Overview

Determine Key
Issue(s)

Develop
Hypotheses

Gather Data /
Test
Hypotheses

Develop Options

Refine Answer

As the interviewer describes the situation, think about

what are the key issues
facing general managment

Develop hypotheses

Decide what data you need to better understand the

issues

Listen to the facts

Evaluate which facts are critical to the key issues

Probe for more detail in critical areas

Use facts and numbers appropriate in building argument

Summarize options before making recommendation

State pros and cons - be fact driven

Make
Recommendation

Using Frameworks
There is no golden rule, more than one framework may be applicable
Use an appropriate framework
Do not force a framework
Be hypotheses driven
Be prepared to revise your hypotheses
Mutually Exclusive and Collectively Exhaustive (MECE)
Listen for clues from the interviewer
Accept direction from the interviewer
Display your thinking visually / graphically
Be transparent in your analysis
Leave time to summarize and make recommendations

Some General Frameworks

The Three Cs
The Four Ps
Porters Five Forces (+govt.)
Supply & Demand
The Profit Equation
Internal - External
NPV Analysis

Dont be afraid to create your own framework, as long as it is logical,

appropriate and transparent to the interviewer.

Market Sizing
Determine The Key
Drivers Bottom Up or Top
Down?

Make Assumptions

Calculate
Use Round Numbers!
Common sense
check!

Analyze Results
Implications?
Increasing Factors
Decreasing Factors

Adjust Answer

Adjust Answer

Declining Profits
W hat's
Driving the
Decline?

Gather

Information

Analyze Using
Profit Equation

Revenues

Price
Decreasing
Comp. pressure?

Volume
Decrease

- Market Conditions
- Competition

Product Mix
Increase

Higher Marg. Costs

- Org. Dysfunction
- Overtime

Selling Less
Profitable Items

Expenses

Fixed Costs
- Added Capacity?

Variable Costs
- Raw Material Prices

Unusual Expenses
- Writeoffs
- Lawsuits

Increase
Profitability
Revenues

Price

COGS

Unit Volume

Direct Material

Price Sensitivity
- Elasticity

Existing Market
- Promotion
- Place

Scale Economies
/Diseconomies
- Supply Constraints

Competitive Environ.
- Substitutes

New Markets
- Geographic
- Economies of Scope

Inventory Mgmt.
- Carrying Costs
- Shrinkage

SG&A

Direct Labor

Variable O/H

Replace w/machines
- Union?

Cost Acctg.
- Allocation Drivers
- Does pricing
reflect Cost

Can we explore economies of scope with entry into adjacent industry?

Increase Capacity?

Should W e Increase Capacity?

Market Demand

Industry Capacity

Competitors Plans

Investment vs. Improvement

Market Trends

Threats

Global Competition
Substitutes

Improve Productivity

Add Capacity

Cyclical / Seasonal

Bottlenecks

Add shifts

Economy

Design for manuf.

Acquire

Consumer tastes

Outsource

Customer
Turnover
What Has Changed in
the Following Environments?

Company

Customer

Product
Is quality sagging?

Tastes changing?

Price
Have sensitivities changed?
Overpriced versus our
competition?

Disposable income?

Competition

Are low cost

competitors stealing
from us?
Are diffentiated
competitors stealing
from us?

Place
Is our distribution getting squeezed
out? Are Customers Changing
Channels?

Demographics of our
target?

Are competitors
integrating into distribution
and shutting us out?

Promotion
Are we
spending?
Push vs.
pull?image changed?
Has public

Do new substitutes
exist?

Are they offering our

customers special incentives
to switch? (particularly with
substitutes)

Regulatory

Do new tax
incentives
exist?
Any new regulations
restricting the use of
our
product and favoring
substitues?

Competitive Response

Customer
- What do they want?
- How do they choose?

Values/Tastes

Price
Sensitivity

Competitor
- Where are we positioned?
- Where is the competition?

Purchasing Habits

Product

Company
- How do we add value?

Resources to respond?

Business relationships

Place
Susbsitutes

Disposable income

Distribution channel

Demographic changes

Mature market?

Bundled product?

New customers?

Normal good?

Price
Promotion

Cost structure

Distributor

Tangible

Vendor

Intangible

Customer

Finances

Given the above, is it worth making a competitive response?

How will the competition react?
Applying game theory or PARTS analysis may help.

New Product Introduction?

Customer
Does product met a need?

Competition
Is there any?

Yes

Product
Have we done homework?
What does the segment want?
Proliferation of products
already?
Price
Have we explored sensitivity?
Can we make a profit at this
price?

Many

Is market growing?
Promotion
Push or Pull?
Cost of
launch?
Will current
promotions help?
Place
Is distribution aligned with
customer? Are we experienced in
this channel?

Company
Can we do it?

Can we eat the young?

No

Few

What wil be the strategy?

Low cost or
Differentiated?

Are there barriers to entry?

Yes
Can we beat them?

No
Can we erect some?

Finance
Are we able to finance the launch?
Should we buy an existing
producer?

Will we be first movers?

Any precious
resource that we
own? (Ricardian
rents)

Operations
D0 we have
capacity? Supply
network?
Marketing
Will we cannibalize existing
products? Is this a complement /
bundled good Does it build on
resources?

International Expansion
Internal

Doesit match our growth

strategy?
- ROE/ROI
Alliance with local firm?
- Joint
venture/distributor
Can our resources succeed
overseas?
- Flexible enough to adapt?
Is organization
consistent with overseas
'autonomy'
Corporate Values
- Bribery
Worker's conditions / child
labor

External

Cultural Differences of
Customers
- Tastes / product preferences
- Values / gender roles
Methods of Conducting Business
- Introductions
- Government contacts
Educational
Differences

Economy & Exchange

Rates

Seasonality
- Weather

Distribution system
- Transportation
infrastructure
- Different channels
Political Climate
- Instability

Local Market
- Size
- Competition

Quantitativ
e
ROI / Hurdle
Rate

Cash
Flows
Amount

Timing
- Startup / disposition
- Operating
Discount
Rate

Investment Decision

Investment Decision

NPV Analysis

Useful Life

Cash Flows
Timing
- Opportunity Cost

Other Factors

Discount Rate
- Risk Free Rate
- Inflation
- Risk Adjust

Size
- Market Potential
- Outflows
- W orking Capital

Strategic Fit

Synergies
- Missing Links
of Value Chain

Environmental
- Seasonality
- Volatility
- Inflation
Demand Cycle

Political
Stability
Regulation

Competitors
- Current Supply
Potential
Demand

Understand
Purpose
Diversification?
Gain Market Share?
Geographic
Expansion?

Analyze Opportunity

Internal
Factors
Strategic
Objective
Resources

Company
Acquisition

Strengths &
W eaknesses
Acquisition Fit

External
Factors

Industry
Attractiveness

Porter's Five
Forces Three
C's

Identify
Acquisition
Candidates
Soft Issues
- Culture/Fit
- Management
Hard Issues
- Price
- Balance Sheet

Hostile Takeover
Defense
Two Options Both
Designed to Raise the
Value of the Company

Self-Help

W hite Knight

Are W e Highly Levered?

(Relative to the Industry)

Classic M&A
Is there a Firm That...

Yes

No

Do W e Have Cash?

Issue Debt, Buy Back Stock

Has Financial Strength

Strategic Compatability
Cultural Fit

Yes
Then Buy Back Stock
to Raise Stock Price

No
Can W e Release Good News
to Raise Stock Price?