Post on 04-Apr-2018
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Practice Cases
Ten incredibly complex business problems that w ill
keep you entertained for hours!
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IMPORTANT NOTE:
These cases have been culled from emails, web pages, loose
conversations, and the like. They are intended for use only by
students at the Goizueta Business School.
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Cutting Costs:
Youre working on a project for a major credit card company in the call
center. The call center handles customer service type calls (i.e.
complaints and questions) as well as marketing type calls (i.e.
requests for new product information, etc..) Your team is interested in
some cost savings. What do you do?
Key Issues:
Since this one focused on just cost, take a look at all of the differentthings that could drive costs, and then break them down.
Labor (operators) and its productivity- major cost (How canthey be more productive?)
Look at different types of calls; can you route them,create specialists?
Can you take a look at how long different types of callsare?
What are some ways to shorten call lengths? How can you generate revenue with calls? How about waiting time? System improvement? How can this help or hurt costs? Possible look at service level and determine the optimal
length of time for different types of calls.
Staggering labor around the call patterns (density ofcalls per time of day)
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New Markets:
You are with a project team working for an office furniture
manufacturer. The manufacturer wants you to think of ways in which
it can expand its markets. What do you do?
Key Issues:
Always ask for more information Frame your questions in the format of the case (i.e. How big is the
manufacturer? Where do they shake out in the market? Who are
their clients?, etc..)
Think of current customers and expand with them (i.e. Who are thecustomers today? How do they rank in office furniture purchases
(by size, age, location, etc.. of company)
Identify the optimal customer today and determine whichcompanies will move in that direction in the future.
Think of who may be the optimal customer of the future. Think of different ways to segment the market for this problem (i.e.
What types of industries require high furniture use and
replacement?
Mention companies strengths and weaknesses (what are they doingwell, what are they doing poorly)
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Declining Profits:
A laundry service company provides linen washing services for high-
end restaurants, mostly cleaning linen tablecloths and napkins. The
company has a fleet of trucks that pick napkins up and delivers them
at regular intervals to each restaurant. After a period of rapid growth,
the company has had increasing revenues, but declining profits over
the past two years. What is the problem?
Key Issues:
Company has centralized cleaning Each truck takes a week-long round-trip of delivery and pickup Washers and dryers are of normal size (no real economies of scale
in processing)
As revenues have grown, customers are more distant, moreexpensive to service.
Utilization of space in the trucks (some are about 50% full, recentw/ the more distant customers)
Decentralization would reduce the number of trucks neededbecause each truck could cover more customers because they are
closer together.
This decentralization would also enable better truck utilization. Cost cutting/competition is not the reason for reduced profitability Restaurants are mostly independent operations - no real buyer
power
There is competition, but account turnover is low Small sales force that calls on restaurants
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Represent by graphs trading off: avg dist driven to acustomer/profitability and # of locations/profitability.
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Global Expansion:
Your client, a US based manufacturer of a powdered drink, similar to
Kool Aid, wants to expand into Europe. You are tasked with
determining how they will accomplish this. What are some of the key
things you will need to know?
Key Issues:
Ask Why do they want to expand? Why Europe over Asia or LatinAmerica?
(Internal)
Firms competence/strength Capacity Existing products/plants/distribution channels in Europe Relationships in Europe(External)
Demand in Europe for this type of product Differences in local culture/customs Need for custom package/branding by country Can we make the product to their specifications in our current
facilities?
How would you explore the European market? Use our (consulting firms) resources in Europe Hire local consulting/consumer research firm Contract retailers, distributors and manufacturers of related
products
Market test/focus group Competitive landscape
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Retaliation Can we have a competitive advantage such as price or
differentiation
Does our strength match up to the needs in Europe? (yes) Shelf space Distribution
Export from US (Trade barriers?) Use own distribution force Use distributor/consolidator Partner with a firm selling related products (parallel) License product to local manufacturer and use their channels Joint venture with local manufacturer
Need for a local plant, if so where do you put it? Economic incentives Regulatory climate Proximity of suppliers Consider distribution
Unusual local conditions (will water supply impact quality of ourproduct?)
New Business Opportunity:
You are working for a major phone company (one of the big three).
They currently make new phone equipment, which they sell to
companies and individuals. They are thinking of getting into the
second-hand equipment business (i.e. selling used phone equipment).
Is this a good idea?
Key Issues:
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What is this market about? (i.e. Who are the players, who are thecustomers, how big is it, how profitable, etc..)
Next, get more pointed in questioning and ideas. (i.e. How do theygo about getting the used equipment, are there costs involved,
what about quality issues, how old does equipment have to be
before it becomes obsolete, etc..)
Does the company already do some of the required tasks? (i.e.testing equipment, packaging equipment, delivery and setup of
equipment, etc..)
Next, lead into economies of scale, or will it need to set up entirelynew facilities and systems?(costs)
In general, perform a cost-benefit analysis.
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Facing New Competition:
You are consulting to a CEO of an airplane manufacturer. In the last
couple of years, you have gone from being number one in market
share to number two. In addition, another company has announced
that it will be entering the business and is presently tooling up its
plant. As a consultant, what are the concerns your client might face,
what additional information might you want to find out, and what
recommendations would you have?
Key Issues:
What is the condition of the airplane manufacturing industry? Why has the firm lost market share? How do you prevent the new entrant from stealing market share?
INDUSTRY: Demand is a function of travel among two classes,business and leisure. Business travel increases as a result of
globalization. Leisure travel increases with growth of middle and
upper classes. Leisure travelers are very price sensitive.
MARKET SHARE: It turns out the competitors plane is cheaper tooperate because it is more fuel efficient. The consultant should ask
as a strategic question whether the firm is interested in the
manufacture of more fuel efficient planes. The answer would
depend on the future of oil prices. Instead, it might be better to
compete on the basis of price, safety, and service.
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PREVENTING NEW ENTRANTS: Barriers to entry may includepreemptive long-term contracts, economies of scale, knowledge
based economies. Purchasers are concerned with safety, to
highlighted the firms proven safety record would be appropriate.
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Alarmingly Poor Sales:
Your client is the manufacturer of audio cassettes. They have hired
you to figure out why theyve been experiencing an alarmingly poor
sales year. Whats the real problem and what are you going to do
about it?
Key Issues:
MARKET CONDITIONS: Mature market, 5-6, major players,market share has increased from 33% to 44%. Client offers a full
range of audio cassettes from low bias to high bias/metal. The
firm historically targeted two consumer groups older middle
income enthusiasts and high school rock n roll types. Recently, the
client has been losing younger target market customers. The client
has traditionally managed its relationship with retailers well.
However, the firm has recently lost several major accounts because
their product isnt selling.
THE COMPANY: The firm has been losing sales reps, yet loyal repsclaim that sales are at record high levels for them this year. The
company is using the most sophisticated and quality driven cassette
manufacturing techniques.
The combined market characteristics, recent symptoms and salesdecline and increased market share suggest that competitors are
abandoning this market, likely due to a new and better substitute
technology (compact laser disc, for example).
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Still, the clients historically flat market share suggests brand loyalcustomers, probably in the older segment of the market. That
segment might be less likely to switch to new technology in the
short run.
Long-term, the client needs to consider whether or not they want tostay in this market. Given their commitment to technology, it
makes sense that they would consider introducing new products
(i.e., laser discs).
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Profitability Problems:
Your client is a large agricultural equipment manufacturer. Their
primary product line, farming tractors, is losing money. What
questions would you ask of your client to help them solve their
profitability problem?
Sample Question and Answers:
How many competitors are in the market? Two direct
competitors.
What is your market share compared to those competitors.
Firm: 40 percent share, Competitor A: 30%, Competitor B: 15%; the
remaining share is split among small players.
What are the trends in market share? Five years ago, the firm
had 60%, the others were at 15 and 10 percent.
How is your product priced relative to your competitors? It is
higher. Always has been.
Are the products the same? Essentially, yes, they all have the
same basic features. Of course, tractors are not commodity items and
a few differences do exist.)
What are the differences that allow you to charge a premium
for your product? Strong reputation for quality in the market.
Product last longer and needs less maintenance.
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Are sales revenues down? Are sales quantities down? Yes to
both.
Is the price down? Are costs the same? No, both costs and price
are up.
Have fixed costs increased? No, but variable costs have
skyrocketed, though. I dont know why.
Do you manufacture your tractor or just assemble it? Primarily
an assembly.
So finished part prices have gone up? Yes.
Is your supplier paying more for raw materials? No
Have you changed suppliers? No
Why are your suppliers charging you more the same products?
Well, theyre not. The prices have increased as a result of our product
improvement efforts. Weve tightened tolerances and improved the
durability of our component parts.
Why did you make these improvement? Because we want to sell
the best tractors in the world.
Are your customers willing to pay for these products? Huh.
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It turns out that prices have been raised to cover the cost of these
improvements, but customers do not value these improvements unless
they are free, so sales are down. The client needs to incorporate a
cost/benefit analysis into its product improvement process.
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Stiff Competition:
Your client is the largest discount retailer in Canada, with 500 stores
spread throughout the country. Let's call it "CanadaCo." For several
years running, CanadaCo has surpassed the second largest Canadian
retailer (300 stores) in both relative market share and profitability.
The largest discount retailer in the United States, "USCo," however,
has just bought out CanadaCo's competition and is planning to convert
all 300 stores into USCo stores. The CEO of CanadaCo is quite
perturbed by this turn of events, and asks you the following questions:
"Should I be worried? How should I react?" How would you advise the
CEO?
Some Questions and Answers:
Well, before I can advise the CEO I need some more
information about the situation. First of all, I'm not sure I
understand what a "discount retailer" is!
A discount retailer sells a large variety of consumer goods at
discounted prices, generally carrying everything from housewares to
appliances to clothing. Kmart, Woolworth, and Wal-Mart are prime
examples in the U.S.
Oh, I see. Then I think it makes sense to structure the problem
this way: First, let's understand the competition in the
Canadian market and how CanadaCo has become the market
leader. Then, let's look at the U.S. to understand how USCo has
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achieved its position. At the end, we can merge the two
discussions to understand whether USCo's strength in the U.S.
is transferable to the Canadian market.
That sounds fine. Let's start, then, with the Canadian discount retail
market. What would you like to know?
Are CanadaCo's 500 stores close to the competition's 300
stores, or do they serve different geographic areas?
The stores are located in similar geographic regions. In fact, you might
even see a CanadaCo store on one corner, and the competition on the
very next corner.
Do CanadaCo and the competition sell a similar product mix?
Yes. CanadaCo's stores tend to have a wider variety of brand names,
but, by and large, the product mix is similar.
Are CanadaCo's prices significantly lower than competition's?
No. For certain items CanadaCo is less expensive, and for others the
competition is less expensive, but the average price level is similar.
Is CanadaCo more profitable just because it has more stores, or
does it have higher profits per store?
It actually has higher profits than the competition on a per-store basis.
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Well, higher profits could be the result of lower costs or higher
revenues. Are the higher per-store profits due to lower costs
than the competition's or the result of higher per-store sales?
CanadaCo's cost structure isn't any lower than the competition's. Its
higher per-store profits are due to higher per-store sales.
Is that because it has bigger stores?
No. CanadaCo's average store size is approximately the same as that
of the competition.
If they're selling similar products at similar prices in similar-
sized stores in similar locations, why are CanadaCo's per-store
sales higher than the competition's?
It's your job to figure that out!
Is CanadaCo better managed than the competition?
I don't know that CanadaCo as a company is necessarily better
managed, but I can tell you that its management model for individual
stores is significantly different.
How so?
The competitor's stores are centrally owned by the company, while
CanadaCo uses a franchise model in which each individual store is
owned and managed by a franchisee who has invested in the store and
retains part of the profit.
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In that case, I would guess that the CanadaCo stores are
probably better managed, since the individual store owners
have a greater incentive to maximize profit.
You are exactly right. It turns out that CanadaCo's higher sales are
due primarily to a significantly higher level of customer service. The
stores are cleaner, more attractive, better stocked, and so on. The
company discovered this through a series of customer surveys it
administered last year. I think you've sufficiently covered the Canadian
market---let's move now to a discussion of the U.S. market.
How many stores does USCo own and how many does the
second largest discount retailer own in the U.S.?
USCo owns 4,000 stores and the second largest competitor owns
approximately 1,000 stores.
Are USCo stores bigger than those of the typical discount
retailer in the U.S.?
Yes. USCo stores average 200,000 square feet, whereas the typical
discount retail store is approximately 100,000 square feet.
Those numbers suggest USCo should be selling roughly eight
times the volume of the nearest U.S. competitor!
Close. USCo's sales are approximately $5 billion, whereas the nearest
competitor sells about $1 billion worth of merchandise.
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I would think that sales of that size give USCo significant clout
with suppliers. Does it have a lower cost of goods than the
competition?
In fact, its cost of goods is approximately 15 percent less than that of
the competition.
So it probably has lower prices.
Right again. Its prices are on average about 10 percent lower than
those of the competition.
So it seems that USCo has been so successful primarily because
it has lower prices than its competitors.
That's partly right. Its success probably also has something to do with
a larger selection of products, given the larger average store size.
How did USCo get so big compared with the competition?
It started by building superstores in rural markets served mainly by
mom & pop stores and small discount retailers. It bet that people
would be willing to buy from it, and they were right. As it grew and
developed more clout with suppliers, it began to buy out other
discount retailers and convert their stores to the USCo format.
So whenever USCo buys out a competing store it also physically
expand its?
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Not necessarily. Sometimes it does, but when I said it converted it to
the USCo format, I meant that it carries the same brands at prices
that are on average 10 percent lower than the competition's.
What criteria does USCo use in deciding whether it should
physically expand a store it's just bought out?
It depends on a lot of factors, such as the size of the existing store,
local market competition, local real estate costs, and so on, but I don't
think we need to go into that here.
Well, I thought it might be relevant in terms of predicting what
it will do with the 300 stores that it bought in Canada.
Let's just assume that it doesn't plan to expand the Canadian stores
beyond their current size.
OK. I think I've learned enough about USCo. I'd like to ask a
few questions about USCo's ability to succeed in the Canadian
market. Does USCo have a strong brand name in Canada?
No. Although members of the Canadian business community are
certainly familiar with the company because of its U.S. success, the
Canadian consumer is basically unaware of USCo's existence.
Does CanadaCo carry products similar to USCo's, or does the
Canadian consumer expect different products and brands than
the U.S. discount retail consumer?
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The two companies carry similar products, although the CanadaCo
stores lean more heavily toward Canadian suppliers.
How much volume does CanadaCo actually sell?
About $750 million worth of goods annually.
Is there any reason to think that the costs of doing business for
USCo will be higher in the Canadian market?
Can you be more specific?
I mean, for example, are labor or leasing costs higher in
Canada than in the U.S.?
Canada does have significantly higher labor costs, and I'm not sure
about the costs of leasing space. But what are you driving at?
I was thinking that if there's a higher cost of doing business in
Canada, perhaps USCo will have to charge higher prices than it
does in the U.S. to cover its costs.
That's probably true, but remember, CanadaCo must also cope with
the same high labor costs. Can you think of additional costs incurred
by USCo 's Canada operations that would not be incurred by
CanadaCo?
USCo might incur higher distribution costs than CanadaCo,
since it will have to ship product from its U.S. warehouses up to
Canada.
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You are partially right. CanadaCo is advantaged in distribution costs,
since its network spans less geographic area and it gets more product
from Canadian suppliers. However, since CanadaCo continues to get a
good deal of product from the U.S., the actual advantage to CanadaCo
is not great---only about 2 percent in terms of overall costs.
All this suggests that USCo will be able to retain a significant
price advantage over CanadaCo's stores: if not 10 percent, then
at least 7-8 percent.
I would agree with that conclusion.
Then I would tell the CEO the following: In the near term, you
might be safe. Your stores have a much stronger brand name in
Canada than those of USCo, and seem to be well managed.
However, as consumers get used to seeing prices that are
consistently 7-8 percent less at USCo, they will realize that
shopping at USCo means significant savings over the course of
the year. Although some consumers will remain loyal out of
habit or because of your high level of service, it is reasonable
to expect the "discount" shopper to shop where prices are
lowest. Moreover, over time your "brand-name" advantage
will erode as USCo becomes more familiar to Canadian
consumers. You certainly have to worry about losing significant
share to USCo stores in the long term. You should probably do
something about it now, beforeit's too late.
Can you suggest possible strategies for CanadaCo?
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Maybe it can find ways to cut costs and make the organization
more efficient, so it can keep prices low even if its cost of
goods is higher.
Anything else?
It might consider instituting something like a "frequent
shopper" program, where consumers accumulate points that
entitle them to future discounts on merchandise.
What might be a potential problem with that?
Well, it might not be that cost-effective, since it would be
rewarding a significant number of shoppers who would have
continued to shop with it anyway.
Any other suggestions?
It might want to prepare a marketing or advertising campaign
that highlights its high level of service. It might even institute a
CanadaCo Service Guarantee" that surpasses any guarantees
offered by USCo.
Assuming the only way to keep customers is through competitive
pricing, is there anything CanadaCo can do to appear competitive to
the consumer?
It might want to consider offering fewer product lines, so that
it can consolidate its buying power and negotiate prices with
suppliers that are competitive with USCo's. It might lose some
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customers who want the variety of product that USCo has, but
be able to retain the customer who is buying a limited array of
items and is just looking for the best price.
All of your suggestions are interesting, and you would want to analyze
the advantages and disadvantages of each in more detail before
making any recommendations to the CEO.
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Information Technology:
You are the managing director in a large international consulting firm.
Traditional strengths of your firm have been solving strategy and
organizational issues. Recently, you have noticed an increasing
number of your firms proposals are being rejected because of a lack of
information technology expertise in your firm. So far, your firms
growth has been strong enough that proposals lost have not hurt
annual earnings. Nonetheless, you are becoming increasingly
concerned about the need to develop the firms capabilities in
information technology.
Q1: Assuming your concern is valid, what reasons will you provide to
other partners about the need to acquire information technology skills.
Q2: Assuming you are able to convince other partners of the
importance of IT expertise, what steps would you take to rapidly build
IT capacity in this area?
Q3: What are the major risks in executing an IT capacity-expansion?
Some Answer Ideas:
A1: Good answer focus on the value of IT to clients: discussion topics
include the increasing importance of information in business, strategic
value of information and information flows, importance of information
systems for implementing new organizational structures and
management control systems.
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Better answer focus on the costs of losing clients to competitors:
discussions included the encroachment costs of having clients talking
with competitors about IT problems, risk of losing credibility with
clients by not being able to solve a problem.
A2: Good answers will focus on various methods to build expertise:
buying expertise by acquiring another firm, by raiding IT practices of
other firms for a few key consultants, building capacity through
recruitment of IT experts and training them to be consultants, building
capacity by training current consultants in IT practice skills,
establishing a strategic alliance with a IT boutique firm.
Candidates should discuss the pros and cons of each method
proposed; impact on the firms culture, cost tot he firm, time needed to
build expertise, etc
Better answer will realize the importance of stimulation client demand
as capacity builds through seminars, articles, and strategic studies in
the IT area.
A3: Good answers depend on the expansion methods discussed, but
an important issue is the loss of the firms focus away from just
strategy and organization.
Better answers will focus on the difficulty of implementation in IT,
rapid technological changes in the IT industry require significant
ongoing training and development costs: new practice cultures may be
significantly different from current culture, especially if external
experts are brought into the firm.
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