested approach.

No industry background is required


Often, candidates have failed because they did not understand the industry in which the business
case is situated. This should however never be a reason to fail a business case. No specific industry
background is required to crack a business case. If you do not know the particular industry of your
business case, for instance, the reinsurance industry, you simply state after the interviewer presented
his case, How exactly does the reinsurance industry work? This, just to be sure I fully understand the
context of the case. Unless the industry context is evident, you might want to ask more background
information on it. Never start your analysis before understanding the industry you are dealing with.

Take notes
Unless your interviewer states the contrary, you are always allowed to take notes during a
business case. In fact, you should take notes. As mentioned, make sure you brought enough paper,
preferably with lines, which appears more structured, as well as a working pen. Furthermore you
should take a marker to the interview. This allows you to highlight some data, which will help the
interviewer to better focus on what is important in your analysis. Make sure you have your pen, pad
of paper, and marker close to you when the interview starts so that you do not have to look for it when
the interviewer wants to start with the business case.

Think aloud
During the business case, you are supposed to think aloud, as your interviewer wants to see
whether you think in a logical and structured way. To become more structured in your analysis, you
will need to continuously exercise business cases, and with time you will start to notice your
progress. Talk however at a normal pace, or even slightly slower than normal. This will make you
appear calm and under control during the analysis.

Leave time for intervention, and listen to your interviewer


Many interviewees try to rush through the business case and ignore the remarks of their
interviewer. Often, however, your interviewer will give you tips or hints on the direction you should
be going during the business case. By ignoring these free clues, you will make the business case
more difficult to yourself, and also leave a bad impression. Keep your ears open for all remarks from
your interviewer, and see him as your co-pilot who will guide you through the business case.
Furthermore, make sure you leave space for intervention. Generally your interviewer has a case in
mind and knows where he or she wants you to go. Of course, you cannot read his or her mind and
predict this; therefore, your interviewer will intervene wherever needed to make the case go more or
less as planned. For this, always let your interviewer finish what he or she wants to say and make

sure you understand what your interviewer expects from you.


During your interview, your interviewer might also suggest which areas he or she wants you to
address first; make sure you follow this advice. If he or she does not indicate a preference, you could
always state, I will start my analysis with concept A, unless you have a particular preference for
where I should first focus on? Your interviewer might say that you can start as you have suggested;
he or she might additionally ask you why you want to start with that in particular, or might suggest you
to start with something else. As you can see, working like this continuously leaves space for your
interviewer to intervene and keep you on the right track. Create enough of these opportunities to
make sure you keep on the right track.

Study, study, study


The best advice that can be given is to practice and study as many business cases as possible.
The more you practice cracking business cases, the better you will become at it. Each business case
is unique, and you will need as much experience as possible upfront to feel comfortable during the
actual interviews.

Questions and Answers


The last five minutes of the interview are generally reserved for you to ask questions. This is
your time to better understand your personal fit with the company. After all, you are also there to see
whether you would actually like to work for that specific consulting firm. Nonetheless, you will also
be evaluated in this phase. The interviewer will be assessing whether you seem passionate and
excited for the position. The questions asked, also demonstrate some of your personality. For
example, an interviewee asking for the opportunities to do an MBA after some years, demonstrates he
or she sees a career at the firm over several years. The questions you ask will leave a certain
impression, and therefore, preparing your questions to some extent is recommended.
Furthermore, this phase of the interview can to some extent be used to check whether your
interviewer liked the interview with you. If the interviewer has enjoyed interviewing you, he or she
will generally not mind spending some extra time answering your questions. In the other case, your
interviewers answers might be shorter, and he or she might be less willing to spend extra time on all
your questions. Nonetheless, keep in mind that it is very much possible that your interviewer has
another appointment right after your interview, and has to finish the interview even though he or she is
very satisfied with your performance. Keep in mind that it is recommended that you never ask your
interviewer his or her opinion on how you did during the interview. If you did well, your interviewer
would still have to discuss your performance afterwards with the other interviewer(s). If you didnt
do well, your interviewer does not want to end up in a situation in which you end up arguing about
your performance during the interview.

Prepare some interesting questions in advance


At the time of the interview, interviewees often forget some of the questions they really wanted
to ask. To keep this from happening, make a short list of interesting questions for which you definitely

would like answers. Memorize these questions, and ask them at the end of the interview. Given that
you generally only have five minutes for questions, make sure you start with your most important
questions first.

Listen to the answers


Some interviewees hardly listen to their interviewers answers, but instead, they are already
thinking about their next question. Clearly, you would not make a good impression. When you ask
your question, always pay attention to your interviewers reply. It is perfectly fine to ask your
interviewer an additional question while he is replying, but in the end, your interviewer should do
most of the talking at this stage.

Ask relevant questions


Always take the position of your interviewer into account when asking questions. Asking
questions about the firms strategic vision for the next five years to a senior associate consultant
makes less sense than asking the same question to a manager or a partner of the firm. Similarly, a
manager or a partner might be less aware of the office activities for which asking a senior associate
consultant or a consultant may be better. Furthermore, avoid asking obvious questions and questions
for which you can easily find the answer online.

Examples of good questions


Typical questions you would ask to a senior associate consultant or a consultant:

What would be my main responsibilities during my early


assignments?
What would be the three best tips you could give to a starting
(associate) consultant?
What would a typical week as an (associate) consultant look like?
How is the contact with the managers and the partners?
Which skill-building tools and/or training is provided within the
firm?
How many nationalities are present in this office?
Typical questions you would ask to a manager or a partner:

How would you describe the firms management style?

How would you describe a strong performing (associate) consultant?


What is currently the most pressing business issue or strategic
challenge for the firm?
What have you liked most about working for this consulting firm?
What would be the three best tips you could give to a new
(associate) consultant?
Which position did you enjoy the most during your career (in case
the interviewer went through all or most of the ranks)?
Thank the interviewer for his or her time
At the end of the interview, you should always thank your interviewer for his or her time. You
could additionally point out that you enjoyed the business case or the interview in general, if that was
the case. Some books even recommend sending an e-mail after the interview to thank your
interviewers, though it is generally better to thank the interviewer immediately and in person.
Furthermore, in case the interviewer did not mention when you will be contacted with feedback, then
you should now ask when you will hear back from the company and who will be contacting you.

Chapter III

How to Crack Your Business Case


The focus in this chapter is on how to crack business cases. It starts by explaining what a business
case is, why consulting firms use them in the interview process, and what essentially makes a
business case analysis successful. The next part discusses in detail the standard methodology to
approach business cases. Then the most important frameworks to assess business cases are discussed,
with several examples for each type of framework. The chapter ends with a list of the top ten tips to
achieve business case success.

INTRODUCTION TO BUSINESS CASES


What Is a Business Case and Why Is it used?
A business case is an interactive simulation of a business problem. Your task is to structure and
analyze the problem by asking logical questions to your interviewer to eventually come up with a
detailed, generally data-driven, recommendation.
The reason business cases are put into practice is that consulting firms are aware that the
resumes they receive are often only a simple representation of a complex person. Given a consultants
turbulent working environment, a defined personality and a select set of leadership skills are required
to be successful. To ensure consulting firms hire the right people, they introduced the business case,
which has evolved as a precise method for evaluating these skills. It helps the interviewer to screen
candidates and to determine who really has what it takes to become a successful consultant. As
mentioned before, your final evaluation will depend on several factors, but your performance on the
business case will always have a significant weight in the final outcome.

Different Types of Business Cases


Several types of business cases can be distinguished, generally with different levels of
difficulty. The most common types of business cases are the cost/revenue cases, business-situation
cases, merger and acquisition cases, and value chain cases, which probably account for about ninetyfive percent of the cases. Some interview preparation books additionally consider the guesstimate,
which is discussed in chapter five, as a type of business case. In this book, however, the guesstimate

is not considered as such, since it is much easier and more mechanical than real business cases.
The level of difficulty of the business case you will receive strongly depends on your
background, but it can also be somewhat random. The expectations for undergraduates are for
instance lower than those for MBA or advanced degree candidates. Undergraduates tend to receive
more guesstimates, cost/revenue cases, or the more straightforward business-situation cases. MBA or
advanced degree holders on the other hand are more likely to receive the more difficult business
cases. Additionally, the cases given to undergraduates tend to concern less complex industries and
firms. Therefore, undergraduates are, for instance, more likely to get a case about a small firm in the
beer industry rather than a case on a private equity firm that wants to acquire a company in the
reinsurance industry. In case you do get a business case sited in a complex industry or firm, you
should, as mentioned, spend some extra time from the start with your interviewer to better understand
the dynamics of the firm and its industry. You should, however, never panic, or believe that you
cannot crack the case because of the industry context. Once you understand the business case context,
all cases essentially consist of breaking down the problem along an appropriate framework and
synthesizing the insights into good recommendations.

What Your Interviewer Is Looking For


To know what makes a good business case analysis, it is important to understand the mind-set of
the interviewer and have a general understanding of which characteristics he will be looking for.
Obviously your interviewer will be assessing your overall performance along multiple dimensions
during the business case. There are, however, certain skills that will weigh more in the final
evaluation.
The first, and by far the most important, skill you have to demonstrate is process excellence. You
should make yourself comfortable with a repeatable and logical process to crack business cases. You
should, however, not completely rely on the business frameworks that you studied in advance. You
will often need to change the framework to some extent to adjust it to the specific business problem,
given that all business cases are different. Practice sufficiently, using the approaches to tackle
business cases described later. Ending up with a wrong answer while using a correct approach is
better than having the right answer while using a wrong approach. You definitely do not want your
interviewer to have the impression that you got lucky with the business case. In addition, keep in mind
that knowing how to approach business cases is not the same as being able to consistently crack them.
The difference between both lies in a little real-life practice, but the impact on your eventual
performance evaluation is enormous.
Second, it is important to continuously be analytical and datadriven, and to follow a linear
and logical approach. During your analysis and synthesis, it is thus important that you include and
structure all of the relevant pieces of information provided to you.
The last key skill is the ability to synthesize all your findings, to pull together the big picture, and
eventually to present your findings coherently. Some people are more talented with this, but through
practicing several business cases, you will get a good feeling of how to do this.
Along these three key skills, you will also be evaluated on other skills, such as presentation
skills, enthusiasm, and creativity. Notice that having specific knowledge of the cases industry can be
a bonus, but it is never required.

It is important to mention here that some interviewers might give you the impression that they are
hardly paying attention. They might, for instance, look uninterested, repeatedly check their watch, or
even start playing with their smart phone. They do this to see whether you are able to remain calm and
maintain focus on the business case. Therefore, stay confident, keep your enthusiasm, and continue
solving the case.

How to Practice Business Cases


When you start practicing business cases, the first thing you should do is get accustomed to the
standard approach for cracking business cases and the different frameworks. Once you start to feel
comfortable with these, it is time to start practicing actual business cases. You can find several
examples of interesting business cases on the websites of leading consulting firms. Additionally, you
could find interesting business cases examples in other books on case interviews. If you eventually
run out of business cases, you could still create them yourself, a methodology to do this is described
at the end of this chapter.
Practicing business cases on your own is definitely a great way to start. Unfortunately, you will
never have the interaction that you would have in a real-life case interview. While practicing
business cases on your own can be quite challenging, doing one aloud with someone else is even
more challenging. Therefore, it is advised that at some point, you pair up with classmates, colleagues,
or friends to actively practice business cases.
The interviewer should understand the business case in advance and be ready to guide the
interviewee throughout the case. The interviewee should never read through the case ahead of time.
Always take the business case simulations seriously, and stay close to the actual case interview
format. As a last hint, it is recommended that you tape record the business case simulations to
afterwards identify potential areas for improvement.

HOW TO APPROACH YOUR BUSINESS CASE


As mentioned before, there are different types of business cases. Each type has a specific
framework to solve the problem, and these are explained in detail later on in this chapter. Irrelevant
of the type of business case, the overall approach you take during a case interview will, however,
always be the same. The only difference at some point will be the type of framework you use, and the
questions you ask to your interviewer. I like to refer to this general approach as the three-steps
process.
The idea behind the three-steps process is that you first open the case, then you analyze it, and
ultimately you conclude the case. Within each of these three steps is a subset of smaller steps. By
chronologically going through each individual step of the approach, you will be able to solve
business cases easily in a structured manner. The three-steps process is represented in Exhibit 3.

Exhibit 3 - The three-steps process to approach business cases


By making this process your own and consistently applying it, you will be able to structure the
most complex business cases. Each of these three steps is discussed into detail in the following. Keep
in mind that this is a general approach, applicable to most business cases. You might, however, come
across a business case where you are not presumed to precisely follow this chronological approach.
The majority of these steps will nevertheless recur, but at times, your interviewer might require you to
skip certain steps to maintain the dynamics of the business case. For example, you might present a
perfectly correct framework, after which your interviewer gives you a new document with all actual
problem drivers. If this is the case, be flexible, adjust yourself to the new situation, and continue
solving the business case.

Opening
Collect all initial information
To start your business case, first ensure that you have a pad of paper and a pen in front of you.
Once your interviewer starts explaining the specifics of the business case, write down all the
(potentially) relevant information. Even certain little details might end up being important at a later
stage in the case, and you definitely do not want to miss these. While it is better to write too much
than too little, you should neither literally write down everything your interviewer says. Just make
sure you are able to grasp all the interesting facts and figures of which you feel might be relevant later
on. If, at some point, certain information is not clear or ambiguous, make sure to write it down and
underline it. In this stage it is however advised to not interrupt your interviewer while he is
explaining the business case. While some interviewers would not mind you doing this, others might
get annoyed.

Verify your understanding of the case


Once your interviewer has finished presenting the business case, you should take some time to
see whether everything is clear to you. Unless your interviewer has been very generous in explaining
you all the facts of the case, you will probably still have some specific questions. You should

definitely ensure that you have understood all the information provided and that you precisely know
what you are expected to analyze and evaluate. Even if you are convinced that you understand the
content of the business case, confirming some information with your interviewer to make sure you
indeed do is smart. You might, for instance, need to confirm certain figures or require some further
explanation to better understand the industry context of the business case. Additionally, if in the
previous step, you underlined certain information that was unclear, now will be the time to ask further
information. Keep in mind, however, that you should definitely not yet dive into the case by starting to
ask very specific questions.

Identify the appropriate framework


The next step during the opening is to identify the appropriate framework to analyze the business
case, and this is probably one of the most critical steps. Tell your interviewer you would like a
minute to determine the most suitable framework for the case. Make use of this time to identify the
best framework, given the information, and start thinking on how you would tackle the case. Keep in
mind that this is an internal process, and you should thus be thinking about this on your own. Often
your interviewer will quickly go for a coffee or answer an email on his smart phone, dont worry this
is completely normal. Once you are ready, just indicate you are prepared to move on.
To know which problems relate to which frameworks, refer to the next two sections that cover
the different types of business cases together with several examples. Often, it will be quite clear from
the information provided which framework would be the most suitable. Only by continuously
practicing business cases, however, will you be able to really perfect your sense of which framework
to use. Make sure, that you are flexible with your framework, since specific information that you
receive during the business case might require adjustments in the framework. It is good to have a
framework to start with, but you should, however, never squeeze the business case in your
framework. Use the most appropriate framework and be open for adjustments and new directions of
analysis.

Draw out and explain the framework


Now that you have identified the most appropriate framework, it is time for you to draw it out
and explain it briefly to your interviewer. Make sure that your framework is readable and that it is
flexible for changes. Also consider whether it would be easier to draw it out as landscape or as
portrait. I advise you to move closer to your interviewer once you start explaining your framework. It
is a great way to engage your interviewer in your analysis, and you will appear much more
collaborative.
Do not go into too much detail when explaining your framework, but make sure your interviewer
understands the structure you want to follow. Furthermore, you should never actually name your
framework. Your interviewer knows the most important frameworks, and will assume you know them
as well. Keep in mind that naming your framework might come across as too academic.
Before you start analyzing the case, it is important that you confirm your proposed framework
with your interviewer. Often, your interviewer will approve your suggested framework, which
generally means your framework should be able to identify the most important issues. It does happen

that the interviewer confirms your framework even though it will likely not help you with identifying
the major issues. Interviewers do this mainly to assess whether you are able to realize that you are not
using an appropriate or correct framework. What also occasionally happens is that the interviewer
brings in a new piece of information that makes your proposed framework less usable. The reason
interviewers do this, is to assess whether you are flexible and able to manage a small change of
course. For the same reason, some interviewers propose you use another framework, even though the
one you have selected is perfectly fine. Given this, you can never really conclude anything from your
interviewers approval or disapproval of your proposed framework. Your intuition as to how well
the framework will perform and is performing while analyzing the business case will be of the utmost
importance. Again the only way to get this intuition is by continuously practicing.

Analyzing
Initiate the framework
The concept of analyzing means breaking down a problem into its smaller parts and assessing
them together with their interrelationships. When initiating the analysis of your framework, the first
question is where you should start the analysis. All frameworks consist of different blocks or
branches, and often in business cases, the key issue you have to solve relates to only one or two
particular blocks within the framework. You should try to start the analysis where you think it is most
important, that is, where you think there is the highest chance to find an important issue. For this
reason, the first thing you should do when initiating your framework is ask your interviewer whether
any information from the client might suggest where to start. Generally your interviewer will give you
no for an answer. He or she will, however, recognize the value of this question, as it could have
saved you a considerable amount of time. In case he or she does provide you a hint on where to start
the analysis, there are usually two possibilities. One possibility is that the business case is rather
large, and to save time, your interviewer decided to put you on the right track. Another possibility is
that your interviewer puts you on the wrong track to test whether you are able to realize this, and
move on to the next part of the framework. In each case, you should follow the track suggested by
your interviewer. Just be skeptical, as he or she might be testing you.
In case your interviewer did not give any hint where to start the analysis, you could start with the
first branch of the framework. It is however recommended, as mentioned before, that you attempt to
begin the analysis where you might expect the problem drivers to be situated. The best way to do this
is by briefly stating an assumption on where to start best, and preferably, with your reasoning behind
it. Examples of assumptions are, for instance, I will first look at the revenues side, as costs for
service companies are often rather low or I will first assess the competition, as competition in the
airline industry is quite fierce, but simply saying, I suggest that I first have a look at our clients
product is also perfectly fine. As you will see in the next step, you will need to go through the
framework and gather data to assess whether your assumption was correct. In case your assumption
was off, you could state another assumption and evaluate that one.

Assess the framework through specific questions

Once you have decided in which branch of the framework you will start, begin by asking the
standard questions specific to that framework. These standard questions are discussed into detail
further on, in the section on different types of business case frameworks. If, on one hand, the
interviewers answers seem to confirm your initial assumption, you can dive deep until you identified
the main issues within that branch of the framework. If, on the other hand, you dont seem to discover
anything surprising, you should not be hesitant to move to another branch. When this is the case,
indicate to your interviewer that you feel you have collected enough information on that particular
part of the framework and that you will move on to a next branch of the framework. Always keep in
mind that while your interviewer is answering these standard questions, you should always write
down his answers.

Identify all major problem drivers


When you discover a problem driver, it is smart to ask your interviewer whether this accounts
for most of the clients problems or whether it is a minor issue. In case your interviewer indicates that
the issue you identified is not a major problem driver, it is smart to simply underline the issue. Then
indicate to your interviewer that you will continue the analysis to identify other problem drivers and
address it later on. If the interviewer, however, states that the issue has a major stake in the overall
problem, you might want to start addressing it directly, as it would have the biggest impact. You could
also quickly finish the other branches of the framework and possibly identify some other minor issues,
but if your interviewer insists you to focus your efforts on that major issue, it is time to go to the next
step.
In case you went through the entire framework and you feel you might still be missing something,
you could ask your interviewer whether he or she has any other issues he would want to consider. In
case you did forget something, your interviewer would likely give you a hint on what you are missing.
If your interviewer says you covered all the major issues, you are ready to go to the next step.
Before you start advancing the framework, as described in the next step, it is a good idea to
briefly list the problem drivers that you identified, as well as how critical each one likely is to the
clients problem.

Advance the framework


Advancing the framework, which means refining the analysis to identify the real insights, is
often seen as the most challenging step in the business case. To advance the framework, you will have
to continuously refine the framework, or switch to another framework to find those key insights. It is
often here that you can make the biggest difference by practicing multiple business cases in advance.
In smaller business cases, the focus might be more on the first three steps of the analyzing part of
the three-steps process, in which you are asked to cover the entire framework and identify the major
problem drivers. In longer business cases, however, the interviewer will generally push you to
profoundly advance the framework and to identify deeper insights about the case. Depending on both
the type of business case and how efficient you were in the previous three steps, you might end up
rather quickly or late to this stage of the analysis.
Once you have identified all the issues, you should first reflect on which of these are the most

important. It is there that you should focus your further analysis, as that will have the biggest impact.
Usually in the previous step, you will already be given a suggestion on where to focus. If not, you
could now ask the interviewer whether he or she has a preference on which problem drivers you
should address first.
Now that you decided how to move on, quickly reflect on a structured approach to fully
understand the particular issues. The most important is that you completely understand why these
problems occur and what can be done about it. For example, you might have identified three problem
drivers, with the major one being that a key competitor has cut prices three months ago by 15 percent,
which has had an enormous impact on the clients sales. You now first need to find out how this is
possible, and secondly what the client can do about it. You might ask the interviewer for more
information on the cost structure of the client and the competitor, or maybe for information on the
competitors recent major activities (maybe the competitor realized serious economies of scale or a
vertical integration). Many other questions could be thought of, depending on the type of business
case. The most important is that you structure the questions as logically as possible and that you keep
asking relevant questions until you have a complete understanding of the problem drivers. It is
suggested that while you are refining your analysis, you constantly draw out your refined structure.
The reason is that these visuals make your reasoning easier for the interviewer to follow, which is
eventually in your advantage. Once you have fully analyzed and understood the major problem
drivers, it is time to wrap up your analysis and start closing the business case.

Closing
Synthesize the key case insights
The first thing you need to do to close a case is briefly synthesizing all the insightful pieces of
the analysis. This means combining the individual conclusions and putting them together as a coherent
whole. This coherent whole eventually is a summary of what the situation/opportunity is, and thus
shows the big picture. This synthesis will eventually be of most value to the client.

Present the big picture and back it up with your findings


Once you have understood the bigger picture, it is time to present your findings in a logical and
client friendly way. One great method to do this is described in the book The Pyramid Principle by
Barbara Minto, who worked several years for McKinsey & Company. She suggests, in her book, that
you first present the one key insight of the case and then provide the two to three most relevant pieces
of data that support this vision. Sometimes, however, you might end up with multiple key insights, in
which case you present each main insight separately, together with its most important supporting data.
One simple illustration of the this principle could, for instance, be Our client should enter the
Australian market, because of the following three reasons: the market size is attractive, the market
growth is staggering, and our clients product offer is superior to all competitors. As you can
observe, this way of presenting your findings will make it easy for the interviewer to follow your
conclusion.

Provide the recommendation or next steps


Once you have explained the big picture, supported by strong arguments, your interviewer might
ask you to come up with a recommendation or with subsequent steps. In case he or she does not, and
you feel you have some good suggestions, you could take the lead and suggest a course of action
based upon the business case insights. Always keep in mind that your recommendation should be a
logical consequence of the analysis and synthesis.
Often candidates tend to come up with a recommendation that is theoretically correct but
practically not always feasible. Keep in mind that your suggested actions should be realistic and
preferably not just a theoretical construct. Recommending, for instance, to Microsoft that they should
close down a department with fifty employees would be realistic; laying off 10,000 people on the
other hand not. In case you would find out that a department with 10,000 employees is unprofitable
and has poor future prospects, you could suggest revenue-enhancing or cost-cutting programs, or
maybe even selling off that department.
To get a good feeling of which recommendations to make, previous professional experience is
probably a good guide. If you, however, do not yet have that experience, you could start reading
business cases on alarming business situations to learn from the described course of actions taken.
One great source for business cases is the Harvard Business Review.
Last, it is important to pay attention to your wording when making your recommendation. If you
collected a considerable amount of data to prove a point, you can be rather confirmative. You could
for instance say, Given the data, it is quite clear that our client should target the Australian market.
If you, however, have insufficient data to substantiate your recommendation, you might need to be
more suggestive. You could then for instance say, Given the data, our client should likely enter the
Australian market, but further analysis would be needed to confirm this. The difference between both
recommendations is without a doubt considerable. Where the first one proposes immediate action, the
other one suggests realizing additional analysis.

DIFFERENT TYPES OF BUSINESS CASE FRAMEWORKS


Numerous types of business situations could be imagined. Luckily the set of frameworks to
tackle most is rather small. More specifically, four frameworks are covered here that will enable you
to tackle about all business cases.
It happens that to tackle certain business cases, you need to switch from one framework to
another, often to advance the analysis. Once you are comfortable with the different types of
frameworks, they become straightforward, and you will notice that you will become more flexible in
using them. In the following, all the frameworks are discussed one by one, after which a series of
examples of these frameworks is provided.

The Internal Profit-Problem Framework


The internal profit-problem framework is the easiest framework of all four. It is the most
mechanical and straightforward, and is in general used to identify one of the following three types of
client problems:

An increase in costs
A decrease in revenues
A decrease in profit margin
The first thing you always have to do when an interviewer presents a case where a client has
one of these problems, is ask whether this is an industry-wide phenomenon or rather unique to the
client. Neglecting this could result in you using the wrong framework. If the profit problem is client
related, you should use the internal profit-problem framework to evaluate the situation. In case the
problem is industry-wide, however, you should rather use the business-situation framework.
Before illustrating and explaining the internal profit-problem framework, it is important to
familiarize yourself with the following formulas:
Profit = Revenues - Costs,
where Revenues = (Volume sold per product x Sales price per product), and Costs = (Fixed
Costs) + (Production volume per product x Variable Unit Cost per product). Modeling this formula
in a framework will give us the internal profit-problem framework:

Exhibit 4 - The internal profit-problem framework


Once you presented the framework to your interviewer, remember to ask whether the client sells
one or multiple products. If this is the case, you should always ask for the segmented data per product
or product category. It is, for instance, possible that overall profits are increasing except for one
particular product category. By segmenting per product, or product category, you can quickly identify
this type of issue and immediately focus your analysis on that specific product or product category.
The idea behind the framework is that you break down the total profit into its smaller
components, using a structured top-down approach. You then rigorously have to question your
interviewer how all the elements of the framework changed over time and why. By doing so, you will
obtain the necessary information to know whether you should further investigate a branch or should
exclude it from additional analysis. This will eventually allow you to identify the root cause of the
profit problem. To realize this, you ask for example your interviewer whether profits went down

because of a decrease in revenues or an increase in costs. Let us say that a decrease in revenues
drove the drop in profits; then you should subsequently ask whether this is due to a decrease in sales
volume or a decrease in sales price for the product(s). Keep in mind, however, that there might be
multiple drivers for the profit problem. It could be, for instance, a combination of a decrease in
revenues and an increase in costs.
Once you get familiar with the framework, you will notice that it does not have to take much time
to identify the problem drivers. When you have identified them, your interviewer may ask you to
already come up with actionable recommendations to tackle the profit issue or may ask you to deepen
your analysis by advancing the framework. A common transition here is from the internal profitproblem framework to the business-situation framework, which is explained next. You might, for
example, have identified that revenue has fallen because of a decrease in sales volume and be asked
to further analyze what has happened. You could then shift to the business-situation framework and
start analyzing the product pillar, to maybe find out that the latest product change was not really
appreciated by the customers. Similarly, for business cases where profits increased slower than the
industry average, the profit-problem framework will often be a good start, but again, you will likely
have to shift to the business-situation framework.

The Business-Situation Framework


The idea behind the business-situation framework is that most high-level issues are generally
customer, product, client or competition related. Therefore, to understand any business situation, it is
key to first get a good understanding of these four important areas. To this extent, several business
concepts, such as Porters five forces or the 4 Ps, are integrated into the business-situation
framework.
The business-situation framework is eventually a very broad framework and is generally used to
tackle the more strategic business cases. The following is a selection of different business problems
for which this framework is used:

Responding to a competitors actions


Moving into an adjacency/new business
Corporate (growth) strategy
Entering a new market
Launching a new product
Business performance analysis
The only difference between these different business problems is where in the business-situation
framework you would start your analysis. In a business case on launching a new product, you would
likely start your analysis with the product or the customer. In a business case on responding to a
competitors actions, on the other hand, you would likely start your analysis with the competition. If
you are not sure where to begin the analysis, it is often a good idea to start with the customer, as the

customer ultimately drives what is going on in the marketplace. Additionally, when you are not sure
which framework to use for a rather strategic business case, it is often smart to start by default with
the business-situation framework.
First, a general overview of the business-situation framework is given, which is more or less
what you would draw out when explaining the framework during the business case interview. Next,
all the separate elements of the framework are discussed in further detail. Notice that you can always
extend the business-situation framework, depending on the specifics of the business case, by
integrating additional relevant questions or business concepts within the four pillars of the
framework.

CUSTOMER

Segments and characteristics:

Which customer segments exist and what are their relative


market spendings?
Which segments are most profitable, and which ones are
growing fastest?
Which customer segments does our client target? (past &
present)
Key needs:

Are there specific different customer needs per segment? Is our

client meeting his customers needs? Are there differences in


preferred distribution channels per segment?
Buying power:

Are customers dispersed, or do a couple of customers control


the demand?

PRODUCT (OR SERVICE)

Specifics and segmentation:

Which different product segments exist? Which


products/services is our client selling?
What are the characteristics of these products/services, and how
does it work?
Commodity/differentiation:

Is the product a commodity or is it differentiated? Is further


differentiation possible?
Complements and substitutes:

Are there many complements or substitutes to our clients


products/services?
Product life cycle:

In which stage of the product life cycle are the


products/services? Are new products being developed?

Packaging:

How are the products packaged? (Differentiation, combined


sales,?)

CLIENT (COMPANY)

Core capabilities and adjacencies:

In which businesses is our client, and which are our clients


core competencies?
In which adjacencies is our client involved?
Revenue and cost structure:

How have revenues and costs evolved over time relative to the
competitors? (profit problem?)
What is the cost per unit relative to competitors, and how did
this evolve? (best practice)
Organizational structure:

How are our clients suppliers concentrated? Have there been


any recent operational issues?
Which investments did/does our client make, and which
distribution channels are used?
Financial situation:

Is our client financially healthy? Does our client have large


cash reserves?

COMPETITORS (INDUSTRY)

Industry concentration and market share:

How is the industry structured? (monopoly, oligopoly,)


How are the market shares distributed and how did they evolve?
What is our clients share?
Competitive behavior:

On what is competition mainly based? (price, quality,)


Have competitors changed their strategy recently?
Entry barriers:

How are the entry barriers in the industry? (high fixed costs?)
Have there recently been new entrants?
Regulations:

Are there specific important regulations within the industry?


Exhibit 5 - The business-situation framework and its sub-components
Depending on the specifics of the business case, you might have to leave out certain questions.
Reasons could be that the answer is obvious, or because they are not relevant to the particular
company or its industry. If you, for example, have a case on an aircraft manufacturer, it should be
obvious that entry barriers are high. Despite of this, you could always check with your interviewer
about whether your assumption is indeed correct, by saying, I believe entry barriers are substantial,
correct? Your interviewer would likely not mind confirming this.
It might also always happen that in your interviewers reply, the answer to a question you were
going to ask later on is already included. Make sure you then also capture this information, and leave
that particular question out later. For this reason, it is important to understand why each question you
ask is relevant, which also explains why you should never go through the list of questions
mechanically.

Without a doubt, the business-situation framework will put you on the right track to gain deeper
insight into the business case. During the analysis, it is advised that every time you finish a pillar and
found relevant information, you make a small interim conclusion. Once you have a good
understanding of the business situation, you should aggregate all your findings. Most business cases
will however still require you to advance the framework, but in general the business-situation
framework will have already brought you quite far. To advance the framework, you use the
information collected from the analysis, and further build on the most important insights.

The Merger-and-Acquisition Framework


The merger-and-acquisition framework is explicitly designed to analyze merger-and-acquisition
(M&A) business cases. Typically, organizations decide to acquire another company and merge with it
to sustain their growth objectives or to enter in new markets. When firms eventually decide to acquire
another firm, they go through distinctive sequential stages of evaluating different targets, deciding
upon an appropriate bidding price and possibly in time merging together. Each stage of the M&A
process is quite different and consequently requires a unique analysis. The M&A framework,
therefore, consists of discrete components. The first component is used to analyze the fit between a
client and potential acquisition targets. The second component is specifically for business cases,
where you are asked to determine an appropriate acquisition price, and is commonly used in financial
business cases. The last component of the framework evaluates the integration process between
merging firms.
In a typical business case, you will almost never be asked to analyze the entire merger-andacquisition process, but you will rather be required to examine one or two stages of it. Each of these
three components are discussed in the following. Keep in mind that each individual component is thus
part of the larger M&A process.

Component 1Target-fit assessment


The first stage in the M&A process is assessing which potential acquisition targets would match
with the corporate strategy of the client. The first component of the M&A framework is specifically
designed to structure this assessment, and is essentially a variation of the business-situation
framework.
The idea behind the target-fit assessment is to go through the questions of a simplified version of
the business-situation framework for both the client and the target companies. The next step is then to
assess whether combining the client company with one of the potential target companies looks
appealing, taking the objectives of the acquisition into consideration. If, for example, the client wants
to enter a specific new growth market, you should look for target companies that are present in that
fast growing market. Once you identified the most interesting targets, you need to go more profoundly
through the business-situation framework and further investigate the fit between the client and these
target companies. If, for instance, a client has great marketing competencies with an unattractive
product, and the target company has an attractive product but rather weak marketing skills, then the
combined firm would likely be a much stronger firm. This target-fit assessment is structured as
follows:

Exhibit 6 - The target-fit assessment framework


In case you have identified a particularly interesting acquisition target, your interviewer may
require you to do a valuation or may ask you which problems might occur along the potential mergerintegration process. Keep in mind that if the target company has a very similar core business, it is
often interesting to combine this assessment with the value-chain framework, and analyze how
effectively both value chains could merge and what the benefits of this would be.

Component 2Valuation
You will not often be required to do an actual valuation of a target company during a consulting
interview, though some business cases do incorporate it. It does happen, on the other hand, that as part
of the business case, you are asked to explain how a valuation could be made and which data you
would need for this. For this reason, understanding what drives the value of a firm and how you can
determine an appropriate valuation for an acquisition target is important.
The most important drivers for a firms value are considered to be the future cash flows, the
discount rate, its growth prospects, and the potential synergies. There are several ways to do a
valuation, with the most commonly used valuation techniques being multiples and the discounted cash
flow (DCF) method. Both valuation techniques are explained in the following. To obtain a good
valuation during your business case, it is always key to have accurate data inputs for the valuation
model. Whether you could be provided with sufficient qualitative data inputs generally depends on
the size of the target company. Finding accurate data to make an adequate valuation for smaller
companies can sometimes be very difficult, whereas it is generally easier for larger corporations.
Multiples, such as the price/earnings ratio, are typically used to get an idea of a possible range
for a valuation. The idea is thus to determine an approximate value of a firm by comparing the
financial ratios of similar firms. The DCF method, on the other hand, is used to get a relatively
accurate idea for a valuation of the target company. The idea behind this method is to look at the
expected discounted cash flows over time to determine the value of a business. Notice that the DCF
method is based on the NPV, which is explained in chapter 6.
You could still go one step further and decide how much a firm is worth to the client, by
including the potential synergies to the valuation obtained with the DCF method. When you then add
up both the value of the synergies and the discounted cash flows, you can get a good idea of what a

firm is worth to the client. The valuation formula is then in fact a summation of three separate parts,
which are the discounted present value (short-term cash flows), the discounted terminal value (longterm cash flows), and the discounted value of the synergies. In the following each of these three parts
are briefly explained, together with the formula to calculate them and the key drivers behind these
values.

Exhibit 7 - The target-valuation framework


where CFt is the cash flow in year t, Synergiest refers to the sum of the synergies in year t, i is
the interest discount rate and reflects the cost of tying up capital and g is the growth rate, which is
assumed constant. For a more detailed explanation on realizing a valuation, we refer to the academic
literature on valuation and investments.
By combining all three parts, you obtain a final valuation for the target company. This valuation
is often graphically represented as follows:

Exhibit 8 - Graphical representation of the target-valuation framework

Keep in mind that the final valuation is often different from the initial bid that a firm makes. This
is because the bidding process is normally a negotiation process in which both the client and the
target company negotiate the actual acquisition price. It is for this reason that firms often lower their
bidding price relative to the obtained valuation. However, when multiple firms are bidding on one
target company, the bidding process is often organized through different rounds. If a firms initial bid
is too low, it might be excluded from the next bidding round. The potential synergies and the expected
growth rate are usually the most important negotiating points between buyers and sellers. Keep also
in mind that these potential synergies are not necessarily the same for the different prospective
acquirers.

Component 3Merger-integration planning


The third and last component of the M&A framework evaluates the merger-integration process.
In reality many companies fail to merge effectively, as it is usually an extremely complex process.
The most common reason why mergers are in fact not always successful is because management often
does not completely understand the full potential economic value of the acquisition. The mergerintegration process often consequentially receives a lower priority and is delayed, resulting in
significant economic losses. To avoid merger-integration problems, it is thus critical that everyone in
the newly to-be-formed organization understands the full potential of the merger.
The first step, prior to assessing the progress of the merger-integration process, is asking your
interviewer whether specific merger-integration planning has already been done so far. If this is the
case, it is obviously important to understand what has already been realized. The next steps are then
to ensure that people understand their roles in the merger-integration process, to ensure that the
merger is supported throughout the merging companies, and to investigate the strategic motivations
behind the merger. To analyze this, you go through the different pillars described in the framework
below, and assess which actions have and have not yet been taken to increase the chances for a
successful merger. Given the information received, you should then focus your efforts on those
measures that the merging companies have not taken, and explain intuitively how these actions could
benefit to the success of the merger and practically be implemented.

Exhibit 9 - The merger-integration planning framework

The Value Chain Framework


The concept of the value chain, first described by Michael Porter in 1985, quickly made its way
to the forefront as a powerful strategy framework. It has proved particularly helpful in business cases
on cost reductions, overall business performance improvement, corporate strategy, and sustaining a
competitive advantage. The value chain framework is based on a companys value chain, and
specifies how to effectively analyze each element of the value chain. The framework can, in essence,
be used for almost all types of companies, and allows a very sequential and logic analysis.
The idea behind the value chain concept is that a product or a service passes through a
companys chain of activities, also referred to as the value chain, and at each activity, the product
should gain added value. The objective is to maximize in each stage the added value, which should
ideally be higher than the costs occurring in that stage. The costs, for example, of adding certain
preservatives to a yogurt recipe to avoid it from rotting are low, but the added value on the other hand
is rather high. It is important to understand that one value chain activity often affects the cost or
performance of the next ones, because they are never isolated from each other. For this reason, it is
necessary to optimize not only all the activities individually along the value chain, but definitely also
their interrelationships. This way, a firm can align its value chain with its corporate objective and
pursue a competitive advantage. This competitive advantage is generally in terms of a cost leadership
strategy or a differentiation strategy. A cost leadership strategy has as objective to become the lowest
cost manufacturer through a cost-effective value chain. A differentiation strategy, on the other hand,
aims to differentiate the product or service through unique features built-in along the value chain, and

charge premium prices for these. The value chain is represented as follows:

Exhibit 10 - The value chain concept


Notice that there are two types of activities in the value chain: primary activities, which are
directly related to the creation and delivery of a product or service, and support activities, which are
indirectly related to the product or service and are, in some firms, partially outsourced.
As mentioned before, the value chain framework is fundamentally based on the value chain
concept and specifies how to effectively analyze each element of the value chain. The idea behind the
framework is to identify which activities in the value chain can be further improved. From there, you
can then come up with actionable recommendations that could lead to cost reductions, differentiation
opportunities, or to overall business performance improvements. This consequentially increases the
total added value, and thus the possible margin that a company has on the products or services it is
selling.
The value chain framework will be discussed in detail in the following. The most effective way
to work yourself through the framework is by first focusing your analysis on the primary activities of
the value chain and, only then start by better understanding the support activities. It is also for this
reason that the framework has been split into these two parts. If applicable, you could make an
interim conclusion once you have finished one part of the framework. As you will notice, the idea
behind the standard questions of the value chain framework is to, first, better understand the particular
activity of the value chain and then to analyze and understand its cost per unit, as well as its
performance and added value over time relative to competitors or best-practice firms. Keep in mind
that these standard questions are sufficient to get a basic understanding of each element in the
framework. As always however, you might want to add additional questions to the framework
depending on the specifics of your business case.

Exhibit 11 - The value chain framework


When you eventually have a good understanding of the business case through the value chain
framework, you can aggregate all your findings and present them to your interviewer. Keep in mind
that in general, you will thus still be asked to advance the framework. To do this, you again use the
collected insights from the analysis and build on the most important findings to drive toward
actionable recommendations.

BUSINESS CASE EXAMPLES


All the business case examples below are illustrated as actual discussions with an interviewer.
This way makes it easier to understand how you would use specific frameworks during an actual case
interview. The examples follow the standard approach to business cases, and are categorized by the
type of framework used. Some business case examples skip some steps relative to the standard
approach to crack business cases, but they all follow the main idea. The examples are written to be as
straightforward as possible; it is, however, the logic behind the approach and the structure of the

framework that are the reasons why the examples are so easy to follow. Keep in mind that business
cases are almost always different, and you should thus never assume that you already know upfront
how to crack it. An interviewer can easily make up his or her own variation, and likely will.
Therefore, use the examples provided as a study object and guideline, but do not learn them by heart.
Last, notice that within the business case examples, brackets were used to specify certain actions to
take.

Profit-Problem Framework Examples


Example one:
Interviewer: Our client BicycleCo is a bicycle manufacturer and has seen its profits decrease with
10 percent over the last year. Could you please assess this situation?
You: Before I start the analysis, I would first want to know whether the profit decrease is an industry
wide phenomenon, or a particular problem of our client?
Interviewer: Well, the overall industry has seen a small increase in pro-fits. I would say the problem
is more client related. Why are you asking?
You: I was interested whether we are dealing with an internal client problem or moreover an
external, industry-wide, problem. Can I please have some time to think about a framework for
analysis?
Interviewer: That seems a good idea. Let me know when you are ready to start.
You: [Decide on the framework and make a sketch] I decided to analyze the profit decrease by
assessing both revenues and costs, using the following framework. [Briefly demonstrate the
framework to the interviewer.]
Interviewer: That seems fine. Let us start the analysis.
You: First of all, does BicycleCo sell one or multiple products?
Interviewer: They only sell the BX-5, which is a sports bike.
You: Well, my hypothesis is that the costs stayed relatively constant, and that there has been a
decrease in revenues. Let us investigate whether this is correct. As you know, revenue equals sales
volume multiplied by the price per unit. Has there maybe been a decrease in sales volume or in the
unit price per bicycle?
Interviewer: Actually the price per unit went up with almost 1 percent this year, without an impact
on the sales volume. So actually revenues went somewhat up. It has to be said that, generally, the
bicycle price is extremely sensitive to larger price changes.
You: Well, my initial assumption seems to be off. Let us then have a look at the cost side of the
framework. With how much percent has the total cost gone up relative to last year?

Interviewer: Well, the total cost has actually gone up with more than 10 percent since last year.
You: That is interesting. Let us further investigate this. Has there then been a change in the total fixed
cost or in the total variable cost?
Interviewer: The total fixed cost remained relatively stable. I can tell you however that the total
variable cost has gone up, because of an increase in the variable cost per unit.
You: Let us then focus on the variable cost per unit (advance the framework). Would it be possible to
get a breakdown of all the variable costs per unit of last year relative to this year?
Interviewer: I do not have that information available. But what do you think are the main variable
costs per unit?
You: Well, let us see. I would imagine raw materials to be the major variable cost per unit, but also
labor costs, marketing costs, handling costs, as well as sales, general and administrative expenses
(SG&A) are probably important variable costs per unit.
Interviewer: Those are indeed the most important ones. It actually appears that the raw material
costs have gone up enormously, because the price of the metal bike frame almost doubled. What
would you suggest our client to do?
You: Well, I would recommend our client to first search for other manufacturers of metal frames with
a lower price, that provide a similar quality. If possible, it would also be interesting to investigate
where our clients competitors acquire their metal frames, given that they had a small increase in
profits.
Interviewer: That seems a good initial recommendation. Thank you very much.

Example two:
Interviewer: Our client BeerCo, a small premium beer manufacturer in Australia, has seen its profits
decrease with almost 10 percent relative to the same period last year. Could you assess the situation,
and explain what has happened?
You: Before starting, I have a question. Is the recent profit decrease an industry-wide phenomenon, or
an issue at our client?
Interviewer: The premium beer industry has seen a small drop in profits over the last three months
relative to the same period last year, but then we are talking about 1 or 2 percent maximum.
You: Right, so the overall industry seems to only explain a minor part of the recent drop in profits.
Interviewer: It appears so.
You: Ok, please allow me some time to think about how I would structure this problem.

Interviewer: Ok.
You: [Decide upon the framework, and draw it out.] I decided to analyze the profit decrease by
having a look at both revenues and costs, using the following framework. [Briefly explain the profitproblem framework to the interviewer.]
Interviewer: That seems a good approach to better understand the problem.
You: First of all, I would like to know whether our client sells one or various premium beers?
Interviewer: BeerCo only sells one premium beer.
You: OK. Let us first have a look at the cost side of the model. Has there maybe been an increase in
the costs recently? And if yes, is this cost increase related to the total variable costs or the total fixed
costs?
Interviewer: There has indeed been a cost increase. The cost of one specific raw material has
namely increased, resulting in an increase in the variable cost per unit of roughly 2 percent. This raw
material is an atypical ingredient, specific to only BeerCos premium beer.
You: In that case, only BeerCo is affected by the cost increase, and thus not its main competitors. On
the other hand, this still does not fully explain the drop in profits of 10 percent. Let us now have a
look at the revenue side of the model. Revenues equal the sales volume multiplied by the sales price.
Has there been a change in the sales price or perhaps in the total sales volume?
Interviewer: The sales price did not change; the sales volume however strongly decreased over the
last two months.
You: Interesting, the major driver behind the fall in profits then seems to be the decrease in sales
volume. This together with the small drop in industry profits, and the price increase of one of the raw
materials seems to explain what has happened.
Interviewer: That looks correct. Could you maybe further analyze why the sales volume has
decreased?
You: [Advance the framework.] Maybe it would be interesting to have a look at the customers, the
product, the client, and the main competitors [the business-situation framework]. We already have a
fair amount of information on the client, and we also know that the competitors have seen a small
decrease in profits. Therefore, I suggest we first have a look at the customers and the product. I first
want to better understand our clients product. Could you tell me something more about the product
itself?
Interviewer: Well, as I said, it is a premium beer sold at a premium price. The products quality is of
high standard, and the customers tend to be very sensitive about that. It should also be said that
BeerCos customers are not that price-sensitive.
You: Has there maybe recently been a change in product packaging, in product ingredients or in the

product recipe?
Interviewer: The packaging did not change, but four months ago, our client had to change to another
supplier for hops, which is a key ingredient to make beer. The reason is that its supplier went
bankrupt, though the new supplier has the same variable cost per unit.
You: This could possibly explain the decrease in sales volume. How long does it take for the product
to go from the production line to the store?
Interviewer: It takes roughly two months, meaning two months of stock more or less. Why?
You: Well, since the premium beer with the new hops are for sale in the stores, which is thus since
two months, sales have been going down. One possible explanation is that the new hops supplier does
not provide the same quality as the previous one. Did BeerCo collect any customer data since it has
received product from this new supplier?
Interviewer: Well, actually the new supplier was the only one offering the same price per ton as the
previous supplier. Our client did recently organize a blind tasting to collect customer information.
The data indicates that customers are less excited about the beer that contains the new suppliers
hops.
You: The fact that the new hops are less appreciated by BeerCos customers, together with the fact
that customers are very quality-sensitive, seems a reasonable explanation why the sales volume has
dropped.
Interviewer: That seems a good explanation. What would you suggest doing about this?
You: Well, as you mentioned BeerCos customers are very quality-sensitive, but not that pricesensitive. Therefore, I would recommend our client to switch to a hops supplier that provides the
same or a higher quality than its previous supplier and possibly charge the difference to the customer.
This seems for me the way to go; however, some further research would have to be done to identify
the most interesting supplier.
Interviewer: That is a good suggestion.

Example three:
Interviewer: In the street in front of the office, there is a coffee and tea stand, which is open from
7:00 a.m. to 1:00 p.m., and I usually get my coffee there in the morning. Now, the owner told me this
morning that five months ago he used to make more or less $1,000 each week. In the last five months,
however, his business has apparently not been doing as well, and he has only been making $800 per
week. What do you think could be driving this decrease in profitability?
You: Before starting to analyze this situation, I am first curious whether there is any significant
external factor that may be driving the decrease in profitability. Is there, for instance, a new place
where you can get coffee or tea in the neighborhood that is now competing with him?

Interviewer: There is a Starbucks nearby, but that one has been there for several years already.
Besides that, I am convinced that his stand is the only other place where you could get a coffee or tea
in the neighborhood.
You: Interesting [it seems to be an internal problem]. Can I please have some time to think about a
framework to structure my analysis?
Interviewer: Okay. Let me know when you are ready to start.
You: [Decide on the framework and make a sketch] I decided to analyze the profit decrease by
assessing both revenues and costs, using the following framework. [Briefly demonstrate the internal
profit-problem framework to the interviewer.]
Interviewer: That seems fine.
You: First of all, could you tell me what types of products are for sale in the stand?
Interviewer: Well, actually he only sells one type of coffee and one type of tea. Thats it really.
You: Okay. Did the owner of the stand indicate whether the problem might be specifically related to
revenues or costs?
Interviewer: Not really. He had no idea at all what was driving the profitability decrease.
You: Okay. Let us first have a look at the revenues of the stand. What is the sales price for coffee and
for tea, and what is the sales volume for both products?
Interviewer: The sales price for a cup of coffee is $2, and the sales price for a cup of tea is $1.50,
and he sells on average 1,500 cups per week. However, I do not know todays sales volume for both
types of beverages.
You: Okay. Has the price for a cup of coffee or a cup of tea changed?
Interviewer: Not really. Actually, both prices have been the same for the last two years.
You: Has there been a decrease in the total number of coffee sales and/or in the number of tea sales?
Interviewer: Well, actually the total number of cups sold remained unchanged over time. The owner
did, however, tell me that he used to sell more cups of tea per week when he was still making $1,000
per week. He mentioned that five months ago, he used to sell five hundred cups of tea on average per
week.
You: Interesting. One possibility would be that he makes more profit on a cup of tea than on a cup of
coffee. The decrease of tea sales could, in this case, explain the drop in profitability. Nonetheless, the
price for a cup of tea is actually lower than the price for a cup of coffee. Let us now have a look at the
cost side of the framework. Do you have any information on the variable cost of a serving of coffee
and a serving of tea?

Interviewer: The owner told me that the variable cost of a cup of coffee is $1.50, and the variable
cost of a cup of tea is only $0.50. This has remained stable over the last two years.
You: Interesting. I assume that the fixed costs for a small coffee and tea street vendor are rather small.
Did the owner give you any idea on his fixed costs?
Interviewer: Not really. We can, however, assume the fixed costs to be marginal. Let us thus ignore
the fixed costs in this case.
You: Okay. Well, the first thing we can conclude, then, is that a serving of tea is more profitable than a
serving of coffee. One cup of tea sold implies $1.50 revenue, and with a total cost of $0.50 per
serving, it leads to $1 of profit per serving. One cup of coffee sold, on the other hand, equals $2 in
revenue, and with a total cost of $1.50, it leads to a profit of $0.50 per serving. This seems to support
my assumption that the lower amount of tea sales could be driving the decrease in profitability.
Interviewer: Okay. Can you calculate, based on this information, how many cups of coffee he used to
sell five months ago when he still had a better weekly profitability?
You: Yes. When he was still making $1,000 of profit per week on average, he sold five hundred cups
of tea per week on average, which means $500 in profits. Given that the profit of one serving of
coffee is $0.50 and he only sells these two products, five months ago, he sold one thousand cups of
coffee on average per week.
Interviewer: That is correct. Can you now tell me how many cups of coffee, and how many cups of
tea he is selling on average these days?
You: Well, we know that the total number of cups sales for both coffee and tea together remained the
same over time, meaning that it is still one thousand cups plus five hundred cups, thus 1,500 cups sold
per week on average. This, together with the fact that the average profit per week is currently at $800,
and the profitability of a cup of coffee is $0.50, and the profitability of a cup of tea is $1, implies that
the average number of coffee sales must be 1,400 servings per week, and the average number of tea
sales must be one hundred servings per week [Show the calculation briefly to the interviewer].
Interviewer: That is correct. What do you think is driving the decrease in tea sales and the increase
in coffee sales?
You: I am not sure. His customer target groupwith which I mean the people who typically pass his
stand on a regular daymay have started buying more coffee because of in-store advertisement.
Nonetheless, it would be hard to believe that coffee got that much more popular versus tea because of
advertisement. Perhaps there has been a major shift in the type of customers he has on a typical day.
Interviewer: As far as I know, he did not do any specific advertising for coffee, but I do remember
that some months ago he used to be open from 9:00 a.m. until 3:00 p.m.
You: That is very interesting. Early in the morning, people start working and are more likely looking
for coffee than tea; whereas in the afternoon more people consume tea. Given that he now starts two
hours earlier, he is now attracting more people going to work and thus targeting more people who are

looking for coffee. Furthermore, he now closes two hours earlier in the afternoon, missing out on
more people who would be looking for tea. I would say the shift in opening hours could explain the
shift in product sales mix, which resulted in a decreased profitability.
Interviewer: That seems like a good explanation for the decrease of profitability. Which
recommendation would you give to the owner of the coffee stand to again increase his profitability,
assuming that he wants to increase his current profitability?
You: Well, first of all, he might want to consider changing his opening hours to those of five months
ago. He might want to start even later than that, as this could potentially increase profitability even
further than five months ago. In case it would not be possible for him to change his opening hours, he
should accept that he will have higher coffee sales and subsequently try to increase the profit margin
of a coffee serving. To realize this, he could, on the one hand, consider increasing the price, though he
should then test the sales price sensitivity. He could also decrease the variable cost per serving, for
instance, by finding a cheaper supplier, while ensuring the quality.
Interviewer: Thank you for your suggestions. Well done!

Example four:
Interviewer: The CEO of an academic hospital in Paris contacted us saying that his hospital is
getting close to bankruptcy. He mentioned that over the last three years they have been losing more or
less 40 million euro annually. More precisely, this year, they had a total revenue of 360 million euro,
with a total cost of 400 million euro. The senior management of the hospital is not clear on what is
driving this loss. They asked us to investigate what is driving these annual losses and propose
measures for them to become profitable again.
You: Okay. First of all, I would like to make sure I fully understand the context. What exactly is an
academic hospital, and how is it different from a regular hospital?
Interviewer: That is a good question. An academic hospital, also referred to as a university hospital,
is actually almost the same as an ordinary hospital, with the only difference that they combine the
hospital service with the education of medical students and medical research.
You: Okay, that is clear. Before I start the analysis, I would first want to know whether the profit
decrease is an industry-wide phenomenon or a particular problem for this hospital only?
Interviewer: The hospital industry has overall been doing quite well. I would say that this is a
problem specific to the client.
You: Okay [it seems to be an internal problem]. I will need a minute to think about the best way to
structure my analysis.
Interviewer: Let me know when you are ready to start.
You: [Decide on the framework and make a sketch.] I decided to analyze the profit problem by

assessing both revenues and costs, using the following framework. [Briefly demonstrate the internal
profit-problem framework to the interviewer.]
Interviewer: Okay.
You: Do we have, based upon information from the client, any reason to start on one specific side of
this framework? If not, I would first have a look at the revenues of the academic hospital to see
whether there is potential to increase it.
Interviewer: Not really. Though, I would prefer you to first have a look the cost side of your
framework, if that is okay with you.
You: Definitely. As indicated in my framework, the total cost can be broken down into total variable
cost and total fixed cost. By lowering any of these types of costs, we would be able to counter the
losses. Let us first have a look at the total fixed cost.
Interviewer: Okay. What do you think are the main fixed costs of a hospital?
You: Well, I would definitely expect that the hospital building and the expensive medical equipment
account for a large part of the fixed costs, which then need to be written off over time.
Interviewer: That is indeed correct. I can tell you, however, that there are no significant differences
in the fixed costs of our client versus other comparable academic hospitals. I am also convinced there
is no significant potential to lower the total yearly fixed cost.
You: Okay. Let us then have a look at the total annual variable cost to see if we can find any potential
there. First of all, how much are the total yearly variable costs?
Interviewer: The variable costs account for 75 percent of the total cost, which means 300 million
euro.
You: Okay. Let us then deep-dive on the variable costs. I would imagine the typical costs of a hospital
are raw materials, meaning all medical equipment and drugs used for treatments as well as salary
costs, administrative costs, and the cost of utilities?
Interviewer: Those are indeed the most common variable costs of a hospital. What do you think are
the two most important variable cost buckets?
You: I would say that the raw materials and the salary of the staff make up the two largest variable
costs.
Interviewer: Indeed. The yearly raw materials cost is 125 million euro, and the yearly salary cost is
75 million euro. For the rest, the SG&A cost is around 30 million euro, and then there are many
smaller other variable costs that account for 70 million euro.
You: Okay. Let us then first have a look at the biggest cost bucket, namely the raw materials cost. I
would imagine that most hospital treatments are quite standard and require more or less the same
standardized amount of raw materials versus other hospitals. Nonetheless, it could be possible that

some of the staff is using the raw materials inefficiently versus other hospitals. For this reason, I
wonder whether there may be potential to reduce the amount of medical equipment and/or drugs used
for specific treatments.
Interviewer: There is unfortunately no potential to reduce the raw materials cost. As you suggested,
each treatment requires a specific amount of raw materials, which is pretty much the same across all
hospitals. They could possibly purchase more raw materials per order to get a price discount. This
would, however, also increase inventory costs. Overall, I would say there is no potential either for
this cost bucket.
You: Okay. Let us then have a look at the second largest cost bucketthe salary costs.
Interviewer: Okay. Which people typically work in a hospital?
You: Well, you would have doctors, nurses, admin staff, and maybe cleaning staff. Those are the
typical jobs I would immediately think about.
Interviewer: Yes. Actually the cleaning is outsourced to another company, and these payments are
actually not accounted into this cost bucket. There is, however, no potential to save on cleaning
services. In any case, there are 250 doctors in the hospital, and they make on average 150,000 euro
per year, everything included. Can you tell me what part of the total salary cost goes to doctors?
You: Well, 250 doctors, who earn 150,000 euro each, implies a total doctor salary cost of 37.5
million euro. With a total salary cost of 75 million euro, we easily find that 50 percent of the salary
expense goes to doctors.
Interviewer: Indeed. Of the remaining 50 percent variable salary costs, 25 percent goes to the
nurses, 15 percent to the administrative staff, and 10 percent to the other staff.
You: Okay. Maybe there is potential to reduce specific staff. Does the hospital have more doctors,
nurses, admin staff, or other staff compared with hospitals of a similar size (in Paris) that offer a
similar mix of the same treatments?
Interviewer: There are almost no hospitals that have a comparable size and also offer a similar mix
of treatments. I actually do not think this is the best way to assess whether our client could reduce
staff levels.
You: Well, we could also look at the occupancy levelmeaning how many hours are the doctors,
nurses, etc., working per week. Furthermore, maybe there are sector averages on how many doctors,
nurses, etc., an average hospital requires per one thousand patients?
Interviewer: That is indeed a better approach. Looking at average occupancy levels of the sector for
each job function and assessing the sector averages of number of doctors, nurses, etc., required per
one thousand patients, I would say that we could save 30 percent of the doctor salary cost, 15 percent
of the nurses salary cost, and 10 percent of the admin staff salary cost. What would be the new salary
cost per year if we reduce the staff as proposed?

You: Well, 50 percent or 37.50 million euro currently goes to doctors, 25 percent or 18.75 million
euro goes to nurses, 15 percent or 11.25 million euro goes to admin staff, and the remaining 10
percent or 7.50 million euro goes to the other staff. If they reduce the doctor salary cost by 30
percent, they would save 11.25 million euro, together with a reduction of 15 percent of the nurses
salary costmeaning 2.8125 million euro and 10 percent of the admin staff salary costmeaning
1.125 million eurothey would save approximately 15 million euro per year on variable costs.
Interviewer: That sounds interesting. What difficulties might occur if our client would do this, and
what options would our client then have?
You: First of all, they would need to assure they only reduce staff where possible. They may, for
example, have too many doctors specialized in certain treatments, but only just enough doctors for
other treatments. One suggestion would be to have a look at the occupancy levels/rates of all staff
members, to assess which ones are doing the least treatments for clients. Reducing this staff
specifically would make most sense to lower the salary costs with the lowest possible impact on the
revenue; they could also perhaps suggest to these employees to work part-time. Furthermore, it is
important to realize that laying off people often leads to paying severance and a benefits package.
Also, all accrued vacation days will normally need to be paid out, and possibly our client may also
need to pay outplacement-services fees. They could, on the other hand, assess whether it has staff
members with contracts that are perhaps ending. In that case, it may make more sense to lay off these
people, as they would then not have to pay these costs.
Interviewer: Those are definitely good ideas that we can suggest to the client. However we need to
bring our client back to profitability and 15 million euro will not be sufficient. It looks like you will
need to further look for other opportunities.
You: Indeed. Let us now have a look at the remaining variable costs, namely the admin costs and the
other costs.
Interviewer: Well, I can tell you that there is no further potential to reduce these costs, and we should
now look for opportunities to increase the total revenue.
You: Okay, let us then turn to the revenue side of the framework. On the one hand, we have the sales
price of the different treatments the hospital offers, and on the other hand, we have the have the
amount of treatments given for each type. Let us first have a look at the sales price. First of all, how is
the pricing of hospital treatments determined? I imagine there is some government regulation
involved.
Interviewer: The prices of treatments are indeed quite regulated and similar across all hospitals in
the country. A hospital actually has limited flexibility in setting its price. Competing on price is
definitely not done in this sector.
You: Okay, let us then have a look at the number of treatments sold per year of our client. Does our
client have many customers per year versus comparable hospitals?
Interviewer: Again, it is hard to identify a comparable hospital. However, of all hospitals with a

relatively similar staff size, our client has the least customers per year.
You: That is interesting. Does our client have a reputation issue perhaps?
Interviewer: Not really, the reputation of the hospital is good.
You: That is strange. Perhaps hospital reputation is not necessarily the most important driver of
what determines whether a customer goes to your hospital or another one. Eventually, people go to the
hospital to which they have been referred.
Interviewer: That is correct! Actually, on average 60 percent of the people visit a particular hospital
because of a doctor referral, another 25 percent visits a hospital because it was the closest one,
generally in case of emergencies, and another 15 percent of the people visits a hospital based on
other reasonsof which reputation is one of them. The total revenue is also equally distributed
over these three channels. Given that doctor referrals are an important driver on the customers
eventual choice of a hospital, what do you think influences which hospital a doctor would
recommend?
You: Well, I guess doctors would recommend a hospital based on the reputation has for the specific
treatment the customer needs?
Interviewer: That is indeed an important decision criterion. However, the doctors that make the
initial referralusually primary care practitionersoften recommend their clients to go to hospitals
in which they have ex-college friends working. In reality, 50 percent of the referrals to hospitals are
made because of this reason. The reputation of a hospital, as you suggested, accounts for another 30
percent of the reason behind a referral, and then there are 20 percent other less important reasons
why a specific hospital is referred to. Now that you know this, what would be a good strategy to
enhance the number of customer visits from doctor referrals?
You: Well, we should empower the network of our current doctor staff more, to ensure their excollege friends refer to them instead of doctors from other hospitals. Our client could, for instance,
organize events where doctors invite ex-colleagues or acquaintances that work as primary care
practitioners. By strengthening this network, the hospital will get more referrals. However we have to
also keep in mind that we suggested laying off 30 percent of the doctor staff. For this reason, it is also
important not to lay off those doctors who have a strong networkmeaning the ones that often get
referred to. On the other hand, you would expect that these are already the ones with high occupancy
levels/rates, and thus not in the primary scope for staff reductions.
Interviewer: That is a good initiative. I believe that if the doctor network would be brought to full
potential, taking into account the suggestion of job reductions, the absolute number of visits based on
doctor referrals through college friendships would increase by 33.33 percent. If you know that the
sales increase can be expected proportionally across all types of treatments, what would then be the
new revenue resulting from this?
You: Well, we know that the total revenue currently is 360 million euro and that 60 percent of that
revenue comes from doctor referrals, which equals 216 million euro. We also know that 50 percent of

these are made by ex-college friends or ex-colleagues, which implies 108 million euro. We now
expect an increase of 33.33 percent of this revenue, which means an absolute increase of 36 million
euro.
Interviewer: That is correct. You have covered all important opportunities. Can you now briefly
synthesize your findings?
You: Of course. By reducing the hospitals staff, our client could save 15 million euro in variable
costs. Furthermore, the sales volume can be increased by hiring doctors with strong (college)
networks leading to a revenue potential of 36 million euro. Both measures together lead to a potential
profit increase of about 51 million euro per year, which is more than the 40 million euro yearly loss
our client has had over the last three years. When these measures are successfully implemented, our
client would have a yearly profitability of 11 million euro, assuming all other parameters constant.
Interviewer: That looks good. Thank you for the analysis.

Example five:
Interviewer: The CEO of CamCo, a small high-end webcam manufacturer in California, told us that
his company has operated break-even for two consecutive years. He feels his business is performing
under full potential, and asked us to investigate how his company could make a good profit. He
furthermore mentioned that he is considering lending 2.5 million USD from a bank to invest in R&D
and develop a new webcam model. However he hopes to be able to fund the capital with profits.
Could you assess the total profit potential of CamCo and furthermore analyze whether it would be
realistic for them to save up 2.5 million USD this year?
You: Interesting. Before I start the analysis, I would like to know whether this profitability issue may
be related to a weak economy or an overall low profitability in the industry, or whether this is a
problem specific to our client.
Interviewer: The webcam market is overall quite attractive and generally offers good returns. I am
convinced that this problem is specific to CamCo.
You: Interesting. Can I please have some time to think about a framework for analysis?
Interviewer: Sure. Let me know when you are ready to start.
You: [Decide on the framework and make a sketch.] I decided to analyze the profitability problem by
assessing both revenues and costs, using the following framework. [Briefly demonstrate the internal
profit-problem framework to the interviewer.]
Interviewer: Sounds good. Lets start the analysis. Why dont you start by analyzing the revenues
first?
You: Okay. First of all, would it be possible to tell me how many different webcam models CamCo is
selling?

Interviewer: CamCo only sells one type of webcam, which is a high-end webcam with a very high
resolution.
You: Okay. We can break down revenue into two components; on the one hand there is the total sales
volume, and on the other hand there is the sales price. What is the sales price of this webcam, and
furthermore what is the sales volume of the last twelve months?
Interviewer: The webcams are directly sold over the Internet to the end customer at a price of 60
USD per piece. CamCo has been selling five hundred thousand webcams per year for the last three
years.
You: Is there any particular reason why the total webcam sales have stagnated over the last three
years?
Interviewer: Well, CamCo always felt that there was still potential to sell more high-end webcams
per year, but they have realized that given their current resources the sales volume is at its full
potential.
You: Interesting. Given that the webcams are high-end products, the customer must be somewhat less
price sensitive than the customer of an average (or less than average) webcam. Did CamCo already
try to increase or decrease the price somewhat to test whether the subsequent sales volume change
results into a better overall profitability?
Interviewer: CamCo actually already did an intensive price sensitivity study, and realized their
current price point of 60 USD per webcam is the optimal price setting.
You: Okay. The total yearly revenue is thus 30 million USD, and it seems that, given their current
resources, this total revenue is more or less at its full potential. Let us now assess CamCos total cost
then, to assess whether there is potential to decrease this.
Interviewer: Okay. That seems like a good idea.
You: We can break down the total cost into the total fixed cost and the total variable cost. Let us first
have a look at the fixed cost of CamCo. I would assume that the infrastructure to manufacture these
webcams is quite impressive, and given this high cost, there might be significant potential to decrease
the total fixed cost.
Interviewer: Actually the total variable cost is much higher than the total fixed cost. The
infrastructure to develop and manufacture webcams is not as costly as you may imagine. This is,
however, industry-specific information that you did not have to know. In any case, let us proceed with
assessing the total fixed costs of CamCo as you suggested.
You: Interesting. Well, I would expect the most important components of the total fixed costs to be, on
the one hand, the manufacturing plant where the webcams are made and, on the other hand, the
machinery to make the webcams. Is that correct?
Interviewer: That is correct.

You: Okay. Do we know the total cost per year for each type of fixed cost?
Interviewer: Yes, the total fixed cost per year for the manufacturing plant and the production
machinery together is 2.5 million USD. Next to this, there are some other fixed costs, making the total
yearly fixed cost 3 million USD.
You: Interesting, let us focus on the total fixed cost of the plant and the machinery. First of all, does
CamCo own its own building or are they maybe leasing a building? Also, how much is the fixed cost
for the manufacturing plant alone?
Interviewer: The cost of the manufacturing plant is 1.5 million USD per year, and they have been
leasing it for some years already. Actually, the current lease is ending in about six months, and the
management was considering signing a new lease for the manufacturing plant.
You: Would it be difficult to switch to a new location, and install all manufacturing machinery there?
Interviewer: It would definitely be possible. They are, however, not willing to move to a location
far away from where they currently operate. Where are you going with this?
You: Well, given that the CEO of CamCo initially thought to sell more high-end webcams, but now
does not expect to promptly increase its current sales volume anymore, it may be possible that they
are leasing a plant that had accounted for a larger number of sales. I am, therefore, wondering
whether they are using the manufacturing plant almost at full capacity or whether they could easily
operate in a smaller manufacturing plant.
Interviewer: Well, the CEO is currently thinking about investing new capital in R&D, but they would
not really need that much extra office space for these R&D activities. Also, they are currently only
using 65 percent of the surface of the manufacturing plant. If they would rearrange their plant more
efficiently, this could even go down to 50 percent.
You: That is interesting. Potentially they could move to a new, less expensive, location in the
neighborhood once the lease ends.
Interviewer: That is an interesting suggestion. Actually, there is a manufacturing plant for lease
available in the same street, which is one third smaller, and its yearly lease is 1 million USD. The
cost to move to this plant would be minimal, maybe a one-time cost of 100,000 USD, and the lease
duration is quite short, which would give CamCo the opportunity to move out when that manufacturing
plant would become too small.
You: That sounds great! This would save CamCo 500,000 USD per year, with only a one-time cost of
100,000 USD in the first year. Let us now have a look at the second big bucket of fixed costs, the
manufacturing machinery. Does CamCo have a cost similar to comparable companies in its industry?
Interviewer: We know very little about the financials of CamCos competitors. On the other hand, I
am sure there would only be little potential to reduce the fixed cost. Let us maybe now have a look at
the total variable cost and assess the cost savings potential there.

You: Okay. The total variable cost equals the variable cost per unit multiplied by the total production
volume. Let us first have a look at the variable cost per unit. How much is the variable cost of one
webcam?
Interviewer: The variable cost per unit is 45 USD. I actually already assessed whether CamCo could
further reduce this and am convinced that they cannot further decrease their variable cost per unit.
You: That is surprising. If there is no potential to further decrease the variable cost per unit, then I
would like to know the yearly production volume of CamCo over the last three years.
Interviewer: Well, they have produced six hundred thousand units this year and 520,000 units during
the two years before that.
You: Interesting. Given that they have only sold five hundred thousand units per year during this
period, they have overproduced 140,000 units. How many webcams do they currently have in their
inventory?
Interviewer: Well, CamCo always sells its most recently manufactured webcams first. By now, they
actually already have a total inventory of 175,000 older units. They have consistently been
overestimating demand. Ideally they should sell the oldest ones through an alternative sales channel.
You: That is quite an impressive inventory of older webcams. How much of this inventory should they
keep as a safety stock, and how much of this inventory could they (immediately) sell off?
Interviewer: CamCo should ideally have an inventory of about thirty-five thousand units. They could
immediately sell off all the other webcams to Best Buy, which is the only retailer that has shown
interest in buying CamCos webcams. However, I would estimate that they would buy them at a price
of 30 USD per unit, given the retailers cut and the fact that the webcams are somewhat older.
You: Given that Best Buy would be the only retailer interested in buying these webcams, it seems like
a good idea to immediately sell the remaining 140,000 units to them. This would give them a one-time
additional revenue for this year of 4.2 million USD. This money could then also be used to invest in
R&D to develop a new webcam model. Furthermore, by lowering the total inventory, they will also
have a lower inventory cost.
Interviewer: That sounds like a good idea. I think the lower inventory will lead to another 100,000
USD savings per year actually. Furthermore, the CEO of CamCo did indicate that he would prefer
financing the extra capital required to develop a new model through self-generated profits. This
confirms that it would be realistic for CamCo to collect 2.5 million USD this year. However, this
would only be a one-time revenue for the current year. How could CamCo realize a continuous
profitability versus todays situation?
You: Well, at present CamCo is only running break-even, with 30 million USD in revenue, versus a
total variable cost of 27 million USD (six hundred thousand units manufactured times 45 USD
variable cost per unit) and a total yearly fixed cost of 3 million USD. If CamCo would better forecast
demand, they would not build up expensive inventory and have significantly lower variable unit

costs. I would recommend CamCo to produce more or less five hundred thousand units, given that its
webcam sales are already more or less at full potential. They should, in addition, always keep a
safety stock, as suggested, to ensure they can always fulfill all orders. Lowering the current
production level of six hundred thousand down to five hundred thousand would bring the variable
costs per unit down 22.5 million USD and result in a total extra profit of 4.5 million USD per year
assuming other parameters constant.
Interviewer: That is correct.
You: If we add this up with the new suggested lease, which would save 500,000 USD per year, and
with a lower yearly inventory cost, which would save another 100,000 USD per year, then the total
yearly profit would even increase up to 5.1 million USD per yearassuming other parameters
constant. Furthermore, as said, CamCo would also realize a one-time additional revenue of 4.2
million USD this year, and a one-time additional cost of 0.1 million USD.
Interviewer: That sounds good. I definitely think CamCo will be excited to hear they could make a
yearly profit of 5.1 million USD, based upon your recommendations. Thank you for the analysis.

Example six:
Interviewer: A successful manufacturer of premium smoothies in the USA, named JuiceCo, contacted
us saying that they have doubled their sales revenue from 50 million USD in the previous year up to
100 million USD this year, but ended up with a profit margin that was significantly lower than last
year. Could you assess the situation and explain what has happened?
You: Definitely. Before I start the analysis, I would like to know whether this profitability issue is
related to an external factor, such as for instance new competition or an overall weak performance of
the smoothies industry, or whether this is a problem specific to JuiceCo.
Interviewer: Well, JuiceCos competitors in the USA have all seen a minor decrease in profitability
this year, but not in the same proportions as JuiceCo. It is definitely an issue specific to JuiceCo.
You: Okay. Can I have a minute to think about a framework to analyze this situation?
Interviewer: Sure. Let me know when you are ready to start.
You: [Decide on the framework and make a sketch.] I decided to analyze the profitability problem by
assessing both revenues and costs, using the following framework. [Briefly demonstrate the internal
profit-problem framework to the interviewer.]
Interviewer: That is a good structure to assess this situation. Let us first look at the revenue side
then.
You: Okay. It is possible that the revenues did not go up sufficiently to cover a stronger increase in the
total costs. To start, I would imagine that JuiceCo is selling various types of smoothies and likely
with some differences in sales prices (and variable cost). Is this correct?

Interviewer: JuiceCo indeed sells multiple types of smoothies to different premium retailers, and
each type indeed has a slightly different sales price and variable cost. Let us assume, however, for
simplicity reasons, that the sales price and variable cost are the same across all types of smoothies.
You: Okay. As you indicated, JuiceCo sells each type of smoothie to retailers. I would imagine that
they are not sold per unit, but rather per pack or pallet. Is this correct? Furthermore, what is the sales
price to the retailer per unit or per pack? And lastly, does JuiceCo give specific discounts for larger
orders?
Interviewer: JuiceCo sells its smoothies to the premium retailers in packs of twelve smoothies at a
price of 10 USD. Furthermore, they do give discounts for larger orders, but let us ignore this for this
business case.
You: Has the sales price to the retailer recently changed?
Interviewer: Why are you asking?
You: Well, possibly the profit margin went down because of a change in the sales price. For instance,
it is possible that this year they sold at a lower average price at the same total cost, which may have
led to this lower profit margin.
Interviewer: I see. No, actually they have kept their sales price at the same level as the previous
year, while most of its direct competitors increased their sales price.
You: Okay. Is there a specific reason why most of its direct competitors have increased their sales
prices?
Interviewer: I am not sure.
You: All right. In any case, JuiceCo has doubled its revenues versus the previous year, while keeping
the same sales price. The lower profit margin must then come from a proportionally higher increase
in total costs. Let us now look at the cost side of the framework.
Interviewer: Okay.
You: On the one hand, we have the total fixed cost, and on the other hand, we have the total variable
cost. Let us first have a look at the total fixed cost. What was the total amount of fixed costs of
JuiceCo this year?
Interviewer: The total amount of fixed costs increased by 80 percent versus the previous year, and it
was 5 million USD last year.
You: This means that the total fixed cost was 9 million USD this year. Given that the total fixed costs
increased less than the increase in sales revenue, we know that the fixed costs are not the reason
behind the profit margin decrease. Clearly the fixed cost on a per unit basis is lower than the year
before.
Interviewer: That is correct.

You: Let us then have a look at the total variable cost. First of all, I would like to know what the total
amount of produced packs of smoothies was this year.
Interviewer: Why are you asking?
You: Well, perhaps JuiceCo has been building up inventory by producing more packs than they have
sold, for instance, because they had overestimated demand. This would lead to a higher total variable
cost in this year. It would furthermore also lead to higher inventory costs.
Interviewer: Well, smoothies expire rather quickly. Once they are produced, they are immediately
transported to the retailer. For this reason, the number of smoothies sold more or less equals the
number of smoothies produced.
You: Okay. Let us then have a look at the variable cost per unit/pack. First of all, I want to better
understand what kind of variable costs are included in a ten-pack of smoothies. Next, I want to assess
the cost per unit of each of these variable cost elements.
Interviewer: Well, what do you think are the most important variable cost components?
You: I would say the raw materials costs as well as packaging, distribution, and SG&A costs.
Interviewer: Those are indeed the most important cost buckets. The total variable cost per pack is 6
USD. Raw materials account for 50 percent, packaging costs accounts for 10 percent, distribution
accounts for 10 percent, SG&A accounts for 15 percent, and then there are some other smaller
variable costs that account for the remaining 15 percent.
You: Interesting. How has the total variable cost per pack evolved versus the previous year?
Furthermore, has there been a significant change in some of the different variable costs per unit?
Interviewer: Last year, the variable cost per unit totaled 5 USD. Raw materials actually only used to
account for 40 percent of the total variable cost back then.
You: Interesting. This means that the raw materials accounted for 2 USD per pack in the previous
year, whereas this year they account for 3 USD per pack. Are only the raw materials responsible for
the 1 USD per pack increase in variable costs, or were there cost shifts between the other variable
costs as well?
Interviewer: Only the raw materials cost has changed. The remaining variable costs stayed the same
versus the previous year.
You: It is quite a strong cost increase. Is there a specific reason why the raw materials cost has
increased by 50 percent in one year? I assume fruits are the most important raw materials, and the
price of fruit is of course volatile, depending on whether or not it was a good harvesting season.
Interviewer: That is indeed correct! JuiceCo buys all fruits from suppliers near the manufacturing
plant. This year the price of fruit was very high, given a bad harvest for all of JuiceCos suppliers.
You: Interesting. Perhaps JuiceCos competitors managed to buy their raw materials at a better price

somewhere else?
Interviewer: Well, overall the price of fruit definitely increased in the entire USA versus the
previous year. However, in some states harvests were better than in others, so there are definitely
price differences for these raw materials across different states in the USA. JuiceCos competitors
indeed bought their raw materials at a better price, by sourcing them from other regions where the
harvest was much better. It took them probably somewhat longer to transport these raw materials, but
the total cost must have been substantially lower, without an actual decrease in quality of the raw
materials.
You: That is interesting. It seems that JuiceCos competitors have only seen a small profitability
decrease because of the overall increase of the raw material cost, as they sourced their raw materials
from regions where the prices increases were minimal. The cost increase of the raw materials was,
however, much more significant for JuiceCo. This is because they sourced their raw materials from
nearby suppliers that had a bad harvest and consequentially increased the cost of their raw materials
even more. Additionally, it seems that JuiceCos competitors have passed a part of these cost
increase to the retailer, as that could explain why they have increased their sales prices.
Interviewer: That sounds like a very good explanation. What would you suggest JuiceCo to do?
You: Well, JuiceCo could also increase its sales price to pass a part of the cost increase to the
retailer. They would, however, have to monitor price sensitivity, as the price increase may
significantly decrease their sales volume. Possibly JuiceCos unchanged prices were namely an
important driver behind their strong revenue growth. More importantly, they should ensure that they
have multiple potential suppliers for raw materials in different regions to ensure they can always get
a good price for these raw materials. This would not only lead to a lower variable cost per unit, and
thus higher profitability, but also to a more stable variable cost per unit and thus a more stable
profitability.
Interviewer: Thanks, that sounds like a good recommendation.

Example seven:
Interviewer: Our client LaptopCo, the largest laptop manufacturer in South Korea, has seen its profit
margin decrease from 10 percent over the last year to 7.9 percent this year. The senior management of
LaptopCo said that while their revenues did increase, their costs rose much faster. They are worried
about this evolution and asked us to assess the drivers behind the profit margin decrease and come up
with practical recommendations. Could you do this?
You: Lets see. Before structuring the analysis, I would like to know whether we know if LaptopCos
profitability problem is an industry-wide phenomenon for laptop manufacturers or unique to them?
Interviewer: I am not sure. How could we know that?
You: Well, we could look at overall industry trends during the period of the profitability decrease. If

LaptopCos competitors also all had a profit-margin decrease over the same period, we could
presume LaptopCos profit margin decrease to be an industry-wide phenomenon. If on the other hand
only LaptopCo had a profit-margin decrease, it is likely a problem unique to them.
Interviewer: I see. Well, I read in an analyst report that all laptop manufacturers, except for
LaptopCo, actually managed to increase their profit margin by at least 5 percent during the same
period.
You: That is interesting. It appears that LaptopCos profitability problem is likely internal. Can I have
a minute to think about how I want to structure the analysis?
Interviewer: Sure. Let me know when you are ready.
You: [Decide on the framework and make a sketch.] I decided to analyze the profit decrease by
assessing both revenues and costs, using the following framework to isolate the problem. [Briefly
demonstrate the internal profit-problem framework to the interviewer.]
Interviewer: That seems fine. I suggest we first have a look at LaptopCos revenues.
You: Okay. First of all, could you tell me whether LaptopCo is solely focused on regular laptops,
or do they also play in certain sub-segments, such as tablets or netbooks?
You: Do we have the revenue breakdown at the level of the specific laptop models for the last year
versus this year?
Interviewer: Well, we do not have such a detailed revenue breakdown. The available data is only
broken down by regular laptop revenue and netbook revenue. The total regular laptop revenue last
year was 8.5 billion USD, and this year it will be 9.0 billion USD. Their total netbook revenue in the
previous year was nonexistent, as they launched their first netbook model in early January this year.
This years netbook revenue will be 0.5 billion USD.
You: Interesting. It appears that the profit margin decrease happened in the same year as the release of
LaptopCos first netbook. Now, the total revenue equals the sales price multiplied by the sales
volume per laptop model. Let us begin with the sales volume. How did the sales volume and the sales
price of the regular laptops and the netbooks evolve in the previous year versus this year?
Interviewer: Well, LaptopCos sales price, to the retailer, of all regular laptop models varies
between 650 USD and 1500 USD and remained constant over the past two years. In other words, we
know that the increase in sales volume of the regular laptops drove the 0.5 billion USD regular laptop
revenue increase. Furthermore, the unit price of LaptopCos netbook model is 500 USD, and they sold
1 million units of it during this year.
You: Okay. Let us now look at the cost side of the framework, which we can then also compare later
with the revenues we have just assessed. We can break down the total cost into the total fixed cost
and the total variable cost. Let us first have a look at the fixed costs for LaptopCo. How did
LaptopCos fixed cost for all regular laptops, as well as for its netbook, on average evolve from the
previous year to this year?

Interviewer: Well, LaptopCo has a relatively good fixed cost per unit for their regular laptops
compared to industry averages. I know that last year their fixed cost was 1.15 billion USD for the
regular laptops and zero for the netbooks. This year their fixed cost was 1.22 billion USD for the
regular laptops and 0.18 billion USD for the netbooks.
You: Okay. Let us now have a quick look at the variable cost per unit. How did LaptopCos total
variable costs for the regular laptops and for the netbook on average evolve from last year to this
year?
Interviewer: The variable cost for their regular laptops was 6.5 billion USD in the previous year
and again zero for the netbooks. This year their variable cost was 6.8 billion USD for the regular
laptops and 0.55 billion USD for the netbooks.
You: Great. With this information, we can easily calculate LaptopCos profitability for their regular
laptops in the previous year versus the current year, as well as the profitability of their netbooks this
year. Given that the total revenue for the regular laptops last year was 8.5 billion USD, and the total
cost 7.65 billion USD; we have a profit of 0.85 billion USDor 10 percentfor their regular
laptops in the previous year. If we make the same calculation for their regular laptops this year, we
find a total revenue of 9.0 billion USD with a total cost of 8.02 billion USD, meaning a profit of 0.98
billion USDor 10.9 percent. Given that LaptopCos profit margin on their regular laptops increased
versus the previous year, it must be that a low profit margin for the netbooks is driving the overall
profit margin decrease for LaptopCo. Let us thus make the same calculation for LaptopCos netbooks.
We there have a total revenue for this year of 0.5 billion USD, along with a total cost of 0.73 billion
USD, which gives a loss of 0.23 billion USDor a negative profit margin of 46 percent. It thus
appears that LaptopCos new netbook model is the reason behind the profit margin decrease; its cost
is much higher than its revenue. Just to be sure, if we calculate the total profit margin for LaptopCo
for both regular laptops and netbookswe indeed find the profit margin decrease from 10 percent
over the last year to 7.9 percent over this year, as indicated by the senior management.
Interviewer: That is an interesting finding. We should now better understand what is driving the
weak performance of the netbook division, which was started this year and come up with practical
recommendations to improve its profitability.
You: Indeed. I asked before about whether the profitability problem is an industry-wide phenomenon
or not. This question concerned manufacturers of laptop devices in general. Do we however know
how the netbook divisions of LaptopCos competitors performed in the previous year versus this
year?
Interviewer: Most manufacturers of netbooks are also established regular laptop manufacturers, with
only a couple of market players that solely focus on netbooks. The majority of them actually also
launched their first netbook model in the beginning of this year. All of them had profit margins of 15
percent or more on their netbook sales. In fact, all laptop manufacturers see netbooks as the most
lucrative types of laptops.
You: Interesting. LaptopCos low profitability on their netbook model seems to be a unique problem

to them, as their competitors perform well. We should then compare the sales price, sales volume,
and variable cost per unit versus the competitors to better understand where LaptopCo is
underperforming [i.e. use the internal-profit problem framework for the netbook division specifically,
and always compare with the competition].
Interviewer: That seems like a good idea.
You: Okay. How does LaptopCos netbook compare in price to the other netbooks available on the
market?
Interviewer: Well, without a doubt LaptopCos netbook is the most expensive one on the market. As
mentioned before, they charge 500 USD per unit, whereas the average unit price is 425 USD and the
second most expensive netbook on the market is priced at 475 USD.
You: Interesting. Do we know, for netbooks specifically, how LaptopCos sales volume compares to a
competitors of a similar size? Obviously, they may have entered the market somewhat earlier and
will have different prices, but this could give a rough idea whether LaptopCos sales can be
considered relatively high or low.
Interviewer: Well, two of LaptopCos most important competitors in the regular laptop market also
started offering a netbook in the beginning of this year. They, however, have been selling several
million units more than LaptopCos netbook, with both having a price difference of 50 USD compared
to LaptopCos netbook.
You: Interesting. It appears that LaptopCos netbook is the most expensive one in its segment, and it is
selling quite badly compared to similar competitive offers. [Advance the framework.] Is there a
specific reason why LaptopCos netbook is the most expensive one in its segment? Perhaps it has the
most features or is significantly more powerful than competitive offers.
Interviewer: Well, LaptopCos netbook is the most powerful netbook available on the market, and it
has some features that you cannot find in most netbooks offered by competitors.
You: Perhaps LaptopCos netbook product is not well positioned in its market. Do we know what
specifically is most valued by customers of netbooks, to see if LaptopCos netbook is meeting the
specific customer needs?
Interviewer: That is an interesting question. I actually have a report that ranks the four most
important criteria for people to buy a netbook. Apparently a low sales price is seen as the single
most important criterion with a user-friendly operating system being the second most important
criterion, third is high-performance hardware, and a good brand name is the least important of
these four criteria.
You: Interesting. We already know that LaptopCos netbook does not score well in terms of sales
price versus its competitors. Do we know how its netbook scores for software, as well as for
hardware, and its brand name versus its competitors?
Interviewer: Well, LaptopCos netbook has an open-source operating system preinstalled, whereas

the majority of competitive netbooks have a version of Microsoft Windows preinstalled. Most people
are used to working with Windows, and you could say that the Windows Operating System is
definitely perceived as more user friendly. The hardware in LaptopCos netbook is noticeably better
than the hardware in other netbooks on the market. Its netbook has a better processor, more memory,
and a longer battery life than the others on the market. There are definitely some netbooks that score
better for one of these hardware specifications, but overall LaptopCos netbook is definitely the best
one in terms of hardware. Lastly, in terms of brand name, I would say that LaptopCo scores quite
well. They have a strong brand name in the regular laptop segment, and this certainly plays in their
advantage in the netbook market.
You: Interesting. It appears that LaptopCos netbook scores low for the two most important criteria
for people to buy a netbook, namely: a low sales price and a user-friendly operating system. Its
netbook, on the other hand, scores high for the two least important criteria, namely: high-performance
hardware and a good brand name. This means that LaptopCos netbook is not well positioned in the
netbook market. Their netbook is not optimized to meet netbook customers needs. Instead of having
superior hardware, they should better aim for a lower sales price and also preinstalling the more
user-friendly Windows Operating System.
Interviewer: That is a good recommendation. Actually LaptopCos netbook seems to be roughly
positioned somewhere between the netbook and the regular laptop market segments, which is
unattractive. I am convinced that if LaptopCo would decrease their unit price to 450 USD, while
changing their operating system to Windows and integrating less expensive hardware that more or
less conforms to netbook market averages, they would be able to triple their current sales volume in
the next year. Assuming they would do this, what would be their new total netbook revenue next year?
You: Well, currently their netbook sales volume was one million. Assuming they triple this sales
volume in the next year, they would then sell three million units at a price of 450 USD per unit. This
would thus give a total netbook revenue of 1.35 billion USD for next year.
Interviewer: Indeed. Which information would we still need to calculate next years expected profit
margin for the netbook division?
You: We would still need to know LaptopCos expected profit of its netbook division for the next
year. To calculate this, we of course first need to calculate the expected total cost for next year. The
total expected cost equals the total expected variable cost plus the total expected fixed cost. Let us
first look at the total expected fixed cost. We know that the current fixed cost is 0.18 billion USD.
Will they need to move to another manufacturing plant because of tripling its sales, or did they plan
enough capacity to support increasing netbook sales?
Interviewer: Well, LaptopCo ensured enough capacity to produce six million netbooks from the start.
This was in line with their netbook sales expectations, which they clearly did not realize. Even if they
would sell three million units next year, their total fixed cost would still remain unchanged. What
would you expect to happen with the total variable costs?
You: In case LaptopCo can triple its netbook sales, their total variable cost will increase as well.

However, this cost will not necessarily triple as well, because their variable cost per unit would
likely change as well. Using less expensive hardware to manufacture the netbooks, as well as
learning curve advantages because of higher production levels should lead to a significantly lower
variable cost per unit. Changing from an open-source preinstalled operating system to Microsoft
Windows would lead to a higher variable cost per unit. We would need to assess the impact of each
change on the variable cost per unit to find the new variable cost per unit and thus the new total
variable cost for netbooks.
Interviewer: That is correct. LaptopCo actually has a great relationship with Microsoft, as they
preinstall Microsoft Windows on all of their regular laptops. The additional cost per unit for them to
switch from the open-source operating system to Microsoft Windows would be rather low. The total
cost reduction potential for using less expensive hardware and the potential learning curve
advantages is, however, substantial. I believe the variable cost per unit will go down drastically
because of this from 550 USD per unit at this point to 300 USD per unit next year. Assuming that
LaptopCo follows our advice, what would then be their expected profit margin for next year?
You: The total variable cost would then be 300 USD per unit times 3 million units, meaning 0.9
billion USD. This combined with the total fixed cost of 0.18 billion USD, which remains unchanged
versus this year, we find a total expected cost for the netbook division next year of 1.08 billion USD.
Given the expected revenue of 1.35 billion USD as calculated earlier, we find an expected profit of
the netbook division of 0.27 billion USD or an expected profit margin of exactly 20 percent.
Interviewer: That is correct. Now, if we assume that LaptopCos total revenue and total cost of their
regular laptops remains unchanged for the next year, what would then be the new overall profit
margin of LaptopCo?
You: We would then still have a total revenue of 9.0 billion USD for the regular laptops, with a total
cost of 8.02 billion USD, meaning a profit of 0.98 billion USD. If we add the expected results for the
netbook division, we find a total expected revenue of 10.35 billion USD and a total expected profit of
1.25 billion USD for next yearmeaning a profit margin of approximately 12.1 percent.
Interviewer: That definitely looks great. All direct competitors of LaptopCo in fact managed to
increase their overall profit margin after they had launched a netbook model on the market. With your
proposed actions, LaptopCo would be expected to increase its profit margin from 7.9 percent this
year to 12.1 percent next year, which would be an even stronger relative profit-margin increase
versus its direct competitors. Thank you very much for your analysis.

Business-Situation Framework Examples


Interviewer: One of our key clients AirplaneCo, an aircraft manufacturer in North America, has seen
a small decrease in its share price over the last four months. What is worrying our client, however, is
that their main competitor, PlaneCo, has seen an increase in its share price in the same period. Could
you assess what is going on, and come up with some recommendations?
You: To better understand the context of the case, I would first like to have an idea of the size of our
client and the types of airplanes it produces.

Interviewer: For the first question, I am not sure about our clients total revenues, but last years net
profit was about US $3 billion. Almost all of the airplanes sold are commercial airlines.
You: OK. Now I have a better idea of what kind of client we are dealing with. Could I have a minute
to structure my thoughts and decide how I would like to analyze this case?
Interviewer: Sure. Let me know when you are ready.
You: [Decide on the framework and draw it out.] I decided to analyze this situation by having a closer
look at the customers, the product, our client, and the competitive environment. [Briefly demonstrate
the framework to the interviewer.] By asking targeted questions about each of these, I think I should
be able to get a better understanding of what has been going on. If you agree with this approach, I feel
that I could start with assessing our client, unless you already have an idea where the problem might
be situated?
Interviewer: I think your framework should be fine. Could you first, however, start with analyzing
the competitive environment?
You: Of course. Could you tell me then how the industry is structured? Also, I would like to know
whether you have any information on the relative market shares of our client and its competitors, and
how their market shares have evolved?
Interviewer: Well, in North America there are two main players in the passenger aircraft industry.
Our client has about 50 percent of the market share, and their main competitor PlaneCo has about 40
percent of the total market share; the other 10 percent is divided among three smaller players. These
market shares have been relatively stable over the last years in terms of revenues.
You: Interesting. Given the share price increase, it seems PlaneCo has been performing well
according to the market. Do you have any information on whether PlaneCo recently changed its
strategy? Additionally, I would like to know on what basis competition generally takes place.
Interviewer: PlaneCo did not change its strategy recently. I would almost say business has been as
usual for them. For your second question, I would say competition is mainly focused on quality,
though price is also an important factor.
You: Just to be sure, is there any new industry regulation I need to be aware off?
Interviewer: The aircraft manufacturers industry is highly regulated, but this is not important for this
case.
You: It seems to me that the problem might not be competition related. Let us now have a closer look
at our client.
Interviewer: Ok.
You: Given that our client competes in the aircraft manufacturing industry, what are its specific core
competencies? And, furthermore, is it involved in particular adjacencies?

Interviewer: Generally AircraftCos main strength is to deliver quality-aircrafts on-time through


flawless project management, and its customers have always praised this competency. To answer
your second question; our client focuses all its efforts on its core business and is not involved in any
specific adjacencies.
You: OK. How have revenues and costs evolved over time relative to PlaneCo?
Interviewer: Well, revenues are mostly driven by the companys order book, which shows the total
number of airplanes ordered. Because of this, current revenues are driven by payments of earliermade orders. Both AircraftCo and PlaneCo have received numerous orders in the previous years. I
can tell you that both companies have had stable levels of revenues and costs over the past three
years.
You: That is interesting. How about nowadays, did AircraftCo and PlaneCo receive a lot of new
orders in their order book?
Interviewer: Well, PlaneCo saw a moderate increase in orders relative to the last years, but
AircraftCo saw a small decrease relative to the previous years. Some customers even recently
cancelled their order of AircraftCos newest model and ordered aircrafts from PlaneCo instead.
You: This seems very valuable information, and I will definitely come back to it later. [It thus seems
that the main problem is situated with AircraftCos newest airplane model.] Let me further assess the
situation. Did our client make any major investments recently? Or did it encounter any operational
issues?
Interviewer: It did not make any recent major investments. It did, however, encounter some
operational issues because of a strike at the supplier for the cockpits. Because of this, the delivery of
three airplanes has been delayed.
You: This late delivery, and the small decrease in orders of AircraftCos newest model, might explain
the stock price decrease. Let us now have a closer look at the customer.
Interviewer: Ok.
You: Who are the customers, and are there specific customer segments? Also, are the customers
concentrated or dispersed, and are we meeting their needs?
Interviewer: Our clients customers are mainly the airline companies, and they could be segmented,
but that is not necessary for this case. They are quite concentrated, although the number of aircraft
producers is even smaller. The customers have generally been satisfied with the quality of the
aircrafts, though recently they have been more skeptical.
You: That is interesting. Let us then have a look at the product. Why have clients recently been
skeptical about the quality of the aircrafts?
Interviewer: Well, recently two of our customers have experienced technical issues with
AircraftCos newest airplane model, which has been in the news. There seemed to have been a

serious problem with the airplane engines, which are made by an external supplier, and both
airplanes needed to make an emergency landing.
You: That probably explains why some customers recently cancelled their order.
Interviewer: Yes. That is indeed correct. It seems we are running out of time. Could you please
summarize your findings?
You: The stock price of our client most likely declined because of two main reasons. First, previously
sold airplanes of the newest model have had serious technical difficulties, and the bad publicity
resulted in a loss of orders. Eventually customers ordered the planes at PlaneCo, which could also
justify partially the increase of their stock price. Last, there has been a strike at a supplier of our
client, leading to a delay in delivery. Given that our client is respected for on-time deliveries, this
might have had an impact on its reputation and also, on its stock price.
Interviewer: That seems correct. Do you have any immediate recommendations for our client?
You: Well, to be sure, I would have to do some further analysis, but it seems our client might be too
depending on the supplier for cockpits. Furthermore, AircraftCo should immediately set up a project
team with the engine supplier for the newest airplane model to address the technical issue with the
engines. If this problem would continue to occurr, it would obviously have a serious impact on the
amount ordered, and thus on the bottom line.
Interviewer: Thank you for your recommendations.

Example two:
Interviewer: Our key client ElectroCo, one of the largest electricity producers in the Netherlands,
has seen its total revenue already decrease by approximately 10 percent over the last two years, and
their total profit decreased by even more than 10 percent. The senior management is not clear on what
is driving this decrease, but they are quite sure that strong competition is the reason behind it. They
have asked us to assess the situation and come up with practical recommendations to counter this
revenue and profit decrease. Can you help assessing the situation?
You: Yes. However, first I would like to understand whether they only produce electricity or if they
also manage the transportation of electricity to the end consumer?
Interviewer: ElectroCo only produces the electricity. The distribution is actually a separate business
in itself. None of the electricity producers actually do the distribution.
You: Okay. Lets see. Before starting to analyze this situation, I am curious whether there is any
specific reason why they believe strong competition is driving the decrease in revenue and profits.
Interviewer: Well, the senior management told me that their competitors have been offering several
interesting packages and promotions to customers over the last two years. They said, however, that
they were not sure which ones specifically have been taking customers away from ElectroCo.

You: Okay. In this case we should better understand the competitive environment. Could I have a
minute to structure my thoughts and decide how I would like to analyze this case?
Interviewer: Sure.
You: [Decide on the framework and draw it out.] I decided to analyze this situation by having a closer
look at the competition, our client, ElectroCo, the product/service offering, and the customers.
[Briefly demonstrate the business-situation framework to the interviewer.] By asking specific
questions about each of these, I think I should be able to get a better understanding of what happened
at ElectroCo. If you agree with this approach, I feel that I could best start with assessing the
competition.
Interviewer: It seems like a good framework. Let us indeed assess the competition first.
You: Great. First of all, I would like to better understand the competitive environment. I imagine there
are not that many players on this market in the Netherlands?
Interviewer: That is correct. There are only seven electricity providers in the Netherlands.
You: Okay, and what are the market shares of each company, including ElectroCo? Furthermore, how
did the market shares evolve over time?
Interviewer: Our client ElectroCo currently has about 30 percent of the market, its two biggest
competitors each have about 25 percent of the total market, and then there are four smaller players
that each have about 5 percent of the market. ElectroCos share used to be slightly more than 33
percent two years ago. Market analysis clearly shows that they have lost one percent market share to
each of its two biggest competitors, and one percent to ElCo, one of the smaller players on the
market. The three other competitors maintained their market share over this period.
You: Interesting. It seems thus that their two main competitors have managed to take market share
away from ElectroCo. Furthermore, ElCo managed to increase its market share from 4 percent to 5
percent in two years time, which is an even stronger performance given that they are relatively
smaller. Is there any specific reason for these market share evolutions?
Interviewer: I am not sure.
You: Okay, I imagine all these large electricity providers must have a reputation of being very
reliable, which is what brought them to a relevant market share in such a large market in the first
place. Therefore quality of the product itself is probably a less important driver for competition. I
imagine that competition is mainly based on price.
Interviewer: The price per KWh is indeed in this market the most important base for competition.
Keep in mind, however, that these companies do not only provide electricity as a product, it is rather
delivered as a service. Where all companies are indeed reliable in terms of producing electricity, it
is also important for them to namely have a good customer service. Furthermore, there is a strong
trend toward providing green energy, which is also strongly valued by specific customer groups.

You: Okay. Have particular competitors recently made a significant change in their corporate
strategy?
Interviewer: I am not sure.
You: All right. I imagine entry barriers to this industry are rather high. Have there, however, recently
been new entrants?
Interviewer: No, not recently. ElCo is the latest newcomer to the industry, and they have already
been around for four years now.
You: Okay. I have one last question concerning the competition. Have there been any new regulations
that I need to be aware of that may have been in our clients disadvantage?
Interviewer: No.
You: Okay. So far, it appears that the two largest direct competitors have been taking share from
ElectroCo, as well as ElCo, a smaller player in the industry. Possibly, part of the market share gains
come from better prices, customer service, or a better position in the green energy niche. I would
now like to have a more detailed look at the customer side of the framework. By better understanding
the customer, I should get a better idea of which packages and promotions offered by the
competition have been successful.
Interviewer: That sounds good.
You: First of all, I would like to know if there are specific distinct customer segments in this
industry.
Interviewer: Well, actually there are three distinct customer segments. There are the large
customers, the medium-sized customers, and lastly the households and small businesses.
Obviously, the consumption per user of the first customer segment is the largest and smallest for the
last one.
You: Okay. Do we have information on how many of ElectroCos customers are included in each
customer segment, and furthermore how much of ElectroCos revenue comes from each group?
Interviewer: Well, ElectroCo has 2,500 large customers, and they account for 10 percent of the total
revenues. They furthermore have fifty thousand medium-sized customers, which account for 30
percent of the total revenue. Lastly, they have about two million households and small businesses in
their customer portfolio, which account for the remaining 60 percent of ElectroCos revenue.
You: I would imagine that the large customers segment is the most profitable. But just to be sure, do
we have any specific data saying which customer segment is the most profitable? Furthermore, I
wonder how these segments have been growing or decreasing in size over time, if possible over the
last two years.
Interviewer: Actually, the medium-sized customers are the most profitable, as the large customers

generally obtain significant discounts versus the medium-sized customers. The households and small
businesses customer segment is the least profitable. This is valid for all companies in this industry.
Over the last two years, ElectroCo has lost approximately 12,500 medium-sized customers and
eighty-five thousand households and small businesses, and the number of large customers remained
exactly the same.
You: That is definitely interesting. It appears that they have lost significant share in the most attractive
customer segment, the medium-sized customers. Likely, competitors have started targeting this
profitable customer segment, and have been taking away these customers from ElectroCo.
Furthermore, they have lost a substantial amount of household and small business accounts as well.
Interviewer: Indeed. If I tell you that the accounts that ElectroCo has lost accounted for an average
revenue in their respective segments, can you then calculate the percentage of decreased
profitability that ElectroCo had because of these lost accounts?
You: Under that assumption, the 12,500 medium-sized customers represented 7.5 percent of
ElectroCos revenue, and the eighty-five thousand household and small business accounts represented
2.6 percent of ElectroCos revenue. If we add them together, we can see that ElectroCos revenues
decreased by 10.1 percent because of these lost accounts. This equals the revenue decrease
ElectroCo has seen over the last two years. It also seems to explain why ElectroCos profits have
decreased even more, namely because most of the revenue loss is explained by the loss of customers
in the more profitable medium-sized customer segment.
Interviewer: That is correct! Actually, ElectroCos two largest competitors have been doing some
aggressive promotions specifically aiming to attract medium-sized customers. Lastly, can you come
up with possible reasons why ElCo has been performing so strongly over the last two years? They
managed to take quite some household and small business accounts away from ElectroCo, as well as
a couple of medium-sized customers.
You: [Clearly the interviewer is ending the business case, as he indicates the case has more or less
been cracked; there is no need to advance your framework.] Well, competition is mainly based on
price, but you also indicated that a high customer service level is important. Perhaps ElCo has a
significantly better customer service level than ElectroCo?
Interviewer: They definitely do have a great customer service level, but I do not think this is the
reason behind their recent success.
You: Well, you also mentioned there is a strong trend toward providing green energy, which
appears to be strongly valued by specific customer groups. Perhaps ElCo has been focusing some of
its efforts on this market specifically?
Interviewer: That is correct. Since its establishment, ElCo has strongly focused on producing green
energy and is currently the largest green energy producer in the Netherlands. They even operate the
biggest wind turbine park in Western Europe. This definitely attracts specific households and small
businesses and some medium-sized customers. Thank you for your analysis.

Example three:
Interviewer: Javier Cruz is the CEO of MediKit; a family firm located in Madrid. His company
specializes in the assembly of medical kits, and is the largest player in Spain and Portugal. He
explained that his company has seen a severe revenue and profit drop this year. During this year,
MediKits revenue was apparently 400 million euro, whereas in the year before the revenue equalled
500 million euro. Overall, the industry actually offers good profits and has a low, yet positive, annual
growth. The market, in fact, grew with one percent during this period. Interestingly, he said that
MediKit has been doing business pretty much as usual, and he is thus not clear on why over the last
nine months MediKits revenues suddenly started to decrease significantly versus the same period in
the previous year. Javier is worried and has asked us to investigate what is driving this revenue
decrease. Can you help with this?
You: Okay. What exactly do you mean with medical kits?
Interviewer: Well, medical kits are basic kits that doctors often use for routine operations. They
contain the most important emergency and first aid supplies. Once a medical kit is opened for an
operation, its contents cannot be used for another operation.
You: Interesting. Given that MediKit has been doing business as usual, the problem is likely driven
by an external factor, such as for instance a new competitor or new market regulations. Can I have a
minute to think about a framework?
Interviewer: Yes, of course.
You: [Decide on the framework and draw it out.] I decided to analyze this situation by having a closer
look at the customers, the product, our client, and the competition. [Briefly demonstrate the
framework to the interviewer. Notice that starting with the business situation framework would likely
be better than starting with the internal profit-problem framework, as the interviewer indicated
business has been as usual for the client. The latter suggests an external problem driver.] By
asking specific questions about each of these, I should be able to get a better understanding of what
has been going on. If you agree with this approach, I feel that it would be best to start by having a
more detailed look at our client.
Interviewer: That sounds good to me.
You: Great. First of all, I have understood that MediKit sells medical kits. Is this their primary
business, or are they involved in specific adjacencies in which they have strong competencies?
Interviewer: They only sell medical kits. That is the only business in which they are involved.
You: Okay. How did MediKits revenues evolve prior to last year?
Interviewer: Well, Javier told me that ten years ago the family business made about 250 million euro
in revenues, and this had steadily increased up to 500 million euro last year. Their profits followed
the same trend, but have also decreased with the revenues this year.

You: That means 25 million euro extra revenue on average per year during a period of ten years;
whereas now they suddenly lose 100 million euro in sales. That is very interesting. What is the cost
per unit soldmeaning of one medical kitand how did this evolve?
Interviewer: The medical kits are sold on a per unit basis, and it costs MediKit 120 euro to produce
one. The cost per unit has been increasing steadily over time at more or less the rate of inflation; there
havent been any large cost increases.
You: Okay. Does MediKit produce all the parts in the kit themselves, or do they mainly put all the
pieces together? Furthermore, if they do have suppliers, who are they, and are they concentrated?
Interviewer: MediKit produces some basic parts themselves, such as bandages and cleaning wipes,
but all other parts they buy from local vendors in Spain and Portugal. These suppliers are not
concentrated, and I would say that MediKit has negotiated good prices with their suppliers.
You: Did MediKit recently have any specific operational issues, or perhaps one of their suppliers
recently had operational issues?
Interviewer: No. Not really.
You: Did MediKit recently make any substantial investments?
Interviewer: No.
You: Okay. I think I have a basic understanding of our client. I would now like to have a better look at
the competition. First of all, how is the industry structured? And second, are there many players on
the market?
Interviewer: MediKit has a couple of direct competitors. But they are, as mentioned before, the
largest player on the Spanish and Portuguese market. These are also the only markets where MediKit
competes.
You: Okay, do you have any information on how the market shares are currently distributed and how
they evolved over time? Given that MediKits market share must have dropped quite noticeably this
year, was there one market player that perhaps captured most of this share, or perhaps several
competitors each took a share of that market share?
Interviewer: Well, all companies except for one lost market share. Javier told me that KitCo, a
relatively new company on the market, has managed to strongly increase its market share. They
actually increased their revenue from 95 million euro in the previous year up to 320 million euro this
year.
You: That is interesting. It seems this might explain an important part of MediKits revenue and profit
decrease. I still have some questions regarding competition. Is competition in this market mainly
based on price, on quality, or on something else? Furthermore, are there any specific regulations
within the industry that I need to be aware of?

Interviewer: The market is somewhat regulated. Each year companies need to obtain a license,
which allows them to manufacture the medical kits. The supplies in the kits are however
standardized, and the quality is equal for all suppliers. For this reason, you could say that competition
is mainly based on price.
You: Well, given that KitCo strongly increased its revenues and the fact that competition is mainly
based on price, does KitCo perhaps offer their medical kits at a lower price?
Interviewer: That is correct. Javier told me that MediKit sells their medical kits for 150 euro each. I
asked him about KitCos sales price per unit, and he told me that their price was 155 euro one year
ago. I have seen on KitCos website, however, that they now sell them at only 130 euro per unit.
You: Is KitCo the only competitor that has a significantly lower sales price than MediKit, or do other
competitors also offer a lower price?
Interviewer: KitCo is the only company that offers the medical kits at a price lower than MediKit.
Most other competitors have sales prices ranging from 155 to 165 euro per unit.
You: That is interesting. It seems MediKit has always had the best price on the market, which
explains their dominant position. It seems, however, that KitCo has found a way to lower its cost per
unit. Let us now look at the customer pillar of the framework to further understand the revenue
decrease.
Interviewer: Okay.
You: First of all, are there specific customer segments, and if yes, which ones does MediKit target?
Interviewer: There is no relevant way to segment the customers.
You: Okay. Do these customers have specific needs, and is MediKit meeting them? Furthermore, are
there specific preferred distribution channels?
Interviewer: The minimum quality is regulated and is definitely satisfactory for all hospitals. The
customers do not have specific needs and no preferred distribution channels.
You: Okay. A last question on customers then. I imagine there are quite a few hospitals in Spain and
Portugal. Do they by any chance have some buying power, and are they perhaps able to control
demand?
Interviewer: Not really.
You: Thanks. Having assessed the customer pillar, I believe my findings there do not change my
current insights. Let us lastly have a look at the product pillar of the framework.
Interviewer: Okay.
You: I think I already have a good-enough understanding of MediKits product. Are there however
different products, or product segments, within the medical kits market?

Interviewer: No. Medical kits are almost a commodity. There is hardly any difference. As I said,
competition is based on the sales price.
You: Okay. Are there specific complements and substitutes to these medical kits?
Interviewer: There are no complements to the medical kits and no substitutes either. Hospitals are
obliged to use these standard medical kits only for several operations and emergency cases.
You: Okay. I believe I have gathered enough information now to make a first conclusion. It appears
that KitCo has been taking over the revenue MediKit lost during this year. This seems to be driven by
KitCos lower price for a, more or less, commodity product.
Interviewer: Interesting. Can you explain me why KitCo is able to sell their medical kits at such a
low price?
You: [Advance the framework.] Yes. Perhaps KitCo has actually been selling their medical kits with
a significantly lower profit margin. To be sure, I would need to have a look at the cost structure of
both MediKit and KitCo. Do we have data regarding this for both companies?
Interviewer: We have received MediKits cost breakdown from Javier. Furthermore, I have found
KitCos cost breakdown in a recent analyst report. MediKit has the following costs per unit: 45 euro
raw materials, 15 euro logistics, and 60 euro other costs, thus 120 euro per unit in total. KitCo on
the other hand has the following cost breakdown per unit: 26 euro raw materials, 19.5 euro logistics,
and 58.5 euro other costs, thus 104 euro per unit in total.
You: Okay. We know that MediKit sells the medical kits at 150 euro. They thus make a profit of 30
euro per unit, and have a profit margin of 20 percent. Given that KitCo sell at 130 euro, they make a
profit of 26 euro per unit, and have a profit margin of 20 percent. It appears thus that KitCo and
MediKit have the exact same profit margin. Furthermore, KitCo has a much lower raw materials cost
per unit, but a higher logistics cost per unit. Is there a specific reason for this?
Interviewer: I am not sure. What do you think could explain this?
You: Well, I am not yet sure. Does KitCo perhaps ship their finalized goods further than MediKit on
average, or do they have a more costly distribution system in Spain and/or Portugal?
Interviewer: No. MediKit and KitCo both use the same distribution system. Actually, KitCo has a
slightly lower outbound distribution cost per unit than MediKit.
You: Well, it appears that KitCo then has a higher inbound logistics cost per unit. It looks then as if
they are sourcing their raw materials from further away, perhaps even from a low-cost country, such
as China or India. That could also then explain why KitCos raw materials cost would be
significantly lower.
Interviewer: That is correct! KitCo actually sources its raw materials from China.
You: Interesting. It appears thus that KitCo has an overall cost advantage by sourcing materials from

China. This allows them to have a lower sales price, while keeping the same profit margin.
Interviewer: Indeed. In fact, our client could also start sourcing raw materials from China. What are
his options then?
You: Well, I see three options. They could find a new supplier in China that replaces some or all of
their current local suppliers. They could also acquire specific suppliers in China, assuming that
MediKit could have enough capital to make such an acquisition. Lastly, they could also start a joint
venture with a Chinese supplier. Furthermore, they do not necessarily have to limit their search for a
less expensive supplier to China, as they could also find a supplier in other low-cost countries, such
as India for instance.
Interviewer: These are indeed the most important options. MediKit is however not interested in a
joint venture, and they do not have the capital to finance an acquisition. They would have to source
their raw materials from a supplier in China. I believe that this would lower their current raw
material cost per unit by 50 percent. Their total logistics cost per unit would, on the other hand, go up
by 20 percent. All their other costs per unit would remain constant. What would be the new cost per
unit for MediKit? Furthermore, assuming they would keep the same profit margin, what would be
MediKits new sales price?
You: Well, currently MediKits raw material cost per unit is 45 euro. Thus, sourcing the raw
materials from China would decrease their raw material costs per unit by 50 percent down to 22.5
euro. Furthermore, their logistics cost per unit is 15 euro. Thus, sourcing from China would increase
their logistics cost per unit by 20 percent up to 18 euro. With a current cost per unit of 120 euro, it
would lower the cost per unit to 100.5 euro. If we add the current profit margin of 20 percent to this,
we find a new sales price of approximately 125.5 euro, which is lower than KitCos current sales
price per unit.
Interviewer: That is indeed correct. I still have one last question. What do you think will be most
important when looking for a new partnership in China?
You: Well, in the first place, they will need to find a supplier that can continuously produce the raw
materials at a satisfactory quality that meets the minimal requirements. Furthermore, the supplier will
need to be very reliable; to ensure that MediKit always has a stable supply of raw materials.
Interviewer: Indeed. Thank you for your analysis.

Example four:
Notice that this business case example is initially assessed with the business-situation
framework, after which the interviewee is asked to advance the framework (i.e., focus on a specific
analysis outside of the standard framework), and then briefly switches back to the businesssituation framework. Eventually the business case ends with the internal-profit problem
framework. This is a realistic scenario, and you should always be ready to change or advance the
framework if required.

Interviewer: A good friend of mine runs a fun park for children called KidsPlace. His business has
been around for almost twelve years now and has a good reputation. However, he told me that his
revenues have slowly started decreasing over the last couple of years. He believes that KidCo, a
direct competitor, is the reason behind this. Can you assess in detail why exactly KidsPlaces revenue
has been decreasing?
You: Yes. Before deciding on a structure to best assess the situation, I would like to know whether
there is any specific reason why he believes KidCo would be the root cause of KidsPlaces
decreasing profitability.
Interviewer: I am not sure. However, he seemed quite convinced that strong competition from KidCo
was driving the revenue decrease.
You: Okay. In this case, we should definitely get a better understanding of the competition. Could I
have a minute to structure my thoughts and decide how I would like to analyze this?
Interviewer: Of course. Let me know when you are ready.
You: [Decide on the framework and draw it out.] I decided to analyze this situation by having a closer
look at the competition, at KidsPlace itself, the product/service, and the customers. [Briefly
demonstrate the business-situation framework to the interviewer.] If you agree with this approach, I
would like to start with assessing the competition.
Interviewer: That sounds good.
You: First of all, is KidCo the only competitor, or are there other competitors in the neighborhood
where KidsPlace is operating?
Interviewer: KidCo is the only other fun park for children in the area.
You: Okay. I imagine competition is based on both price and quality.
Interviewer: Well, KidsPlace is somewhat more expensive than KidCo, but their fun park is larger in
size and is definitely considered to be better in terms of quality.
You: Do we know how much KidsPlaces revenue is? Furthermore, do we have any information on
KidCos revenue and how these revenues have been evolving over time?
Interviewer: Well, five years ago KidsPlace had a revenue of 1.35 million USD, three years ago
their revenue was 1.1 million USD, and this years revenue was 1 million USD. KidCo was founded
only four years ago. Three years ago they had a revenue of 200K USD, and this year their revenue is
150K USD.
You: That is interesting. KidCo is likely indeed the main reason behind KidsPlaces revenue decrease
in the period between five and three years ago. However, while KidsPlace again lost revenue
between three years ago and this year, KidCo actually also lost a substantial amount of revenue during
that period. Given that these are the only two fun parks in the area, it appears that the total market

(revenue) for fun parks in the neighborhood has shrunk. This had a negative impact on both
companies revenue.
Interviewer: That is correct. In fact the overall market for fun parks is still shrinking. Can you please
identify what is driving this overall market revenue decrease and come up with possible
recommendations for KidsPlace to counter this evolution.
You: Well, the first question here is whether this overall market revenue decrease is happening
because of a decrease in the average price that visitors pay, because of fewer visitors, or a mix of
both.
Interviewer: It is definitely a mix of both. Lets start by finding out what could be driving the
decrease in the number of visitors to fun parks.
You: [Advance the framework.] Well, there could be many reasons for thisfor instance an economic
downturn, negative publicity about fun parks, or indirect competition.
Interviewer: Those are indeed possible reasons. I think your suggestion of indirect competition is
a good one. What would be examples of such indirect competition?
You: Well, everything else that children enjoy could count as indirect competition. This could go from
a new public playground in the area to video game consoles.
Interviewer: Indeed. In fact, I am convinced that video game consoles are the reason for the revenue
decrease. What could KidsPlace do to counter the loss in revenues due to the fact that children are
going to fun parks less often, and staying more at home to play video games?
You: Well, does KidsPlace have video games in its fun park?
Interviewer: No.
You: Well, it would definitely be interesting for them to add a video games corner. With a good
execution of this concept, they could make it more interesting for children to play at KidsPlace than at
home.
Interviewer: That is a good suggestion. I was told that there is still some free space in KidsPlaces
fun park. It would indeed be a great idea to put a video game corner there. That will definitely
counter the decrease in the number of visitors. Can you now look at the reason for the lower average
sales price?
You: Well, perhaps the fun parks have simply lowered their average sales price to attract more
visitors, as a measure to counter the decreasing number of visitors?
Interviewer: No. Both KidsPlace and KidCo offer two types of admission tickets, and the different
prices for these two types of tickets remained the same over time.
You: Okay. Then I guess the average ticket price must have gone down, because proportionally more
people started buying the cheaper admission tickets.

Interviewer: That is correct. How do you think this could be explained?


You: Well, what are the two types of tickets that they offer?
Interviewer: On the one hand, there are the group tickets, which can be bought for groups of five
or more people. These are especially popular for schools, organizations, or childrens birthday
parties. On the other hand, there are the regular tickets, for children who do not come in a large
group. The group tickets are 20 percent less expensive than the regular tickets.
You: Well, perhaps the decreasing average ticket price can also be explained by the trend of more
children staying home playing video games. Video games are clearly less of a substitute for social
events, such as school trips or any other type of organized event for children. Therefore the loss in
ticket sales, because of the popularity of video games, is likely strongest for the regular tickets.
Interviewer: That is correct. The measure to create a video games corner in KidsPlace should thus
also increase the average ticket sales price again. Now, my friend also told me that five years ago his
profit margin used to be 25.9 percent, whereas this year it was only 20 percent. Can you, based on
this information, tell me what his total costs were in these two specific years?
You: Yes. Given that five years ago KidsPlaces total revenue was 1.35 million USD with a profit
margin of 25.9 percent, we can easily calculate that the total cost in that year was 1.0 million USD.
Given that this year KidsPlace total revenue was 1.0 million USD with a profit margin of 20 percent,
we can calculate that the total cost this year was 0.8 million USD.
Interviewer: That is correct. Now, he was hoping to bring back his profit margin to at least 26
percent. With the recommendation to build a video game corner, I believe he could see an increase of
15 percent in revenue next yearregardless of the fact that KidCo might possibly copy this idea,
along with a cost increase of 12.5 percentincluding the costs to make the video game corner. What
would then be the new profit margin next year, assuming other parameters are constant?
You: Well, if the current revenues would increase by 15%, then it would be 1.15 million USD. If the
current costs would increase by 12.5 percent, then they would be 0.9 million USD. This means a total
profit of 0.25 million USD for the next year and thus a profit margin of 21.7 percent, which is still
under the desired profit margin of 26 percent.
Interviewer: Indeed. Can you then please further identify other opportunities that would bring his
profit margin up to at least 26 percent?
You: [Turn back to the business-situation framework to maintain a structured approach, and look for
other opportunities to further increase KidsPlaces profit margin.] Okay. Let us then have a more
detailed look at the client [KidsPlace] side of the framework. Is KidsPlace involved in any
adjacencies, such as for example a kids sports center or a kids restaurant?
Interviewer: KidsPlace has had a kids restaurant for about four years. This restaurant was
immediately built when KidCo entered the market to somewhat counter the anticipated revenue loss
because of that. KidsPlaces restaurant is open five hours per day and five days per week.

You: Interesting. Do we have any information available on a breakdown of both the revenues and
costs and, if possible, even broken down by fun park and restaurant? It would be even better to have
this cost information over time.
Interviewer: I have this detailed information, but only for this year. The revenue of KidsPlaces fun
park was 0.8 million USD this year, and its cost was 0.6 million USD. The revenue of KidsPlaces
restaurant was 0.2 million USD, and its cost was also 0.2 million USD.
You: That is interesting. It appears that the fun park has a profit margin of 25 percent, whereas the
restaurant only operated at breakeven.
Interviewer: Indeed. Why dont you have a more detailed look at KidsPlaces restaurant activity
then?
You: [Deep-dive using the internal profit-problem framework.] Okay. Let us first look at the cost of
the restaurant activity and see whether we can find any opportunities to decrease them. Do we have
any information available on the total fixed and variable costs of this activity?
Interviewer: Yes. The total fixed cost was 30K USD, and the total variable cost was 170K. There is
no potential to decrease the total fixed cost, however.
You: Do we have a variable cost breakdown for the restaurant activity?
Interviewer: Yes. The raw materials accounted this year for 120K USD, the salary costs for 40K,
and then there were 10K other costs.
You: Okay. Let us start with the largest cost bucket, the raw materials. Who are KidsPlace raw
materials suppliers, and which raw materials do they buy?
Interviewer: Well, actually KidsPlace buys its raw materials at a nearby supermarket. Almost all
raw materials they buy are food and beverages.
You: All right. Given that they spent 120K USD per year on raw materials at one retailer, do they get
a price discount then?
Interviewer: No.
You: Perhaps they could consider ordering their raw materials through a wholesaler, instead of the
local supermarket. The prices for food and beverages at a wholesaler will, on average, be lower.
Furthermore, KidsPlace might also get a discount given their large yearly food and beverage
spending.
Interviewer: That is a good idea. I would say wholesalers are 35 percent less expensive than the
supermarket where KidsPlace is currently buying from. Furthermore, the wholesaler would deliver
the ordered products at KidsPlace address. They will however not get a discount from the wholesaler
as long as they spend less than 400K USD per year on food and beverages.
You: Okay. That would bring the restaurants raw material cost down to 78K USD, meaning a saving

of 42K USD. Let us now look at the salary costs. What does the 40K USD salary cost consist of?
Interviewer: Well, it is the total salary of the restaurants chef. He works full-time and is the only
person working in KidsPlaces restaurant.
You: Okay. I remember the restaurant is open only five hours per day, whereas he is probably
working about eight hours per day. Is that correct?
Interviewer: Indeed. He spends five hours preparing meals, two hours buying the necessary
ingredients at the supermarket, and has one hour of free time. He actually suggested working at 80
percent, and would agree to a 20 percent salary decrease.
You: Interesting. Given that the wholesaler would deliver the ingredients at the door, he would
actually save almost two hours a day. KidsPlace should definitely agree to the chefs proposition. It
would bring the restaurants total salary cost down to 32K USD, meaning a saving of 8K USD.
Interviewer: Indeed. Actually you have identified all interesting cost-saving opportunities for
KidsPlaces restaurant. Furthermore, I can tell you that there are no cost-saving opportunities for
KidsPlaces fun park. Given that KidsPlace could also realize these two cost-saving opportunities,
what would be their new overall profit margin?
You: Well, the two cost saving opportunities total 50K USD. The revenue would still be 1.15 million
USD, but the total cost would then decrease from 0.9 million USD to 0.85 million USD. This means a
total profit of 0.3 million USD, and thus a profit margin of 26.1 percent, which is just above the
desired profit margin of 26 percent.
Interviewer: Great! Thank you for your analysis. I think my friend will be happy with your
recommendations.

Example five:
Interviewer: Our client WaffleCo, one of the biggest premium packaged waffle manufacturers in
Australia, has seen its revenues and profits decrease significantly over the last semester, versus the
same period last year. The CEO of WaffleCo told us that they had several operational issues during
this period, and he believes that this explains the recent revenue and profit decreases. He mentioned
that WaffleCo is working hard to solve these operational issues. His biggest concern, however, is that
during this last semester, two of his direct competitors increased their revenues both with 5 percent in
a market that is hardly growing. Can you assess what is going on?
You: Yes, could I have a minute to structure my thoughts and decide how I would like to analyze this
case?
Interviewer: Okay. Let me know when you are ready to start.
You: [Decide on the framework and draw it out.] I decided to analyze this situation by having a closer
look at the competition, our client WaffleCo, the product, and the customers. [Briefly demonstrate

the business-situation framework to the interviewer.] If you agree with this approach, I feel that I
could best start by assessing our client.
Interviewer: That sounds good to me.
You: Okay. Let us thus start with the client side of the framework. First of all, I would like to know
whether our client is involved in any other business than manufacturing waffles?
Interviewer: WaffleCo is only active in the premium packaged waffles market in Australia.
You: Do we know in detail how WaffleCos revenues and costs have evolved over time and, if
possible, compared with its direct competitors?
Interviewer: Well, concerning WaffleCo, I know that their total revenues went down by 10 percent
while they kept their sales price the same, and their total costs went down by 8 percent, versus the
same period last year. Do you have any idea why the total costs may have gone down less than the
total revenues? I am sure that WaffleCo did not improve its cost structure.
You: Well, one possible reason would be that WaffleCo still has, more or less, the same total fixed
costs per year compared with the same period last year. In that case, the fixed cost per unit would
actually go up, because they have sold fewer units over an identical fixed cost. This would mean that
the total cost reduction because of the variable cost decrease is somewhat tempered by the unchanged
total fixed cost.
Interviewer: That is indeed correct. WaffleCos production capacity and its total fixed cost remained
unchanged over the last two years. Concerning the total costs and revenues of WaffleCos
competitors, I can only say that, as mentioned before, two direct competitors managed to increase
their revenues by 5 percent over the last semester versus the same period in the previous year. I also
read in an analyst report that the variable and fixed cost structure of these two competitors is
currently more or less the same as the one of WaffleCo.
You: Interesting. The CEO mentioned that there have been operational issues. Perhaps WaffleCo was
not able to meet demand over the last six months, which would have led to a direct loss in revenue.
Interviewer: Not really. WaffleCo indeed had operational issues, but they never had to refuse any
orders. Over the last six months, they produced at 80 percent of their full capacity, which is, in fact,
identical to the same period one year earlier.
You: That is interesting. The CEOs belief that the operational issues may explain WaffleCos revenue
loss seems incorrect. Perhaps there were a higher number of smaller incidents this semester, but
WaffleCo did have the exact same utilization rate as the year before. Now, given that WaffleCos
production capacity and utilization rate remained the same, we know that they produced the exact
same amount of waffles. We also know that they were sold this semester at the exact same price as the
same semester in the previous year; in other words, the revenue decrease is solely driven by a
decrease in demand of WaffleCos premium packaged waffles. This also means that they must have
built up an inventory of unsold waffles, which may have already expired.

Interviewer: That is correct. This inventory has been completely written off and it has been thrown
away.
You: Okay. Let us now look at the competition side of the framework. We already know that two of
WaffleCos direct competitors have seen a strong increase in demand over the same period. Now, I
am aware of WaffleCo and those two direct competitors. Are there any other players on the market?
Interviewer: Well, WaffleCo and those two competitors make up about 99 percent of the premium
packaged waffles market in Australia. The remaining 1 percent is divided under about twenty smaller
companies, which are irrelevant for this business case.
You: Okay. Do we have any information on how the market shares in revenue are distributed over
these three main players and how these market shares have evolved over time?
Interviewer: Well, I know that over the current semester each market player accounted for 33 percent
market share in revenue. In the same semester in the previous year, WaffleCo actually had 36 percent
market share in revenue, and its two competitors each had 31.5 percent.
You: Interesting. Do we know what competition is based on? Given that it is a premium market, I
would assume that price is a less important driver for competition, but quality is probably important.
Interviewer: Price is indeed a less important driver for competition in this market. Competition is
almost exclusively based on the quality of the product.
You: Okay. Have the two competitors recently changed their corporate strategy significantly?
Interviewer: Not really.
You: Okay. I believe I have a good-enough understanding of WaffleCos competition. Let us now then
have a look at the customer side of the framework. First of all, are there specific customer segments?
Second, if there are distinct customers segments, do we know their relative market spending?
Interviewer: Well, the retailers buy the waffles, but demand is clearly driven by the end consumer.
There are indeed specific customer segments in this market, but this is not in the scope of this
business case. Why are you asking? [Note that you asked a valid question. The interviewer just wants
to see if you know why you are asking this, and are not just mechanically going through your
framework.]
You: Well, perhaps the revenue loss could have been attributed to one specific customer segment.
Interviewer: That would have indeed been possible. However, this is not the case.
You: Okay. Is WaffleCo perhaps not meeting his customers specific needs? Do they, for instance,
conduct customer research to better understand the end consumer?
Interviewer: They did do customer research recently. The results show that the end consumers
definitely prefer the waffles of the competitors.

You: That is interesting. Let us then shift to the product side of the framework to better understand
why customers prefer the waffles of the competitors. Do we know how WaffleCos packaged waffles
are perceived compared to its competitors from the customer research? Do they have different
characteristics?
Interviewer: Well, consumers find the competitors packaged waffles much crispier and find this
better. Actually, if we look at the product components of the waffles of the competitors, we can see
that both of them have changed their product recipe some months ago to make their waffles crispier.
You: That is interesting. WaffleCos competitors seem to have exploited interesting customer insights.
It appears that they found out that customers prefer extra crispy waffles. Now that we know this, how
long would it take for WaffleCo to also make crispier waffles, and how costly would this be?
Interviewer: Well, I think they can change the recipe in about two weeks. The cost of this would
furthermore be minimal. This change would definitely resolve most of the revenue decrease.
However, I think there is one other driver behind WaffleCos revenue decrease.
You: Okay, great. Are there perhaps specific new substitutes for the premium waffles?
Interviewer: Not really. They have always competed with other premium cookie manufacturers.
There are, however, no new substitutes that have recently taken share. Furthermore, this would
normally also lead to a revenue decrease for WaffleCos competitors; whereas their revenues actually
increased by 5 percent.
You: Yes, I see. Well, did WaffleCos manufacturers change their packaging recently?
Interviewer: WaffleCos two competitors did change their packaging six months ago. Their
packaging is definitely much more attractive, and their waffles definitely look fresher in this new
packaging.
You: Interesting. Packaging is generally important for premium products. It appears that WaffleCo did
not react to its competitors successful packaging upgrade. How long would it take for WaffleCo to
improve its packaging, and how costly would this be?
Interviewer: Well, it would take about one month to have a new packing design ready. Again, the
cost of this would be quite minimal compared to WaffleCos total revenue. It is definitely the
packaging and recipe changes that WaffleCos competitors have done over the last six monthsbased
on the customer insightswhich explain their recent success. What would you give as a
recommendation to WaffleCo then?
You: Well, first of all they should change their product recipe to make their waffles crispier, based on
the customer insights. Simultaneously, they should revamp their current product packaging to make it
more appealing and ensure the product has a fresher look. Both changes can be done at a minimal
cost, whereas the expected revenue gains are significant. Once they have done this, it would be a
good idea for them to advertise their new recipe and packaging. Furthermore, in the future they should
do more customer research to ensure that they always understand their end consumer, as well as better

follow-up all product changes made by the competitors.


Interviewer: Thank you very much for your analysis.
Merger-and-Acquisition Framework Examples
Interviewer: Our client CandleCo, a candle manufacturer, has recently taken over LightCo, another
company specialized in manufacturing candles. The CEO of CandleCo recently explained to me that
the merger-integration process has been quite difficult, and he requested our help to effectively merge
the firms. Could you assess the reason behind the merger-integration problems, and come up with
practical recommendations?
You: Before starting my analysis, I have one specific question. Have specific efforts to merge the
companies already been made?
Interviewer: Well, the management has currently set up several dedicated project teams to deal with
the merger. These teams have, however, not been successful.
You: Interesting. Let me think about how to structure this problem [Given this specific business case,
it should be clear that you will need the merger-integration planning framework. Draw it out, and
explain it briefly to your interviewer]. I believe we need to further investigate the strategic
motivations behind the merger. We also need to make sure that people understand their roles in the
merger-integration process and ensure that the merger is supported throughout the merging companies.
Interviewer: That seems a good idea.
You: Well, let us then first have a look at the strategic motivations behind the merger. What is the
primary reason behind the merger, and how is it supposed to enhance the core strategy?
Interviewer: The main reason the management of CandleCo decided to take over LightCo is to
remain competitive in the luxury soap market. Several important cost reductions will need to be
realized to achieve this objective. Combined they have a market share of about 30 percent, but the
market is dominated by LuxCandle who controls about 55 percent of the luxury soap market. The
entire management is well aware of the strategic importance of the merger.
You: Given that both firms were competing in the exact same market, it seems to me that the deal was
thus part of a scale deal?
Interviewer: That is correct. An immediate scale increase was indeed needed to remain competitive
relative to LuxCandle. Both the management of CandleCo and LightCo realized this in time.
You: Have they already determined where in the value chain the potential scale benefits are situated,
and how these will be realized?
Interviewer: The management already calculated the potential savings because of the scale increase,
and created project teams to efficiently realize these savings.
You: Has the top management been able to keep its primary focus on maintaining the core business, or
did it somewhat lose focus of its core business because of the ongoing merger-integration process?

Interviewer: The top management has kept its primary focus on sustaining the core businesses, and
has carefully been following up the market share and the competitive responses to the merger.
You: It appears thus that the management is well aware of the strategic importance of the merger, and
that they, in the mean time, have been able to keep their focus on the core business. Let us now have a
look at the operational efforts that have been taken so far. As you mentioned, the management did set
up project teams to effectively merge both companies. Did they also decide who would be leading
these merger-integration project teams, and allocate the resources and responsibilities? Did they
furthermore choose enthusiastic and talented people to build the newly to-be-formed organization?
Interviewer: Well, as said, the project teams have been set up by the senior management. All the
roles and responsibilities related to the merger-integration planning are quite straightforward. The
project teams are, however, not working efficiently. The management had difficulties finding people
that are enthusiastic about the merger, since most people in the organization appear to be nervous
about it.
You: That is interesting. Let us have a look at how the merger is supported throughout the
organization, and come back to this later. Did the management clearly communicate the mergerintegration plan and the strategic motivations behind it to ensure that all employees understand their
role in the newly formed organization?
Interviewer: The management communicated the merger-integration plan immediately, and did
several efforts to win the hearts and minds of all the people involved. Nonetheless, many employees
still seem to be nervous about the merger. What do you think can be the reason that several people are
so nervous about the merger? [The interviewer wanted you to answer this and, therefore, comes back
to it immediately.]
You: Well, given that the merger involves important cost reductions, I presume that certain job
positions might have become uncertain?
Interviewer: That is indeed correct. Some jobs will be cut, but most importantly, it seems that many
previously promised loan increases cannot be guaranteed anymore. Several employees are nervous
and less motivated because of this. There, however, seems to be another important problem that is
troubling the success of the merger-integration planning.
You: Ok. Did the management point out the key areas of focus to make the merger-integration a
success? Did it set up a decision-driven organization that focuses its efforts on the critical decisions
to make the merger succeed?
Interviewer: The management is trying to create a decision-driven organization, and clearly
communicated on which areas the project teams should focus their efforts. Even though many
employees in the organization are nervous about the merger, it appears that they are perfectly aware
of the priorities related to the merger-integration planning. They have, on the other hand, been
extremely ineffective in executing the tasks in practice.
You: Interesting. What were the previous corporate cultures of both CandleCo and LightCo like?

Furthermore, did the management do any specific efforts to commit to one culture, consistent with the
new strategy behind the merger?
Interviewer: Well, CandleCo has always been known to be a very innovative and dynamic company.
LightCo, on the other hand, is known to be a rather conservative company. The management only did
some minor efforts to commit to one new culture.
You: It appears that both corporate cultures are extremely different, which is likely leading to
ineffective decision making and poor task execution.
Interviewer: That is indeed correct. Given your analysis, which practical course of action would you
suggest the management takes to blow new life in the merger-integration plan and get the maximum
support along the organization?
You: The management should clearly communicate how the merger will exactly affect the employees.
Furthermore, the management should emphasis the importance of working together as one team, to
ensure that the potential job losses and the pressure on the promised loan increases do not get worse.
In addition, the management should commit to creating one culture, based upon the new strategy
behind the merger. They could realize this by setting up compensation programs that reward the
behavior they want to encourage, or maybe by creating successful team-building events.
Interviewer: Thank you very much for your analysis. Merger-integrations are often very complex,
and as you noticed, many things can go wrong.

Example two:
Interviewer: PharmaCo, one of our key clients, recently became the sixth largest pharmaceutical
company in the world. More specifically, they are focused on one specific subset of the
pharmaceutical marketnamely drugs against everyday illnesses, such as headaches, stomach aches,
or ear infections. This has been their focus for decades, and they are the market leader in this. In
addition, they are currently trying to enter the market for drugs to treat the flu and allergies. At this
point, the senior management of PharmaCo informed us that they are considering buying another
pharmaceutical company and would like us to help identify the most interesting target(s). Could you
please help identify the most interesting target(s)?
You: Yes. Does the senior management already have a specific list of potential targets? Or do they
perhaps have a specific set of potential targets already in mind?
Interviewer: They gave us a list of other pharmaceutical companies that have an attractive balance
sheet and P&L. However, they said that all companies on this list were potentially interesting for an
acquisition, and they did not have a specific company in mind.
You: Okay. Do we know why specifically PharmaCo is looking to do an acquisition? For instance,
are they looking to fill up their pipeline with high-potential drugs through the acquisition of smaller
companies focused on specific diseases, or do they want to buy a larger, already established

pharmaceutical company with which it could realize significant synergies and further increase its total
revenue?
Interviewer: Well, PharmaCo already has a promising pipeline. They are moreover looking to
acquire an established pharmaceutical company. They want to realize important synergies and further
increase the total revenue in their aim to become the largest pharmaceutical company worldwide.
You: Okay. Do we know which companies PharmaCo could realistically acquire, based on their
ability to raise capital?
Interviewer: PharmaCo is actually quite profitable, and they have large cash reserves. I am
convinced that in terms of money, we could say that all companies that are smaller than PharmaCo
could be a potential target.
You: If we then only consider the pharmaceutical companies on this list that are smaller than
PharmaCo, but that are already well established in the industry, how many companies would we then
still have for consideration?
Interviewer: Then I would say there are three potentially interesting companies remaining, namely:
MedCo, FluCo, and HospiCo.
You: Okay. That is a good base to start from. Can I have a minute to think about a structured approach
to further reduce this list down to the single most interesting company?
Interviewer: Of course. Let me know when you are ready.
You: [Decide on the framework and draw it out.] I decided to further analyze this by having a look at
the main customers, main products, main competences, and main competitors of each potential target,
and compare/contrast this with our client PharmaCo. [Briefly demonstrate the target-fit assessment
framework to the interviewer.]
Interviewer: Okay. I think this is a good high-level approach.
You: Let us start by looking at the main products offered by each company. Do we know, for each
company, what their main products or product segments are?
Interviewer: Well, MedCo manufacturers drugs for numerous types of everyday illnesses and has a
strongly diversified product portfolio. FluCo also focuses mostly on everyday illnesses, and they
have a strong reputation for drugs against the flu and various allergies. HospiCo mostly manufacturers
drugs against highly complex diseases. PharmaCo, as mentioned, focuses on everyday illnesses.
You: Okay. At first sight, FluCo seems to be the most interesting target, knowing that PharmaCo
would like to expand in the segment for drugs against the flu and allergies. I guess furthermore that
their main products already give a good indication of who their main customers would be. On the
other hand, just to be sure, do we know for each of these companies and the medicines they produce,
including for PharmaCo, whether they focus on a specific target customer group? For instance,
children, the elderly, or?

Interviewer: Yes. HospiCo mainly manufactures drugs targeted specifically for the elderly. MedCo,
FluCo, and PharmaCo on the other hand do not have a specific customer target group.
You: Are any of these companies intensively in competition with PharmaCo?
Interviewer: Well, MedCo is also significantly present in the same markets as PharmaCo, and they
are definitely a very important competitor. FluCo is also in competition with PharmaCo, but definitely
less than MedCo. HospiCo is mostly playing in different market segments and is not really a
competitor.
You: Okay. Could an acquisition of MedCo or FluCo lead to antitrust issues, as PharmaCo would
perhaps after an acquisition control most of certain market segments?
Interviewer: Well, that is a good question. An acquisition of MedCo by PharmaCo would indeed
strongly monopolize certain market niches in the pharmaceutical sector. I am quite sure that could
indeed lead to several lawsuits. Acquiring FluCo would not give this problem.
You: Interesting. Lastly, let us look at the core competencies of each company. Do we know what the
key strengths of each company are compared to PharmaCo?
Interviewer: Well, HospiCo is very strong in R&D, and their researchers have in the past developed
several drugs against very complex diseases. FluCo has good sales departments. MedCo and
PharmaCo, on the other hand, are said to have good marketing branches that have been the reason for
their strong brands.
You: Interesting. Based on all the information, I would say that FluCo is definitely the most interesting
target for PharmaCo. I have three arguments for this. First of all, PharmaCo was interested in entering
the market of drugs against the flu and allergies, and FluCo already has a good reputation there. This
could definitely enhance PharmaCos strategy to become a strong player in this segment. Second, an
acquisition of FluCo would not lead to antitrust issues; though given that they do compete to some
extent, they will still find several interesting synergies. A last argument is that both companies core
competencies are complementary. FluCos strong competencies in marketing are very complementary
with PharmaCos strong sales competencies. As a next step, PharmaCo should consider doing a
detailed due diligence of FluCo. [If you are asked to do so, you can always use the business-situation
framework focusing on FluCo specifically.]
Interviewer: FluCo indeed looks the most interesting target for an acquisition, and doing a detailed
due diligence as a next step would be the right thing to do. Thank you for your analysis.

Example three:
Interviewer: We have just realized a due diligence on ChocolatCo; a company specialized in
premium chocolate bars in Brazil. Our client CandyCo, one of the largest confectionary manufacturers
in Brazil, is interested in acquiring this company. It appears, however, that a few other companies are
also interested in ChocolatCo. CandyCo is now about to hire an investment bank to do a final

valuation; however, the CEO of CandyCo asked us to make a first estimation based upon our previous
research. How could you do a high-level valuation of this company?
You: Well, one of the most common methods to do a valuation is the Discounted Cash Flow method,
or DCF method. The idea is to estimate all future cash flows, and discount these to get to the net
present value. If the acquisition leads to synergies, you may also want to consider these in the final
valuation. Another well-known method to value a company is using market multiples, which examines
and compares the financial ratios of relevant peer groups. The most commonly used multiples are the
price/earnings (P/E) multiple and the enterprise-value/EBITDA multiple.
Interviewer: Okay. How would you make a valuation for ChocolatCo based on the price/earnings
multiple?
You: Well, we would need to first identify a couple of companies comparable to ChocolatCo. To
identify comparable companies, we need to consider a comparable company size, products,
customers, suppliers, etc. For each company, you then take the market capitalization [stock price
multiplied by the number of shares] and divide this by the net profit. This will give you a P/Emultiple for each company. You then need to make an average (or weighted average) of all P/Emultiples and multiply this with the net profit of the target to get the final valuation.
Interviewer: Well, I have identified three companies that are comparable to ChocolatCo. The first
one has a market capitalization of 300 million USD and a net profit of 20 million USD. The second
one has a market capitalization of 450 million USD and a net profit of 26.5 million USD. The last one
has a market capitalization of 400 million USD and a profit of 50 million USD. Can you now quickly
calculate the P/E-multiple for each company?
You: Yes. We can easily find that the first company has a P/E-multiple of 15, the second one has a
P/E-multiple of 17, and the last one has a P/E-multiple of 8.
Interviewer: Why do you think the multiple for the last company is so low compared to the multiple
of the two other companies?
You: Well, there could be many explanations; a P/E-multiple that is significantly below or above the
average could for instance mean that the true value of that company has not been identified by the
market, or perhaps that the most recent profits include substantial one-off items.
Interviewer: Okay, lets discard the P/E-multiple of this last company. Now, if you know that
ChocolatCos net profit was 11 million USD; how much is its valuation?
You: Well, we then take the average P/E-multiple of the first two companies (or the weighted
average), which is 16, and multiply this with ChocolatCos net profit. This gives us a final valuation
of 176 Million USD, using the P/E-multiple method.
Interviewer: Interesting. Which problems could you potentially have if you use the price/earnings
multiple?
You: If the net income is negative, then the price/earnings-multiple is negative; which can results in a

negative total valuation. Using this multiple for companies with a strongly varying profitability also
continuously leads to significant changes in the valuation. Therefore, the multiple will generally be
most accurate for companies with a rather stable net profit. Furthermore, it is important to only use
this multiple when comparing valuations of similar companies in the same market.
Interviewer: Okay. If we had more time, we could have calculated some other interesting multiples
to see which other valuations we would get. Now, you also mentioned the DCF method. How do you
make a valuation for ChocolatCo with this method?
You: Well, the DCF valuation is, in fact, a summation of three separate parts [Draw out the three
components of the target-valuation framework and demonstrate]. These are the discounted present
value (short-term cash flows), the discounted terminal value (long-term cash flows), and the
discounted value of the synergies. To calculate the first part, we would need ChocolatCos cash flows
over time [often over five years], as well as a discount rate i, which represents CandyCos cost of
tying up capital. To calculate the second part, we would need the cash flow of the next year
meaning the expected cash flow from the year after which the first part stopped, also again the
discount rate i, and a constant growth rate g, which represents the year-on-year terminal growth rate
the company is assumed to realize from that year onward. Lastly, as mentioned, you could still
discount the synergies that could be realized, if there are any.
Interviewer: Okay. ChocolatCos cash flow will be 6 million USD in the first year, and I expect this
to grow by 1 million USD per year over the subsequent four years up to 10 million USD. We can also
assume a discount rate of 7 percent. In the sixth year, I expect the cash flow to again be 10 million
USD, and we can assume a year-on-year terminal growth rate of one percent from then onward. I
furthermore do not expect any relevant synergies between ChocolatCo and CandyCo. Can you make a
valuation of ChocolatCo based on these inputs and assumptions, while calculating the present value
based on the first five yearly cash flows?
You: When discounting the cash flows of the first five years, we find a present value of 32.2 million
USD. When discounting all later cash flows, using the respective formula, we find a terminal value of
168.3 million USD. Given that we assume that there are no synergies, we then find a total value for
ChocolatCo of 200.5 million USD. We could also still do a sensitivity analysis on some of the
parameters, such as the growth rate and the discount rate.
Interviewer: Interesting. Actually, both valuations are relatively close to each other. We will advise
the valuation of 200.5 million USD from the DCF method to CandyCo. Nonetheless, it would indeed
also be smart to do some sensitivity analysis, definitely on the growth-rate assumption. I have one
final question: assuming that CandyCo would eventually agree to that valuation, should they then do
an offer at this valuation?
You: Well, it is often a good idea to make an offer that is somewhat under the final valuation, as this
first offer is generally a reference point for further negotiation. On the other hand, as you mentioned, a
few other companies are also interested in ChocolatCo. If CandyCo and these other companies all
make an offer and CandyCos offer would be substantially lower than the other offers, then they may
be excluded from further negotiating.

Interviewer: Okay, that is correct. Thank you for your analysis.

Example four:
Interviewer: Our client CoffeeCo, a large Canadian company specialized in importing processed
coffee beans, as well as roasting and packaging coffee, has acquired Coffea about four months ago.
Coffea is a Brazilian company and is CoffeeCos most important supplier of processed coffee beans.
The CEO of CoffeeCo came to us, explaining that the process of integrating Coffea into CoffeeCos
organization has been going quite difficult, and she requested our help. She furthermore mentioned
that the total overall revenue went somewhat down since the acquisition. Could you assess the reason
behind the merger-integration problems and come up with practical recommendations?
You: Before starting my analysis, I have one specific question. Have specific efforts to merge the
companies already been made?
Interviewer: Well, the board of directors had set up an integration team that would be focusing on
integrating Coffea with CoffeeCo. The CEO, however, told us that this has not been successful so far.
You: Okay. [Given the specifics of this business case, it is clear that you will need the mergerintegration planning framework. Draw it out and explain briefly each of the three pillars to the
interviewer]. I believe we need to investigate the strategic motivations behind the merger, as well as
make sure that people understand their roles in the merger-integration process, and ensure that the
merger is supported throughout both Coffea and CoffeeCo.
Interviewer: Okay. That looks like a good approach.
You: Let us first have a look at the strategic motivations behind the acquisition. What is the primary
reason behind the merger, and how is it supposed to add value to CoffeeCos core strategy?
Interviewer: Well, the most important reason why CoffeeCo acquired Coffea is because the retailers
that sell CoffeeCos packaged coffee are eating CoffeeCos profit margins through aggressive
negotiation techniques. Because of this, the management of CoffeeCo decided to acquire Coffea,
which alone provided 40 percent of CoffeeCos raw materials. Through this backward integration,
the management believes they can increase CoffeeCos profitability again by paying a lower average
price for their raw materials. Actually CoffeeCos management was also hoping to soon acquire
ArabiCo. ArabiCo is also one of CoffeeCos key suppliers of processed coffee beans, and they
account for 30 percent of CoffeeCos raw materials. The objective of this would be to even further
improve CoffeeCos overall profit margin. Given however that the integration of Coffea has been
going so difficult, they have decided to put this plan on hold.
You: Interesting. The acquisition thus seems to be part of a scope deal, in which CoffeeCo takes more
control of the supply chain through backward integration. In this case, the goal is to counter margin
losses due to more aggressive negotiations of the retailers which buy CoffeeCos processed coffee.
Did the management assess in detail the potential savings of the acquisition? Furthermore, has there
been a focus on realizing these savings?

Interviewer: Well, the management calculated in detail the potential savings of this scope deal, as
well as the expected resulting improvement on the profit margin. As mentioned, they have created an
integration team responsible for the efficient integration of both companies supply chains. The
CEO said that when both supply chains would be effectively integrated, the savings will follow
automatically.
You: Okay. I will shortly have a more detailed look at that merger integration team. First however, I
want to know whether the management has kept their focus on their core businessselling coffeeor
have they somewhat lost focus since the acquisition of Coffea?
Interviewer: The CEO told me that initially the idea was that only a small dedicated integration team
would focus on integrating Coffea. However, given that this was going very difficult, several senior
sales and supply chain managers of CoffeeCo have also been involved in this team. I am sure that
because of this, these senior managers have less been able to focus on their day-to-day job.
You: Interesting. I would say that this could definitely be the reason why CoffeeCos revenues went
down since the acquisition of Coffea. Is it possible that most of the revenue loss happened in the sales
teams or divisions of the senior sales managers that were involved in the integration process?
Interviewer: Yes, you are right. The loss of focus on the core business by those senior managers that
had been involved in the integration process is the only reason of CoffeeCos revenue decrease.
You: Great, that already thus explains the recent decline in revenues. Let us now further deep-dive on
what is driving the integration difficulties by having a more detailed look at the integration project
team and the operational efforts that have been made so far. As you mentioned, the management did
set up project teams to effectively merge both companies. How did they form this team, and how did
they decide who will be the leading and driving this team?
Interviewer: Well, the board of directors decided to have CoffeeCos Head of Operations lead the
integration of Coffea in CoffeeCos organization, and have him assisted by some of CoffeeCos most
talented employees. All the specific roles in this team and all the responsibilities related to the
merger-integration planning are quite straightforward.
You: You said that the integration team consists of some of the most talented people of CoffeeCo. Did
they also include people from Coffea in the integration team?
Interviewer: Actually, no employees of Coffea have been involved in the integration team. This is
because the board of directors has the opinion that the management of Coffea was not very competent,
and furthermore they felt that this was not necessary because CoffeeCo in the end has all the decision
power over Coffea because of the acquisition.
You: Okay. Given that Coffeas staff has not been involved in the integration process, have they then
been cooperative in making the integration a success?
Interviewer: The CEO mentioned that the employees of Coffea have not been very cooperative.
You: Interesting. Coffeas staff has an important stake in the eventual success of the integration.

Nonetheless, their voice is not directly represented in the integration team. CoffeeCo should consider
including some key staff members of Coffea in the integration team to get buy-in from them.
Interviewer: That will indeed be needed for the integration to be a success. What else do you think is
causing difficulties in the integration process?
You: Well, you mentioned that CoffeeCos board of directors selected some of the most talented
people to form the integration team. Are these talented people also enthusiastic about the acquisition
of Coffea, and are they dedicated to make this integration a success?
Interviewer: Well, I was recently discussing the integration process with the Head of Operations,
and he mentioned that his team was not that motivated. It appears that several employees of the
integration team are worried because of the acquisition of Coffea.
You: Is this perhaps because the acquisition will lead to job losses? Do we know what specifically is
making people nervous about the acquisition?
Interviewer: Apparently there are rumors that there will be some job losses at CoffeeCo in Canada,
as certain job positions would move to Brazil. The CEO of CoffeeCo, however, said to me that there
is no intention at all to cut jobs at CoffeeCo or Coffea.
You: That is interesting. Did the management clearly communicate the merger-integration plan, and
the strategic motivations behind it, to all employees of both Coffea and CoffeeCo to ensure that
everyone understands his or her role and future in the newly formed organization, as well as clearly
state that there will not be job losses?
Interviewer: Well, the senior management communicated the integration plan immediately to all
employees of both organizations. It is not clear where the rumor about job losses at CoffeeCo comes
from, but this was however never communicated by the senior management. The latter, however, has
not made any specific communication to kill these rumors.
You: Interesting. The CEO, along with the senior management, should as soon as possible formally
communicate that there will be no job losses because of the acquisition of Coffea. This will make the
staff, including the integration team, feel much more comfortable and allow them to focus on ensuring
that the integration is successful.
Interviewer: That is indeed a good idea. However, there seems to be another issue related to the
corporate cultures of both organizations, which is troubling the success of the merger-integration
planning.
You: Interesting. That was actually one of the next points I wanted to cover. I imagine that Coffea and
CoffeeCo have very different corporate cultures, given that they are operating in faraway countries?
What were their previous corporate cultures like? Furthermore, did the management make any
specific efforts to commit to one culture, consistent with the strategy behind the merger?
Interviewer: Well, Coffea has always been a very hierarchical organization, and most of their
workforce has never been involved in important decision making. CoffeeCo, on the other hand, has

always been a flat organization, with very few layers between the staff and the senior management.
CoffeeCo has always strongly encouraged employee involvement through decentralized decision
making. To answer your second question, the integration team has made no specific efforts to align the
different corporate cultures.
You: It is clear that both corporate cultures are very different. This definitely makes collaboration
between Coffea and CoffeeCo even more of a challenge. It will be critical for the senior management
to develop this one team culture, potentially somewhat more based on the model of CoffeeCo, as
they have acquired Coffea. They should, however, not forget that today Coffea still has a different
culture and respect this hierarchical culture when working with employees of Coffea.
Interviewer: That is a good recommendation. You have identified all the key problem areas of the
integration process. Thank you for your assessment.

Value-Chain Framework Examples


Notice that this example briefly starts with the internal profit-problem framework, and
eventually switches to the value chain framework to progress in the analysis and crack the
business case.
Interviewer: Our client ExpressCo, a package-delivery services company operating in Australia, has
seen its overall profit margin shrink over the last two years. Could you analyze the situation and come
up with actionable recommendations to improve ExpressCos overall profit margin?
You: Of course. I first, however, have two questions. First of all, would you say that the profit margin
decrease is an industry trend or an issue specific to ExpressCo? Second, would it be possible to
already briefly explain to me how the industry is structured in terms of major players and market
shares?
Interviewer: The package delivery market in Australia exists of three players, namely, ExpressCo,
TransportCo, and DeliveryCo. Each company has a market share equal to about one-third of the total
market. I would say that the overall profit margin decrease is rather unique to ExpressCo, given that
its competitors have had a relatively stable overall profit margin, which is currently higher than the
profit margin of ExpressCo.
You: Interesting. [You could use the internal profit-problem framework to start the analysis] I suggest
we then first have a look at the revenues and costs to better understand what is driving the decreasing
overall profit margin. [Draw out the framework.] Did the overall profit margin decrease because the
costs have gone up faster than the revenues, or because revenues have fallen more relative to the
costs? In addition, I wonder how the revenues and costs individually have evolved relative to those
of TransportCo and DeliveryCo?
Interviewer: ExpressCo has seen an increase in both its revenues and costs. TransportCo,
DeliveryCo and ExpressCo have identical revenues and fixed costs. ExpressCo however currently
has a much higher total variable cost relative to its competitors.

You: It appears thus that the total variable costs are the reason behind the profit margin decrease
relative to the competitors. The total variable cost equals the number of produced services
multiplied by the variable cost per unit. I assume that the customers of package-delivery companies in
general immediately pay for the package-delivery service and, thus, that the sales volume will be
very similar to the number of delivered services. I therefore assume that the problem will be on the
variable cost-per-unit side?
Interviewer: That is correct.
You: Well, before further analyzing the variable cost per unit, I would like to know which types of
delivery services ExpressCo and its competitors provide?
Interviewer: All three companies provide very similar delivery options. There is the standard
delivery, the express delivery, the premium delivery, and the enterprise delivery. They all have very
different variable costs per unit.
You: How did the variable cost per unit evolve for all these delivery options relative to DeliveryCo
and TransportCo?
Interviewer: I would say that the standard delivery, the express delivery, and the premium delivery
have always had very similar variable costs per unit and sales volume for all three companies.
ExpressCos variable cost per unit of its enterprise delivery package is, however, much higher than
the variable cost per unit of the enterprise delivery package of its competitors. ExpressCo decided to
internalize this extra variable cost per unit that it has relative to its competitors. All three companies
are charging the exact same price for the enterprise delivery service. ExpressCo is consequently
making less profit on this package relative to its competitors. Additionally, all three firms require
their customers to pay an extra fee, based upon the distance from the distribution center to the final
delivery address.
You: It appears thus that the lower profit margin on the enterprise delivery package is driving the
decreasing overall profit margin relative to TransportCo and DeliveryCo. Are there any important
differences in how ExpressCo processes the enterprise delivery packages relative to its competitors?
Interviewer: There are indeed some differences in the way ExpressCo handles their enterprise
packages relative to its competitors. Nonetheless, the total revenue and the revenue growth for the
enterprise packages is about the same for all three companies.
You: It then appears that ExpressCos enterprise delivery package has a much higher variable cost per
unit relative to its competitors because they construct this service differently. Customers, however,
apparently do not particularly value ExpressCos enterprise delivery service more, given that its
revenue and revenue growth have been similar to those of its competitors. I think it would be
interesting to have a look at ExpressCos value chain and assess how the enterprise packages are
handled throughout the value chain, and analyze what drives the higher variable cost per unit relative
to DeliveryCo and TransportCo. [Move from the internal profit-problem framework to the value
chain framework, plus draw out and briefly explain this new framework.]

Interviewer: That seems like a good idea.


You: To start, I would first like to know how the inbound logistics system to collect the enterprise
packages works for all three firms. Furthermore, I am wondering how the inbound transportation
costs, package handling costs, and package storage costs per unit for the enterprise packages have
evolved over time relative to both competitors.
Interviewer: All three firms directly pick up the enterprise packages with specialized vehicles at the
customer, which are generally large companies. They then transport the collected packages to the
closest distribution center to store them. About 90 percent of their customers are situated in Sydney,
Melbourne, Brisbane, Perth, or Adelaide, and they all have a distribution center in these cities. The
inbound transportation costs, the package handling costs, and the package storage costs per unit are
essentially the same for all three firms.
You: Is there a difference in how all three companies process the enterprise packages internally?
Furthermore, does ExpressCo have higher process costs, handling costs, or system maintenance costs
per unit relative to TransportCo or DeliveryCo?
Interviewer: All companies have a specific division that processes the enterprise packages, because
the process is quite different to that of the other delivery packages. To process the enterprise
packages, ExpressCo actually uses an older, almost outdated, technology than its competitors.
Because of this, ExpressCo has a higher cost per unit to process and handle the packages, and the
system maintenance costs are higher for ExpressCo relative to its competitors. This however still
does not entirely explain the lower profit margin for the enterprise packages.
You: Interesting. Let us now have a look at the outbound transportation system. How has the outbound
transportation cost per unit evolved over time relative to the competitors?
Interviewer: ExpressCo actually has a much higher outbound transportation cost per unit than its
competitors. What do you think drives the outbound transportation cost per unit?
You: I imagine that it is mainly driven by the distance from the customer to the nearest distribution
center, the price of gas, the wages of the driver and the average gas consumption per mile of the
vehicle to transport the enterprise packages.
Interviewer: Those are indeed the most important drivers of the outbound transportation cost per
unit. Which parameter do you think, explains the difference in the outbound transportation cost per
unit?
You: I assume that the wages of the vehicle drivers are quite similar across the industry, and
furthermore, I assume that the average paid gas price for all three firms is probably similar. The gas
consumption per mile of the vehicles might be different, because the competitors might have a more
energy-efficient vehicle fleet. Furthermore, it is actually possible that they fill up their vehicles with
more enterprise packages per trip, leading to fewer rides and thus generally a lower average
outbound transportation cost. Last, it could be that the final delivery addresses for ExpressCo are on
average further away from the distribution center than for its competitors.

Interviewer: Your assumptions are correct. All three companies furthermore have on average about
the same load of enterprise packages per trip. Also the average distance from the distribution center
to the final delivery address is quite similar for all three companies. Actually, this could indeed have
a negative impact on the outbound transportation cost per unit. It would however not necessarily have
a negative impact on the profit margin, given the distance-based fee. TransportCo and DeliveryCo
have, on the other hand, bought new, energy-efficient vehicles over the last two years, specifically for
the delivery of the enterprise packages.
You: That is interesting. With the increasing gas prices, it seems sensible that both DeliveryCo and
TransportCo have been able to keep a significantly lower outbound transportation cost per unit thanks
to their new energy-efficient delivery vehicles, which has not been the case for ExpressCo.
Interviewer: That is correct. This however still does not entirely explain the lower profit margin for
the enterprise package-delivery service.
You: Let us then have a look at the marketing and sales costs per unit for the enterprise package.
Which specific marketing tools does ExpressCo use, and how cost-effective are they relative to both
competitors? Furthermore, which are the primary sales channels used by ExpressCo, and which ones
are used by its competitors?
Interviewer: All three companies solely use their company website to sell the enterprise package
delivery service. Customers simply fill in where the package needs to be picked up and where it has
to be delivered, and then they process the payment. All three companies have a relatively small sales
cost per unit. The marketing cost per unit for the enterprise package is however much higher for
ExpressCo than for its competitors. All three companies nonetheless use the same marketing channels
to promote the enterprise package delivery service, namely newspaper advertisements, direct mail,
and targeted online advertisements.
You: ExpressCos higher marketing cost per unit then further explains why the profit margin of its
enterprise package delivery service is lower relative to DeliveryCo and TransportCo. Since
ExpressCo does not have a higher revenue or revenue growth rate relative to its competitors, it seems
to me then that ExpressCos marketing campaigns are less efficient than those of its competitors.
Could you tell me what the share of usage is of these marketing channels for all three companies?
Interviewer: I have no specific data on that available. I however do know that TransportCo and
DeliveryCo have started to make more use of targeted online advertisements relative to ExpressCo.
ExpressCo on the other hand uses much more newspaper advertisements relative to its competitors.
Online advertisements are actually far less costly than newspaper advertisements, but are equally
effective in targeting interesting enterprise package delivery customers.
You: It seems to me then that ExpressCo could lower its marketing cost per unit, while maintaining its
total revenue and revenue growth, by making more use of targeted online advertisements, and
investing less in newspaper advertisements.
Interviewer: That is definitely correct.

You: Let us now have a look at the after-purchase services that go with the enterprise delivery
package. Which after-purchase services do ExpressCo and its competitors provide? And, second,
how have the variable costs per unit of these services evolved relative to both competitors?
Interviewer: All three companies provide the exact same after-purchase services, and these all have
a similar variable cost per unit.
You: Interesting. So far I have found out that the lower overall profit margin is driven by the
relatively low profit margin of the enterprise delivery packages. Right now, I see three main reasons
for this. First of all, ExpressCo has a higher variable cost per unit to process and handle the
packages, because it still uses an older technology for handling the enterprise packages. Also the
system maintenance costs per unit are higher because of this. Second, ExpressCo has less energyefficient vehicles relative to its competitors for delivering the enterprise packages. Therefore the
outbound transportation cost per unit is higher for ExpressCo. Lastly, ExpressCo makes much less use
of the more cost-efficient targeted online advertisements relative to its competitors. Therefore,
ExpressCo has a higher marketing cost per unit for similar marketing campaign results. We could now
additionally analyze the support activities, such as procurement or HR management, which are
indirectly related to the delivery service.
Interviewer: I believe you already have identified the most important drivers behind the lower
overall profit margin. For the support activities, I could tell you that ExpressCos procurement
department has a good reputation. Also the HR management and the firm infrastructure operate
perfectly in line with the corporate objectives of ExpressCo. As you already identified, ExpressCo is
somewhat behind with its technological infrastructure, and will need to replace and streamline its
technology to lower the variable cost per unit of the enterprise delivery package. Could you now
come up with actionable recommendations to improve ExpressCos profit margin?
You: Given the identified problems, I would recommend the management of ExpressCo to invest in a
more modern technology to process the enterprise delivery packages. Furthermore, I would
recommend them to invest in more energy-efficient vehicles for the delivery of the enterprise
packages. Last, I recommend ExpressCo to make more use of targeted online advertisements, given
that they are much more cost-efficient. To make the investments, ExpressCo will, however, first need
an adequate amount of cash. Therefore, it would be interesting to investigate the capital requirements
to practically implement these recommendations and, in case ExpressCo would not have sufficient
cash reserves, also how it could raise this capital.
Interviewer: Thank you very much for your analysis and recommendations.

Example two:
Interviewer: Our client CompuCo is already several years the global leader on the personal
computer market. They have a total market share of 31 percent in this market, which is 8 percent more
than the second largest player. CompuCo offers five different desktop modelsthe X1 up to the X5.
Its sales prices range from 499 USD for the X1 up to 999 USD for the X5. A recent detailed analyst

report showed that CompuCo has the best profit margin of all companies in the personal computer
market. The senior management of CompuCos personal computer division was not surprised by this
outcome. They said that their competitors offer desktops with similar prices, but they all have higher
fixed and variable costs per unit. CompuCo has achieved this strong position through their continuous
striving for cost leadership in its industry. The senior management, however, says that their
competitors are quickly catching up in terms of cost efficiency. They are about to set up a new largescale cost-efficiency program to further drive down costs per unit of its desktops to maintain its cost
leadership position over time. The senior management of CompuCos has asked us to identify further
cost savings potential for the desktop division and come up with practical recommendations to further
drive down their costs. Keep in mind that we will only look at the desktop division of CompuCo.
They do have several other divisions in their organization, such as the notebook division and the
mobile phone division, but this is out of the scope of this business case.
You: Okay. If I understand well, CompuCo is the cost leader on the desktop market globally. Given,
however, that their competitors are catching up, we are asked to look for opportunities to further
reduce costs at CompuCos desktop division.
Interviewer: That is correct.
You: Okay. Could I have a minute to decide how to structure and analyze this case?
Interviewer: Yes, of course.
You: [Decide on the framework and draw it out.] I decided to analyze this situation by having a closer
look at CompuCos value chain and assess for each part of its value chain whether there is potential
for further cost improvement. [Briefly explain the value-chain framework to the interviewer.] If you
agree with this approach, I would like to better understand the cost savings potential of CompuCos
inbound logistics.
Interviewer: That seems like a good idea.
You: Great. First of all, I would like to better understand how CompuCos inbound logistics system
works. How do they obtain and warehouse the raw materials they bought from suppliers?
Interviewer: CompuCo continuously forecasts demand for its desktops. Based upon these forecasts,
they order the required amount of raw materials from their various suppliers, which are located all
over the world. A third-party transportation company ensures the delivery of these raw materials to
CompuCos manufacturing plant. Given that CompuCo has a world-class reputation for forecasting
demand, these raw materials almost always flow immediately in the production process. The latter
implies that they have a low warehousing cost for these raw materials.
You: Okay. Do we know how the inbound logistics costs for each desktop type, as well as the (low)
warehousing costs have evolved over time, and possibly how they evolved compared to their key
competitors?
Interviewer: Well, first of all, it is important to understand that the inbound logistics cost for each

desktop model of CompuCo is the same. The more expensive models are slightly heavier, but
nonetheless the logistics cost differences are negligible. The same applies for the other types of costs
that occur along the value chain (for simplicity reasons). The only significant cost difference between
the different desktop models is actually the cost of the raw materials, meaning the cost of the
hardware and software. Now, to come back to your question, CompuCo has always had a higher cost
per unit for the transport of the raw materials to their manufacturing plants than most of its
competitors, though their warehousing cost per unit has always been much lower than at any of their
competitors.
You: Interesting. Do we know whether the transport of CompuCos raw materials is organized
differently than at its competitors?
Interviewer: Well, I know that all companies have their raw materials transported by specialized
third-party logistics firms. They all negotiated for the transportation a contractual fixed price per
actual delivery, as well as a variable transportation price, which increases on a per ton and per
mile basis.
You: In this case, the transportation cost is driven by the negotiated contractual fixed cost, the
negotiated variable transportation cost, the average weight of each transport, the average distance for
each shipment, and the total number of shipments from the different suppliers to the assembly plants.
There could be several explanations for CompuCos higher total transportation cost for its desktops.
Perhaps CompuCo did not negotiate a good deal for the fixed cost or variable transportation cost with
its third-party logistics firm. Also possible is that they pay, on average, more often the fixed price per
delivery than its competitors, as they may need more deliveries on average. Reasons for that could be
that they have the transport vehicles filled-up less or because they have more suppliers. Also possible
is that they each time have a higher variable cost for the deliveries than its competitors because their
suppliers may be further away on average from CompuCos assembly plants.
Interviewer: Well, CompuCo certainly negotiated the best possible deal for the fixed costs and the
variable transportation cost with their third-party logistics firm, which is certainly better than what
their competitors negotiated. They are furthermore also best in class in ensuring that each delivery
vehicle is loaded as efficiently as possible. It is, however, indeed the case that CompuCo has more
suppliers than its competitors, and these are also on average further away from their assembly plants.
You: Interesting. Is there any specific reason why they have more suppliers? Perhaps their desktop
models consist of more additional hardware components, or possibly its competitors manufacture
certain hardware components themselves. Furthermore, is there any specific reason why their
suppliers are on average further away from its assembly plants? Perhaps CompuCo sources from
further-away low-cost manufacturers.
Interviewer: CompuCos competitors indeed manufacture simple and inexpensive hardware
components themselves, and they source the few required raw materials for these simple components
locally. It is indeed because of this that CompuCos competitors have a lower overall transportation
cost from its raw materials suppliers to their assembly plants per unit. CompuCo has always sourced
these specific raw materials from firms in countries far away from their assembly plants. All more

complex hardware components are however always, by all firms, sourced from non-low-cost or
semi low-cost countries to guarantee a superior quality. Producing these themselves would be
difficult and most certainly cost inefficient.
You: Great. It seems that we have found the reason behind CompuCos higher inbound logistics cost
per desktop for the shipment of the raw materials to their assembly plants. Do we know whether
overall it also makes economically more sense to have these specific raw materials shipped over
from low-cost countries or to have these raw materials manufactured close to assembly plants? I
imagine that manufacturing these basic components yourself, as CompuCos competitors do, on the
other hand increases the manufacturing cost per unit.
Interviewer: That is correct. It is, however, overall less expensive to manufacture these specific raw
materials locally, close to the assembly plants.
You: Interesting. CompuCo could thus further decrease its cost per unit by manufacturing these simple
and inexpensive raw materials themselves, instead of sourcing them from low-cost, far-away
suppliers. Specific costs per unit, such as the manufacturing cost per unit, would increase, but overall
it would decrease the total cost per unit of CompuCos desktops. Let us now next have a look at
CompuCos cost per unit for hardware and software versus its competitors to see how efficient their
procurement department is in ensuring the best possible price. Do we have information regarding
which hardware and software CompuCo, as well as its competitors, install on their desktops, and
what prices they pay for these?
Interviewer: Well, all important competitors of CompuCo have the exact same suppliers for the more
complex hardware and software components, and each desktop type requires the same number of
hardware and software components. All suppliers give fixed non-negotiable discounts based upon the
total amount of hardware and software components ordered in the previous year, and CompuCo has
been the largest purchaser for several years.
You: Okay. First of all, we know that manufacturing the more complex raw materials is not cost
efficient. Also, given that the suppliers of these complex raw materials give non-negotiable discounts
based on the previous years order level, together with the fact that CompuCo has been the largest
purchaser for years, it seems that there is no further potential to decrease the cost per unit here. Let us
now then have a look at the cost of CompuCos operational processes versus its competitors. Do we
know how CompuCos operational process costs, the handling costs, and the machine maintenance
costs of the assembly plants per desktop have evolved over time relative to the competitors?
Interviewer: These costs have continuously been going down over time on a per unit basis. This
has been driven by the efficiency and experience CompuCo has gained over time while increasing its
scale. CompuCo definitely has the most efficient operational plants of all companies in the industry.
You: Okay. It appears then that there are no cost saving opportunities in the operations part of the
value chain. Let us now look at the outbound transportation system. Do we know how CompuCo and
its competitors manage their outbound logistics? Furthermore, do we know how the outbound
transportation costsmeaning the cost to transport the finished goods from the manufacturing plant to

the retailersper unit of CompuCo have evolved over time relative to their competitors?
Interviewer: First of all, CompuCo and their competitors all manage the outbound logistics
themselves. They actually do not make use of third-party firms for the outbound logistics. This has
proven to be the most cost efficient. They all send their finished goods from the assembly plant to a
central hub themselves, from which the final distribution to the retailer is then organized. They are all
efficient in ensuring that each vehicle is filled optimally to keep the required number of deliveries as
low as possible. CompuCos outbound logistics cost per unit has been relatively stable over the last
couple of years, but is significantly higher than at its most important competitors. What do you think
drives the outbound transportation cost?
You: Given that they organize these logistics themselves and all keep the number of required
shipments as low as possible, I would say this cost per unit is mainly driven by the distance from the
respective assembly plant to the central hub, the distance from the central hub to the retailer, the price
of gas, the wages of the drivers, and the average gas consumption per mile of the transportation
vehicles.
Interviewer: That is correct. I would say that the average price paid for gas, the wages of the
drivers, and the fuel efficiency of the transportation vehicles is more or less the same for each
company. I can tell you, however, that CompuCo has fewer central hubs worldwide than its
competitors. What would be the effect of this on the outbound transportation cost?
You: Well, this could definitely explain why CompuCo has a higher outbound logistics cost per unit.
This is because on average, the distance from CompuCos assembly plants to the central hub, as well
as the distance from the central hub to the retailers will be higher. On the other hand, CompuCo will
likely have a lower cost for operating central hubs than its competitors. In fact, the objective of a
central hub is each time to further decrease the outbound logistics cost. At some point, however,
adding one central hub will lead to more costs to operate it than the benefits of the additional
decrease in transportation cost. The key here is to find the optimal number of central hubs to have the
lowest overall cost per unit. Given that CompuCo is larger than all of its competitors in the industry
and that nonetheless its competitors have more central hubs with a lower outbound logistics cost per
unit, I would guess that CompuCo should have more central hubs. To be sure, however, we would
need to balance the outbound logistics cost per unit with the costs per unit increase for operating extra
central hubs.
Interviewer: That is absolutely correct. CompuCo should in fact add some central hubs to further
drive down its outbound logistics cost. This would indeed lead to a somewhat higher cost to operate
these central hubs, but the overall cost benefits would be much higher. It would indeed be interesting
to analyze where exactly these new central hubs should be placed, but this is out of the scope of this
business case. I do think there is still some cost-saving potential left for CompuCo. Could you
continue your analysis to further identify cost-saving opportunities?
You: Of course. Let us now have a look at CompuCos marketing and sales costs. Which marketing
tools and sales channels does CompuCo use, and do we know which ones its competitors use?
Furthermore, do we know how cost effective their marketing tools and sales channels are relative to

those of the competitors?


Interviewer: CompuCo, as well as its competitors, use a mix of offline and online marketing tools.
CompuCos total marketing and sales cost per unit is lower than any of its competitors, and their
marketing and sales tools are also more effective. I am convinced that there is no immediate potential
to further reduce CompuCos marketing and sales cost per unit.
You: Okay. Let us then look at CompuCos after-sales service that customers get with the desktops
they purchase, as well as the cost of this service. Do we know which after-sales services CompuCo
provides to customers and which ones their competitors provide? Furthermore, do we know how the
costs per unit of these services have evolved over time relative to the competitors?
Interviewer: All major desktop manufacturers provide a two-year warranty on all their desktops
models. This warranty, of course, never covers desktop malfunctions due to misuse by the customer.
Once a customer calls to report a hardware failure, the after-sales service provider would first ask
the desktop owner to run a couple of basic tests to see whether the issue can be resolved over the
phone. If this is not the case and the warranty is still valid, then the manufacturer takes the
responsibility to repair the desktop. Each desktop manufacturer always picks up the broken device
and afterward delivers it to the desktop owners house at no charge. I am not sure how this cost per
unit has been evolving over time for CompuCo and its competitors, but CompuCos after-sales
service cost per unit is significantly higher than all of its important competitors.
You: Interesting. Is CompuCos two-year warranty perhaps better than the one its competitors offer?
Interviewer: Not really. Actually, whenever one of CompuCos desktops that fall within the two-year
warranty needs to be repaired, customers have to miss their desktop for approximately three weeks.
Most of CompuCos competitors, however, manage to keep this to only two weeks for their
customers.
You: It appears that CompuCo has a slower after-sales service, whereas its cost per unit is actually
higher. Does CompuCo organize this service differently than its competitors? CompuCo could, for
instance, have a couple of centralized repair centers to which the desktops are sent instead of having
them fixed at local, smaller repair centers? This would explain why CompuCos customers need to
wait a bit longer to have their desktop repaired.
Interviewer: That is indeed correct. CompuCos competitors almost all have smaller, more local,
repair centers. This is in the end slightly less expensive on a per-unit basis and also implies that
customers get their desktops back earlier. Another important difference between CompuCos aftersales service, versus the one of its competitors with the lower after-sales service cost per unit, is that
CompuCos competitors have a couple of additional simple tests that they ask the desktop owners to
do before deciding to have the computer fixed at one of their local repair centers. What do you think
is the impact of this on the after-sales service cost per unit?
You: Well, on the one hand, CompuCos competitors probably have longer after-sales calls with their
customers each time, which is overall more expensive. On the other hand, they will probably be able
to resolve an additional amount of specific issues over the phone thanks to these extra tests. Again, it

is important here to find the right balance between the higher costs per unit at the call centers and the
lower costs per unit at the repair centers. Given that CompuCos competitors do these additional tests
and that they have significantly lower after-sales service costs, I would guess that these additional
tests do pay off.
Interviewer: That is indeed correct. You have identified all major cost-saving opportunities for
CompuCo. I could tell you in addition that CompuCo has world-class support activities and is for
these the best-demonstrated-practice (BDP) in terms of cost efficiency in its industry. There is thus no
need to further look for cost savings potential there. Thank you very much for your analysis!

Example three:
Interviewer: A friend of mine wants to set up an online business, based in his garage, importing USB
sticks with various memory capacities, manufactured by a wholesale supplier in Hong Kong, and
selling them in the USA. He has ordered some USB sticks from the supplier to test them, and came to
the conclusion that they have the same quality as the USB sticks from the more well-known brands in
the USA. To be clear, these imported USB sticks are from a local brand in Hong Kong and are not
imitations of a renowned brand. He is convinced that if he is able sell these at 30 percent under the
average market price in the USA, his online business could become quite successful. Could you first
investigate how he can deliver this service as economically as possible, and then evaluate whether
his business plan to sell at 30 percent under the market price is realistic. He additionally said that he
would be happy to initially operate at break-even, but that an immediate profit for his efforts would
be great. Can you therefore also assess whether his business concept could be profitable from the
start, if implemented optimally?
You: Interesting. I imagine that if he could sell the imported USB stick (with a certain memory size)
with the lowest profit margin a priori at a price that is 30 percent under the average market price, then
he could also do this for all USB sticks that have a higher profit margin. [This insight would be an
excellent way to immediately focus your analysis.]
Interviewer: That is indeed correct. Actually, the profit margin on the sales price of a USB flash
drive gets bigger as the memory capacity increases. Therefore, if he can sell the USB sticks with the
smallest memory capacity at a price that is 30 percent under the market average, then he will indeed
be able to do this for all the USB sticks with a larger memory capacity. The smallest memory size he
was planning to offer was 32 gigabyte (GB), with the largest one being 256 gigabyte, so we should do
the analysis for 32GB memory sticks.
You: Okay. I have a last question before thinking about a way to structure this assessment. What is the
average market price for 32GB memory sticks?
Interviewer: Well, the average market price for 32GB memory sticks is 30 USD. This means that he
would want to offer them at a price of 21 USD. Take your time to think about how to structure your
analysis.
You: [Decide on the framework and draw it out.] I decided to assess this by having a closer look at

all the costs that would occur along the value chain, from the supplier in Hong Kong to the final end
customer. [Briefly explain the value-chain framework to the interviewer.] If the total incurred cost
along the value chain is lower than 21 USD per USB stick, then it would thus be possible for him to
offer them at 30 percent under the market average. Ideally, of course, the total incurred cost per 32GB
USB stick would be lower than 21 USD to ensure he also makes a profit.
Interviewer: That seems like a good idea. Now, it is important to mention that the wholesale supplier
in Hong Kong was happy to send a couple of USB sticks to my friend for him to test them. The
supplier, however, does impose a minimum order quantity of one thousand memory sticks.
Furthermore, you can assume that he will not have any fixed costs, given that he would start off this
business as a one-man operation based in his garage.
You: Okay. Knowing that he does not have any fixed costs, we thus have to investigate whether it is
possible to keep the variable cost of one thousand 32GB USB sticks under 21,000 USD, which is the
expected revenue for one thousand 32GB USB sticks. In this case, however, he would have no profit;
thus ideally his total cost would still be lower. Let us now first look at the raw materials cost, as well
as the inbound logistics costs. What would be the purchasing price of one thousand 32GB USB?
Furthermore, what would be the cost of sending them all over safely from Hong Kong to his garage in
the USA?
Interviewer: Well, the supplier in Hong Kong sells one thousand 32GB USB sticks at a total price of
6,000 USD. The raw materials are then shipped at the best possible rate by an international carrier
like FedEx or DHL, which costs about 600 USD for one thousand USB sticks.
You: Okay. Given that he will also be selling other USB sticks with a larger memory size, he could
possibly optimize his purchasing and logistics cost by, each time, ordering enough USB sticks of each
type all together. This would allow him to have a lower logistics cost per unit, as well as keep a
minimum inventory to better bridge demand, and possibly even negotiate a discount on the overall,
higher, order price.
Interviewer: That is a good suggestion. In the beginning it will be tricky to estimate demand and thus
difficult to know the minimum inventory he should keep for each type of USB stick. Let us say that if
he keeps a stock of one thousand USB sticks of all the USB sticks with different memory sizes and
that he optimizes purchasing and logistics along this, then he could get a 4 percent discount on all the
raw materials purchased from the USB stick supplier as well as a 10 percent savings on the total
logistics cost.
You: Great. If we then apply these cost advantages on the one thousand 32GB USD sticks, we find a
total raw materials cost of 5,760 USD and a logistics cost of 540 USD, or 6,300 USD in total. Let us
now look at the operations part of the value chain. I would imagine that for each order on his website,
he would need to package the ordered USB sticks, go to the postal office, and have them sent out to
the right address. Given that he will start as a one-man business, I would imagine that he would do
this himself. Once the business potentially turns successful, he could then hire someone to do this
work for him.

Interviewer: That is correct. Once he would be selling large quantities, he could hire someone to do
this work for him. At this point, however, he would do this at no cost himself. You can ignore the
packaging cost as well as his opportunity cost.
You: Okay. We could say then, that there are at this point no processing costs. Let us now then have a
look at the outbound logistics cost, which is the delivery from the ordered USB sticks from his garage
to the final customer. First of all, is he planning to add the delivery costs on top of the sales price of
the USB sticks, or will the delivery cost be included in the total sales price of the USB sticks?
Interviewer: He said that he would waive shipping costs for all orders over 35 USD. Given that the
lowest priced USB stick would already be 21 USD, you can assume that everyone will make orders
over 35 USD.
You: Okay. I would imagine these are then delivered by a logistics company in the USA?
Furthermore, do we have an idea of the average number of USB sticks purchased per order and the
average shipping cost per order?
Interviewer: He would indeed be using a postal company in the USA for the outbound logistics. It is
not easy to estimate how large an average order will be. For now, we could assume that on average
90 percent of the orders will come from individual customers who order three USB sticks on
average, for which the delivery cost is 5 USD. The remaining 10 percent of the orders will come
from small and medium-sized enterprises that order twenty USB sticks on average, for which the
delivery cost is 25 USD. Given that the weight of any type of USB stick is more or less the same, this
shipping cost would be the same for a 32GB or a 256GB memory stick.
You: Okay. This would mean that for one thousand USB sticks, typically nine hundred would be
included in smaller orders of three USB sticks on average, and one hundred would be included in
larger orders of twenty USB sticks on average. This implies three hundred deliveries at a cost of 5
USD and five deliveries at a cost of 25 USD, or a total outbound logistics cost of 1,625 USD on
average for one thousand USB sticks. Let us now look at the marketing and sales cost of his business.
Do we know which marketing tools and sales channels he would like to use for his online business?
Interviewer: He will develop the e-commerce website for his business himself, which will be his
only sales channel. Concerning marketing, he plans to spend his entire budget on targeted online
advertising. He found out that it costs him 0.50 USD per click to his website. He expects all of his
website visitors to arrive at his website through the online advertising campaigns.
You: Okay. Given that not everyone who visits his website will necessarily make an order, do we
have an estimate of how many people who clicked on the online advertisement on average will
eventually also make a purchase?
Interviewer: You can assume that on average one out of forty website visitors will place an order.
You: Okay. The targeted online marketing costs 0.50 USD per website visitor, and one out of forty
will typically purchase. This means that the marketing cost to get one order is 20 USD. We already
know that one thousand USB sticks sold equals 305 deliveries on average. Given that 305 deliveries

(normally) implies 305 orders and one order implies 20 USD marketing costs, we can easily
calculate that the total marketing cost to sell one thousand USB sticks is 6,100 USD. Let us now have
a look at the after-sales service that he plans to offer. First of all, is he planning to provide a specific
after-sales service, such as a warranty? And if yes, what type of after-sales service will he provide?
Interviewer: Well, each USB stick will have a one-year warranty that guarantees that any USB stick
that proves faulty by reason of improper manufacturing or defective materials will be replaced at no
cost. This limited warranty, of course, does not cover damage to the USB stick because of an
improper installation, accident, or misuse. When customers want to make use of their warranty, they
initially pay the shipping costs. In case the issue is indeed hardware related, then they will receive a
new one and get the shipping costs paid back.
You: I would imagine, given the reliability of this type of hardware, that it would not often happen
that a USB stick has a hardware failure. Do we have any idea how often customers will make use of
the one-year warranty because of hardware failure?
Interviewer: This will indeed only happen on very rare occasions, perhaps only one USB stick out
of ten thousand would have a hardware failure. Clearly, the cost of this after-sales service on a perunit basis would be very low, and therefore we can ignore this cost.
You: Okay. Let us now have a look at the support activities of the supply chain. Given that he will
do all the activities himself, I would expect the support activities costs to be minimal?
Interviewer: That is definitely correct. The total cost of all the support activities for his online
business is negligible. I think you have actually identified all major cost elements, and your
suggestions to save on purchasing costs and inbound logistics costs were good. Could you now assess
whether his target to sell at 30 percent under the market price is realistic and furthermore calculate
whether he would have a profit margin if he sells at that price?
You: Yes. We thus did the analysis for the 32GB USB sticks. If he is able to sell these at 30 percent
under the market price in the USAideally with an interesting profithe should also be able to sell
the other memory sticks that have more memory space at 30 percent below the average market price.
Now, we know that the average market price is 30 USD per 32GB USB stick and that he would be
asking 21 USD instead. Given that we did the analysis on a per one thousand units basis, he would
thus have a revenue of 21,000 USD for one thousand of these USB sticks. We now also have a clear
view on all the costs that would occur along the value chain from the supplier in Hong Kong to the
final end customer. For one thousand 32GB USB sticks, there would be a total purchasing cost of
5,760 USD including the discount, a total inbound logistics cost of 540 USD, a total outbound
logistics cost of 1,625 USD, and a total marketing cost of 6,100 USD. This gives a total cost of
14,025 USD, and with a total revenue of 21,000 USD, we find a profit of 6,975 USD, or 33.2 percent.
We can thus conclude that his idea to sell these imported USB sticks can be lucrative, if well
executed, definitely seeing that he could make almost 7,000 USD profit per one thousand 32GB USB
sticks sold. In addition, the 32GB USB sticks are the least profitable of the ones he is planning to sell,
and he would thus overall be making even more on the memory sticks with a larger memory size.

Interviewer: That sounds great! Thank you for your analysis.

Example four:
Interviewer: GuitarCo is one of the most renowned acoustic guitar manufacturers in the USA. They
have built up a strong brand name for its series of high-end acoustic guitars since it was founded in
1926, and have most of their sales in the USA and Canada. The management of GuitarCo realizes,
however, that the majority of guitar players are not immediately able to buy GuitarCos high-end
guitars, as they are rather expensive. For this reason, they would like to branch out into making and
selling an inexpensive variant of their popular American Exclusive One (AE1) model, which they
would then sell under the name American Standard One (AS1). The idea would be to save on various
specific cost buckets, to come to a less expensive version. Market research actually shows that if they
would already create brand loyalty early on by offering an affordable GuitarCo-branded guitar, then
there is a much higher probability that they will ultimately end up buying one of GuitarCos high-end
guitars. The total production cost for GuitarCo of the AE1 model is 550 USD per unit, and its retail
sales price is 1,199 USD. For the less expensive AS1, they came to the conclusion that 499 USD
would be the ideal retail sales price. To ensure a minimum attractive margin, GuitarCo would need to
manufacture the AS1 acoustic guitar at about half the cost of the AE1 model. What do you think is the
biggest risk of this strategy for GuitarCo?
You: Well, I would say that the biggest risk is actually related to quality. If on the one hand the quality
of the AS1 guitar would be perceived as too low, GuitarCos overall brand name might be affected
negatively. If on the other hand the quality of the AS1 would be perceived as quite high, customers
who would normally have bought GuitarCos high-end models might instead start buying the lowermargin AS1 model.
Interviewer: That is correct. Can you now assess how GuitarCo should organize itself to be able to
manufacture the more affordable AS1 guitar model, which will thus be a less expensive version of the
AE1?
You: Okay. Can I have a minute to think about how I want to structure this analysis?
Interviewer: Yes, of course. Let me know when you are ready.
You: Okay. [Decide on the framework and draw it out.] I decided to analyze this by having a closer
look at GuitarCos value chain for its AE1 model and assess for each part of this value chain how it
could be done less costly for the AS1, while keeping the overall guitar quality at the desired optimal
level. [Briefly explain the value-chain framework to the interviewer.] If you agree with this approach,
we could start the analysis by first having a look at the biggest cost buckets of manufacturing and
selling the AE1 model.
Interviewer: That sounds like a good idea.
You: Okay. I would imagine that the most important costs per unit are the raw materials cost and the
guitar-assembly cost. Do we have a breakdown of all the costs per unit of an AE1 acoustic guitar?

And if possible, structured per value chain activity?


Interviewer: Those two are indeed the most important costs per unit. We did actually receive a
detailed cost breakdown per unit from GuitarCo. It shows that on a per-unit basis, the inbound
logistics cost equals 20 USD, the operations cost 180 USD, the outbound logistics cost 20 USD, the
marketing and sales cost 30 USD, the after-sales service cost 30 USD, the procured raw materials
230 USD, and all other costssuch as HR or technology developmentcost 40 USD. This, as
mentioned, brings thus the total cost per AE1 acoustic guitar to 550 USD.
You: Interesting. The most important costs are thus, as expected, the raw materials at a cost of 230
USD per unit and the guitar-assembly cost at a cost of 180 USD per unit, which together make up
almost 75 percent of the guitars total cost per unit. If we want to cut the total guitar cost in half, to
offer a more affordable model, it will clearly be important to focus on these two cost types. Let us
now first focus on better understanding these two costs and assess how they could be lowered, while
ensuring an acceptable and optimal level of quality for the more affordable AS1 model. First of all,
which types of raw materials are required to build the AE1, and where are they sourced from?
Second, how and where is the AE1 guitar assembled?
Interviewer: Well, overall each acoustic guitar exists of the following parts: a head with tuning keys,
a neck and a fingerboard with strings, the guitar body, a sound hole, a pick guard, and a bridge.
GuitarCo purchases all the parts for its high-end guitars from one specialized company in Florida and
another in North Carolina. These acoustic guitar parts are then completely manually assembled in
GuitarCos assembly plant in Illinois.
You: Okay. GuitarCo could probably decrease its raw materials cost by sourcing them from a lowercost country. They could furthermore also consider assembling the AS1 guitars in a country with
lower labor costs, and/or developing the guitars through (semi) automated production, while
maintaining good-enough quality. They would then of course need to ensure that the raw materials
fulfil the required quality standards and that the assembly plants can still have the required level of
craftsmanship. One thing to keep in mind, however, is that the outbound logistics cost per unit would
probably increase by doing this.
Interviewer: Those are very good suggestions. GuitarCo could actually source all the raw materials
at a significantly lower price from suppliers in Mexico. Given that GuitarCos management expects to
sell twenty-five thousand AS1 guitars next year, it would also make sense to invest in a new semiautomated assembly plant to manufacture the guitars there in Mexico. Assuming that GuitarCo will
sell approximately twenty-five thousand AS1 guitars during the next year, they could under this
scenario realize a cost savings of 50 percent on their raw material cost per unit and a cost savings of
66.67 percent on their guitar-assembly cost per unit. What would then be the total cost savings per
unit on the AS1 model versus the AE1 model, given that they would source from and manufacture in
Mexico?
You: Well, GuitarCo could then decrease the raw materials cost per unit with 50 percent down to 115
USD per unit, as well as decreasing the guitar-assembly cost per unit with 66.67 percent down to 60
USD per unit. This would bring the total raw materials and guitar-assembly cost to 175 USD for an

AS1 model made in Mexico versus 410 USD for an AE1 model made in the USA, meaning a cost
savings of 235 USD per unit.
Interviewer: That is correct. Furthermore, this setting would lead to a product quality in line with
what they are aiming for, for the AS1 model. The quality would be visibly lower than all GuitarCos
high-end models and thus not cannibalize on those sales, yet high enough to gain a strong reputation
for guitars in its price category. We know furthermore that GuitarCo plans to build capacity to
manufacture at least twenty-five thousand AS1 models; they would therefore reap a comparable
amount of scale advantages as their assembly plant in the USA does. Now, how would you expect the
inbound and outbound logistics costs to be, given that the AS1 guitars would be manufacturer in
Mexico?
You: Well, if GuitarCo chooses a location in Mexico for its assembly plant that optimizes the shipping
distance between the suppliers in Mexico and that assembly plant, then GuitarCo should have a lower
inbound logistics costs per unit for their AS1 model than for their AE1 model. Additionally, we could
also expect that the overall transportation cost per mile in Mexico is lower than in the USA, which
would make the inbound logistics cost for the AS1 even more lower compared to that of the AE1.
Knowing that GuitarCo sells most of its guitars in the USA and Canada, we could expect that the
outbound logistics costs per unit for the AS1 model will be notably higher than for the AE1 model
simply because the outbound shipping distance will increase very significantly.
Interviewer: That is correct. We could, because of this, assume a 5 USD reduction in the inbound
logistics cost per unit and a 15 USD increase in the outbound logistics costs per unit for the AS1
model versus the AE1 model. The total cost per unit for both inbound and outbound logistics for the
AS1 model would then be 50 USD, which is 10 USD more compared to the AE1 model. How much
does this then leave us for all the other remaining costs?
You: Well, we know that the AS1 model should be roughly half the cost of the AE1 model. Given that
the AE1 costs 550 USD per unit in total, we should keep the total cost of the AS1 around 275 USD
per unit. Given that we already have 225 USD per unit to cover logistics, raw materials, and
assembly costs, we still have about 50 USD per unit to cover all the remaining costs. The AE1 has a
total of 100 USD per unit for all these remaining costs, so we will need to further investigate how
GuitarCo can organize itself differently to stay within the budget for the AS1 model.
Interviewer: Indeed. Can you now have a look at the marketing and sales (M&S) costs and the aftersales services costs, and assess how GuitarCo could decrease these to ensure they eventually stay
within the intended budget?
You: Okay. First of all, which M&S costs and after-sales services costs does GuitarCo have currently
for its AE1 model?
Interviewer: Well, most of the M&S costs go to online marketing efforts to attract relevant visitors to
GuitarCos website, as well as giving promo materials to guitar shops across the USA and Canada.
Most of the after-sales service costs go to repairing and restoring broken guitars; for all high-end
guitars, guitar manufacturers always give life-time warranties for any type of malfunctions as a result

of faulty materials or workmanship. Such a warranty is however not at all common for guitars with a
retailer price under 1,000 USD.
You: Interesting. By featuring the new and more affordable AS1 model on their website, they could
already easily reach out to their website visitors and create a marketing buzz. Furthermore, they could
decrease the after-sales service cost per unit of the AS1 versus the AE1 by giving a more limited
product warranty, which seems to be common for guitars under 1,000 USD anyway.
Interviewer: Those are definitely good suggestions. Realistically, GuitarCo could sufficiently
promote and sell the AS1 model, along with offering a good after-sales service at a total cost of 30
USD per unit. By keeping the HR and organizational infrastructure cost as well as the technology
development cost to a necessary minimum, they would require only 20 USD per unit to cover all these
costs. Everything together, we would thus have a total cost of 275 USD for one AS1 guitar, which is
perfectly in line with GuitarCos objectives for the AS1 model. Thank you very much for your
analysis!

Example five:
Interviewer: Our client PostalCo has just realized a total revenue of 2.05 billion euro, which
corresponds to a market share in revenue of about 53.75 percent. They are the largest national postal
services company for already several years. Their only competitor for years, MailCo, controls the
remaining 46.25 percent of the market revenue. The CEO of PostalCo said that he was happy to see
that PostalCo managed to take 1.12 percent market share from MailCo since the previous year, as
well as the fact that the profit margin of PostalCo increased by 0.85 percent up to 15.85 percent. What
he however finds very worrying is that MailCo in the same time remarkably managed to increase its
profit margin by 6.75 percent up to 20.63 percent. He believes that MailCo has somehow successfully
changed its business model, and he realizes that PostalCo will need to react quickly to maintain its
leader position. Knowing that the postal services market grew by only 0.37 percent and that PostalCo
managed to take more than one percent market share in revenue from MailCo, PostalCos senior
management recognizes that MailCo in some way managed to strongly decrease its total costs. Could
you, based on this information, calculate the total cost savings that MailCo managed to realize in this
year versus the previous year?
You: Okay. [Draw it out on paper, while making the calculation to ensure your interviewer can easily
follow your logic.] We know that PostalCo has a total revenue of 2.05 billion euro and that this
corresponds to a market share of 53.75 percent in revenue. Given that MailCo controls the remaining
46.25 percent of the total market revenue, we can calculate that this corresponds to a total revenue of
1.764 billion euro for MailCo. Given that MailCos profit margin today is 20.63 percent, we can now
calculate that their total cost this year was 1.4 billion euro. If we add up both PostalCos and
MailCos total revenues, we find that todays total national postal services market corresponds to
3.814 billion euro. Given that this market grew by 0.37 percent versus the previous year, we can also
easily compute that the total market revenue was 3.8 billion euro last year. Given that PostalCo
managed to take 1.12 percent market share from MailCo, we know that PostalCos market share was
52.63 percent last year, which corresponds to 2 billion euro. Given that the market is a duopoly, the

remaining 47.37 percent, or 1.8 billion euro, of the market was in MailCos hands. Knowing that
MailCos profit margin today is 20.63 percent, together with the fact that their profit margin has
grown by 6.75 percent versus the previous year, we can calculate that MailCos profit margin last
year was 13.89 percent. Now that we know MailCos profit margin and total revenue of the previous
year, we can calculate that MailCos total cost last year was 1.55 billion euro. As we calculated
earlier that MailCos total cost this year was 1.4 billion euro, we can easily find that they have
managed to decrease their total cost by 0.15 billion euro, or 150 million euro.
Interviewer: That is correct. Could you now assess how MailCo managed to drive down its total
costs so drastically and come up with actionable recommendations for PostalCo to improve its
overall profit margin to remain competitive?
You: Okay. Before thinking about a way to structure my analysis, I have two questions. First of all,
are we sure that MailCos strong profit margin increase is not due to specific one-time events, such as
for instance a large depreciation or amortization? Second, are there any economic trends in the postal
services environment that have been going on and that PostalCo may have ignored?
Interviewer: Well, looking at MailCos detailed P&L, I did not see anything that points toward a
one-time big cost saving. It seems that they managed to save costs sustainably along their organization
during this year. In terms of trends on the postal services market, I am not sure which specific trend
could explain this. I suggest we have a more detailed look at MailCos activities to better understand
what has happened.
You: Okay. [Decide on the framework and draw it out.] I believe the best way to identify how MailCo
managed to drastically cut its costs is by analyzing their value chain activities and assessing whether
and how these may have changed over the year. [Briefly explain the value-chain framework to the
interviewer.] Once I have a good understanding of how they managed to decrease their total costs
along their value chain, we can assess how we could apply this to PostalCo.
Interviewer: That is a good approach.
You: Great. I suggest we first focus on those activities in the value chain that represent the largest cost
buckets for a postal services company. Do we know which ones these are? I would imagine these are
the inbound logistic costs and the outbound logistics costs?
Interviewer: The largest cost buckets of a postal services company are indeed the inbound and
outbound logistics costs, but also the processing costs are substantial. These three processes together
actually form the core of each postal services company.
You: Great. Let us then first have a look at MailCos inbound logistics costs. I would like to know
how MailCos inbound logistics system to collect all postal cards, letters, and packages works, and
whether it has changed significantly over the last year.
Interviewer: MailCos inbound logistics system is pretty much the same as the one of PostalCo. They
collect the packages through different touch points, such as postal offices and mailboxes, and these
are transported by mail carriers to the closest by processing and distribution center. MailCo actually

slightly expanded their inbound logistics system over the last year as part of their growth strategy,
which led to a small cost increase for its total inbound logistics activities during this year.
You: All right. Let us now have a look at MailCos processing and distribution centers. First of all,
how do the processing activities of MailCo work, and secondly did these change over the last year?
Interviewer: Mail processing is initially done by one large central automated computer system per
processing and distribution center. This automated system recognizes addresses and sorts the mail
to ensure it is forwarded to the nearest local postal office. Mail with an address that cannot be
resolved by the automated system is separated for human intervention. MailCo actually managed to
increase the system efficiency from a 93 percent address-reading accuracy up to 94 percent in the
beginning of this year for all its processing centers.
You: Interesting. Clearly this efficiency increase will have led to a lower need for human intervention
to sort the mail that could not be read automatically. Let us assess how much cost savings could have
been realized by MailCo because of this. Do we know how many processing and distribution centers
MailCo has in total? Furthermore, do we know how much manual human intervention can be
avoided due to a one percent efficiency gain in this process? Also, what is the wage per year of an
employee who does manual sorting in a processing and distribution center? Lastly, was there any
specific additional engineering cost related to the improved system efficiency?
Interviewer: MailCo indeed managed to decrease its total processing costs through staff
reductions from the system-efficiency gains. These efficiency gains were realized by in-house
engineers, who are rewarded for sorting-system improvements. All together, they got a total one-time
bonus of 0.6 million euro for this realization. We know that MailCo has ten processing centers, with
each one having one automated central computer system. In fact, PostalCos sorting system currently
has a 95 percent address-reading accuracy, as they strongly worked on this some years ago. Back
then, they learned that a one percent improvement implies a saving of exactly six employees per
processing center; we can assume that this number is also true for MailCo. Knowing that one
employee costs roughly 60,000 euro per year, what is then the total processing cost savings that
MailCo realized because of the efficiency improvement?
You: Well, we know that MailCo has ten processing centers, and we assume that they managed to
reduce staff with six employees per center because of the one percent efficiency gain. This implies a
total staff reduction of sixty employees, whichwith a yearly wage of 60,000 euroimplies a total
cost saving of 3.6 million euro per year. Given that they paid 0.6 million euro in extra bonuses to their
engineers for realizing these efficiency gains, we know that they saved 3 million euro this year, and
will save 3.6 million euro over the next years.
Interviewer: That is correct. Knowing that MailCo managed to decrease its total cost by 150 million
euro, it is clear that this specific cost savings only had a minor contribution to their total cost saving. I
suggest that you continue your analysis and further investigate what specifically MailCo did to realize
those strong cost savings.
You: Okay. Let us look at the outbound logistics system. How does MailCos outbound logistics

system to deliver the postal cards, letters, and packages work exactly, and has this changed over the
last year?
Interviewer: Well, almost all of the mail is delivered on-site once a day by a mailman. MailCos
outbound logistics system has not changed recently, and it is identical to that of PostalCos, with no
specific cost differences.
You: Okay. It appears then that MailCo did not realize its major cost savings on its core activities. Let
us now look at MailCos marketing and sales activities. Did MailCo make significant changes in its
marketing and services department over the last year?
Interviewer: Well, MailCo decreased the number of employees in its marketing and sales department
by almost 70 percent. How do you think they may have realized this?
You: Well, as you indicated, marketing and sales are not among their core activities. One possibility
would be that they have outsourced a large part of their marketing and sales department to a
specialized agency. Also, they may have possibly outsourced a part of the more simple manual work
to lower-cost countries for further cost saving. They may have also found a new way to organize their
marketing and sales department more efficiently, though that alone would probably not explain a staff
reduction of 70 percent.
Interviewer: Well, in the detailed P&L, I actually noticed that MailCo not only realized significant
headcount reductions in its marketing and sales department, but also in their after-sales, human
resources, and technology development department. In the same year, they started paying more fees to
third parties for services. Apparently MailCo has been outsourcing a significant part of their non-core
activities this year. What are key potential dangers of outsourcing non-core activities?
You: Well, the most important risk is that the third parties to whom the work is outsourced may fail to
deliver the services qualitatively. If the customers notice this, it could damage a companys image.
Other potential risks that go with outsourcing are the loss of specific business knowledge over time or
security issues because of sharing sensitive data.
Interviewer: Those are indeed some of the most important risks a firm takes when deciding to
outsource specific non-core activities. Let us first assess the potential for outsourcing the after-sales
service center, which is basically a large call center. First of all, what is the most important risk of
outsourcing this department specifically?
You: Well, as suggested, the company to whom the call center is outsourced may fail to deliver the
after-sales service qualitatively. Especially for a call center, which is extensively in contact with the
end customer, this risk is very substantial.
Interviewer: Indeed. It appears that last year, MailCo had a local call center that employed 2,250
people, and each single employee there made, and still makes, the standard loan of 70,000 euro. This
year, they reduced its staff there by 40 percent, and outsourced a large part of it to India at a total cost
of 38 million euro per year. They did not have to pay any type of severance, as they simply did not
extend the contract of all their interim call center employees. On the other hand, all of MailCos

revenue loss, which corresponds to a 2 percent revenue decrease, can in fact be attributed to this
outsourcing move. I read in a report that quite a few customers this year went to PostalCo, as they
were unsatisfied with MailCos after-sales call-center service. Knowing all this, did the cost savings
that MailCo realized this year because of outsourcing its local call centers to India offset the revenue
decrease that happened because of it?
You: Well, a 40 percent staff reduction on a total of 2,250 employees implies a total of nine hundred
employees that had to leave MailCo. Given that each employee made 70,000 euro, the cost savings of
this staff reduction corresponded to 63 million euro. However, they now have to pay a total
outsourcing fee of 38 million euro, so the total cost saving equals 25 million euro. Furthermore, we
know that MailCo lost 36 million euro in revenue versus the previous year because of the less
qualitative call center, which indeed corresponds to 2 percent. When we take all this into account,
MailCo actually lost 11 million euro because of its decision to outsource its call center to India.
Interviewer: That is correct. Actually, in the postal services business, it is generally not a good idea
to outsource an after-sales division to low-cost countries. Now, as mentioned before, MailCo also
outsourced large parts of their marketing and sales (M&S), human resources, and technology
development departments. That, on the other hand, was extremely successful and led to impressive
overall cost savings at MailCo. I am convinced that PostalCo can also realize this type of cost
savings. Let us calculate the total cost savings potential for PostalCo in case they would also
outsource these departments, while not yet looking at the potential severance costs.
You: Okay. Do we know how many people each department employs and how much an average
employee of PostalCo earns in each of these departments? Also, do we have any idea how much of
the staff could optimally be outsourced and what the total cost of the outsourcing services would be?
Interviewer: Well, 1,500 people work in the M&S department, eight hundred people in the
technology development department, and 160 people in the HR department. Let us furthermore say
that all the employees in the M&S department cost approximately 80,000 euro per year, all the
employees in the technology development department cost about 100,000 euro per year, and all the
employees in the HR management department cost about 75,000 euro per year to PostalCo. Let us say
that it would be optimal to reduce two-thirds of PostalCos M&S staff, as well as 62.5 percent of
their technology development and their HR staff. These reductions would then be compensated by
partnerships with quality outsourcing providers for their M&S activities at a cost of 25 million euro,
at a cost of 5 million euro for their technology development activities, and at a cost of 2.5 million
euro for their HR activities. What would the cost savings potential be for each of the three
departments from outsourcing? You can at this point ignore any type of severance pay.
You: Well, reducing the M&S departments staff by two-thirds means firing one thousand people. At a
cost of 80,000 euro per employee per year, we would be talking about 80 million euro per year in
cost savings. Combined with an annual outsourcing fee of 25 million euro, we find a total cost
savings potential for the M&S department of 55 million euro per year. Furthermore, reducing the
technology development departments staff by 62.5 percent means firing five hundred people. At a
cost of 100,000 euro per employee per year, we would be talking about 50 million euro per year in
cost savings. Combined with a yearly additional outsourcing fee of 5 million euro, we find a total

cost savings potential for the technology department of 45 million euro per year. Lastly, reducing the
HR departments staff by 62.5 percent means laying off one hundred people. At a cost of 75,000 euro
per employee per year, we would be talking about 7.5 million euro per year in cost savings.
Combined with a yearly additional outsourcing fee of 2.5 million euro, we find a total cost savings
potential for the technology department of 5 million euro per year. If we add up the outsourcing cost
savings potential of all three departments, we find a total yearly cost savings potential of 105 million
euro.
Interviewer: That is correct. Now, the senior management of PostalCo told me that they in fact
expect PostalCos revenue to increase by about 95 million euro in the next year. To support this, they
would need to hire five hundred people to work in their inbound logistics department, their
processing and distribution centers, and in their outbound logistics department. Let us now assume
that we can exactly fill all five hundred positions by suggesting to all one thousand people of the
M&S department that would see their jobs disappear, to accept a position in one of PostalCos three
core departments at the same salary of 80,000 euro per year. What would then be the new annual cost
savings potential?
You: In that case, five hundred people of the M&S department would stay with PostalCo, but simply
move to another department. The yearly cost savings in the M&S department should then be based on
only five hundred people who have to leave PostalCo, instead of one thousand. We can easily
calculate that the cost savings potential would then be 40 million euro less, meaning a total yearly
cost savings potential of 65 million euro.
Interviewer: That is correct. Now, knowing that the cost to fire someone is four months of severance
pay, what would then be the cost of firing the remaining 1,100 employees?
You: Well, assuming that we thus keep five hundred employees from the M&S department, PostalCo
would need to lay off the five hundred other M&S employees. Given that these make 80,000 euro per
year and that PostalCo will need to pay them four months of loan, the total layoff cost for this
department would be 13.3 million euro. Furthermore, PostalCo would also need to lay off five
hundred employees from the technology development department. Given that these make 100,000 euro
per year and that PostalCo will need to pay them four months of loan, the total layoff cost for this
department would be 16.7 million euro. Lastly, PostalCo would need to lay off one hundred
employees from the HR department. Given that these make 75,000 euro per year and that PostalCo
will need to pay them four months of loan, the total layoff cost for this department would be 2.5
million euro. This gives us a total one-time layoff cost of 32.5 million euro.
Interviewer: That is correct. Now, what would then be PostalCos new profit margin next year,
assuming that all other costs that we did not discuss remain constant over the next year?
You: First of all, we thus expect PostalCos revenue to increase by 95 million euro from 2.05 up to
2.145 billion euro for the next year. We furthermore know that PostalCos profit margin this year was
15.85 percent and that its total cost was 1.725 million euro this year. Given the detailed outsourcing
exercise we have made, we found that PostalCo could realize a yearly cost savings of 65 million
euro, thus also during the next year. However, PostalCo would need to pay a one-time layoff cost next

year, because of the planned staff reductions at an additional total cost of 32.5 million euro. Assuming
that all other costs remain constant, we find that PostalCos total cost next year would be 1.6925
billion euro. Now that we know PostalCos total expected revenue and total expected cost for the next
year, we can easily calculate that PostalCo has an expected profit for the next year of 0.4525 billion
euro or an expected profit margin of 21.1 percent, given our proposed measures.
Interviewer: Indeed. That definitely looks promising. The insights from this analysis will certainly
allow PostalCo to remain competitive and maintain its leadership position in the future. Thank you for
your analysis!

WHAT IF IT DOESNT FIT?


It is definitely possible that you would come across a business case that does not really seem to
fit any of the standard frameworks. This, however, does not mean that the case cannot be structured.
When this happens, strive to find out what precisely is driving the problem through segmentation.
You start by isolating the problem and focus on finding the actual reasons why the numbers are so low
or high. Break the issue down into its components by segmenting it in different ways, and determine
what contributes to the majority of the problem. Once identified, it is a matter of using common sense
to figure out how you can address these specific issues.
For example, you might have a business case concerning a manufacturer of mobile phones that
has a high production error rate relative to its competitors, and he wants to know the reason behind
this. You could then use the value-chain analysis and focus on the questions appropriate to analyze
problems in manufacturing processes. It might however be smarter to immediately start segmenting
along various parameters that could drive the difference in the error rate. You might, for instance,
segment the error rates per product type, per production plant, and per specific production process.
This segmentation might tell you that all types of mobile phones have about the same percentage of
errors and that there are no significant differences in error rates between different production plants,
but that 90 percent of the errors occur in one specific phase of the production process. Now that you
have identified the major problem driver, you can further analyze how that particular process works
and use common sense to come up with practical solutions to solve the issue.

HOW TO MAKE YOUR OWN BUSINESS CASES


Once you fully understand the approach to business cases and have studied the frameworks and
their corresponding examples, it is time to create your own business cases and practice them. You can
make business cases for yourself, but eventually, the most effective way to prepare is by making
business cases in a group and practicing them in pairs. It might initially take some time to create your
own business cases, but you will notice that you get better over time.
To make your own business case, the easiest methodology is to first decide on a framework you
would like the interviewee to use. Then you draw it out, and decide where in that framework you will
introduce some business issues. You then decide upon an industry where these issues could occur,
and research the specifics of that industry. You could additionally make a data table or a chart to make

the business case more realistic. Finally, as an interviewer, think about which questions the
interviewee might ask during the interview, and reflect on how you would reply to them. Keep in
mind that you should guide the interviewee throughout the case, but make sure that he or she
eventually can come up with the important insights of your case.

10 BEST TIPS FOR BUSINESS CASE SUCCESS


1. Listen to your interviewer. When your interviewer presents the problem, make sure you
understand it completely, as well as what is expected from you. Often interviewees make the mistake
of answering the wrong question. Furthermore, many interviewees are so focused on asking the right
questions that they forget to actually listen to the answers they receive. Therefore, always pay
attention to your interviewer, respond to the obtained information, and use it in your analysis. Notice
that by carefully listening to your interviewer, you might additionally obtain some interesting hints and
insights regarding how to solve the case.
2. Ask questions. One of the worst mistakes made by interviewees is asking their interviewer too
few questions. Keep in mind that you need to ask enough relevant questions in order to understand and
solve your business case. Make sure that at any point in time, you understand the business case you
are dealing with. If some issues are unclear, just ask your interviewer for further information to fully
understand the case. Also make sure it is clear to your interviewer why you are asking these questions
and why you need that specific information. Do not make direct assumptions, but first ask your
interviewer whether he or she has specific data available.
3. Set out a structure. After the interviewer introduced the business case, take the time to think out a
structure to organize and analyze the case. Use a framework, and if needed, make some adaptations
relative to the specific content of the case. Furthermore, think about the sub-questions that you need to
answer first, in order to address the overall issue. Remember to stay structured and organized during
the entire process. If your interviewer wants to go in another direction, for instance, by introducing a
new document, understand the impact it has on your proposed structure and adapt accordingly.
4. Think aloud. Demonstrate your thought process to the interviewer, as well as how you structure
things and come to conclusions. If you have considered some alternatives and rejected them, then tell
your interviewer what you did and why. This is eventually the only way your interviewer can assess
your performance. If you are not completely comfortable with reasoning aloud, you should practice
this by yourself until you become more comfortable at it.
5. Lay out a road map for your interviewer. Next to having and following a clearly defined
structure, you should always communicate it to your interviewer. Use your proposed structure as a
road map for the interviewer. By doing this, your interviewer can better follow what you are currently
analyzing, and what you still have to do.
6. Take notes. Make sure you have a pen, a pad of paper, and a marker readily available to use

during the business case. In general, you are always allowed to take notes, and you should definitely
do this. From the moment your interviewer presents the case, take notes and try to capture all relevant
information. You could use your pen and paper to make little diagrams or figures to demonstrate your
reasoning to the interviewer. Furthermore, use the marker to highlight important information or
conclusions so you can easily find them again. You should thus use these tools to organize your own
thinking, as well as to demonstrate your reasoning process to your interviewer.
7. Summarize. Briefly write down all your conclusions during the business case and, as said,
preferably highlight them with a marker. At any time, your interviewer could ask you to summarize
and conclude your findings. When summarizing, you should generally start with your main conclusion
for the case, and then provide the two or three best arguments to support this conclusion. In case you
did not finish the business case in time, present your actual findings in a logical way, focusing on
what you did find.
8. Practice a lot upfront. Make sure that you have practiced and have prepared each phase of the
case interview sufficiently, and especially that you have practiced enough business cases upfront.
Notice that having a clear understanding of how consulting interviews exactly work will give you a
significant advantage over other candidates.
9. Dont be afraid of numbers. Many candidates start panicking from the moment they have to make
a mathematical calculation during the business case. Make yourself comfortable with basic arithmetic
formulas, as well as working with large numbers. Keep in mind that, generally, these calculations are
relatively straightforward, and they should never be a reason to start panicking.
10. Be enthusiastic, relax, and enjoy. It is very important to be enthusiastic throughout the interview.
Interviewing someone who is excited to be there is much more enjoyable for the interviewer, than
someone who does not seem to care about the interview. Furthermore, try to be as relaxed as
possible, and enjoy the business case. After all, the business case is to some extent a reflection of
what you would be doing on the job.

Chapter IV

Presentation Cases
INTRODUCTION TO PRESENTATION CASES

While traditional case interviews are by far the most common method to screen potential
candidates, it seems that many consulting firms are now incorporating another interview technique.
This interview technique is the presentation case, where candidates are asked to present and discuss
a specific topic to one or more interviewers. Generally, you will be given a stack of documents that
form a business case, which you have to summarize and eventually present within a predefined
timeframe. Sometimes firms might ask candidates to complete an unfinished presentation, and provide
the key insights. Last, some firms will even ask you to prepare a presentation at home, which you then
have to give during the interview. Presentation cases are usually part of a second round interview,
and will rarely be an integrative part of a first interview round.
The reason why many consulting firms are incorporating presentation cases in their interview
rounds is because the case interview is in a number of ways also an imperfect evaluation tool. A
traditional case interview will for instance give the interviewer only little insight into the
interviewees presentation skills and his or her client skills. The presentation case on the other hand
allows the interviewer to profoundly assess your presentation skills, and get an idea of how you
would interact with clients. In general presentation cases are designed to evaluate the following
skills:
- Aggregating a set of data: Generally, you will be given a large set of data and information,
which you will need to process quickly on your own to come to a conclusion. Its main difference with
a traditional business case is that for presentation cases, you will have to analyze and combine the
facts and eventually wrap up your findings without any guidance.
- Case-cracking skills: Just like in a traditional case, your problem-solving skills to structure
your insights will be tested. Where in a traditional business case your interviewer will generally
confirm the framework you use, here you will be responsible yourself to find the right methodology to
crack the case. Most presentation cases, however, already provide clear insights into what the output
should look like.
- Presentation skills: Obviously, during a presentation case, your presentation skills will be

assessed. Keep in mind that whatever level you enter a consulting firm, you will always have to
present your findings to your case team or client, and this is thus a very important consulting skill. By
far the most important for a good presentation, is the way you structure your findings to make them
easy to understand. The most common way to structure presentations logically is the top-down
approach, in which you start very broadly and zoom in on the major issues or opportunities.
- Your teaching skills: On the job, you will often have to formally or informally debrief your
team or your client. Therefore, during a presentation case, the ability to teach content and explain the
reasoning behind your analysis will be evaluated. Obviously, during a traditional case interview, the
interviewer could get some insight into your teaching ability, but the presentation case allows the
interviewer to go much further and to understand how well you can communicate and transfer your
ideas to someone else.
- Team skills: Presentation cases were often used in the context of a group discussion with
several candidates together. This allowed the interviewer to also assess your team skills, which
could work to your benefit, especially if you are particularly good at building team consensus.
Nowadays, however, many firms are starting to use the presentation case on a more individual level.
All these skills will be very important on the job, and many consulting firms are trying to
incorporate the presentation case at some point in the interview cycle. The reason presentation cases
are still not very common, is because organizing them is often quite time-consuming, and thus
expensive, for consulting firms.
Below you will find a methodology, which will allow you to structure most presentation cases.
Keep in mind that some consulting firms might indicate to you what the output should look like. Keep
in mind that if the presentation case does not seem to fit the proposed methodology below, you should
not try to squeeze it in. The proposed structure will however help you to organize the majority of
presentation cases.

STRUCTURING YOUR PRESENTATION CASES


In general to solve a presentation case four key steps can be identified:

1.
2.
3.
4.

Clarifying and understanding the question


Skimming the materials
Building the framework and cracking the case
Structuring the presentation logically

In the following, each step is explained in more detail. The focus is mainly on step four, as it is
the most challenging part of a presentation case. Remember that it is important to set a timeframe from
the start on how long you will work approximately on each step. The type of presentation case will

generally determine how much time you will have to spend on each step. Very quantitative cases often
for instance require some extra time to crack the numbers; very qualitative cases however often
require some more time to go through the text materials. It is only by practicing case presentations in
advance, for instance by making up presentation cases yourself, that you will become better at
estimating your time needs.

1. Clarifying and understanding the question


The first thing you want to know when you start a presentation case is what you are expected to
do in terms of final output. It is often a good idea to ask the person that gave you the presentation case
whether you could go through the questions together, to ensure you are clear on the expected output.
This to make sure that once you are on your own, you are clear about which questions you should be
answering. In case you would be told that the questions are clearly explained in the exercise, you can
obviously assume they are, since generally the questions you will need to answer are included in the
package of information that you are given for the presentation case. Make sure that you read the
questions several times, to ensure that you are completely focused on what you are expected to
deliver and that there is no ambiguity in what your final output should look like.
Furthermore, you also need to know at this stage who your audience will be. Often a
presentation case is given within a specific context, and the person or people you will be presenting
to will be playing a specific role. In a presentation case on a post-merger-integration plan, you might,
for instance, be presenting to two consultants playing the role of the two CEOs of the two
companies that would be merging. Obviously, knowing who your audience is will help you to better
understand what your final output should look like. The presentation of a post-merger-integration plan
you would give to the two CEOs would for instance be quite different from the one you would give to
the two CFOs. Clearly a CEO is more interested in the overall challenges and opportunities of the
integration plan, whereas a CFO is in first instance more interested in the costs and benefits of this
plan. Therefore, always ask which role your audience will be playing. Notice, however, that for quite
a few presentation cases, the role of the audience can be less important or even irrelevant. But if the
interviewers do play specific roles, be sure to know which ones.

2. Skimming the materials


In the second stage, it is time to start reading the materials. Some presentation cases have a very
limited set of documents, and if time allows, you may be able to read each document in detail. Most
often, however, presentation cases are accompanied by a large amount of information. The trick is
then to be able to skim through all the information efficiently by focusing most of your attention on
reading the titles, subtitles, specific text, figures, and graphs and by making sure you get the main idea
of each document. Notice that these documents could be one or multiple pages. It is advisable to
number each separate document from the start, and when you start skimming through all the
documents, write on a separate sheet for each document in one line what the key message is. Your
final output should then be a list of numbers with each time a key message next to it, for each specific
document. Collecting and aggregating this information will allow you to eventually get the bigger
picture. It is then recommended to select the two or three most important sources from which you will

be taking most of the information. When you have done all this, you will know what each documents
key message is, and you will better understand the bigger picture. In case you feel that you are still
missing some information, you could start reading some documents in more detail. Nonetheless,
always make sure you are keeping track of time, as you should allow sufficient time for the next two
steps.

3. Building the framework and cracking the case


The approach you take to construct the framework and to solve a presentation case is generally
the same as for a traditional business case. Therefore, for this section, please refer to the previous
chapter on how to crack business cases.
The only difference with a presentation case is that you will not have your interviewer to check
whether you are following the right approach. Nonetheless, you can first skim through all the
documents before deciding which framework would be the most suitable, whereas with a traditional
business case, you have to make a decision relatively quickly about how you will structure the
business case. Start by asking yourself which framework would best fit the presentation case, given
the information you acquired while skimming the documents. If, by using the framework you have in
mind, you are capable of structuring most of the important elements of the case, then it is likely to be a
good choice.

4. Structuring the presentation logically


The structure you use for your presentation obviously depends on the information you are given,
as well as the questions you are supposed to answer. For smaller presentation cases you might be
asked to only briefly present your findings on one slide. For longer presentation cases, however, you
are generally expected to present your findings in a very structured manner using multiple slides, or
several pages on a flipchart. For this reason a framework has been created, which allows you to
organize most longer presentation cases. Keep in mind that for some presentation cases, a more
customized structure might be necessary to logically present your findings.
The framework to structure presentation cases consists of the following five elements:
a. Introduction
b. Executive summary
c. Situational overview
d. Response plan
e. Next steps
The following discusses which information of your analysis you should include in each of the
five elements of the framework. It is often a good idea to name each slide according to these five
sections, unless you have a better, more specific, title in mind. Doing this will allow your audience to
easily know what you are about to present.

a. Introduction
The first thing you might want to do when you have to present the presentation case is frame the
case, which means putting the case in a more realistic context. A good way to do this, is by
welcoming the audience and saying what you have been analyzing. This introduction should only take
about ten to twenty seconds, but should immediately demonstrate that you have a professional
approach to the case.
Depending on the case, an example of an opening line could for instance be Thank you to the
board for making time today to discuss the cost reduction plan for the soap manufacturing plant in
Houston. I have collected and analyzed significant information, and would like to present a summary
of my key findings, and discuss where we can go from here.
Most other books covering presentation cases will typically advise you to immediately start
with an executive summary. If you would however start framing your presentation with your executive
summary on the background, your audience will immediately start reading that, instead of listening to
your introduction. Therefore, it is recommended that you first start with a very simple slide that for
instance gives the name of the company you have been analyzing and the type of analysis you have
been doing, for example, Analysis of the cost reduction plan. Doing so will guarantee that you have
your audiences attention. Keep in mind that in this stage, you are only framing your presentation, and
thus not yet giving any information on the actual case. After you have framed the presentation case,
you can immediately move on to the executive summary.

b. Executive summary
The executive summary is one of the most important parts of a presentation, as it is meant to
deliver the key messages of the case. Unfortunately, many interviewees presenting a case forget to
include an executive summary. They instead start presenting their detailed analysis right away, and
thus skip this critical step. The idea of an executive summary is to make your audience quickly
acquainted with what you are about to explain them later in detail. Your slide with the executive
summary should contain your two to three most important insights derived from your analysis. The
idea here is not to start explaining how you came to these insights, but to already give an update to
your audience. In case someone would already ask how you came to these conclusions, it is perfectly
fine to say that your analysis will be explained further on in the presentation. Remember that how you
actually came to your key insights, should eventually always be explained further on in your
presentation.

c. Situational overview
In this part of the presentation, you give a structured overview of the current situation, and
address all the key issues and/or opportunities. It is here where you will apply your framework, and
discuss all the dimensions important to understand the current situation. If one aspect of your
framework is more important than the rest, discuss the less relevant dimensions only briefly and state
that your analysis focused particularly on a certain part of the framework. Once you have provided
the overall situational overview through your framework, you start focusing on where the issues

and/or opportunities are situated (i.e. advancing the framework).


Make sure you present the situational overview in a logical way, for example, by starting very
high-level (such as the total market or the entire corporate value chain) and gradually move down, to
identify and discuss the issues or opportunities at a more detailed level (for instance, sales
opportunities in the Canadian market or relatively high costs-per-unit in the sales department).
Last, it is advised, where relevant, to use visuals to explain your ideas. Remember that a picture
is worth a thousand words. This can go from simple symbols, such as arrows or boxes to more
advanced charts. When you are given a set of quantitative data, you should consider how you can best
present this in your presentation to describe the situation and support your insights.

d. Response plan
In some presentation cases, you will be asked to only analyze the current situation, by identifying
the current issues or opportunities. Often, however, you will be expected to go further and determine
potential responses to address the current situation. In other words, you then need to determine the
consequences of your analysis. If you, in the previous step, for example, identified that a clients sales
department is cost inefficient compared to its competitors, you should now identify potential
measures to reduce this cost and, if possible, quantify the potential monetary savings of these actions.
Depending on the context of the case, your analysis and recommendations might, on one hand be quite
abstract, or might on the other hand be descriptive and precise.
One good way to present your response plan is by ranking the possible actions from highest
priority to lowest priority. First, present the key implications of your analysis, and leave the smaller
implications for discussion at the end. Keep in mind that your actions should be realistic. If for
instance your conclusion is to shut down a small manufacturing plant, at least discuss the potential
difficulties of this measure, such as strikes in other plants or additional costs due to severance pay.
Last, when you present the key consequences of your analysis, a good way to close is by asking the
audience if they would like to discuss or consider any other actions.

e. Next steps
Not all presentation cases require you to discuss the next steps, but including it shows you are
not afraid to think further than the case requires. The idea is to briefly discuss what should be done
after this presentation, generally in terms of additional analysis or even practical implications. The
objective here is not to be very accurate about what should be done next, but rather to make some
suggestions about which additional pieces of analysis would be interesting to further progress in the
case. Avoid making a large list of potential next steps, but rather, try to identify the two analyses that
would have the highest value for future progress in the case.
Examples of such next steps could, for instance, be further analyzing the potential cost savings,
quantifying in detail the sales opportunities in the Canadian market, or creating an implementation
plan for the suggested measures from the response plan.
A last slide you could always include, is a slide that says Questions & Answers or simply
Q&A. This makes it clear that your presentation is over, and that you are ready to address the
remaining questions your audience might have. Most interviewers will however already have asked

most, if not all, their questions during the presentation. Nonetheless, some interviewers tend to keep a
number of questions for you to answer at the end.

TIPS FOR PRESENTATION CASES


These are the three most important tips for success on presentation cases:
Make sure you have fully understood the assignment from the start. This cannot be
emphasized enough. Generally you will be on your own when preparing the presentation, and thus you
have to ensure that there is no ambiguity on what your output should look like.
Keep an eye on the time! Having done an extensive analysis, but eventually not having
anything on the slides, demonstrates you are not able to manage your time effectively or even that you
were too slow with processing the information. Therefore it is critical to decide from the start how
much time you will spend on each phase of the process to solve the presentation case, and try to stick
as much as possible to this time schedule.
Be ready for questions. Rarely will your audience just listen to you without any interaction.
Make sure you always know the reasoning behind what you are saying, as you could always be asked
about it. If you are asked about a certain number or a piece of data, and you are not sure, never make
something up. Instead, you should go back to the data and make sure you provide a correct answer. In
case your audience asks a question that you will address later on, you should tell them that you will
address that particular issue later on in your presentation.

Chapter V

Guesstimates and Brainteasers


WHAT ARE GUESSTIMATES?

The guesstimate question, or guesstimate, is a special type of question that you can expect to be
asked during a consulting interview. The idea is that you are asked to make an educated guess at
something for which you normally do not know the answer, and for which you have to logically
derive a realistic estimate. An example of a guesstimate could be: How many family cars are bought
each year in the United States of America? Guesstimates are specifically designed to assess your
strengths in the following areas:

Logic: Are you able to come up with a structured approach to find


an answer?
Numerical skills: Are you comfortable with making fast
calculations with large numbers?
Creativity: Can you find multiple ways to derive an answer or a
backdoor to a quicker but accurate answer?
Professionalism: Are you able to remain calm when being
confronted with a complicated guesstimate?
Guesstimates are typically asked during the first interview round, and only occasionally in later
rounds. Make yourself comfortable with the structure to solve guesstimate problems through
continuous training, and you will notice significant improvements in your skills to solve this type of
problem.
Always keep in mind that for a guesstimate question, it is better to arrive at a moderately wrong
answer using a structured methodology with good assumptions, than to immediately give the correct
answer because you read it last week in the newspaper. Giving the right answer without making a
logical analysis will not impress your interviewer, as this is not the goal of a guesstimate. On the
other hand, you could impress your interviewer by indicating multiple strategies to come to a good
estimation.

Often, guesstimates are given as in-case guesstimates, in which the guesstimate is part of a larger
business case. For example, in a business case on a solar panel manufacturer in France, the
interviewer could stop you before starting the business case, or even in the middle of your analysis, to
ask you an estimation of the total solar panel market in France. Sometimes the interviewer will expect
you to use your estimation in the business case; sometimes, the interviewer will ask you to go back to
the business case without actually using the estimation. Another possibility is that you get a
guesstimate and a business case unrelated to each other, often in a first interview round. In some
consulting firms, you might get one or two stand-alone guesstimates in the first round and no business
cases until the second round.
Every guesstimate is different, and most guesstimates can be solved in multiple ways, using
different methodologies. Nonetheless, there are some good strategies that will help you to solve most
guesstimates. The most common strategy is the top-down approach, in which you start broadly and
then slowly drill down to find the answer. The strategy is demonstrated in the guesstimate examples
section. This approach will help you solve most guesstimates; nonetheless, some guesstimates
demand a more customized approach in order to be solved.
Generally, when solving guesstimates, it is important that you first understand what is required.
For instance when you are supposed to estimate how many taxis are operating in New York, you
should obviously understand that you eventually need to come up with a certain number of cars. When
starting your analysis, it is also important to understand whether your interviewer will provide you
with specific information or whether you will have to make assumptions. You can determine this by
checking your first assumptions with the interviewer. In case he or she refuses to comment on your
assumptions or indicates that he or she does not know, then you will have to assume the answer
yourself. If the interviewer does provide you with data, make sure you use this to come to your final
answer.
After you are given a guesstimate question, feel free to take a moment to think over the best
approach to solve it. You could, for instance, say, What an interesting question; please allow me
some time to think about how I will approach this. Use this time effectively to consider an approach,
such as for example the top-down approach. If possible, try to go for a methodology with which you
do not have to make complicated or highly uncertain assumptions. When you eventually come to an
answer, never forget to do a reality check by simply verifying whether your answer seems realistic. If
your calculation, for instance, shows that in the United States, every day, 1 million serious car
accidents happen, you clearly made a wrong assumption or used an incorrect methodology. In case
you realize that you, in your approach, went wrong somehow and your outcome is unrealistic, make
sure to indicate to your interviewer that you are aware of this. Then investigate what might have gone
wrong, such as an incorrect assumption or a miscalculation, and redo the estimation from the point
where you went wrong.
When you arrive at a good estimate, you might be able to triangulate your answer. Often it is
namely possible to approach a guesstimate using different methodologies. You could work out an
estimation using one or two different approaches and compare or even average the outcomes. This
demonstrates to your interviewer open-mindedness, as you recognize more than one way to solve a
problem. Keep in mind, however, that time is scarce at a case interview. Therefore, you could simply
suggest, after having made your first estimation, alternative approaches without actually working them
out. Note that your interviewer might ask you at the end of the exercise whether your answer seems

realistic to you. This, however, does not necessarily mean your estimation is wrong; it just means
your interviewer wants you to do a reality check. In case your answer seems realistic, you could
simply state that your outcome does seem realistic to you. Your interviewer might simply want to see
whether you will stand your ground or whether you start to have doubts about your approach. In case
the estimate does not seem sensible, be honest and have a look at the assumptions and methodology
you used, and try to correct where relevant. Keep in mind that if you use good assumptions and a
correct methodology, then your interviewer will always appreciate your efforts, even when your
estimation is slightly off compared to the actual answer.
It is important to mention that, generally, when solving guesstimates you will be calculating with
large numbers. If you have not practiced this for a while, it is definitely advisable to practice your
mathematical reasoning skills beforehand. Some interviewers even allow you to use a calculator;
thus, make sure you have one at hand. Generally, however, your interviewer will expect you to make
the calculations unaided. Keep in mind that you are allowed to round up the numbers you are
calculating with. Rounding down the US population to 300 million is generally fine; rounding down
the number of days in a year to 300 however, is not. Make sure you do not exaggerate with rounding
numbers, though you should not give yourself too much of a hard time calculating with difficult
numbers either. Try to strike the right balance between rounding down and deriving a realistic
answer.
Last, it is recommended that you in advance study some important numbers by heart. You should
for instance know some facts and figures about the country in which you are applying for a consulting
position, such as its total population and other general demographics. It would also be smart to have
an idea about the usage of Internet, mobile phones, cars, and so on, in your country. Furthermore, you
should know the global population, as well as have an idea of the population of some of the worlds
most important economic countries, such as China or the United States. The more figures you know
the better, but keep in mind that your focus is on preparing for case interviews, not studying a series
of figures by heart.

GUESSTIMATE EXAMPLES AND


SUGGESTED SOLUTIONS
In the following, examples of guesstimates using both the top-down approach as well as more
customized approaches are provided. Keep in mind that all the solutions for the guesstimates are
based upon assumptions and approximations.
Example one: How many children are currently born each year in the United States?
Answer: The main driver for the number of children born every year in the United States is the
total number of fertile woman. Our starting point for this guesstimate would be the total US
population, which is 300 million people. Assuming half of this population is female, we have a total
of 150 million women. Let us say that most pregnancies occur between the ages of 18 and 38 for
women, thus during a span of twenty years. Knowing that the female life expectancy in the United
States is about 78 years, about one out of four people (25 percent) would be between 18 and 38 years

old when we assume that every age is equally represented. However, younger people are more
represented than older people, though not that much anymore in industrialized countries. Let us,
therefore, assume that 30 percent of the women are between 18 and 38 years old. This would mean 45
million women in the United States are aged between 18 and 38 years.
Let us now assume that on average women give birth to two children during their fertile period
of twenty years. Obviously some women do not want to have children or have only one; others have
three children or more. Regardless, this would mean that they have on average two babies over
twenty years, or one baby every ten years. Assuming that the number of fertile women remains
relatively constant over the next ten years, which is a sensible assumption, then 45 million women
will give birth to 45 million babies in a period of ten years. We thus have 45 million babies born in
ten years, which means 4.5 million babies born every single year in the United States.
The most recent exact birth figures in the United States show that about 4.3 million babies are
born every year, which is clearly quite close to our estimation of 4.5 million births per year. It is very
important to understand, however, that as the total US population grows over the years, the
assumption of 300 million inhabitants also changes, and thus the estimated number of childbirths.
In order to impress you interviewer even more, you might want to add that you could find a
slightly better estimate when for instance taking into account infertility rates for women and men.
Several other factors that have an effect on the number of childbirths in the United States can be
imagined. Obviously, all these factors have a relatively minor impact, but demonstrating that you can
think further shows creativity and open-mindedness to your interviewer, and will only do good for
your overall performance.

To summarize:
300 million US citizens; 150 million of those are woman. 45 million (or 30 percent) of those are
between 18 and 38 years old. 1/10 chance that these women will give birth in a particular year. Thus,
45 million (1/10) = 4.5 million childbirths in the United States per year.
As you can see, the top-down approach, in which you drill down from a broad population to find
a reasonable estimation to answer the question, has been used.
Example two: How many marriages currently occur each year in the United States of America?
Answer: Two important drivers behind the total number of marriages every year in the United
States of America are the number of marriages a US citizen has on average during his or her life, and
obviously the number of US citizens.
Let us assume that on average each US citizen has one marriage during his or her life span.
Obviously some people never get married; others have more than one marriage during their lives.
Nonetheless, one marriage during a life span seems a reasonable assumption. Furthermore, it seems
sensible to assume that most people have their marriage between 18 and 53 years of age, assuming
that the number of marriages after the age of 53 or before 18 are nominal. Knowing that the average
overall life expectancy in the United States is about 78 years, close to half of the people (45 percent)
would be between 18 and 53 years old, if we assume that every age is equally represented. Let us
assume that about 50 percent of the people are between eighteen and fifty-three years old, knowing

that people in their thirties and forties are represented more than the average. With a total US
population of approximately 300 million people, with 50 percent falling into our category, we have
150 million citizens aged between 18 and 53 years old. With one marriage on average within a time
period of 35 years, chances of a marriage in a particular year are theoretically about 3 percent. With
150 million candidates, having a 1/35 chance on average to marry in a particular year, we have about
4.3 million US citizens on average who would marry this year. Given that people of course get
married in couples, we have to divide this number by two to find our estimation for the number of
marriages in the United States. This brings us to a total of 2.15 million marriages every year in the
United States. The most recent statistic on the number of marriages in the United States per year
shows a total of 2.2 million marriages, which is very close to our estimation of 2.15 million
marriages per year.
It would also have been possible to not estimate the number of citizens at a marriageable age in
the US, but just say that a person marries once in an average life of 78 years. This would mean 300
million people with a 1/78 chance to marry in a particular year, thus leaving about 3.8 million people
to marry on average per year in the United States. This thus means an estimated 1.9 million marriages
per year. As you might have noticed, this method skips the estimation of people at marriageable age.
On one hand, you have less risk for making an error; on the other hand, you are claiming that one
could marry at any age, which is less realistic and, in the end, slightly less accurate.

To summarize:
300 million US citizens; 150 million (or 50%) of those are between eighteen and fifty-three
years old. 1/35 chance that these will have their marriage in one particular year, thus 150 million
(1/35) = 4.3 million people on average get married per year in the US; and 4.3 million people who
will marry means 4.3M/2 = 2.15 million marriages per year in the USA.

Or shorter:
300 million US citizens, and 1/78 chance that these will have their marriage in one particular
year. Thus 300 million x (1/78) = 3.8 million people on average get married per year in the United
States; and 3.8 million people who will marry means 3.8M/2 = 1.9 million marriages per year in
the USA.
Again the top-down approach was used, which drills down from a broad population to find a
reasonable estimation to answer the question.
Example three: How many (75cl) standard bottles of wine are consumed in the United States
each year?
Answer: The main drivers for this estimation are the number of adults, as well as the popularity
of wine in the United States. There is a total population of 300 million people, and let us say that
about 75 percent are adults, meaning 225 million people. Let us furthermore assume that about 80
percent of them consume alcohol, meaning 180 million people. Obviously not everyone who drinks
alcohol drinks wine. Let us assume that of those people that consume alcohol, about 70 percent would

consume wine. This brings us at a total of about 125 million people in the United States who consume
wine. Clearly consumption levels vary greatly between different people, but let us say based upon
intuition that an average person that drinks wine, realistically consumes three full glasses of wine per
week. This implies that each week 375 million glasses of wine are consumed in the United States.
Assuming that one standard wine bottle of 75cl would on average serve five glasses of wine, we find
a total weekly consumption of 75 million bottles of wine. On a yearly basis this would mean a total
consumption of 3,900 million bottles of wine. When we now have a look at the actual number of wine
bottles consumed per year, we find a yearly consumption of 3,875 million bottles, which is
remarkably close to our estimation.

To summarize:
300 million US citizens, and 225 million of those are at an adult age (75 percent). 180 million of
them consume alcohol (80 percent), and 125 million of them consume wine (70 percent). Average
wine drinkers consume 60 percent of a standard bottle per week; thus 375 million glasses, or 75
million bottles, of wine are consumed per week. This gives 75 million x 52 weeks = 3,900 million
wine bottles (of 75cl) per Year.
Obviously, there is no need to be this close to the exact number, because making accurate
assumptions is about good intuition and insight, but is also still partially luck. If we, for instance, had
said the average wine drinker consumes five glasses per week instead of three glasses, the estimation
would have been much less accurate (6,500 bottles). Nonetheless, keep in mind that the interviewer
expects you to have a strong and correct approach; making a minor assumption error will however be
forgiven. Therefore, it is key to initially figure out a proper methodology; one that preferably uses
uncomplicated assumptions, to come to an approximation. Whether your final estimation is very
accurate or not matters to a lesser extent. Notice again that the top-down approach has been used,
which drills down from a broad population to find a reasonable estimation to answer the question.

Example four: How many passenger cars are in use on our planet?
Answer: This guesstimate has been asked during an interview with Arthur D. Little, and is a
tricky one. Also this guesstimate can best be solved using the top-down method starting from the
global population, which is close to 7 billion people. One difficulty we now have, however, is that
the usage of passenger cars over various continents and countries varies considerably, and therefore,
it is quite difficult to estimate a global percentage of passenger car owners. You could make an
estimate, but there is the chance that you might be far from the correct answer. Instead, you should
divide the problem into smaller sub-problems, also referred to as grouping, and then use the topdown methodology within each group. In this case, for instance, you could estimate the percentage
of car users per continent, leaving out Antarctica obviously, which would mean six groups. You then,
however, need to have an idea of the number of inhabitants per continent and make sure the total adds
up to 7 billion. Furthermore, you should have a sensible intuition on the percentage of passenger car
owners per continent. You would then come up with something similar to exhibit 12.

Exhibit 12 - Estimated number of passenger cars by continent


Adding all the estimations of passenger cars used per continent, we find 818 million passenger
cars in use on our planet. The actual amount is not known, but well-thought-out estimates range from
750 to 950 million passenger cars worldwide. Again, demonstrating a good methodology to your
interviewer is more important than coming up with an almost perfect estimation.
Notice that other ways of grouping could be used to come to a realistic estimation. You could,
for instance, separate groups by yearly income, including all non-adults in the no-income category,
and estimate the number of people per category and the percentage of those that would own a car.
This would give something similar to exhibit 13.

Exhibit 13 - Estimated number of passenger cars by yearly income-level


Adding up all the individual estimations, we find a total of 710 million passenger cars
worldwide, which again is a good estimation.
This guesstimate may be one of the more difficult ones, given that you need to have quite some
pre-knowledge to make adequate groups. Nonetheless, this guesstimate has been asked during an
interview, and you should thus be prepared to come up with a good estimation. As mentioned before,
make sure you study upfront some figures about your own country, as well as some global figures on
population, car ownership Internet usage, and so on, as they might come in very helpful when solving
guesstimates.

Example five: How many traffic lights are there in Manhattan?


Answer: Clearly, the number of traffic lights depends mainly on the number of street crossings.
Let us assume that in Manhattan every street crossing has on average five traffic lights installed, and
let us now approach Manhattan as a rectangle, with 250 blocks along 14 avenues. This means a total

estimated number of 3,500 intersections in Manhattan. Taking an extra step, we could subtract Central
Park, which covers a total space of about 50 blocks by four avenues, meaning 200 fewer
intersections. This brings us to a total estimated number of intersections of 3,300. Given our
assumption of five traffic lights per intersection, we find a total estimated number of traffic lights of
16,500. We could now for instance add 10 percent to this number for temporary traffic lights because
of construction works, which brings our estimation to about 18,000 traffic lights in Manhattan.
The exact number is evidently unknown, but the goal is only to demonstrate a correct
methodology and reasonable assumptions. Obviously to effectively answer this question, you need to
have an idea of what Manhattan looks like. Therefore, this question would more likely be asked in the
United States, and even more likely in the New York office.

To summarize:
Manhattan has 250 blocks and 14 avenues = 3,500 intersections. If we deduct Central Park: 50
blocks by 4 avenues = 200 intersections, we have 3,500 200 = 3,300 intersections, with 5 traffic
lights on average per intersection. 3,300 x 5 = 16,500 traffic lights + 10 percent for temporary traffic
lights, thus 16,500 x 1.1 = An estimated 18,000 traffic lights in Manhattan.
Example six: Estimate the total market for toilet paper in the United States
Several guesstimates involve estimating the market for a certain product or service. You should
thus be able to do a market estimation of about any product/service, definitely for your own country.
Regularly your interviewer will, in this case, use this estimation as a starting point for a business
case.
Answer: Again multiple methodologies can be imagined to make this estimation. You could start
with the number of US citizens, and then estimate the average toilet paper consumption based on
intuition. Another approach would be to start from one average persons yearly toilet paper usage and
generalize to the entire US population. This strategy is also known as a bottom-up approach, and is
used to make the estimatation in this example.
Let us say that the average US citizen uses on average 15 times per week toilet paper, consuming
25 toilet paper sheets each time. With 52 weeks in a year, we find then that 19,500 toilet paper sheets
are used every year per person. Given that there are 300 million inhabitants in the United States, we
would have a total annual consumption of 5,850 billion toilet paper sheets. Let us say that an average
toilet paper brands 12-pack with 350 sheets per roll retails for $7 (probably $6.99). These packs
then contain 4,200 toilet paper sheets, and we would, thus, have an annual consumption of 1.4 billion
of these toilet paper packs. With each of those standard 12-packs costing $7, we would estimate that
the annual toilet paper spending in the United States is $9.8 billion.
Example seven: Estimate the total yearly revenue of McDonalds in the United States.
Answer: Several approaches can again be imagined. You could, for instance, use the top-down
method starting from the total US population, and estimate how much an average inhabitant spends per
year at McDonalds. Another good methodology would be to divide the US population in, lets say,
four groups: frequent consumers, average consumers, infrequent consumers, and non-consumers. You

could then estimate how many people fall in each group and estimate their yearly McDonalds
spending to find a good estimation. For this guesstimate, we used the second approach; grouping.
First, we start with the total US population, which is about 300 million people. To determine how
many people are frequent, average, infrequent, and non-McDonalds consumers and how much people
in each category would spend on average in McDonalds, you eventually need to use your intuition.
You would then come up with something similar to exhibit 14:

Exhibit 14 - Estimated spending at McDonalds by consumption-level


Adding up all totals, we eventually find a total of 10 billion in annual sales in the United States.
McDonalds real sales figure for the United States is close to 8 billion annually, which is relatively
close to our estimation.
Example eight: How many tennis balls could you fit in an average-size private swimming pool?
Answer: Before throwing yourself into solving this guesstimate, you might want to ask your
interviewer what he or she considers as an average-size private swimming pool. If he or she gives
you certain dimensions, you will obviously need to work out the answer using these. Otherwise, you
will need to make an assumption on the dimensions of an average private swimming pool.
The best way to solve this guesstimate is to first estimate the volume of an average private
swimming pool, and then estimate the volume of a tennis ball. You can then easily calculate the
number of tennis balls that would fit in this swimming pool. Assuming that the interviewer did not
give any specific swimming pool dimensions, we could estimate an average private swimming pool
to be 15 ft by 30 ft (4.6 m x 9.2 m), with an average depth of 5 ft (1.5 m). These dimensions imply a
total volume of 2,250 ft3 for our average private swimming pool.
Let us now estimate the volume of one tennis ball. The formula to derive the volume of a ball is
(4/3) x x (radius)3. Let us assume that the radius of a tennis ball is about 1.2 inches, or 0.1 ft. This

gives us a total volume for one tennis ball of (4/3) x x (0.1 ft)3 4 x (0.001 ft3) = 0.004 ft3. By
dividing the total estimated volume of an average private swimming pool (2,250 ft3) by the total
estimated volume of a tennis ball (0.004 ft3), you would find that 562,500 tennis balls would fit in
this average-size swimming pool. Nonetheless, the calculation is not yet finished. Taking the extra
step, we need to take into account the fact that tennis balls would never stack perfectly on each other,
but would moreover fit into each other. Because of this effect, the height of the stacked balls would
be slightly lower, allowing for, lets say, about 10 percent more tennis balls in our swimming pool.
This brings our estimate to about 620,000 tennis balls that would fit in the average-size swimming
pool.

Creating Additional Guesstimates


The more you practice guesstimates, the better you will become at it. Therefore, creating some
additional guesstimate questions for further practice is recommended. One great way to do this, is to
ask a friend to look up some interesting figures on the Internet that you then estimate. Ask him or her
to give you the guesstimate questions, make the derivations yourself, and check your estimation
afterwards with the exact answer. If you were relatively close to the correct answer, you should move
on to the next question. If, however, you were not, you should have a look at your assumptions and
methodology to find out where you might have gone wrong.
If you find you still need extra practice to improve your guesstimate skills, you could read
Guesstimation: Solving the Worlds Problems on the Back of a Cocktail Napkin by Lawrence
Weinstein. This book is devoted to mathematical approximation, and the author discusses several
approximation techniques in detail. Additionally, many other books that discuss case interviews have
a section on guesstimates.

WHAT ARE BRAINTEASERS?


Brainteasers are complex riddles that, in order to be solved, require some serious thought. They
are designed to test your logic skills and creativity, which are important attributes for a consultant.
Brainteasers are however far less common in case interviews than are guesstimates, but nonetheless,
you might be asked to solve one.
Keep in mind that there is no specific type of brainteaser, as they come in many forms, and the
best approach to tackle them often differs. For some brainteasers, you will need your mathematical
insights to reach an answer, while others will instead require some out-of-the-box thinking. Because
brainteasers are generally quite unstructured, it is evidently difficult to suggest a full-proof step-bystep methodology to solve them. Nonetheless, you can significantly improve your skills to solve
brainteaser by practicing multiple examples. It is advised that when you are given a brainteaser, you
immediately write down the specifics of the brainteaser and make sure you have understood the
problem correctly. One common strategy that often helps to solve a brainteaser is to initially simplify
the problem to gain insights, and then generalize your simplification to solve it. This strategy is
demonstrated in the example section. Lastly, keep in mind that some brainteasers have several
possible solutions, with some even being quite obvious.

Even though most consulting companies discourage the use of brainteasers during interviews,
every year some interviewees receive a brainteaser in their first or second round. As brainteasers are
generally not part of a standard interview, only a small number of fully worked-out examples are
illustrated.

BRAINTEASER EXAMPLES AND SUGGESTED SOLUTIONS


In the following, some examples of brainteasers have been provided. As you will notice, the
level of difficulty will increase with each example.
Example one: A man wakes up early in a hotel with no working lights and must dress for work.
He puts on his outfit, but when he gets to his socks, he realizes that he has twenty different
socks in his suitcase: ten white and ten black ones. How many socks does he need to take to
assure himself that he will have at least one matching pair?
This brainteaser is relatively easy and has been asked in a first round interview at Roland
Berger Strategy Consultants.
Answer: The first thing you could ask your interviewer is whether it would make sense to open
the curtains to let the sun come in. The interviewer would appreciate your creativity, but normally he
would answer that it is still too dark outside.
Let us first simplify this problem by looking at what the man should do if he had only two
different pairs, one black and one white. This makes the guesstimate look somewhat easier and
allows you to better imagine the situation. Now, first, you should try to imagine yourself being in this
position. You would first pick one sock out of four, which could be black or white, you dont know.
When you now take a second sock, this could again be black or white. One possibility is that it is the
same color as the first sock; in this case, you have a matching pair already. The other possibility is
that it is not the same color as the first sock; in this case, you would have already taken one black and
one white sock. If you then take one more sock you would definitely have one matching pair, whatever
color this third sock is. It will thus take the man at most three attempts to have a matching pair of
socks.
Obviously, the reasoning and the eventual answer for ten white and ten black socks is exactly the
same, but the problem might seem to be more complex. By simplifying the number from ten to two
pairs of socks, it however becomes easier to get a better grip on the brainteaser.
Example two: You are given two empty buckets, one capable of holding 3-gallons and the other
5-gallons. How could you use these two buckets to fill a 4-gallon bucket? You have a water tap
available that you can use to fill the 3-gallon and the 5-gallon buckets.
This brainteaser is also rather easy, and comes from the movie Die Hard: With a Vengeance.
Two strategies can be used to arrive at a correct answer.
Answer: The best way to solve this problem is by trying out different possibilities until you find
one that works. It might help if you sketch the buckets, to better visualize the situation.
One possible solution would be to first fill the 5-gallon bucket, and empty it into the 3-gallon

bucket, which leaves 2 gallons in the 5-gallon bucket. Now empty the 3-gallon bucket, and pour the 2
gallons in the 3-gallon bucket. Now fill the 5-gallon bucket, and use it to fill the 3-gallon bucket.
Once the 3-gallon bucket is full, you will be left with 4 gallons in the 5-gallon bucket.
Another possible solution would be to first fill the 3-gallon bucket and pour it all into the 5gallon bucket. If you then fill the 3-gallon bucket again, and use this to completely fill the 5-gallon
bucket, you would be left with one gallon in the 3-gallon bucket. Now, empty the 5-gallon bucket and
pour 1 gallon in this 5-gallon bucket. When you now fill the 3-gallon bucket and pour this in the 5gallon bucket (which already has 1 gallon in it), you will eventually have 4 gallons in the 5-gallon
bucket.
Example three: You are faced with two doors. Behind one is a pot of gold; behind the other one
is nothing. In front of each door is a person; one always lies, and the other one is always honest.
You can only ask one question to one person to decide behind which door the pot of gold is.
Which question will you ask in order to get the pot of gold?
This brainteaser is already more challenging than the previous two. Two questions could be
asked to find out which door is the correct one.
Answer: First, it might be useful for you to quickly sketch the situation. Obviously you cannot
just ask a person behind which door the pot of gold is, as there is the possibility that you asked the
person that always lies. The idea is to find a question to which both doorkeepers would indicate the
same door. You can achieve this by making the liar take the perspective of the honest person and vice
versa. Both ways to do this will now be illustrated.
One possible solution would be to ask to either person, If I would ask the other person which
door would lead to the pot of gold, what would he answer? In case you would have asked the liar,
he would indicate the wrong door. The reason is that he knows that the other (honest) person would
indicate the right door, and so he lies about this. In case you would have asked the honest person this
question, he would also indicate the wrong door, as he knows the other (lying) person would indicate
the wrong door, and he is honest about this. With this question, both people will indicate the wrong
door, and you can thus conclude you should take the other door.
Another possible solution would be to ask, If I would ask the other person which door does not
lead to the pot of gold, what would he answer? In this case, the reasoning is similar, but both people
will indicate you the correct door, where you should go to find the pot of gold.
Example four: Five pirates have captured one hundred gold coins and should divide them among
themselves. The most senior pirate has to propose a distribution for the coins. If at least 50
percent accept his proposal, the coins are divided as proposed. Otherwise, he will be executed
and it starts all over, and the new most senior pirate will have to make a new proposal. What
division should the most senior pirate propose, assuming they are all rational and greedy?
This brainteaser is definitely challenging and requires some more thought.
Answer: For this brainteaser, it would definitely be a good idea to again simplify the question,
and gradually make it more difficult before reaching the correct answer. In this case we could analyze
what would happen in case there would be one, two, three or four pirates instead of immediately five.
Let us in the following say that pirate one is the least senior and pirate five is the most senior.

We will first have a look at the problem if there would only be one pirate. In that case, he would
simply take everything for himself. If there were two pirates, than pirate 2 would propose to allocate
all coins to himself. By voting on himself, he would have fifty percent of the votes and thus obtain all
coins. Let us now analyze what would happen in case there were three pirates. In this case the most
senior pirate would need at least one other pirate to accept his proposal; if not, he gets executed.
Pirate 3 should realize here that if he were executed due to his own proposal, there would only be
two pirates left, and as we just figured out, pirate 2 would then get all the coins, leaving no coins for
pirate 1. Therefore, if pirate 3 would propose to give one coin to pirate 1 and ninety-nine for himself,
then pirate 1 would definitely agree. This is because pirate 1 knows that if he does not accept this
proposal, pirate 3 would be executed and pirate 2 would eventually assign all the coins to himself.
Let us now analyze what would happen if there were four pirates. Pirate 4, the most senior one,
would then have to convince one other pirate in order to obtain the minimum of fifty percent
acceptance. Again, he knows that if he were executed, that pirate 3 would keep ninety-nine coins for
himself, and give one to pirate 1. Pirate 4 could, in this case, convince pirate 1 by giving him two
coins, and pirate 1 would accept, as two coins are better than one. Pirate 4, however, has an even
better option: he should propose to give one coin to pirate 2, and ninety-nine for himself. Pirate 2 will
accept this proposal, as he realizes that in case pirate 4 would get executed he would get nothing from
pirate 3. If we now look at the original situation where there are five pirates, then pirate 5 would
need two other pirates to vote for him. The two pirates he will need to convince are those that get
nothing in the scenario where pirate 4 decides. Therefore, the solution for pirate 5 would be to give
one coin to both pirate 1 and pirate 3, and thus keep ninety-eight coins for himself.

Chapter VI

Review of Critical
Business Concepts
INTRODUCTION TO BUSINESS CONCEPTS

Many of you reading this book have a business or management background, and will already be
quite familiar with most of the business concepts that will be discussed in the following. Regardless
of whether you have already seen or studied these frameworks, it is recommended that you review
these concepts again, as they will prove helpful during your interviews.
During a business case, it is recommended that you start with the frameworks explained earlier
on cracking business cases. However, the more you practice and become comfortable with these
frameworks, the more you will start to notice that you can additionally integrate business concepts,
when relevant, to improve and strengthen your business case analysis.
When integrating one or more business concepts into your analysis, you should never literally
name the business concept you will be using, but rather explain its idea. You should, for example,
never say, and in order to analyze the industry attractiveness, I will apply the Porters five forces
model. Instead, you could say: and in order to analyze the industry attractiveness, it seems a good
idea to take a better look at the industry competitors, the substitutes, the potential new entrants, the
suppliers, and the buyers. As you will see, most of these frameworks and concepts are often fairly
simple to understand, and using them correctly to tackle a business case can greatly enhance your
analysis.
In the following, you will find an overview of the most important business concepts. Overall,
they are easy to understand, and you can integrate them quite easily where relevant within the
frameworks used to crack business cases. Several of these concepts are demonstrated through the use
of a practical interview example. For a more detailed discussion of these concepts, as well as
additional business concepts, please refer to academic and professional business literature.

OVERVIEW OF THE MOST IMPORTANT


BUSINESS CONCEPTS AND IDEAS

Best-practice benchmarking
Best-practice benchmarking is a technique that will often be part of a business cases. It is the
process of comparing a companys business efficiency and performance metrics relative to the
industrys top performers. These top-performing companies are referred to as the best-practice firms,
and are often the subject of studies aimed at better understanding what drives their success. Realizing
a benchmarking study can lead to valuable insights on how to improve a companys performance.
Notice that there are several types of benchmarking, such as process benchmarking, financial
benchmarking, product benchmarking, and so on.
Successful benchmarking consists of first identifying some of your key problem areas for
improvement. The next step is to identify similar organizations that use the same type of processes, as
well as the firms that are leaders in these areas. Then you need to obtain information, generally
through neutral organizations or mutual exchange of data, to better understand how these companies
achieve this high performance. The last step is then to implement new business practices based on the
findings of the benchmarking process.
An interview example:
Interviewer: [] so how would you evaluate whether our clients supply chain is efficient or not?
You: Well, we could do a benchmarking analysis, by investigating some key efficiency parameters of
our clients supply chain, and compare these with the best practice companies with similar supply
chains in the industry.
Interviewer: That is a good idea. Let us say that we found out that some of the best-practice
companies have the following values for these key efficiency parameters []

Capital Asset Pricing Model (CAPM)


The Capital Asset Pricing Model, also referred to as CAPM, is a methodology to determine a
theoretically reasonable rate of return of an asset, and is often used in financial business cases. The
CAPM is often used to determine a rate of return for the net present value formula, which will be
detailed later on. The CAPM is also used to assess whether a given rate of return of a certain asset in
a portfolio is reasonable or not, taking into account the assets risk. The CAPM is calculated using the
following formula:
Equation 1

where E(Ri) is the expected return of the asset i, Rf is the risk-free interest rate (for instance the
interest rate on most government bonds), i is the relation between the asset is return and the market
return, and E(Rm) is the expected return of the market.
The CAPM states that the expected return of an asset or stock is determined by two variables.

On one hand, the time value of money (represented by Rf), and on the other hand, the risk of the stock
itself (represented by i). The more volatile the returns of the asset are relative to the market average,
the higher the I value will be (notice that the market itself has a Beta of 1.0 by definition).
Approximate values for Rf, I, and E(Rm) can be found online; however, in business cases, it is
generally more important to demonstrate your understanding of the logic behind the formula than to
make an accurate estimation of the expected return of the asset. Having some basic insights about
historical returns is however advised in order to make sure that your assumptions are realistic.
An interview example:
Interviewer: [] another option our client is considering is investing some of its saved capital in a
mid-sized biotechnology company. Our client requires an average expected annual return higher than
6 percent given the risk of the investment; do you think this is reasonable?
You: Would the investment in the biotechnology firm solely be seen as a stock investment, or should it
rather be seen as a strategic acquisition?
Interviewer: It would purely be a stock investment. Why?
You: Well, in case the investment would be a strategic acquisition, then there might be additional
important advantages besides the expected return of the asset, such as for example synergies. We
could use the capital asset pricing model to see whether an expected annual return of 6 percent is
reasonable. First of all, a good approximation for the risk-free interest rate would be the long-term
US Treasury bill interest rate, which averages about 3.5 percent. A good approximation for E(Rm)
would be the S&P 500s adjusted long-term annual growth rate, which would be about 8.5 percent.
The approximation for I might be a little bit harder. Given that the asset in this case is a biotech firm,
returns are probably more volatile relative to the overall market. Furthermore, the company is
probably not yet an established biotech firm, as it is a mid-sized firm. Therefore, we could assume a I
of, let us say, 1.2. Bringing all this together, we find an expected return for the asset of 3.5 percent +
1.2 x (8.5 percent 3.5 percent) = 9.5 percent. We thus find, using the CAPM, a required annual rate
of return for the biotechnology stock of 9.5 percent.
Interviewer: What does this mean?
You: Well, our client requires an average expected annual return higher than 6 percent, but given the
risk of this investment, represented by I, an average expected return of 9.5 percent annually should be
required.
Interviewer: That seems about right.

Core competencies
Core competencies are those capabilities that are critical to a company to achieve a competitive
advantage. Examples of a competitive advantage are cost-leadership, strong differentiation, or expert

staff. Given the complexity of a business, management should always focus a considerable amount of
its efforts on those competencies that really affect competitive advantage. Eventually these core
competencies are the key areas of expertise, and are distinctive to the firm and critical to the longterm sustainability and growth.

Cost-benefit analysis
A cost-benefits analysis is a simple tool that can help structure your thinking and is often used to
make final recommendations. The idea behind the cost-benefit analysis is to weigh the pros and the
cons of a problem in order to make a decision. The more accurate you are in determining the merits
and the drawbacks, the more accurate your analysis will be. Notice that the Net Present Value, which
is explained further on, is a form of cost-benefit analysis where you quantitatively weigh the revenue
streams against the cost and investment streams.

Economies of scale and economies of scope


Economies of scale refer to the decrease in the cost per unit as the production output increases.
Economies of scope, on the other hand, is the theory that the average cost of goods decreases as a
result of changes in the scope of for instance marketing, distribution, the number of different products
manufactured, and so on. Economies of scale and scope however do not last, and at some point, the
efficiencies start to become less effective (often referred to as diseconomies of scale or scope).

Net Present Value (NPV)


The Net Present Value (NPV) is a very important concept in the finance world, and can be very
helpful in business cases where you have to assess investments. The concept is based on the fact that
one dollar today is worth more than one dollar in the future. Therefore, in order to compare
investments and their respective returns over time, you will first need to discount the value to its
present value. The rate used to discount, also referred to as the discount rate, is driven by the speed
of which money loses its value.
The NPV formula can be defined as:
Equation 2

where Ct is the investments return in year t, C0 is the initial investment in year 0, and r is the
discount rate (in percent).
The general rule is that when the NPV is negative, one should not pursue the investment
opportunity. On the other hand, a positive NPV implies that the investment opportunity is attractive.

A simple mathematical example:


A company has the opportunity to invest $1M euro today and would then obtain a return of
$575K euro after one year and $650K euro after two years. The project is quite risky and has a
relatively high discount rate of 15 percent. Should they make this investment?
Equation 3

Since the NPV is negative, the company should theoretically not pursue the investment
opportunity.
An interview example:
Interviewer: [] and therefore, the organization is thinking about investing in a new production
plant. How would you go about analyzing whether this is a good idea?
You: Well, we could look at the total investment cost (C0), and estimate the revenue streams (Ct) we
would be having over the following years. When we then estimate a reasonable discount rate (r), we
have enough information to calculate the net present value. If the NPV is positive, it would be worth
making the investment. If on the other hand the NPV would be negative, the company should likely not
pursue this opportunity.
Interviewer: That seems like a good approach to start with.

Network effects
A network effect is the effect that one additional user of a certain product or service has on the
value of that product or service to the other users. A classic example is a fax machine; if only one
person would have a fax machine, it would be quite useless. When, however, more people start
buying one, the value of a fax machine increases for those who already possess one. Network effects
will often be useful in IT related business cases.

Porters five forces


Porters five forces is one of the most well-known frameworks used in business schools, and
was developed by Harvard Business School professor Michael Porter. The framework is commonly
used for industry analysis and business strategy development. The objective is to determine an
industrys attractiveness or a firms current strategic position. This is realized by investigating the
competitive intensity within that industry and its market. More precisely, the analysis is realized by
investigating a firms direct industry competitors, the threat of new entrants in this industry, the threat
of substitutes and the power of the firms suppliers and buyers. An attractive industry would be one

where the overall industry profitability is high, given the five forces, and an unattractive industry one
where the overall industry profitability would be low.

Exhibit 15 - The Porters five forces model


Consultants often use this framework as a starting point to evaluate a clients position within its
industry. Notice that for firms that are present in various industries, an analysis should be completed
for each industry separately. The following provides an overview of the most important things you
would need to investigate for each of the five forces:

Industry competitors: Competitive strategy, pricing, and total


advertising spending
New entrants: Entry barriers, sunk costs, brand equity, and
government policies
Substitutes: Product differentiation, switching costs, and relative
price
Suppliers: Supplier competition and substitute inputs
Buyers: Sales volume, price sensitivity and substitute products
An interview example:
Interviewer: [] and the management is therefore wondering whether it should start selling high-end
computer joysticks. How would you analyze whether this is a good opportunity to pursue or not?

You: We could start by first analyzing the industry attractiveness of the high-end computer joystick
market by assessing the current competitors in this industry, the potential new entrants, the possible
substitutes, as well as the suppliers and buyers in the industry. In case the market appears attractive,
we could next analyze our clients core capabilities to see whether it would be a feasible move for
our client and how they should approach this new market.
Interviewer: That seems like a good approach. Could you make a quick analysis of the industry
attractiveness?
You: Well, let us start with the potential competition. In case our client would enter the market, would
it have many industry competitors?
Interviewer: Currently one leading company dominates the market of the more economical models,
and there are some smaller players focusing on the high-end models.
You: Given that our client wants to focus on the high-end market, this would mean that our client
would compete against small players, which is generally easier than competing against a company
that dominates the market. Let us now have a look at the potential substitutes. I would imagine that a
computer mouse and a keyboard could be substitutes for a joystick, but they would never be perfect
substitutes given that it cannot provide the exact same experience to the gamer. This is definitely valid
for the more high-end joysticks []

Portfolio theory
The portfolio theory is an investment theory, which attempts to maximize the expected return for
a given amount of portfolio risk or to minimize the portfolio risk for a given expected return on the
portfolio by carefully choosing the proportions of the various assets in the portfolio. These portfolio
assets could be shares or bonds, but could, in another context, also be a set of daughter companies
owned by the parent company. Portfolio theory often comes back in financial business cases, but it
can also be relevant in strategy-related business cases.

Product life cycle


The product life cycle concept can be very helpful in business cases where you have to analyze
a companys product or portfolio of products, and it is an interesting addition to the 4Ps framework
(marketing mix) which will be discussed further on. Often in business cases, part of the reason why
sales are declining or costs are too high relative to revenues, can be found in the products life cycle.
The idea is that every product has a life span; after it is launched, it grows and reaches a
maximum number of sales, after which sales start to decline. Clearly, during each product life cycle,
the appropriate product strategy is different and should be adjusted as the product moves through the
succession of stages. When a product for instance is just introduced in the market, the costs of
launching it are fairly high, whereas sales are generally low. Over time, through successful
management, sales start to increase, production costs go down through economies of scale, and
profitability increases. At some point however, the market demand decreases and profitability

becomes more of a challenge.

Exhibit 16 - The product life cycle concept

The 22-matrix
The 2x2-matrix is a business tool that is often very helpful during business cases. The idea is to
visualize information more easily, by plotting one variable on a horizontal axis, and one variable on a
vertical axis, creating four different quadrants. One very famous example of a 2x2-matrix is the BCG
matrix, named after the Boston Consulting Group (BCG). This 2x2-matrix measures a companys
relative market share on the horizontal axis and the market growth on the vertical axis.
An interview example:
Interviewer: One of our clients would like to invest a significant amount of his capital in the stock
market. Which factors would you consider to be important when making such investments? Could you
furthermore come up with a simple visualization to initially assess investment opportunities, taking
into account that the client is quite risk-averse.
You: The two most important factors to consider when making investments are probably the rate of
return of the investment, and the risk related to the investment. Given that our client is not willing to
take too much risk, the client could use the following simple decision-making model to initially
assess his investment opportunities:

Exhibit 17 - An example of a 2x2-matrix for investment opportunities

Interviewer: That seems like a good visualization, []

The 7s framework
The 7s framework is definitely a McKinsey & Company favorite, and has been developed as a
tool for investigating organizational effectiveness. This business concept is for example used to
investigate a companys performance, or to align departments and processes for instance during a
merger or a restructuring.
The idea is that all the elements of the frameworkstrategy, structure, systems, shared values,
skills, style, and staffneed to be aligned in order for an organization to be effective and to sustain a
competitive advantage. In case something in the organization is not working well, chances are that
there are inconsistencies between some of the elements of the 7s framework. Once these
inconsistencies are revealed, you can work to align the elements to make sure that they are all
contributing to the shared goals and values of the organization.

Exhibit 18 - The 7s framework


Notice that the hard elements in the framework are generally influenced by the management,
whereas the soft elements are less tangible and more driven by the organizational culture.

The marketing mix


The marketing mix, also referred to as the 4 Ps, can come in very helpful during business cases.
This business concept is often helpful in marketing or sales related business cases. The idea is to
analyze a companys products/services, sales locations, prices and promotions relative to its
competitors, along a set of standard questions. The following lists the most common questions per
element of the framework, but you should always add your own questions.

Product: Have the products/services and/or their packaging changed


recently (at our company or at the competition)?
Place: Have the sales channels changed, or are there new sales
channels (at our company or at the competition)?
Price: Did prices change recently (at our company or at the
competition)?

Promotion: Have there recently been (un)successful marketing


campaigns (at our company or at the competition)?
The marketing mix framework is often incorporated in the product-pillar of the business
situation framework, and is generally simply visualized as follows:

Exhibit 19 - The marketing mix concept


An interview example:
Interviewer: [] and the sales of cookies have risen significantly recently, but the CEO is not really
sure why! Could you investigate what has happened?
You: Well, we could have a look at the price of the cookies, the locations where they are sold, the
recent promotions and eventually the product itself.
Interviewer: That seems like a good approach!
You: Did the company recently lower the price of its cookies? Or did the competition maybe increase
its prices?
Interviewer: No, prices remained unchanged.
You: How about the sales channels? Did the company set up new sales channels, or did the sales
channels that were already present started selling more efficiently?
Interviewer: No new sales channels were created, and the current sales channels did not become
more efficient.
You: Was there maybe a recent promotion that was particularly successful? Or was there a recent
publication benefiting to the sales of cookies? Or maybe even a marketing blunder of a key
competitor?

Interviewer: No, these things did not occur.


You: Well, maybe something changed about the product? Did the company recently change the
ingredients of the cookies, or maybe the packaging of the product has changed?
Interviewer: The packaging of the product did not change. But the company indeed made a change in
the product recipe, making the cookies significantly crispier.
You: Did the companys competitors also do this? And was this decision to change the product recipe
based upon a marketing study?
Interviewer: The competitors have so far stayed with the old recipe. But, a recent marketing study
indicated that crispier cookies are getting more in demand.
You: Well, it seems to me that the increase in cookie sales is mainly due to the change in the product
recipe.
Interviewer: That indeed seems like a good explanation.
Along with the 4 Ps, there is a similar framework known as the 4 Cs. This framework also
analyses along four dimensions, and is also used in marketing cases. The idea is to analyze the
consumer needs, the cost of the product or service, the convenience to buy it, and the communication
in the media. This approach is more customer-oriented than the 4 Ps approach, and is often used in
business cases in which you need to better understand the customers and their needs.

SWOT analysis
SWOT analysis is a well-known framework used to evaluate a project or a business venture, but
is, however, less commonly used in business cases. The analysis is popular with managers to help
them with the strategic planning, for instance by identifying potential areas for improvement or
determining the feasibility of a project or venture.
The idea of the SWOT analysis is to evaluate the internal and external factors that are favorable
and unfavorable, relative to an initially determined business objective. This is realized through a
careful analysis of a projects or a business ventures strengths and weaknesses (internal factors), as
well as its opportunities and threats (external factors). The SWOT analysis is often simply visualized
as follows.

Exhibit 20 - The SWOT analysis concept


An interview example:
Interviewer: [] and, therefore, the CEO of FrostCo, a frozen foods company operating in France,
would like to know whether his company is ready to start selling its products in the Spanish market.
You: We could quickly have a look at the companys strengths and weaknesses, as well as the
opportunities and threats relative to this objective.
Interviewer: That seems like a good idea to start with.
You: Let us first have a look at the internal factors, namely the strengths and weaknesses of FrostCo.
Given its strong cash position, it has enough capital to fund an entry into the Spanish market. On the
other hand, the company has no experience selling its products outside of France, which will be a
challenge since the Spanish frozen foods market is quite different. When we now consider the
external factors, we could say that the Spanish market forms a great opportunity as it has so far been
underserved in frozen foods. On the other hand, a significant threat might come from the several other
frozen foods companies that are starting their operations in Spain. Overall, it can thus be said that the
Spanish market forms a great opportunity, and the resources to enter the market seem to be available.
On the other hand, FrostCo will first need to better understand the Spanish market, and analyze into
detail the competitive landscape.
Interviewer: Let us do that. How would you then investigate the Spanish market? []

ADDITIONAL READINGS ON
BUSINESS CONCEPTS
Keep in mind that the previous overview is only a small summary of some of the most important
business concepts. Understanding these, and being able to apply them, will most definitely help you to
better solve business cases. Nonetheless, there are several other business concepts that could be

helpful during a business case, as this list is definitely not exhaustive. For this reason, it is advised
that you in addition study other business concepts from qualitative academic and professional
literature.

Appendix A

Overview of Consulting Buzzwords


As in any industry, the consulting industry uses several buzzwords. It is important to be aware of
these specific terms when going on a consulting interview. Therefore, in the following, an overview
of the most common buzzwords used by consultants has been included.
The 80/20 rule: The idea that you can get 80 percent of the answer in 20 percent of the time. The
other 80 percent of your time might not be worth it, as 80 percent of the answer is often already
sufficient to decide on further actions.
Adjacencies: Refers to markets or businesses that are not too far away from a companies core
business in terms of technology, sales channels, brand etc.
At the end of the day: A phrase used by consultants to summarize a discussion, and perhaps to close
off certain avenues of discussion.
BCG matrix: The BCG matrix, also referred to as the growth/share matrix, is a portfolio assessment
tool developed by the Boston Consulting Group. The matrix shows the market growth rate versus
relative market share and is often used to optimize the corporate portfolio, achieve effective resource
allocation, or better understand the marketplace.
Benchmarking: The process of comparing ones business processes and performance metrics against
those of other companies (often the best performing companies) in the industry.
Big 3: McKinsey, Bain and BCG (also referred to as MBB).
Big 4: Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers.
Blank slide: An initial sketch on paper, made before the actual analysis, to show what the slide
should look like eventually in the case presentation (called blank because it does not yet include the
data that the analysts will input).
Boiling the ocean: Refers to an impossible task; by making things so complex that you could never
achieve your goals. Generally, when a project manager or partner says, Lets not boil the ocean, it
means the team should not be overly concerned with all the small details.

Bottom-up analysis: Method that starts by looking at the smallest units possible to initiate an
analysis, and then gradually works its way up by looking at the larger blocks (contrary to top-down
analysis).
Buckets: Often used as a synonym for categories.
Business Process Re-engineering (BPR): The process of rethinking (and usually downsizing) a
clients business processes by eliminating unneeded or non-value-adding tasks and then
implementing more efficient ones.
Buy-in: Often used as a synonym for reaching agreement or support.
CAGR: The Compound Annual Growth Rate, which is the year-on-year growth rate of an investment
over a specified period of time.
Case team: The team working on a consulting project for a client; traditionally composed of one
partner, one manager, one consultant, and two or more analysts.
Core client: Refers to a client with which the consulting firm has a long-standing relationship, and
one with which there is generally continuous communication even if there are no ongoing projects.
Core competencies: The areas in which a company excels, and that enable a business to deliver
unique value to its customers. The general belief is that a company should only enter those businesses
that relate to their core competencies.
Crunching numbers: Refers to making a large amount of calculations on a data set. For associate
consultants this often implies literally hours of work in MS Excel. Often the term being crunched is
also used to refer to consultants that are having an extremely high workload.
DCF: The Discounted Cash Flow, which is the present value of future cash flows.
Deck: A report, generally in the form of PowerPoint slides, discussing the client issues and the
recommendations from the project team. A consultant that is writing the deck is preparing the
slides/report for presentation to the client.
Deliverable: An output produced by the case team, as a result of the project that is intended to be
delivered to the client.
Due diligence: Refers to an investigation of a business, prior to signing a contract.
EBIT: Earnings before Interest and Taxes EBITDA: Earnings before Interest, Taxes, Depreciation,
and Amortization.
Elevator test: A test to assess ones ability to summarize in a short time (typically thirty seconds).
The elevator test represents the hypothetical situation in which you are sharing the elevator with a
CEO, and need to give him or her a quick overview of the results of the analysis during the ride.
Engagement: A consulting assignment; also referred to as a case or a project.

Experience curve: The principle that a companys cost declines as its production increases. An
experience curve that depicts a 20 percent cost reduction for every doubling in total production is
called an 80 percent experience curve. Most experience curves among different industries range
from 75 to 90 percent.
Granular: Refers to the basic elements that make up a business problem; often used in the context of
increasing the fineness/granularity of an analysis.
High-level: Also referred to as a 50,000-foot or a 5,000-mile view, which refers to a very basic
analysis to provide an overview of a situation without going into the details.
Hurdle rate: The minimum return rate a company is willing to accept on a project. Generally, if the
return on an investment exceeds the hurdle rate, the company should make the investment.
Implementation: The practical realization of the advice a consulting firm gave to its client.
Key: Synonym for critical, essential or important.
Learning curve: The rate at which someone acquires knowledge. A consultant, for instance, needs to
be able to acquire as quickly as possible background information or industry knowledge at the start of
a new case. A steep learning curve is clearly a good thing.
Letter of Proposal: A sales document proposed to a potential client that describes how and on what
a consulting team would focus its efforts to improve the clients business.
Leverage: A synonym for use, as in The firm should leverage its most important resources.
Low-hanging fruits: Synonym for quick wins. For instance, simple and quick analyses that are
easiest to cover and can provide some first insights.
MECE: Mutually Exclusive, Collectively Exhaustive. When data have to be MECE, it means that the
data in a group should be divided into subgroups that comprehensively represent that group, without
any overlapping.
NPV: Net Present Value, which is the sum of a series of discounted cash flows. The NPV is often
used to assess the profitability of an investment or a project.
OHare test: A test used by interviewers to assess whether your personality would fit the corporate
culture. They basically ask themselves the following question, If I were stuck overnight with this
person at OHare Airport, would I have fun?
On the beach: Refers to being between two case assignments. When consultants are on the beach,
their weekly working hours usually drop significantly. Generally, when consultants are on the beach,
they usually study management books, arrange their computer files, or help making proposals.
Opportunity cost: A key concept in economics, referring to the cost of the next best alternative
available among the choices you chose from.

Outsourcing: Hiring an external provider to perform a task traditionally performed within a


company, usually realized at a lower cost. Examples of services that are commonly outsourced are
call center services and accounting services.
Progress review: A periodic meeting, either internal or with the client, to discuss the progress that
has been made over the preceding period.
ROS/RMS graph: A graph, which shows the profitability (usually thus the ROS) versus the relative
market share for a certain industry.
Rightsizing: Also known as downsizing. This is a term used for restructuring a company. It is
generally used to refer to headcount reductions, but it can also be used for other types of restructuring,
such as production plant, office, technology, or process restructurings.
Scope: Refers to the set of deliverables that has been agreed upon at the beginning of a client
engagement.
Shareholder value: Refers to the total wealth a company generates for all its shareholders combined.
The primary objective of a case team during most engagements is to maximize the shareholder value.
Skill set: Consultants often use this term to refer to the skills needed to be a successful consultant.
The most important skills in the consultant skill set are generally analytical and reasoning skills, as
well as interpersonal skills.
Stakeholder: A person or organization that has a stake in the outcome of a particular action. Most
often the stakeholders in a case would be the shareholders, employees, customers or creditors.
Supply chain: The entire system involved in physically distributing a product or service from the
supplier to the customer.
Takeaway: Refers to the most important point that should be remembered upon the conclusion of a
discussion.
Taking the lead: A phrase often used by more experienced consultants when they wish to pass on a
task to a less experienced consultant. When this phrase is used, it usually refers to a tedious task that
does not require any leadership skills.
Thinking outside of the box: Refers to thinking creatively or from a new perspective. When
someone says, Lets think outside of the box, that person usually means that he or she is looking for
new ideas.
Transparency: An indication for openness. When a consultant says, We will be transparent, then
the person is implying that he or she will be particularly revelatory on certain issues. Often, it also
implies that the consultant has been rather opaque up to then.
Top-down analysis: Method that starts by looking at the bigger picture (usually high-level) to initiate
an analysis, and then gradually works its way down (also referred to as drilling down) by looking

at the individual blocks that make the bigger picture (contrary of bottom-up analysis).
Up or out: An employee promotion policy that is used by several consulting firms, and implies that if
you are not promoted (up), you will have to leave (out) the firm.
Upward feedback: The process of providing feedback by junior employees upward to the more
senior employees, such as managers and partners.
Value-added: The amount by which the value of goods or services are increased by each stage in the
value chain. Companies try to maximize the value addition over the entire value chain, as this
improves their competitive position. Value-added can also refer to the extra features given to a
product/service that go beyond standard expectations, often without significant cost increases.
Venture capital (VC): The equity-related financial capital provided to high-potential start-ups in
their early stage. Before providing venture capital, the venture capital funds will usually carry out a
detailed due diligence. To increase the likelihood of success of the start-up, venture capitalists
generally also look after the companies in which they invest.
WAG: Stands for wild-ass guess, and is an estimate based upon professional experience. WAGs are
often used when there is no time to do all the necessary research to come up with a good
approximation, in which case a consultant would use his experience based upon previous cases to
make the estimation/guess.
White space opportunity: An opportunity for a company to make money in a business area in which
it is currently not present. Often refers to adjacencies, outside of the companys traditional business
boundaries.
Work plan: Also referred to as a project plan and is the schedule used to complete a consulting
engagement. It specifies how the project will be conducted and sets the deadlines and
responsibilities.

Appendix B

Basic Overview of the


Financial Report
Whether you have a financial background or not, most consulting firms will expect you to have at
least a basic understanding of financial statements. Since these are well structured and easy to
understand, you can easily get an adequate understanding. Most larger firms have the obligation to
make their financial statements public, and they can often be found on their corporate website. It is
recommended that you first have a look at some examples to get comfortable with the format. In
general, the report consists of four financial statements that describe the financial health of a
company:

The balance sheet


The income statement
The statement of retained earnings
The statement of cash flows
Often additional notes supplement a companys annual report, to describe certain items in the
financial report in further detail. In general smaller firms use simplified versions of the financial
statements, and larger firms have a more complex financial report. The next four sections will briefly
cover each of the four financial statements. Notice that all values between parentheses in the
examples represent negative values.

THE BALANCE SHEET


The balance sheet provides an overview of a companys assets, liabilities, and equity at one
specific point in time. It is often referred to as a snapshot of what a firm looks like on a certain
moment. When analysts perform a financial analysis of a firm, they base most of their financial ratios
on the balance sheet.

On the left side of the balance sheet, you can find the assets, which represent the economic
resources of a company. They are listed in order of how easily they can be converted to cash. A
company always obtains these assets by incurring debt (liabilities), or by obtaining new investors and
using retained earnings (equity). The liabilities and equity can be found on the right side of the
balance sheet, and are listed in order of when they become due for payment. Given the relationship
between on the one side assets and on the other side liabilities and equity, both sides of the balance
sheet always have to be equal to each other. Exhibit 21 is a basic example of a balance sheet.

Exhibit 21 - Example of a balance sheet

THE INCOME STATEMENT


The income statement, or profit and loss statement (P&L), presents the results of a firms
business operations over a period of time. It explains how revenue has been transformed into net
income after all the expenses have been deducted. The net income is often also informally referred to
as the bottom line. Exhibit 22 is an example of an income statement.

Exhibit 22 - Example of an income statement

THE STATEMENT OF RETAINED EARNINGS


The statement of retained earnings provides an overview of what the management is doing with
the earnings of a company. In general, the management can choose between investing the earnings
back in the business or distributing them to the shareholders. The retained earnings are generally
calculated as follows: Ending Retained Earnings = Beginning Retained Earnings - Dividends Paid +
Net Income. Exhibit 23 is an example of a statement of retained earnings.

Exhibit 23 - Example of a statement of retained earnings

THE STATEMENT OF CASH FLOWS


The statement of cash flows essentially shows the flow of cash in and out of the business, and
gives you an idea about a firms liquidity and solvency. It is often considered the most important
statement, as it shows whether a company is holding or generating sufficient cash to sustain its
business activities. The cash flows are broken down into three different sources of cash generation,
namely, operating, investing, and financing cash flows. Exhibit 24 is a simplified example of a
statement of cash flows.

Exhibit 24 - Example of a statement of cash flows

Appendix C

Review of Other Sources on


Cracking Consulting Interviews
The objective of this book is to provide you with the most important information needed to succeed
in your case interviews. When you have studied this book, and internalized its concepts and
frameworks, you should have built up a strong set of case interview skills. Nonetheless, extra
readings and studying other materials could help you to further increase your chances of success. For
this reason, an overview of several additional sources on case interviews, both commercial and noncommercial, has been included. Please note that the authors of these sources are in no way related to
this book, and the use of these sources is completely up to the reader.

Recommended freely available resources:

All the websites of the leading consulting firms


www.aceyourcase.com (free newsletter & articles)
www.caseinterview.com (free newsletter & video tutorials)
Recommended commercially available resources:

Case In Point 7th Edition by M. Cosentino


How to Get Into the Top Consulting Firms: A Surefire Case
Interview Method - 2nd Edition by T. Darling
Crack the Case System: Complete Case Interview Prep by D.
Ohrvall
Look Over My Shoulder Program by V. Cheng
Guesstimation: Solving the Worlds Problems on the Back of a

Cocktail Napkin by L. Weinstein


The Pyramid Principle: Logic in Writing and Thinking by B.
Minto
What I Didnt Learn in Business School: How Strategy Works in
the Real World by J. Barney and P. G. Clifford
Any business strategy related article published in The Economist
or Harvard Business Review

About the Author

Tom Rochtus is a well-known expert on the topic of case interviews. He passed all his case
interviews, and received offers from six of the most important management consulting companies,
including Bain and McKinsey. He eventually signed with Bain & Company as a consultant; one of the
worlds most prestigious management consulting companies.

Acknowledgments

Thanks to everyone who had a hand in making this book possible. Definitely to CreateSpace Inc.
and to Amazon.com Inc. for all their help in the editorial, production and distribution process. To end,
I would also like to thank all my friends and family, especially my father, for being a constant source
of joy and support in everything I do. Thank you!

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