How To Crack Cases

John N. Doggett, JD, MBA Global Management, Entrepreneurship and Sustainability & Energy McCombs School of Business Senior Research Fellow, IC2 Institute University of Texas at Austin john.doggett@mccombs.utexas.edu August 2, 2010

The Secret Is . . .
      Act Like Its Your Company Act Like Its Your Money Act Like Its Your Reputation Act Like Time is Running Out Act Like This Is Your Only Chance Ask Hard Questions

 Make A Decision and Support it with #s

Whose Will Lose if You are Wrong?

 Put Yourself in Her Shoes  Answer These Questions
 How Bad Is The Problem?  How Long Can She Last Before She Gets Fired?  How Can You Solve This Problem?  How Much Will Your Solution Cost?  Where Will The Money Come From?  What Impact Will Your Plan Have on Profits?  How Will Our Competitors Respond?

How Do Businesses Compete?

 They Find Pain Points that Existing Products and Services serve Poorly  They Create Unique, Valuable and Hard to Imitate Products and Services  They Find Customers and Suppliers Who Are Weaker Than They Are  They Fit All of Their Activities to Interact with and Reinforce Each Other  They Constantly Scan the Horizon for Killer Disruptive Technologies

Understanding The Business  What Business Are We In?  Who Are Our Customers?  What Are They Buying?  Who Are Our Competitors?  How Do We Make Money?  How Does $ Go Through Our Company?

Who Are Your Customers?

 Who Are Your Most Profitable Customers?  Should You Drop Any of Your Current Customers?  Are There Any Customers That You Should Have and Dont?  Are They Buying a Product or A Service?  What Do They Think They Are Buying?  Who Should Be Your Customers Tomorrow?  How Do You Know?

Who Are Your Competitors?

 Whose Market Share Will You Take?  What Type of People Are in Charge?  Why Do They Want Your Customers?  Do They Know Who Your Most Profitable Customers Are?  Can You Win A Price War With Them?  Are They Distracted or Will The Quickly Respond to Anything that You Try?

What Must You Do?

 What Information Do We Need To Define The Problem?
 Case Facts  Google Facts  Financial Data  Quantitative and Qualitative Analysis

 Once you Define the Problem, then develop an Action Plan that says:
 What We Must Do and When we must Take Action,  How Much Money Our Solution Will Cost,  Where we will find this Money,

What Questions Must You Answer?

 How Much it will Cost to use this Money,  How Many People And Other Resources Will We Need to implement Your solution,  What we will have to do to get and pay for these additional people and resources,  How Long It Will Take Before We See Results from Your Solution, and  The Financial Impact of Your Solution.

How Do You Show Financial Impact?

 Project The Impact Your Solution Will Have On The Bottom Line!
 Income Statement Projections  Balance Sheet Projections  Cash Flow Projections  Market Share Projections  Competitor Response Projections

How Does Your Cash Flow?

 When Does The Business Have To Buy Resources Such As Supplies, Raw Materials And People?  When Does The Business Have To Pay For Them?  How Long Does It Take To Acquire A Customer?  How Much Capital Equipment Is Required To Support A Dollar of Sales?

What Numbers Should You Crunch?

 #s that help you understand the firms cash position  #s that help you understand how the company makes money  #s that help you understand how the company spends and/or wastes money  #s that will help you develop a plan of action to improve the firms performance

Tricks of the # Trade

 COMMON SIZE YOUR FINANCIALS
 You are looking for abnormal trends

 Look at the A/Rs and A/Ps

 They should be in balance or A/Ps should be slightly higher  They should be growing at the same rate as sales

 Look at COGS & SG&A

 They should be growing at a slower rate than revenues

 Look at Profits and Retained Earnings

 They should be growing as fast or faster than revenues

What Are the Key Risks?

 What Can Go Wrong?  How Bad Can It Get?  What Can We Do To Prevent Meltdown?  What Resources Do We Need To Protect The Venture?  What Are the Odds of Success?  What Can We Do to Improve the Odds?

What is Your Development Plan?

 How Are We Going To Grow The Product?  How Are We Going To Improve Our Product/Service Position?  How Will Our Organization Evolve?  What Impact Will Technology Have On Us?  How Will Our Personnel and Resource Needs Change?  What will be our Next Product(s)?

This is Where it Gets Interesting

ANALYTICAL TOOLS

What is Your Hypothesis?

 The Purpose of Your Analysis is To Develop An Action Plan To Respond To The Problems That You Have Identified.  Create and Test Your Initial Hypothesis
 What Analysis Do I Need to Perform to Prove or Disprove My Hypothesis?  If Analysis Supports Hypothesis, Continue  If Analysis Disproves Hypothesis, Create New One
Deloitte Consulting - 1999

Techniques Issue Diagrams

 Issue diagrams are typically constructed in four parts:
 Objectives
 What needs to happen

 Issues
 Questions to be answered or topics explored

 Hypotheses
 Speculative assertions to be tested and revised

 Questions and Data Specifications

 Drives the primary research  Focuses on data needed to prove or disprove
Deloitte Consulting - 1999

Issue Diagrams, cont.

Objective:
Question 1Aa Hypotheses 1A Question 1Ab Question 1Ac Hypotheses 1B Question 1Ca Hypotheses 1C Question 1Cb Question 1Cc
Deloitte Consulting - 1999

Issue 1

Issue Diagrams, cont.

Objective: XYZ Corp wants to improve customer service

XYZ can partner with a service star

How can this be done at little or no cost?

Who are the candidates? What does XYZ offer?

Question 1Ac Hypotheses 1B Question 1Ca Hypotheses 1C Question 1Cb Question 1Cc
Deloitte Consulting - 1999

Techniques - Storyboards
 Storyboards
 A storyboard outlines individual pages in an evolving report.  First iterations document what you know and project what you need to learn  Include place holder headlines for each hypothesis
 Data needs identified here

 Storyboards allow validation of the narrative flow

Deloitte Consulting - 1999

Storyboards, cont.
The market is large The market is growing Profitability varies by state No significant new entrants have appeared in three years

The regulatory environment varies by state

Warm weather producers have advantages

Deloitte Consulting - 1999

A Complete Diagnosis
 Locates and Measures the Opportunity for Improvement  Pinpoints the Cause of the Problem  Establishes the Requirements for a Sound Recommendation  Identifies the Key Controllable Variables  Is M.E.C.E. (Mutually Exclusive and Collectively Exhaustive)
McKinsey & Company - 1982

Rapidly Narrow Scope to Identify Critical Problems

SCOPE REFINE AND REFORM

DEFINITION INITIAL STATEMENT OF PROBLEM

DIAGNOSIS IDENTIFICATION OF SOURCES OF PROBLEMS DEVELOPMENT OF POSSIBLE ACTION HYPOTHESIS

RECOMMENDATIONS EVALUATION OF POSSIBLE ACTIONS DOCUMENTATION INTEGRATION OF SOLUTION SET

TIME

McKinsey & Company - 1982

Problem Validation Process

PROBLEM VALIDATION: WHAT. . . . . . IS WRONG? HOW. . . . . . DO WE KNOW? WHY. . . . . . IS IT IMPORTANT? WHO. . . . . . SAYS SO? WHEN. . . . . . WILL IT BECOME CRITICAL? SOLUTION: HYPOTHESES GENERATION

WHAT. . . HOW. . . WHY. . . WHO. . . WHEN . . .

. . . SHOULD WE DO? . . . CAN IT BE DONE? . . . WILL IT HELP? . . . HAS TO DO IT? . . . WILL RESULTS SHOW?
McKinsey & Company - 1982

SEQUENTIAL ANALYSIS SIX QUESTIONS

Is there a problem?

Where does it lie?

Why does it exist?

What can we do about it?

How much benefit would result?

What are the risks?

DEFINE

ISOLATE

EXPLAIN

RESOLVE

ASSESS

ANTICIPATE

McKinsey & Company - 1982

Is There a Problem?

Profit Contribution $

Contribution Rate

Volume

Selling Price

Total Market Volume

Segment Volume

NonDiscretionary

Discretionary Cost McKinsey & Company - 1982

Total Market Share

Segment Share

Where does the problem lie?

Product Variant/ Model

Channel

Account/ Customer

Region

Consumer Type

McKinsey & Company - 1982

Why does it exist?

LEVEL 1

Positional

Availability

Awareness

Trial

Repurchase

Target Market

Product Specs

Region

Sales Force Deployment

EXPLODING THE PURCHASE DECISION

Benefit

Price

Channel Sales Force Execution

Brand Name

Account/ Customer

Variant/ Model Packaging Styling

Selling Terms

McKinsey & Company - 1982

Why does it exist?

LEVEL 2

Positional

Availability

Awareness

Trial

Repurchase

Target Market

Product Specs

Region

Sales Force Deployment

EXPLODING THE PURCHASE DECISION

Benefit

Price

Channel Sales Force Execution

Brand Name

Account/ Customer

Sales Force Deployment

Variant/ Model Packaging Styling

Selling Opportunity

Selling Terms

McKinsey & Company - 1982

Selling Mission

Coverage

Frequency

Porters 5-Forces

What Is Strategy?
 Strategy is an Integrated Set of Actions Aimed At Securing A Sustainable, Advantageous Competitive Position For Your Firm  The Goal of a Competitive Strategy is to Provide More Value for Your Customers Than Your Competitors  Defining Value is the Hardest Part

Source: McKinsey & Company - 1982

Value Defined
 Value = Benefit - Price  Benefit = Attributes that are desirable to Your Firms customers  Price = Total Costs to the Customer  Superior Perceived Value = Customer Believes Product Gives Net Value More Positive Than Alternatives

Source: McKinsey & Company - 1982

The Strategic Value Triangle

Value = Benefits - Price

Customers

Asset Utilization

Cost

Asset Utilization

Competition
Source: McKinsey & Company - 1982

Your Firm

Strategic Value Triangle

Value = Perceived Benefits - Total Costs

 Value Is Defined By The Customer  Your Job Is To Understand Its Customers So Well That You Can Show Them A Value Proposition That Sells Your Product  Any Analysis That Doesnt Start With Your Customer, Then Look At Your Competitors, And End With Your Customer, Will Kill You
Source: McKinsey & Company - 1982

The Seven S Approach

Turing Ideas Into Actions

 Strategy Determines The Skills You Need  Skills Determine the Appropriate
    Structure Staff Systems, and Style Required

 Shared Values are the Glue That Help Determine What Goals Your People Pursue
Source: McKinsey & Company - 1982

How to Take Control in the First 2 Minutes

PRESENTATION SUGGESTION

Take Control; Eliminate Suspense

 Dont tell the CEO basic facts about Her Company.  She has been trying to solve this problem longer than you have. What she wants from you right now are Answers, not background details.  Give her your point of view, recommendations, conclusions, and findings first. Then share the details and analysis that support what you have said.

Bain & Dells Answer First Model

Situation Complication Question Answer

Assertion 1

Assertion 2

Assertion 3

Evidence

Evidence

Evidence

Fact

Fact

Fact

Fact

Fact

Fact

Summary Next Steps

Answer First Model Definitions

 Situation
 Describes the current conditions with a clear, short, value neutral short fact statement.

 Complication Key Issues

 Describes what has changed, what issues make change difficult and why there is an immediate need to take action. Should beg the question.

 Question
 This is your Call to Take Action where you show the scope of your presentation and engage your audience.

Answer First Model, cont.

 Answer/Hypothesis
 What must we do to solve the complication?  This is the step where you form your initial hypothesis or answer and test it out with your analysis  This is the step where you identify all of the key issues that you need to analyze to determine what action is required that the firm can realistically implement in the time frame necessary to eliminate the complication with the resources that the firm can reasonably be expected to control

Answer First Model, continued

 Assertions
 What assertions or statements do you have to make that will convince your audience that your Answer/Hypothesis is correct?  To develop your Assertions, ask what facts and data do I have that will convince the firm to accept your Answer/Hypothesis.  Be clear, precise, and prioritize.

 Facts
 Hard facts and data  Common knowledge  Sources for facts

Answer First Model, cont.

 Summary
 Summary of key Recommendations and Compelling Supporting Data.  Restates the Call to Action.

 Next Steps
 Tell them exactly next steps they should take to implement your answer.

Answering Questions
 Answer them immediately.  People ask questions because they are:
 Confused, Excited, Frustrated or Inspired

 Once you are sure you have answered their question, go back to where you were in your presentation and continue unless you have covered that point adequately.

When in Doubt