2021-2022 IESE Casebook
2021-2022 IESE Casebook
2021-2022 IESE Casebook
INTERNAL C A S E B O O K
2022
1
CONTENT ❖ INTRODUCTION TO CONSULTING
❖ IESE STATISTICS
❖ INDUSTRY KNOW HOW
❖ BEST PRACTICES AND TIPS
❖ CASES
❖ BCG CASE COMPETITION WINNERS (3rd EDITION)
❖ PREVIOUS CASEBOOK CASES
2
The Management Consulting Landscape
✓ McKinsey Digital
Industry Specific Consulting Firms ✓ McKinsey Operations (within McKinsey)
✓ Deloitte Digital
✓ Delta Partners (TMT) ✓ BCG DV
✓ ZS Associates (Pharma / Healthcare)
“We seek passionate, open-minded individuals with a wide range of academic backgrounds, work experiences, perspectives, thinking styles, and expertise.
Excellent academic credentials are a necessary, but not sufficient, requirement. You also must demonstrate the curiosity to a sk the right questions, the
courage and creativity to blaze new paths, the ability to collaborate with colleagues and clients, and the leadership skills to transform your ideas into action”
– Boston Consulting Group
“ We seek individuals demonstrating the following attributes: Problem solving skills, The Ability to Lead, Results Delivery, Passion” – Bain & Company
“If you’re reading this, you’re smart enough to already know what we’re looking for. Insightful, yes. Inquisitive, naturally. Collaborative, of course. But we’re
also looking for people who think further than that, who don’t accept the first thing in front of them, and who are always un apologetically themselves.” -
Kearney
Both the Case and Fit components of the selection process are accorded equal importance by recruiters and good performance in one will not make up
for a poor performance in the other. Ultimately, consultancy firms simply will not employ someone who they doubt will be a go od fit with the company,
regardless of how great the candidate is at cracking cases.
9
Internships by Sector – Class of 2021
Finance 27%
Consulting 20%
Healthcare 16%
Tech 14%
Other 8%
Consulting 20%
Tech 16%
Healthcare 15%
Other 9%
Finance 20%
Tech 16%
Other 11%
Healthcare 8%
Technology 17%
Industry 24%
Average Of Annual Min Of Annual Max Of Annual Average Of Other Min Of Other Max Of Other
Sector
Base Salary* Base Salary Base Salary Compensation Compensation Compensation
*In Euros
15
Industry Know How – Airline
Airline Overview Revenue Streams Cost Drivers
• Low margins - high volumes • Ticket sales (Passengers & Award) • Fuel • Landing/terminal
• Consolidation in industry over last few • Ancillary: Charges for baggage, seats, and • Depreciation fees
Automotive
decades ticket flexibility • Maintenance • Insurance/legal
• High prevalence of loyalty schemes for • Cargo transportation • Labour (on-board fees
Banking / Financial
differentiation Specific to low cost carriers vs. terminal) • Booking systems
Services
• Competition from state owned companies • Advertising • Sales & (GDS)
• Power concentration in the suppliers and in • On board duty free sales Marketing • Lease/payment
Insurance
the demand • Food and beverage • Frequent flier
program fees
Healthcare
• Leisure travellers – generally price sensitive • Freight/cargo transportation
Customer • Business travellers – important due to high margins and • VFR (Visiting friends & relatives)
Manufacturing
Segment purchase of value added services • Travel agents/websites
Energy (Oil & Gas) • Direct – Airline sales team, airline website
Channels • Indirect online – Travel sites (OTA), price comparison sites (Metasearch)
Energy (Power & • Indirect offline – Travel agencies, corporate travel management companies
Utilities) • Travel affected by business cycle • Weather – especially extreme events
External • Oil prices • Sanitary (COVID-19)
Retail drivers/risks • Security • Currency fluctuation
• Rise of low cost airlines has increased air traffic and expanded routes
TMT • Increase in online booking and check-in
Trends • NDC (New distribution capability)
Information • Sustainability (Green fuels, emissions, and others)
Technology
TMT • Shift to cleaner energy (electric, hybrid or fuel • Congestion & pollution in big cities
cells) • Multi-modal transportation & hubs
Trends • Self driving (Autonomous) cars • Smart Infrastructure / Connected cars
Information
Technology
Healthcare
B2C B2B
Customer • Customers from low, medium and high income • SME (Small and medium enterprises)
Manufacturing Segment • Clear credit line • Corporations
Retail • Regulations
External • Cybersecurity (client´s database)
drivers/risks • Climate change
TMT
• Rise of big data in the industry – important to understand customers´ behaviors and design an specific insurance for
Information Trends them - Metromile
Technology • Evolution of insurtechs (customers in the Center) – Lemonade
Manufacturing
• Doctors • Patients
Customer • Pharmacists • Insurance providers
Energy (Oil & Gas) Segment • Hospital administrators • Governments
• Over the counter (OTC) • Pharmacies
Energy (Power & • Prescription • GP practices
Channels
Utilities) • Hospitals • Direct to Consumer (DTC) – few countries
Healthcare
• Businesses
Customer • Retailers
Manufacturing
Segment • End consumers
Energy (Oil & Gas) • Retail (industries selling directly to end consumers / FG sales)
Channels • Wholesale (B2B, products used to manufacture other products / module sales)
Energy (Power &
Utilities)
• Business cycle • International trade agreements (or wars)
Retail External • Commodity availability/price • Tax cuts (China – LEDs, semiconductors)
drivers/risks • Labour unions • Technology trends
TMT • 3D printing • Automation
Trends • High quality outsourcing ‒M2M, IoT
Information • Platforms ‒Industry 4.0
Technology
Manufacturing
TMT • Decarbonization of economy (100% Green) • Renewables CAPEX and OPEX decreasing
• Storage (Security of Supply) • Deployment of renewables
Trends
Information • Increase of demand (electrification)
Technology
Some firms have areas you can Improve the odds of getting
apply to: General, Digital, and invited to interview – send as
Operations – do due diligence many applications as you can!
before applying!
1 4 2 1
3 3
We designed this book to be practical and straightforward for both the interviewer and the interviewee. Read the following
instructions to ensure a smooth application process and to extract most value out of this case book.
•1 Red titles mean information that the interviewer has to give to the interviewee, including the prompt, clarifying questions and
exhibits.
•2 Exhibit pages provide necessary information to interviewees solve the cases and should be handed in their entirety when
instructions asked to do so
•3 Green titles mean information that can help the interviewer in guiding the case including expected takeaways, expected
considerations, calculations and sample recommendations. Interviewers should not disclose this information to candidates but
use it to guide themselves into the flow of the case and help candidates in navigating the numbers.
•4 Each case is classified by its industry, theme, and concept tested as well as by its level of difficulty.
31
Case Title Industry Type of Case Difficulty Level
32
REEVE TEC.
By Íñigo Losada
Automotive Easy
Product launch Medium
Profitability Hard
33
Automotive Easy
Product launch Medium
STRUCTURE GUIDANCE
The structure of this case should be mainly about profitability. The candidate should notice there are external and internal factors that may influence
in the company and should highlight which of those can be potentially harming the company’s revenues (market trends, competition, customer
needs, etc.). Most of REEVE’s costs are from R&D. The company has no factories and has a tiny sales force, mostly focused on the aftermarket.
• Once the candidate has given an overview of the structure, hand them Exhibit 1, and let them use this to decide where to focus
SAMPLE STRUCTURE
• Market : Car sales decreased in Europe?
• Competitors: Do they have any expiring patents? Are competitors including new products? Are
competitors becoming more profitable? Are existing competitors consolidating? New competitors?
Quantity • Customer needs: OEMs switching to a different technology? Is new regulation affecting the industry
(OEMs forced to use more energy efficient solutions to improve car consumption rates)?
Revenues • Product mix: Are we selling less high-priced products? Has product bundling changed?
• This is a competitive market, has the company run any excessive discounts recently?
Price • Are OEMs holding a bargaining position and have they adjusted our prices?
Why is profitability
decreasing?
Variable • Have any of the Cost of good sold raised sharply recently?
costs
Costs • R&D: Research and development
• Labor
• SGA: Sales, General and administration
Fixed costs • Recall costs
1 2 3 4 5 6 7 8 9 10 6 7 8 9 10
Year Cars Vans Trucks Year
SAMPLE ANSWERS
• Do nothing: this doesn’t seem a good idea since it is your largest market segment
• Mitigate: try to retain your clients by offering discounts; this ends up in lower margins for REEVE, not resolving its actual profitability problem
• Align: Enter in a price war with the competitor, also discarded since it may harm the company’s long-term profitability
• Acquire: depending on the size of the competitor and given that REEVE is a leading player in the market, acquiring the competitor is a good
possibility to be explored
• Replicate: Launch a competing product
• Note to interviewer: Try to steer the candidate to “Replicate”, in order to set up the next part of the case
CALCULATION QUESTION
• REEVE is considering launching one of the different prototypes they have been working on for “Trucks” segment
• Which of the 3 prototypes should the company launch?
OPTIMAL ESTIMATIONS
• Assume equal sale price and no customer preferences among the three products
• The candidate should compare the 3 products by developing a break-even analysis
• INVESTMENT = MARGIN*MARKET SHARE
• MARGIN = PRICE (P) – VARIABLE COSTS
• MARKET SHARE = QUANTITY (Q) * MARKET CAPTURE
• Comparing the three products we determine which is most convenient for the company to launch
• A → 20 = 0,5P*0,8Q -> PQ = 20/0,4 -> PQ = 50M€
• B → 30 = 0,8P*0,9Q -> PQ = 30/0,72 -> PQ = 41.6M€ ≈ 42M€
- Notice: 30/0,72 ≈ 3.000/72 ≈ 1.000/ (8*3) ≈ 500/ 12 ≈ 40
• C → 15 = 0,6P*0,7Q -> PQ = 15/0,42 -> PQ = 35.7M€ ≈ 36M€
- Notice: 15/0,42 ≈ 15/0,45 ≈ 1500/45 ≈ 100/3 ≈ 33.3
• A great candidate should realize rounded calculations are sufficient to compare the results for the three products
• Product C is the most convenient, it allows to recover the investment with less PQ (Sales)
PRODUCT A B C
MARKET
80% 90% 70%
CAPTURE
RECOMMENDATION QUESTION
You are at the client’s office. The CEO showed up an hour late to your meeting and he needs your recommendations now. What would you tell him?
SAMPLE RECOMMENDATION
The candidate should summarize that:
• The company should launch product C to compete in the market segment “Trucks”
• The market grew by +10% in Y10 while REEVE’s sales stagnated; the company moved back in its market-share
• The segments “Cars” and “Vans” grew at the market rate, but Trucks underperformed growing just +5%
• REEVE should “replicate” its competitor and launch a new product to compete in this new environment
• Product C presents the best conditions to do so, with a breakeven point of 36M€ sales, +50% of the current market share in the Trucks
segment
42
Real Estate Easy
Self-Storage Medium
STRUCTURE GUIDANCE
A good framework should, as a typical M&A situation, address:
• Understanding the Standalone value of the target
• Considere possible Synergies, both in Revenues and Costs – a good candidate should mention Marketing and Brand power to increase revenues
• Capabilities & Risks – in the context of the case, Real Estate risks related to the infrastrcture of the target’s building should be mentioned
Additionally, the candidate should understand the market, since Nevada is a new market for StorageStuff
• Market analysis should consider market size, growth, and competitors
SAMPLE STRUCTURE
Market • What is the demand for Self-Storage in Nevada? • Business sense can also be evaluated in
opportunity • Do we have any competitor that we should be aware?
the structuring part, as a good candidate
• Is the company profitable? is expected to raise hypothesis that can
Standalone Value • Is it growing at good level?
of the target • Is the building in good conditions? be related to the business situation
Should StoreStuff • Is the location attractive (populational density; average income level)?
move on with the
acquisition? • Candidate should be led to address the
• Do we have opportunities to leverage Revenue synergies? Ex. Leverage
Synergies brand recognition/marketing; improve pricing Synergies analysis, as following Exhibit
• Do we have opportunities to leverage Cost synergies?
will address this matter
• Is our business model adequate for the transaction? Ex. Size of Boxes to
rent are similar? If not, can we remodel the building?
Capabilities & Risks • Can we operate in Nevada?
• Any permit or regulatory matters can be a barrier?
EXHIBIT 1
To assess if YourPlace is a good target, we received some preliminary information and the client want our help on defining if YourPlace is a good target for acquisition, and if
there any clear synergies opportunities. Candidate should be presented with Exhibit 1.
Exhibit 1 – StoreStuff and YourPlace average store 2021 P&L Expected insights:
StoreStuff 2021FY • In a highlevel analysis, candidate should conclude that YourPlace is a
Figures in US Dollars YourPlace 2021FY
(average store)
promising target for acquisition. Since the company demonstrate a ~53% of
+ Sales 5.650.000 5.000.000 Net Profit Margin.
- Operations and Maintenance 941.667 500.000 • To better understand the financial figures of both, candidate should compare
numbers in a comparable measure. If candidate fails to do that, lead him to
- Salaries 385.000 350.000
analyzing in a Dollar/Area approach - Sales/Sqm and Cost/Sqm makes
= Operating Profit 4.323.333 4.150.000 comparison easier
-Sales & Marketing expenses 864.667 830.000 • Candidate should spot the difference in Operating and Maintenaince cost
levels between the companies. In a cost/area comparison: YourPlace has a
- Administrative expenses 432.333 415.000 $475/sqm, while StoreStuff has $250/sqm – In a synergy perspective, a good
candidate would move on with cost synergies calculation. Taking YourPlace
= Net Profit 3.026.333 2.905.000 Operations and Maintenance costs to the level of StoreStuff would bring
USD450k/year in cost synergies – Difference of costs*Total Area = (475 –
Total Area of store (sqm) 2.000 1.500
250)*2.000
BRAINSTORMING QUESTION
Which ideas of initiatives could you come up for the identified Revenue and Costs synergies?
SAMPLE ANSWERS
• Leverage brand recognition, for example through marketing campaign
Expected insights: • Implement better sales processes
• Include on-line sales if not already implemented
• Following previous analysis, the candidate should move on Revenue
• Improve pricing techniques
with ideas of how to capture the synergies
• Readjust contracts of lower Dollar/Square meter revenue
• Main points of analysis are Revenue and Costs, specially Ideas to • Adequate size of boxes to fit demand (increase or decrease average area per box
capture
Operations and Maintenance costs the
synergies • Leverage economies of scale to decrease supply material utilized on Operations
• On the costs side, the candidate should bring up ideas on
and Maintenance, such as cleaning products, and equipments
both reducing consumption cost (such as reducing costs of
• Implement higher standard processes of maintenance, for instance increasing
supply materials), and reducing consumption rate (such as Costs preventive mantenaince in the building
avoiding machines breakdowns) • Implement technology to monitore possible bad usage of the building, or
equipments, for instance a set of cameras and closed circuit tv system
If you are aiming for a ~30 minutes case, you may skip the Quantitative Analysis and jump directly to final recommendation
EXHIBIT 2
Now, we just received some new information from the client. He wants our help on identifying the differences in the sizes of boxes that are offered for rent in both StoreStuff
and YourPlace stores that we are analyzing in order to increase YourPlace sales.
Exhibit 2 – StoreStuff and YourPlace occupation evolution
10
0%
90
%
90% • After delivering the Exhibit, remember the candidate that Regular Boxes are
10
0%
80
%
2,5sqm and Large Boxes are 10sqm.
70
%
60% 80
%
60
%
50% 50%
50
%
60
%
• Candidates should remember key data that were given through the case. If not,
gently remember that YourPlace has 2.000sqm and StoreStuff has 1.500sqm of
40
%
40
%
30
%
20
%
20
% area.
10
%
35% 90% 30% 20% 35% 90% 100%
0%
15% 0%
• Also, mention that, in this industry, a set of 4 Regular Boxes can easily be
YourPlace 2020 YourPlace 2021 StoreStuff 2020 StoreStuff 2021
aggregated to form a larger one, or a Large Box can be dismantled, to form a 4
% Regular Boxes occupancy rate Regular Boxes. The cost of this adaptations is considered very low.
% Total Large Boxes occupancy rate • Candidate should mention that YourPlace demand is increasingly looking for
% Total Occupancy rate Regular Boxes, and that a building adaptation could be beneficial
QUANTITATIVE ANALYSIS
After the second exhibit conclusion, lead the candidate to calculate the possible additional revenue if all the available Large Boxes were transformed into Regular Boxes.
See suporting data below and communicate to candidate.
SOLUTION
Supporting Information: Calculation guidelines:
• The YourPlace area is distributed equally on Large Boxes and • Current amount of Large Boxes = 50%*Total Area/Area of Large Boxes (50%*2.000/10 = 100 Large
Regular Boxes Boxes)
• The cost to dismantle Large Box will not be considered for • Unnocupied area of Large Boxes = (1 – Occupancy Rate)*Total Area of Large Boxes ( (1-30%)*1000 =
this analysis 700sqm)
• Candidate should assume that a 90% occupation rate would • Total New Regular Boxes to be added from unnocupied Large Boxes = Total Unnocupied area/Area
be achieved in the Regular Boxes category of a Regular Box (700/2,5 = 280 new Regular Boxes)
• Sales/square meter is the same as current level in YourPlace:
• Current amount of Regular Boxes = 50%*Total Area/Area of Large Boxes (50%*2.000/2,5 = 400)
$2.850/sqm (Total 2021 Revenue/Total Area = $5,7Mi/2.000)
• Additional Revenue of newly created Regular Boxes = Occupancy Rate*Additional Number of
Expected Formula to calculate:
Regular Boxes*Area*Sales/Area (90%*280*2,5*2850 = $1,795Mi/year)
Additional Revenue = Total New Regular Boxes Created*Area
Expected Insights:
of a Regular Box*OccupationRate*Sales/Area
Candidate should conclude that this would be a very beneficial move. Additional ~1,8Mi in revenue
would add great value to the deal. Anyhow, candidate should mention that a better understanding of
the feasibilities and costs should be done.
IESE CONSULTING CLUB IESE CASE BOOK 2021 | 48
Real Estate Easy
Self-Storage Medium
RECOMMENDATION QUESTION
We received a call from the StoreStuff CEO asking for our preliminary understanding of the problem. How would you summarize what we have
learned so far to him?
SAMPLE RECOMMENDATION
A good recommendation should support the M&A transaction as a good move for StoreStuff to expand to Nevada, for 3 main reasons:
• The YourPlace business has already a good level of profit as a standalone company
• StoreStuff can leverage on synergies on both Revenue and Costs sides after the integration of the company that could add more value to the deal. On our calculations,
Revenue opportunities adds up to the sum of $700k/year, while costs were estimated to give a $450k/year
• Finally, StoreStuff could remodel the YourPlace offering of boxes in terms of their size. Considering low occupancy of Large Box, a project to dismantle Large Boxes and
created Regular Boxes has a potential benefit of ~$1,8Mi/year in revenues
The main risks of the transaction are related to the current state of the building (and a possible investment requirement to adaptations), and the possibility of demand level for
Self Storage in Nevada to not be attractive.
Next Steps should touch on the required refinements to validate the strategic acquisition. Candidate should mention that a better understanding of the synergies, of the Nevada
market and competitors, and of the value asked by YourPlace for the acquisition (valuation) would be logical next steps for our company to support StoreStuff.
Mining Easy
Land Use Alternatives Medium
Investment Decision Hard
50
Mining Easy
Land Use Alternatives Medium
STRUCTURE GUIDANCE
The candidate should use a combination of internal and external considerations; external considerations should be loosely structured around PESTLE (most relevant are
Political/Legal, Social, Environmental), and internal considerations should include Financials, Strategy, and Capabilities/Operational Impact.
A good candidate will not try to rank considerations; they will recognize that the relevance of each consideration will be determined on a case-by-case basis, depending on the
unique location and features of each individual plot of land.
SAMPLE STRUCTURE
Internal External
SAMPLE ANSWERS
• Renewable energy farm (solar, wind)
• Conservation area
• Reforestation
• Agriculture
• School
• Space for cultural events
• Space for entertainment (mountain bike trail, rock climbing)
QUANTITATIVE ANALYSIS
“With your guidance in mind, the President of NABACO Africa has applied your framework to an unexploited bauxite reserve in Guinea. After having conducted legal due diligence and evaluated
her organization’s operational capabilities, she has narrowed her alternatives down to three: install a solar panel farm, plant sorghum (a cereal crop native to East Africa used for biofuel), or
build a school.”
“NABACO would now like to analyze the financials. NABACO’s internal policy states that for a project of this type to be considered, it must reach breakeven within five years. NABACO would
also like to understand the pre-tax profitability of each alternative. Here is a table with sample investment data gathered by NABACO.” (share Exhibit 1).
Once computations have been completed, ask the candidate what they think. The candidate should not give a recommendation; they should say that all are valid due to falling within the five-
year payback threshold, and that sorghum will generatethe most profit, but that NABACO’s objective is to have a “social license to operate” and therefore other criteria should be considered.
SOLUTION
The candidate should easily calculate the annual profit for each alternative, as well as the payback period.
They should compare this to the five-year maximum.
Location Guinea
Available Land Area 400m x 250m =100,000m2
The candidate should also calculate how many of the “sample investments” fit on the available land, in order
to calculate the total profit for each alternative. Note that this step is not necessary to calculate the payback
period (the ratio of investment to profit remains the same regardless of the number of 200m x 200m fields, Sample Investment Data Solar Panels Sorghum Field School
for example). Occupied Land Area 100m x 100m 200m x 200m 100m x 200m
The candidate should recognize that by nature, a field does not need to maintain a fixed dimension (ie. it is OK Land Area =10,000m2 =40,000m2 =20,000m2
to have 2.5 fields). Investment (k$) 28 80 180
The candidate should also recognize that it does not make sense to build 5 schools on the same piece of land. Annual Revenue (k$) 11 50 140
Clarifying points (if asked): Annual Operating Cost (k$) 4 20 100
Profit (k$) (Revenue - Costs) 11-4=7 50-20=30 140-100=40
• Solar Panels and Field dimensions are flexible.
Payback (yrs) (Investment/Profit) 28/7=4 80/30=2.67 180/40=4.5
• Dimensions already include area needed for maintenance, irrigation, etc.
All paybacks <5 years, therefore all OK
• The area not occupied by the school would be considered unused, and therefore could still be adapted for The available land area can accommodate…
any type of land use. 10 solar farms 2.5 fields 1 school
=100,000m2 / Land Area of the alternative
Total Profit (k$) 7*10=70 30*2.5=75 40
EXHIBIT 1 – ALTERNATIVES
Location Guinea
Available Land Area 400m x 250m
CHART ANALYSIS
Following the quantitative analysis, the candidate should express a need to conduct a qualitative analysis. Present the candidate with Exhibit 2 and ask for their observations.
The candidate should relate back to the “social license to operate” prompt and identify which of the proposed alternatives best meets the social or environmental needs of the
local community. Limited data is presented so as to force the candidate to come up with a conclusion based on their own logic. Argumentation should be sound.
With this analysis, the candidate should recognize the school as the best option to support the local community. An excellent candidate will propose an additional land use for
the excess land left unused by the school. This additional use should be consistent with NABACO’s strategic goals and/or the community needs. A fourth alternative not included
could be to plant a food crop instead of sorghum.
TAKEAWAYS
• High “Days of Sun” suggests an opportunity for solar panels, however high “Access to Energy” suggests that there is no pressing need.
• High “Water Security” and medium “Food Security” suggest an opportunity for agriculture meant for food, however we have specified
Rating
earlier that the alternative being considered is for sorghum, meant for biofuel production. Food Security
• Low “Employment” supports both sorghum or the school (staff + future employability).
• Low “Access to Education” combined with the Age Pyramid and low “Employment” point to the school best fulfilling the community’s
Water Security
needs.
Days of Sun
• “Biodiversity” and “Air Quality” are not necessarily relevant to the analysis; however, they can be linked.
Population pyramid
• A good candidate will not look for insights where there are none (ie. “Biodiversity”, or the male-female distinction in the Age Pyramid).
Access to Energy
Clarifying points (if asked): Access to Education
• The rating given is for the presence of a specific criteria, not the level of need (ie. there is a high level of Biodiversity in the area currently).
Employment
• Despite the payback being calculated on five years, the length of the project is indefinite. Candidate can assume minimum fifteen years.
Biodiversity
Air Quality
IESE CONSULTING CLUB IESE CASE BOOK 2021 | 56
Mining Easy
Land Use Alternatives Medium
Age
40-44
Access to Education
30-34
Employment 20-24
Biodiversity 10-14
Air Quality 0-4
M F
BRAINSTORMING QUESTION
“What risks should NABACO consider before going ahead with this alternative?”
SAMPLE ANSWERS
School: Agriculture:
• 15-year operation period: is that enough time to have an impact? What • External risks due to climate or pests
will the community do afterwards? • Ecological impact (ie. water usage, biodiversity)
• Will NABACO be able to attract qualified staff to operate the school?
• Use of chemicals or creation of waste
• Will NABACO need to partner with an external organization or with the
• Will NABACO have to implement and maintain control mechanisms?
Guinean authorities?
• Is there demand for this crop?
• Does the local community have a preference for a different alternative?
• Is there qualified and sufficient staff?
• Payback period is 4.5 years. What if the investment ends up being
greater than $180k? • Is there access to other inputs needed (fertilizers, pesticides)?
• Will the grain processing be on-site?
RECOMMENDATION QUESTION
The President of NABACO Africa has just logged in to the Zoom call. She only has one minute to hear what you have to say. What will you tell her?
SAMPLE RECOMMENDATION
I recommend NABACO to build a school…
…because it is the option that best meets the community’s needs, which is
NABACO’s principal objective. The remaining unused land can be employed
for agriculture to serve the local community.
The mains risks that I see are if the project goes over-budget causing the
payback period to extend beyond five years, and what would happen if we
are forced to close the school after fifteen years.
To combat these risks, NABACO should negotiate for greater tax breaks
from the Guinean government thus increasing the annual return from the
school, and for NABACO to keep the school open beyond fifteen years, by
first exploiting other areas of the mine.
Chemicals Easy
Product launch/Pricing Medium
Sustainability Hard
STRUCTURE GUIDANCE
What are the relevant factors that you will consider to solve this problem?
• A good candidate will develop a tailored market entry/product launch structure.
An outstanding candidate will also delve deeply into “how to price the product”.
• An acceptable structure should show an intention to size the potential market for this product and assure that Chemco has the capabilities to
execute it.
• Volume
• Volume of paint in the US?
Sample • % of chemical in formulation?
• Potential share:
Market • Status of competition?
attractiveness • Customer willingness to switch to
this alternatives.
• Profitability
• How can the product be priced?
• Logistics from UK to USA What is the value generated?
Can Chemco be profitable by launching • What are the costs? Variable? Any
• Channels USA
this product? Capabilities • Plant capabilities incremental fixed costs?
• Knowhow
BRAINSTORMING QUESTION
What are the different ways in which this product may add value to the paint manufacturer?
SAMPLE ANSWERS
• The candidate may use many approaches for this response, but the answer should cover benefits that are not only financial.
• After the candidate rans out of ideas, try to give hints that allow him or her to talk about carbon credits.
Financial:
• Savings from raw materials. (No need for solvents)
• Insurance savings
• Carbon credits
• Transport savings
Nonfinancial:
• Differentiation from competitors
• Reputation uplift/PR benefit
• Safety of employees
• Safety of the process
• Access to new market niches
QUANTITATIVE ANALYSIS
What are the potential revenues of the chemical product once the business reaches stable growth?
• Let the candidate lay out an structured approach to respond and share the datapoints when asked to do so, the candidate may need hints to ask for “carbon credits”.
• When discussing the “value generated”, go to the BRAINSTORMING question on the next slide and then come back to this calculation.
SOLUTION
Potential Revenues will be = Volume (Kgs of chemical product)* Price/kg
Volume Calculation:
• Size of the US paint market in volume: 900k tons per year
• 2.4 kg of chemical are required for every 100kg of Paint.
• Share of market interested in a green alternative – assume 20%.
Price:
• Price floor/ Variable cost=$4/kg
• Price ceiling (Value generated)
• Raw material savings
• 1kg of solvent costs $0.8/kg
• 100KG of paint has on average 30 kg of solvent.
Computation: Value from 1 kg of Chemical: ($0.8/kg solvent*(30%*100)kg solvent)/(2.4 kg chemical)= $10/kg of chemical
• Additional value from Carbon credits.
• Each ton of CO2 emitted costs the company $100 through carbon credit.
• 1kg of solvents represents 800gr of CO2 emissions for the customer.
Computation: Value from 1 kg of Chemical: ($100/ton CO2)* (0.8 kg CO2/kg solvent)*(30kg of solvent)/(2,4 kg of chemical)= $1/kg of chemical
Total value: $10 + $1 = 11
• Where to price it?
• The candidate should suggest a price point that splits the value created between the customer and Chemco, any division will make sense as long as the candidate supports it appropriately.
Volume calculation: (900k) ton of paint * 2.4% * 20% = 4320 ton of chemical
Assuming a $10/kg price - Revenue: 4320 ton * $10/kg = $43.2M
QUANTITATIVE ANALYSIS
What are the expected profits?
SOLUTION
• Gross Profit : 4320 ton* (10-4)$/kg= $25.9M
• Subtracting the extra 10M in Fixed costs.
• Total Profit: $15.9M
• Increase in profits: 15.9/200 ~ 8%
BRAINSTORMING QUESTION
What are the main challenges and risk that you think Chemco may face by launching this product?
SAMPLE ANSWERS
• The candidate may use many approaches for this response, hopefully the candidate covers different types of challenges and risks.
• Examples of operational/technical
• Performance of the “green paint” compared to the traditional counterpart
• Supply chain related (procurement)
• Adjust manufacturing site for the new product.
• Compatibility with other ingredients.
• Regulatory:
• Change in prices of carbon credits.
• Commercial:
• Customer acceptance of new technology.
• Price changes on petrochemical solvents.
• Price elasticity of paint manufacturers.
RECOMMENDATION QUESTION
Chemco’s CEO is on its way to the room and will like to hear a recommendation based on our recent findings.
SAMPLE RECOMMENDATION
A good recommendation should include:
• Whether to launch or not the product and at what price Example:
• My recommendation is that ChemCo should launch the product at $X/kg
• Arguments backing the previous two recommendations. Example:
• Profits will grow by XX%.
• Impact on environment of XX tons of CO2.
• Risks that should be further evaluated. Examples:
• Change in price of carbon credits
• Performance not as expected
• Assumption on % of the market that they will capture
• New entrants (competition response)
• Next action that Chemco should do. Example:
• Pilot tests, launch in one small city, approach first customers, sensitivity analysis, start the required plant adjustments etc.
Financial Easy
M&A Medium
Synergies Hard
GUIDANCE SOLUTION
The objective of Exhibit 1 is to Possible insights
understand the candidate’s 1. High revenues at the end of Ordered top-down from 1 to 6 3. Gross margin increases →
top-down interpretation of the year → Insight: Implies a Insight: more efficient
seasonal business operations, could be because
basic financial statements of new assets (machinery,
from a strategy perspective. equipment).
2. Drop in price per unit
(candidate should do the
The main conclusion is that
calculation) → Insight: might
ToyGame could be an imply a growth strategy 4. Increase in depreciation from
attractive client for the flexible (discounts or liquidating). QI to QII → Insight: Suggests
loan proposal since it has a investment in new fixed assets.
highly seasonal business
6. Positive annual cashflow but
(negative cashflows in the first negative cashflow in QI and QII 5. Positive EBIT and higher
quarters but overall annual → Insight: Even though EBIT is margins → Insight: Growth
positive cashflow). positive, debt repayments strategy seems profitable.
creates negative cashflows. It is not expected the candidate
to mention every insight.
IESE CONSULTING CLUB IESE CASE BOOK 2021 | 71
Industry Easy
Case Type Medium
EXHIBIT 1
ToyGame’s financial statements for next year ToyGame’s projected revenues and cash flow
US$ 000s QI QII QIII QIV Annual Operating profit COGS & Opex Debt instalment Cash flow
Profit & Loss Statement
+ Revenues 600 600 1,200 3,000 5,400 3,000
Units sold (000s) 10 20 40 100 170
- COGS -360 -300 -600 -1,500 -2,760
= Gross profit 240 300 600 1,500 2,640
Gross margin, % 40% 50% 50% 50% 49%
- Operational expenses -150 -160 -160 -450 -920
- Depreciation -15 -30 -30 -30 -105
- Other expenses 0 -35 65 -45 -15 1,200
= Operating profit 75 75 475 975 1,600
Profit margin, % 13% 13% 40% 33% 30% 600 600
Cashflow Statement
+ Operating profit 75 75 475 975 1,600 0
- Debt instalment* -275 -275 -275 -275 -1,100
= Cash flow -200 -200 200 700 500 QI QII QIII QIV
*Includes interest expense and principal payment.
EXHIBIT 2
OPTION 1. Standard loan (fixed payments) OPTION 2. New flexible loan using IoTech
Loan amount: US$ 000s US$ 000s
$1,000,000
Same for both options
Operating profit 975 975
Annual interest rate: Loan re-payment
10%
700
Amount to be re-paid:
$1,100,000
475 475
75 75 75 50 75 50
Brainstorming question 1:
What risks could you foresee of offering Categories Loan re-payment Fraud Data confidentiality
the new flexible loan based on
production usage data measured by • What if the company • How can IB secure that • How can IB address
IoTech? doesn’t produce as the companies don’t companies’ reluctancy
expected? tamper the IoT device? to share their
Ideas
• What systems can we • How can IB guarantee production data?
put in place as data is shared • Can the data shared be
thresholds for re- trustfully among as simple as ‘time in
payment? stakeholders? production’?
RECOMMENDATION QUESTION
Read to the The executive committee leading the acquisition of IoTech is calling you to provide a summary of the evaluation of the flexible loan
candidate: product so far, could you please brief them on the initial findings?
77
Fastcar
By CR7
Automotive Easy
Market entry Medium
Profitability Hard
78
Automotive Easy
Market entry Medium
Time to deliver
Other
Regulation
aspects
Talent
SAMPLE ANSWER
• Assumptions:
o Population in Pakistan: 220M
o No population growth (for simplicity)
o Average household size: 5 people/household
o Share of wealthy household: 10%
o All wealthy households, on average, own a luxury car
o Average car life-cycle: 10 years
o In the market there is only one competitor: BMW
• Calculation solved
o Number of luxury cars sold per year: (220M/5)*10%*10%/10 = 440,000 cars
COST ANALYSIS
Index • The candidate should be able to recognize that this the base
Cost item Base scenario Index EU
Pakistan scenario represents the point 100 of the index
Production cost 50,000€ 110 90
• The custom duty is applied on the production cost
Transportation cost 1,500€ 170 10
• The customer should give some explanation on why the time
Customs duty 1.25% 3000 0
to deliver a car is higher if produced from Europe than from
Exhibit 2 - Index cost in Europe and Pakistan Pakistan. Possible reasons are:
• Higher waiting time from suppliers and third-party
manufacturers
Region Investment Time to deliver a car • More time is required for training the local workers
RECOMMENDATION QUESTION
Great, can you provide a brief summary and your feedback on Fastcar about entering in the luxury car market in Pakistan?
SAMPLE RECOMMENDATION
The candidate should summarize that:
• Fastcar should enter in the Pakistan market because the market is very promising, achieving 50% of the market in 3 years,
corresponding to €16.5B in revenues.
• Considering only economic factors, Fastcar should open the production plant in Pakistan, achieving cost saving of €26.7B in 5
years
• Building a production plant can improve the reputation of the company and strengthen the brand in the local market
A great candidate should also discuss any risks and next step:
Risks
• Building a new factory may require more time than forecasted
• Attracting, training and retaining the local talent
• Setting up a supply chain of raw material and components
Next steps:
• Design of the plan for opening the plant
• Analysis of local regulation
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Travel Wizard
By Sahaj Garg
Airlines Easy
Competitive Threat Medium
Profitability Hard
87
Airlines Easy
Competitive Threat Medium
STRUCTURE GUIDANCE
The main focus of the first part of this case is predicting demand & estimating loss, hence the structure should include market opportunity as well as
profitability. The interviewee may estimate the size of the market first, and then develop a structure. A big aspect of this case is creativity and thinking
about a unique product, and this should reflect in the interviewee’s structure.
SAMPLE STRUCTURE
• Market opportunity: Is there a market for teleportation? What is the market size? What are the travelling trends in London and New York? What is
the demographic of the target audience?
• Potential share: Are there barriers to entry or can other companies join the teleportation industry? Do our customers need this device, and can this
device meet expectations? Does Travel Wizard have marketing capabilities? Can our customers afford this means of transport? What is their
willingness to pay?
• Potential profit: What is the lost revenue? What would be the impact on margins and profitability? Do they have other ways to generate profits?
• Capabilities & risks: Does Travel Wizard have the ability to scale this device to other locations as well? Can this industry be regulated by the
government to provide us an advantage?
The candidate may choose to dive deeper into other areas, but must start by sizing the demand for the teleportation device across these regions.
Capacity of
Total # of flights per passengers per Load
day plane Churn rate factor
80%
Flights from Flights from New
London to New York to London First class Business class Economy class First class Business class Economy class
York per day per day passengers passengers passengers passengers passengers passengers
5 flights per day 5 flights per day 5 rows x 6 seats 5 rows x 6 seats 40 rows x 6 seats 80% 50% 10%
Total # of flights impacted per day = = 30 passengers = 30 passengers = 240 passengers
5 + 5 = 10 flights
First Class: 30 first class passengers / flight x 80% = 24 first class passengers / flight = 240 first class passengers / day
Business Class: 30 business class passengers / flight x 80% = 24 business class passengers / flight = 240 business class passengers / day
Economy Class: 240 economy class passengers / flight x 80% = 192 economy class passengers / flight = 1920 economy class passengers / day
(240 first class passengers x 80%) + (240 business class passengers x 50%) + (1920 economy class passengers x 10%) = 192 lost first class passengers + 120
lost business class passengers + 192 lost economy class passengers ~ 500 lost passengers per day ~ 180,000 lost customers per year
IMPACT ON PROFITABILITY
After the candidate estimates the revenue for next year, ask the candidate to brainstorm what are the various costs that SG Airlines would incur.
The candidate should come up with at least 4 different costs. Possible answers include the list below:
Purchase price of aircrafts, purchase price of fuel and oil, maintenance costs, flight and cabin crew costs, other labor costs, financing costs, insurance
costs, hangar rental / tie-down space, annual inspection fees, real estate for offices
After this, the candidate should make their best estimates for each of the costs mentioned and decide: what could be the profit margin for a company
like SG Airlines? Any answer between 2.5% to 15% is acceptable as long as the explanation provided by the candidate is reasonable.
A good candidate will automatically look to estimate the profit for SG Airlines for next year based on the assumption made above. An excellent
candidate will notice that the revenue declined by roughly 33% and with low margins, the profitability may be at a higher risk.
As a brainstorming exercise, ask the candidate to come up with alternate methods for generating additional revenue in the future. The candidate
should come up with at least 4 different ideas. Possible answers include the list below:
Charge customers for additional services like food or baggage, introduce Wi-Fi in the air as an option, enter into a code-share with another airline to
fill the unused capacity of the planes, introduce a diverse in-flight shopping catalog, reducing the price of tickets for first & business class
passengers, lease hangar space to other airlines when not being used, enter into transportation markets, launch a complementary suitcase and
handbags subsidiary
BRAINSTORMING QUESTION
Inform the candidate: After noticing that first class passengers led to 57% of the loss recognized by SG Airlines due to competitive pressure from Travel
Wizard, the team decided to reduce the price of first class tickets from $3,000 to $2,500. How can SG Airlines accurately estimate how much the churn
would reduce?
The candidate can be creative here, however the ideal answer would be by collecting data from competitors and past sales of SG Airlines so that they can
run regression models on the price/demand ratio and predict the churn rate with high accuracy.
Lastly, ask the candidate if they would change their marketing strategy given there is a clear threat to the industry and how?
This is an open-ended question and the candidate can feel free to use 4P’s or 5C’s framework if they wish.
The candidate may focus on marketing via different channels like company website, travel agencies, billboards, TV advertisements, banners on social
media etc. The candidate may choose to offer bundling of options or discounting of tickets during certain periods. Irrespective of what they choose, it
should clearly address why their preferred method of marketing will reduce churn to Travel Wizard.
RECOMMENDATION QUESTION
You meet the CEO of SG Airlines at the gate of the building. During the 1 minute walk to her office, she asks you to briefly introduce your findings about
the competitive threat from Travel Wizard.
SAMPLE RECOMMENDATION
The candidate should summarize that:
• SG Airlines should keep the flights from London to New York and vice-versa running, even though there is a significant loss in revenue
• The routes are still profitable and can generate a revenue of $783 million per year, despite losing customers to Travel Wizard
• Majority of the loss in revenue is due to churn of first class passengers, however SG Airlines can consider other options to generate revenue
And some of the following risks should be considered:
• There may be an additional loss of passengers due to the novelty factor of the teleportation device
• Since this is a new industry altogether, there may be an influx of other players in the market in the near future, further reducing revenues
Possible next steps:
• SG Airlines can potentially reduce prices for all tickets to keep airlines attractive as an industry
• Evaluate if SG Airlines possesses the capability to produce and launch their own teleportation device
TMT Easy
M&A Medium
Profitability Hard
95
TMT Easy
M&A Medium
Prompt & exhibit I Structure Exhibit II & quant Risk brainstorming Recommendation
Time: 5-7 mins Time: 6-10 min Time: 12-15 min Time: 8 mins Time: 5 mins
Main Objectives: Main Objectives: Main Objectives: Main Objectives: Main Objectives:
• Understand the • Elaborate a structure • Calculate the main • Elaborate a list of • Outline target
industry & company to address the synergies risks associated with synergy
size problem • Notice one-off costs the NewCo synergy • Comment on main
• Address the problem • Use main levers (cost • Understand the implementation and synergies
to be solved: synergy and revenue) as part difference between future operations • Elaborate on risks
calculation of the structure target and potential and mitigation
synergy actions
(*) Refers to the manufacturing and installation of reception devices (antennas), transmission infrastructure (Wiring), and end-terminals (set-top-boxes, smart TVs, phones…)
IESE CONSULTING CLUB IESE CASE BOOK 2021 | 96
TMT Easy
M&A Medium
(*) Refers to the manufacturing and installation of reception devices (antennas), transmission infrastructure (Wiring), and end-terminals (set-top-boxes, smart TVs, phones…)
IESE CONSULTING CLUB IESE CASE BOOK 2021 | 97
TMT Easy
M&A Medium
LY Revenue M€ 150 85 83 75 70
2018 2019 2020
3Y CAGR -20% -10% -5%** -12.5% -15%
EU Total Accessible Market (M€)
Notes: (*) An encoder/converter is a device that converts different signals (Satellite, Terrestrial, IP…) into playable content (video and/or audio). (**) The Swedish competitor has
recently acquired a SW company which is offsetting its decline in sales. | Glossary: (1) Total Accessible Market
IESE CONSULTING CLUB IESE CASE BOOK 2021 | 98
TMT Easy
M&A Medium
GUIDANCE
This exhibit is for the candidate to understand better the industry, it is important to try to link it to the reason behind the M&A operation
The candidate should notice that:
1. The market is experiencing an overall decline ( (660-800)/800 = -140/800 = -7/40 = -17.5%). If the candidate makes the calculation, it would be
considered positive
2. This decline is caused by the fact that clients are switching traditional Hardware for Software services. If the candidate notices that the Swedish
sales have declined less due to the acquisition of a Software firm it would be considered a plus
3. The operation will create the biggest company in the market (75+80 = 155M€)
4. The Polish company initially presents a better financial outlook (lesser decline than most competitors and bigger revenues)
5. The market relies heavily on one type of client: hospitality. If the candidate links the fact that consumers now bring the content linked to their
devices (i.e. Netflix, Hulu…) to the increased importance of software services it would be considered a good understanding of the industry
behaviour
6. Finally, the candidate should try to guess that since the industry is experiencing such a decrease, the operation might help capture synergies
that help both companies survive in such a demanding market
If the candidate does not suggest the reason for the operation, the interviewer might ask him/her to brainstorm a set of possible reasons. When
synergies come up, the interviewer might suggest moving on to the structure.
STRUCTURE QUESTION
The interviewer will ask the candidate to create and present a structure to address the potential synergies upcoming from the
M&A operation
STRUCTURE GUIDANCE
The candidate needs to identify the information that will help him solve the problem:
• He should indicate that there are two main sources of synergies: sales and costs
• In terms of sales synergies, the candidate should indicate that there is potential due to access to new clients, countries,
and products that were exclusive to each of the companies
• In terms of cost synergies, the candidate should explain that there are potential synergies and elaborate on the
different lines where the companies can save costs from merging (i.e.. Purchase of raw materials, direct labour
reductions and/or relocations, R&D costs, and selling/administrative)
• Last, the candidate could create a bucket to assess the feasibility/risks associated with the synergy calculation
Products • New potential cross-selling opportunities coming from gaining access to:
SALES SYNERGIES ✓ New products
Geographies ✓ New countries
✓ New clients
Products
Notes: (*) An encoder/converter is a device that converts different signals (Satellite, Terrestrial, IP…) into playable content (video and/or audio). (**) The Swedish competitor has
recently acquired a SW company which is offsetting its decline in sales. | Glossary: (1) Total Accessible Market
IESE CONSULTING CLUB IESE CASE BOOK 2021 |101
TMT Easy
M&A Medium
GUIDANCE
If the candidate asks:
1. There is enough capacity in Poland to move production from France, with the associated increase in Fix Cost (salaries)
2. Termination costs in France (associated with production employees in France) have been estimated to be 10M€ (one-off)
3. The sale of the French Plant would lead to a net profit of 2M€
4. The candidate can consider a target of 70% consecution of the potential synergy. The candidate should indicate that 100% of the synergy is
not attainable.
In conclusion, candidate should state that the Polish have a leaner operation and that this gives them the possibility to invest more in R&D and
retain sales with more advanced products.
Gathering all this information the candidate should propose to move on with the structure and start the synergies analysis.
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TMT Easy
M&A Medium
QUANTITATIVE ANALYSIS
For the quantitative analysis, the interviewer will ask the candidate to calculate the synergies between the two players using the information contained in the first exhibit.
(It is important that the candidate makes the calculation with at least 2 decimals, specially for the ratios)
SOLUTION
• Sales synergies (0M€): here the candidate should brainstorm some ideas on where he thinks the synergies are (i.e. cross-selling of non-common products, access to
new countries…). He should state that this type of synergy is more uncertain and speak about the possibility of cannibalization. The interviewer should indicate the
candidate to consider zero in terms of sales synergies.
• Raw Materials: here the candidate should use the purchasing ratio from Poland to quantify the potential synergy behind Raw Materials. 9 – (70 x 9.5/85) = 1.17M€
• Production: in terms of salaries, the candidate should try to explore the possibility of moving production to Poland, as it is more cost-efficient this would yield: 42 –
(70 x 33.5 / 85) = 42 -27.588 = 14.41 M€
• Research & Development: here the candidate should notice that this cost is duplicated, with one R&D department they would be able to serve the whole organization,
and since the Polish one seems to be more effective (in terms of sales) he could propose to move all R&D to Poland maintaining the Polish budget. 10M€, all French
R&D cost
• Sales & Administration: same reasoning as before yet more unclear since Spain would need to retain some Financial controllers/administrative staff. 2-3M€
Target Recurrent Saving of:
(1.17 + 14.41 + 10 + 2.5) x 0.7 = 28.09 x 0.7 = 19.66 M€
One-off Profits/Losses:
+2 – 10 = -8 M€
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TMT Easy
M&A Medium
BRAINSTORMING QUESTION
Last, the interviewer must ask the candidate to elaborate on the last point of the plan, which is risks/feasibility. The candidate
must elaborate a list of risks that could harm the synergies and the profitability of the NewCo in the future. (Broader scope)
SAMPLE ANSWERS
The candidate should explore the different risks associated with the future of the NewCo. If he proposes a structure that is
linked to profitability, it would be considered a plus, i.e.:
RECOMMENDATION QUESTION
After this analysis, the client has called us, they want us to have a call with them and propose them our main conclusions over
the synergy analysis. You have 2 minutes to elaborate an adequate response that captures what we have been discussing during
the project.
SAMPLE RECOMMENDATION
• The response should start by first answering the question of how much potential does the operation has in terms of
synergies ( ~20M€).
• The candidate should explain that this number has been calculated using a safety coefficient that assumes that the NewCo
will be able to capture a 70% of the potential synergy
• Then he should move to explain where the synergies are mainly being captured: Production and R&D
• He should talk as well about one-off profit/losses: in Year 0 (2021) the company would experience a -8M€ loss due mainly to
the termination costs associated with the employees in the French plant
• Present a brief risk analysis, if he speaks about the French employment laws and the fact that moving production to Poland
might be difficult/costly it would also be considered a plus. Presenting risk mitigation initiatives would also be considered
positive.
• Last, he should try to establish a small action plan or suggest a follow up to the call
IESE CONSULTING CLUB IESE CASE BOOK 2021 |106
Crunch Yo’ Burger
By Pieter Swart
107
Food service Easy
Profitability Medium
• If you are short on time, you can simply give the candidates the values of these inputs
• If the candidate would like to practice estimations, they can estimate these inputs
Market growth
• Ha s regulation affected the industry (forced players to use healthier a nd more expensive ingredients,
External market Regulation l i mited growth etc.)?
• Thi s is a price sensitive market, s o we can assume that prices have not changed much flat, is this
Price correct?
• Ha ve we run a ny excessive discounts recently?
Revenue
Quantity • Ha ve we opened or closed any bra nches recently?
• Are we upselling / cross-selling enough?
• Typi ca l fixed costs might be rental, labour, utilities etc. – how have these evolved?
Fixed costs • Are we tied i nto a ny l ong-term contracts for rentals?
Costs • Va ri able costs are food, packaging, cooking utensils – how have these evolved?
• Are we taking advantage of bulk discounts by centralizing purchasing?
• Any cha nges i n food (commodity) prices that have a dversely a ffected us i n particular? (e.g. beef – s ince
Variable costs we us e more beef than competitors)
• Product mi x – could we be selling more products that have higher va riable costs?
Once the candidate has given an overview of their structure, hand them Exhibit 1 (revenues and profits) and let them use this to
IESE CONSULTING CLUB IESE CASE BOOK 2021 |110
decide where they should focus
Food service Easy
Profitability Medium
CALCULATION QUESTION
• Crunch Yo' Burger is considering purchasing a machine that dispenses napkins one by one (Napkins are currently
placed a large stack, customers take a few at a time before they sit down to eat)
• 1 machine will be needed per store, and needs to be replaced every 2 years; cost is $1000 per machine
• How much money can Crunch Yo' Burger save per year by implementing this machine?
– What are the inputs you would need in the calculation and how would you structure it?
– How much money is saved?
– This solution will only apply to eat-in customers
• Note for interviewer: You should try to assess the candidate on two elements here:
– How well they structure their calculation – do they identify all the elements in a logical way?
– How well they execute the calculation
OPTIONAL ESTIMATIONS
EXAMPLE RESPONSE: ESTIMATION #1 – # OF SIT-IN EXAMPLE RESPONSE: ESTIMATION #2 –
CUSTOMERS IN TYPICAL SUBWAY RESTAURANT PER DAY # OF SUBWAY RESTAURANTS IN THE US
• Assume a typical Subway or similar takeout restaurant has ~30 tables, with ~4 chairs • We have 50 states in the US, let’s assume each state is split into rural and urban
per table; capacity of 120 sit-in customers • Urban areas mostly comprise two large cities
• Rural areas are small towns
• Assume it is typically open from 6am to 10pm to sit-in customers (16 hours a day)
• There are 150 Subways stores per city, potential way to estimate this:
• 50% of the time is peak (8/16 hours), 50% of the time is off-peak (8/16 hours), – Each large city is roughly 10 km long by 10km wide
(example breakdown in table below) – Each km has roughly 12 blocks
– Thus 120 blocks long by 120 blocks wide = 15000 blocks per city
• During peak hours, the restaurant is 80% full – Let’s assume that as you walk, you are likely to encounter a Subway store every 10 blocks, thus
150 Subways per city
• During non-peak hours, the restaurant is 20% full
• Average meal duration is 1 hour (i.e. in a 3 hour time period, a table is rotated 3 times) • Let’s assume the cities contain 2/3 of all Subway restaurants, and the towns the
remaining 1/3, Thus 2*150 = 300 Subway restaurants in cities, and 150 in towns =
Capacity 450 Subway restaurants per state
Timeslot Peak/ off-peak utilisation Calculation # customers
• 450*50 states = 22,500 Subway restaurants in the US
06:00-09:00 Peak 80% 120*3hrs*80% 288
• Note for interviewer: There are many potential ways in which the candidate could do
09:00-12:00 Off-peak 20% 120*3hrs*20% 72 this estimation (land area or Subway restaurant per person)
12:00-14:00 Peak 80% 120*2hrs*80% 192
14:00-18:00 Off-peak 20% 120*4hrs*20% 96
18:00-21:00 Peak 80% 120*3hrs*80% 288
21:00-22:00 Off-peak 20% 120*1hrs*20% 24
IESE CONSULTING CLUB Total 960 IESE CASE BOOK 2021 |116
Food service Easy
Profitability Medium
PROMPT: BRAINSTORM
What are some other ways we could save on variable costs?
EXAMPLE CANDIDATE RESPONSE
• Raw materials bulk discounts
• Extend useful life of consumable utensils
• Run similar initiatives with ketchup, straws etc.
• Decrease cost of napkins (cheaper napkins)
• Note for interviewer: There are many potential options here, extra points for creativity
IESE CONSULTING CLUB IESE CASE BOOK 2021 |117
Food service Easy
Profitability Medium
119
Transportation Easy
Profitability Medium
STRUCTURE GUIDANCE
The structure for this case should be mainly about profit. The more related to transportation, the better. A good candidate should also consider all the risks and limitations
involved in this process since we are talking about a case in the public sector under a lot of uncertainty. After the candidate presented the structure, handle Exhibit 1 or 2
depending on the candidate's request.
Before handling Exhibit 2, ask the candidate to do a brainstorming of the main operating costs and possible covid-19 impact on them.
SAMPLE STRUCTURE
Price of ticket
Tickets Revenue
Number of trips
Revenue Subsidy
Publicity
Others
Profits Partnerships
Maintenance
Limitations
Electricity
Risks Operating Costs
Drivers
Fuel
DEMAND FORECAST
Normal Ticket Students
Total Trips projected 2021 500 million 100 million
Expected price 2 USD 1 USD*
TOTAL REVENUE = Revenue Normal Tickets + Revenue Student Tickets = 837 MM USD
COSTS ANALYSIS
Brainstorm - Before handling Exhibit 2, the candidate is asked to do a brainstorming of the main operating costs and possible covid-19 impact on them.
For the brainstorm, the candidate is expected to mention most of the costs shown in the exhibit and some of the covid effects.
From Exhibit 2 the candidate is challenged to quickly understand all the information and see the relationship between each of the numbers with the
covid-19 effect mentioned. Also, the candidate must understand the different types of units shown on the table.
New Electricity Cost = Total Kilometres * Consumption * New Electricity Price = 200 MM * 1 * 0.45 = 90 MM USD
New Electricity Price = Original Electricity Price *(1 - Electricity Price Change) = 0.5 * (1-10%) = 0.45
New Bus Drivers Cost = Original Bus Drivers Cost * (1 – Night Reduction) = 500 MM * (1-10%) = 450 MM USD
TOTAL COSTS = Original Total Cost – Change in Fuel Cost – Change in Electricity Cost – Change in Bus Drivers Cost = 2000 MM – 140 MM – 10 MM – 50 MM = 1800 MM USD
Change in Fuel Cost = Original Fuel Cost – New Fuel Cost = 500 MM – 360 MM = 140 MM USD
Change in Electricity Cost = Original Electricity Cost – New Electricity Cost = 100 MM – 90 MM = 10 MM USD
Change in Bus Drivers Cost = Original Bus Drivers Cost – New Bus Drivers Cost = 500 MM – 450 MM = 50 MM USD
PROFIT ANALYSIS
After analysing all the revenue and costs, the candidate should be able to link both and conclude that there will be a deficit of -63 MM USD. The
candidate is expected to start thinking about options to cover the expected deficit for this year. A good candidate will also mention that all these
numbers are based on an average scenario and that the final difference could be covered or even increase depending on many of the variables.
Ask the candidate to do a brainstorm of possible solutions and, if there is time, ask him to quantify one of them.
A good candidate would deliver his brainstorm in a structured way.
POSSIBLE SOLUTIONS
Revenue solutions
Tickets Revenue 837 MM • Increase the price of the “Normal Ticket” – the price should be increased by 13 cents (6%)
Revenue • Increase safety measures to generate more demand – it would be required an increase of
Subsidy 900 MM 31,5 MM “normal tickets”
-63 MM • Ask for more Subsidy – An increase of 63 MM USD (7%)
Profits
• Create other source of revenue
Cost solutions
Operating Costs 1800 MM • Decrease the kilometres to reduce costs – it would be required a decrease of 160 MM
kilometres of Bus (17%)
Other
• Wait until July to see which of the scenarios occur before taking actions that may not be
necessary
RECOMMENDATION QUESTION
The Ministry of Transportation has entered the room and is asking you for your analysis and recommendation.
SAMPLE RECOMMENDATION
The recommendation should be given in a structured way. Starting with the concrete action, then the reason behind that action, and after that,
mention the risks involved. A possible recommendation structure would be:
1) Action/conclusion: Mention that, after the analysis, we will have a gap of 63 million and bring up one of the possible solutions from the final
brainstorm.
2) Reason: Give two or three reasons why he thinks that is a good solution for the problem.
3) Risks: Assess the possible negative impacts of the recommendation. A good candidate should also mention the risk behind all the numbers analysed,
since they are all based on forecasts and could have high variability.
4) Recommendation: Give a future recommendation to improve the analysis or to increase the action's probabilities of success.
PROMPT
The state of California has experienced devastating wildfires in recent years, causing deaths and billions of dollars worth of damage.
The disasters are only projected to intensify, and the government needs to act fast. The governor has hired you to propose an action
plan for prevention and mitigation. What factors would you analyse?
STRUCTURE GUIDANCE
Given the open-ended nature and scale of the problem, there are a variety of approaches. However, the candidate’s structure should cover the
following key aspects of the problem. Push the candidate to brainstorm and elaborate on ideas, as the rest of the case is speculative.
4,500
270
3,000 220
INSIGHT ANALYSIS
Hand over Exhibit 1 if the interviewee asks about causes of wildfires or trends over time
% of
Cost to Build Residential Annual % that are Avg Property
City Structures
SafeWall 1 ($M) Structures Wildfires catastrophic 2 Value ($M)
At-Risk
Notes
1. SafeWall reduces the probability of a catastrophic fire by 50%
2. “Catastrophic” defined as destroying 10% of at-risk structures
QUANTITATIVE ANALYSIS
An environmental minister has suggested that a fireproof structure, SafeWall, could be built and would reduce the
probability of a catastrophic wildfire. To start, they can only build around one city – which should they build and why?
SOLUTION
Candidate should assess each option and systematically compare the expected outcomes
Step 1: Calculate the at-risk value in each location: Residential % of Structures Total At-Risk Avg Property Total At-Risk
City
Residential Structures * % At Risk * Avg Property Value Structures At-Risk Structures Value ($M) Value ($B)
#1 Oakland 400,000 2% 8,000 1.00 8.00
Step 2: Calculate the likelihood of catastrophic fire in each location Santa Barbara 100,000 4% 4,000 2.50 10.00
Annual Wildfires * % that are catastrophic Sacramento 250,000 3% 7,500 0.50 3.75
Step 3 Multiply the probability of a catastrophic fire by the at-risk value in each location Annual % that are Expected
City
by 10% destruction. Reduce expected damage by 50% to determine Value Saved Wildfires catastrophic Catastrophic Fires
At Risk Value * Expected Wildfires * 10% Destruction; → * 50% reduction and Compare Values #2 Oakland 10 5% 0.5
Santa Barbara 15 15% 2.25
Expected Insight:
• Candidate should note that SafeWall in Santa Barbara would save the most Sacramento 12 10% 1.2
value ($1B) compared to the other locations (~5x)
Total At- Expected Damage of Expected Cost,
• Candidate should take a stance on basing the decision on financial Impact of Expected Cost, Value Saved
City Risk Value Catastrophic Catastrophic No SafeWall
considerations compared to population or at-risk structures. SafeWall SafeWall ($M) ($M)
($B) Fires Fire ($M)
Candidate should note more data is needed on population.
• Should note that construction costs are not a factor given #3 Oakland 8.00 0.5 10% 400 50% 200 200
relatively similar in all locations Santa Barbara 10.00 2.25 10% 2,250 50% 1,125 1,125
Sacramento 3.75 1.2 10% 450 50% 225 225
RECOMMENDATION QUESTION
Between your structured approach & data provided, what are your recommendations for the governor?
SAMPLE RECOMMENDATION
Allow for flexibility based on the candidate’s structure. A balance of creativity and practicality should be embraced
• Based on data trends, action should be taken to reduce the frequency of wildfires from human error
• Long-term solutions should also be implemented to mitigate “disaster” fires that cause more damage
• Building SafeWall around Santa Barbara is expected to save over $1B in real estate value, 5x the value of other locations
• Overall response risks are plentiful, namely effectiveness, cost, and ability to implement
• Action steps should be relevant to the prior conclusions and include other proposed solutions, such as:
135
Financial Services Easy
Product launch Medium
STRUCTURE GUIDANCE
• Candidate should focus on main aspects that imply to release a new product: financial impact, market situation, risks involved, and capabilities that
the company has.
SAMPLE STRUCTURE
SOLUTION, PART 1
Credit Card Spending per Merchant fee
Total Adult Population, by Market share
penetration year 2%
population population % income (# cards)
(# cards) (PEN) (PEN)
high = 10% 80% 60% 100 K
2.45 M 1.96 M 1.176 M 117.6 B 2.352 B
70%
medium = 30% 50% 30% 30 K
35 M 24.5 M 7.35 M 3.675 M 1.102 M 33.075 B 661.5 M
low = 60% 10% 5% 6K
14.5 M 1.47 M 0.0735 M 441 M 8.82 M
IESE CONSULTING CLUB IESE CASE BOOK 2021 |138
Financial Services Easy
Product launch Medium
SOLUTION, PART 2
• Compare marginal impact on branches vs online sales:
o Market share growth (# cards) -> branches: from 5% to 15%; online: from 5% to 8%. Average spending and merchant fee remains the same.
o Variable costs (paid only at year 0) -> plastic card emission = PEN 5 // sales commission (per card sold) = PEN 50
o Variable costs (paid every period) -> cashback = 1% of payments, per year
o Fixed costs (paid every period) -> online channel maintenance = PEN 200 K per year
o Net cash flow after 3 years (PEN) -> Branches = 18.4 M vs. Online = 7.2 M. Payback time = 1 year for both options.
Branches // # new cards = 147 K 0 1-3 Online sales // # new cards = 44.1 K 0 1-3
Payments 882 M Payments 264.6 M
Revenue 17.64 M Revenue 5.29 M
Costs (plastic & sales) (8.085 M) 0 Costs (plastic & online) (0.735 M) (0.200 M)
Cashback (8.82 M) Cashback (2.65 M)
Margin (8.085 M) 8.82 M Margin (0.735 M) 2.65 M
IESE CONSULTING CLUB IESE CASE BOOK 2021 |140
Financial Services Easy
Product launch Medium
• Lima City concentrates around 10M inhabitants (disregard the segment), medium-
income regions represent other 10M inhabitants, and 15M inhabitants live in low-
income regions.
• Branch penetration is usually preceded by a developed POS ecosystem,
implemented by a Credit Card global company.
• Technologies adopted by low-income segment: 65% has a smartphone, 65% has
Internet access.
TAKEAWAYS
• The candidate should recognize that we don’t have any presence in the majority of low-income regions. Thus, it would imply an additional
investment in building branches.
• A good candidate should also consider the cash flow differences between sales channels (PEN 18.4M – 7.2M = 11.2M) as additional CAPEX that
could be used for building branches and still generating higher cash flows vs online.
• Since Lima City has the third part of Peru’s population, is probable that there is a hidden low-income segment that we can prioritize. The same for
other high-income, medium-income regions.
• Leverage on technologies could help to foster financial literacy or as payment methods.
BRAINSTORMING QUESTION
1. What are the main potential problems/risks that we have in order to launch the new product?
2. What would you suggest to do to hedge these risks?
SAMPLE ANSWERS
1. Candidate should bundle possible risks:
• Commercial: acquiring the card through online sales could be daunting, clients don’t understand how to use the card, 1% cashback could
not be perceived as attractive, erosion of partnership with airline.
• Financial: clients show high default levels, high-income clients turn to cashback credit card (cannibalization).
• Operational: there are not enough POS nor branches in the majority of low-income regions, low density of population in low-income
regions.
RECOMMENDATION QUESTION
What is your recommendation to South Bank CMO?
SAMPLE RECOMMENDATION
• The candidate should recommend implementing the project. Payback period is only 1 year regardless of sales channel. Ideally, he/she should
suggest implementing branches, because they generate higher net cash flows in the first 3 years.
• Consider that, if we have to invest more than PEN 11.2 M in opening new branches, is better to go online.
• As possible risks to consider: low adoption of product (due to access, lack of knowledge, or small POS network), potential cannibalization, and
erosion on airline partnership.
• Finally, mention next steps: consider push POS penetration with Credit Card provider or even with competitors, work on financial education, etc.
Sports Easy
Investment Decision Medium
Profitability Hard
LPI TEAM RANKINGS FOR THE LAST 3 YEARS AVERAGE STAR RATING SCORE
League Rankings Average Star-Rating
CSC
DDC
HYC
KKC
MMC
At this point, Interviewer should ask the Candidate that could be the potential reason for this and then guide the candidate towards looking to
acquire new Start Players, to improve the team “Star-Rating”. Once the Candidate has gotten there, the Interviewer should show Exhibit-2
Note: Rankings and reflect the team’s performance i.e., highest bar indicates the winning team and the lowest reflects the last finishing team
IESE CONSULTING CLUB IESE CASE BOOK 2021 |148
Sports Easy
Investment Decision Medium
LPI TEAM RANKINGS FOR THE LAST 3 YEARS AVERAGE STAR RATING SCORE
League Rankings Average Star-Rating
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0
CSC
DDC
HYC
KKC
MMC
PCC
RBC
2020 2019 2018
RJC
CSC DDC HYC KKC MMC PCC RBC RJC
Note: Rankings and reflect the team’s performance i.e., highest bar indicates the winning team and the lowest reflects the last finishing team
Star batsmen available for auction Star bowlers available for auction
Signing Fee Games Avg. Score / Start Rating Signing Fee Games Wickets Avg. Wicket / Start Rating
Runs Scored
(USD Mn) Played Game (out of 10) (USD Mn) Played Taken Match (out of 10)
INTERVIEWER GUIDANCE
The Interviewer should explain that a Batsmen’s success is linked to scoring more, whereas the Bowlers success is linked to maximum wickets – a great Candidate would suggest
and analyse additional metrics such as bowling economy, strike-rate, run-rate etc to refine his model. (although not necessary for people who don’t understand the game)
The Interviewer should assess the Candidate’s decision making on the basis of his/her ability to derive some kind of mechanism to put the data into perspective and make an
objective decision. The ideal decision would be based on “highest average runs” and “highest average wickets” (which they do not have in their version). If the Candidate doesn’t
get to calculating average, the Interviewer should guide the Candidate to it.
The most ideal combination is “CG as the batsmen” and “JB as the bowler” – a) highest averages, b) together add up to the allowed budget and c) highest combined Star rating
Star batsmen available for auction Star bowlers available for auction
ACQUISITION DECISION
Would you spend money on acquiring the Star-Players?
INTERVIEWER GUIDE
At this stage Candidate can take the decision of acquiring the two star-players given that the budget allows them to spend $20mn. In
this case, the Interviewer has two options -:
a) Skip the Exhibit-3 and straight move to Brain-Storming exercise
b) Challenge the Candidate by trying to quantify the financial impact of the decision in terms of additional profitability
However, a great candidate would proactively ask if we have any data or predictive analysis of the likely impact of the acquisitions.
Given the aim is to improve profits, Candidate should try to assess the impact in terms of numbers and not just direction.
Interviewer should share Exhibit-3 if the Candidate asks for additional data to quantify the impact
PCC PPREDICTED YEARLY LEAGUE RANKING (3 YEARS) LPI PRIZE MONEY DISTRIBUTION BASIS
70% 65% Rank Prize (USD Mn)
60% 55%
50% Below-5 0.0
40% 35%
30% Top-5 10.0
30%
20% Top-3 20.0
10%
10% 5%
0% 0% Top-2 50.0
0%
Below-5 Top-5 Top-3 Top-2
With Acquisitons Without Acquisitons
INTERVIEWER GUIDANCE
➢ Predicted Yearly Profit with acquisition (USD Mn) = 65%*10.0 + 30%*20.0 + 5%*50.0 = $15.0mn (for 3 years)
➢ Predicted Yearly Profit without acquisition (USD Mn) = 55%*0.0 + 35%*10.0 + 10%*20.0 = $5.5mn (for 3 years)
➢ Additional Profit of ~10Mn/year for next 3 years just from Prize money. The investment of $20mn will get covered in two years. A great candidate
would remember that the Star-Ranking of the team would also improve and thus lead to additional Revenues and hence even higher profits
Risks:
• Players come with high chances of injury, which means the winning probability may not be accurate
• Team sports also depend a lot on the team dynamics, maybe the players are not able to perform well with the franchise
Retail Easy
E-commerce Medium
Market Entry Hard
156
Retail Easy
base. Now, as part of its new growth • CB has reached an agreement with an e-Reader manufacturer in China. Total cost per device would be 60€.
These devices can only support the e-books sold on CB’s new website.
strategy, CB is considering whether to
• CB has no specific growth rate in mind and are open to suggestions from us.
enter the electronic books market.
For simplicity, taxes and value of money over time have been ignored in this case, although excellent
candidates should mention them during the case.
MARKET OPPORTUNITY: What is the market size of generic e-books in Spain? What is this market’s growth?
POTENTIAL SHARE: What would be our market share? How many competitors are we facing in this market?
POTENTIAL PROFIT: What is the potential profit of this new market? Expected revenues vs expected costs? What investment is required to enter
in this new market? What is the expected return on investment of our client? Payback period?
CAPABILITIES & RISKS: Does this new market align with our client’s strategy and capabilities? Do they have the know-how required? Have they got
the financial capabilities to undertake this investment? What is the potential cannibalization of this new business model with the current one?
The analysis should be led by the candidate, starting for the market size. When the candidate requests information about the market and size,
ask him to estimate the size of the non-technical books in Spain, both in paper and e-books.
1. Population of Spain: 45M 5. Percentage of paper books and e-books and average prices:
PAPER BOOKS (93% of books): 78M books x 15€/book = 1,170M€
2. Target population that reads: We assume people from 15 to 80 E-BOOKS (7% of books): 6M books x 8€/book = 48M€
years old.
Population 0 – 20 (25%): 11.25M (Population 15-20: 11.25/4=2.8M) TOTAL MARKET: 1,170 + 48 = 1,220M €
Population 21 - 40 (25%): 11.25M
Population 41 – 60 (25%): 11.25M
Population 61 – 80 (25%): 11.25M
Total target population = 2.8 + 11.25 + 11.25 + 11.25 = 36.5 M
REVENUE COSTS
• Paper book Gross Margin: 33% • Cannibalization: Candidate needs to calculate the number of users that will
switch from paper to e-reader with Exhibits 1 & 3
• E-book Gross Margin: 40%
• E-reader price: To be determined by the candidate with
Exhibit 2. Price range should be between 60 and 100€
to compete against Kindle.
PROFITABILITY CALCULATION
YEAR 1 2 3 4 5
Market Size 48M € 50.4M € 52.92M € 55.6M € 58.38M €
Revenue e-books 480,000 € 504,000 € 530,000 € 560,000 € 584,000 €
Gross Margin 190,000 € 201,600 € 212,000 € 224,000 € 232,000 €
Profit from e-readers 120,000 € * 3,000 € ** 3,250 € 3,750 € 3,000 €
Webpage investment - 150,000 € - - - -
General Expenses -50,000 € -50,000 € -50,000 € -50,000 € -50,000 €
-90,000 € (50,000
Cannibalization -90,000 € -90,000 € -90,000 € -90,000 €
books x -1.8€)
TOTAL PROFIT 20,000 € 64,600 € 75,250 € 87,750 € 95,000 €
(*) This calculation has taken into account a gross margin of 10€ per e-reader. Candidate will have to pick the price in each case. 12,000 readers are sold the first year, 11,000 to
customers switching from paper to e-book and 1,000 to new customers.
(**) No customers switch from paper to e-book after 1st year. New readers are sold to new customers acquired by market growth.
Subscription Google
Competitor Chain
Others Apple
7% 10% 5%
Telephone 5% 9%
CB 2%
2%
Specialized Store Others
20% 11%
28%
Department Stores
75%
27% Amazon
Internet
Market Size: 1,170M€ Market Size: 48M€
Annual Growth = 0% Annual Growth = 5%
Average price per book: 15€ Average price per e-book: 8€
Average consumption per reader: 10 e-books/year
69%
Rare Readers No
Yes
4% 3% 2.6%
Avid Occasional Rare
Readers Readers Readers
BRAINSTORMING 1 BRAINSTORMING 2
How would you launch this product? What other measure could our client implement in order to
increase revenues?
EXPECTED EXPECTED
BRAINSTORMING 1 BRAINSTORMING 2
In this question, the analysis should be carried out by focusing on the following In this question, the candidate should come up with additional measures to
main aspects: increase the current revenue streams. This measures should include:
• Segmentation: What users are we targeting? What could be our main target • Increase number of products. Maybe including technical books in our
considering the company’s strategy and client base? offer could increase the number of customers.
• Product: How can we highlight the strong aspects of our product? What do • Creation of a loyalty scheme to try to increase average spending per
the customers want and how can we meet their demands? customer.
• Price: Although the price has been set before, additional measures can be • Creation a referral program to increase our customer base.
explored, such as promotions, free gifts to great customers, etc. • Negotiate with e-reader supplier to include additional features.
• Promotion: How should this product be marketed? What promotions
should be used?
• Place: Through which channels should this reader be sold?
RECOMMENDATION
What is your final recommendation for Classic Bookstore?
SAMPLE RECOMMENDATION
• The candidate should recommend to enter in this new market of electronic readers and e-books.
• Based on our calculations and projections, our client should expect a return of 342,600€ over 5 years from an initial investment of 150,000€.
• RISKS: 1) Calculations have been based on projections of market share and a survey given by the client. Any deviation from this data could affect the profitability of
the investment. 2) Similar book chains to CB could enter this market and reduce our client’s potential market share. 3) Cannibalization with our client’s current
business model could damage the company’s results and image.
• POTENTIAL NEXT STEPS: These risks could be mitigated by producing a deeper market analysis and carrying out further surveys among customers to have a more
accurate prediction of the market behavior. Different programs could be explored to increase customer loyalty and new customers acquisition.
Excellent candidate:
• A candidate who points out that taxes and time value of money have not been considered during the profitability analysis and this would reduce the profitability of
the investment.
• A candidate who mentions the lack of experience and knowledge of our client in this new business as part of the risks. This could lead to a reduction in customer
service, which is very valued by our CB’s clients.
Airlines Easy
Growth Strategy Medium
Investment Decision Hard
167
Airlines Easy
A strong candidate will quickly realize that in order to answer the questions of Green Airlines' CEO,
it will be necessary to understand the strategic fit and the financial implications of buying the slots.
After realizing that it does not make sense to buy the slots to operate them, the candidate should
explore alternative way to explore the opportunity that has emerged.
Market - What’s the trend for the demand of flights in the airport’s region? What’s the profile of travelers (business or leisure)? Are the other airlines going through
financial difficulties? Is the industry suffering in general or was the bankruptcy a one-off event?
Competition - How many companies operate at this airport? Are the slots currently concentrated in the hands of a few companies or are they split among several
companies? Do Low Cost Carriers operate in the airport? What’s competitor’s price?
Revenues/Costs - What’s the expected number of passengers per day per slot (plane size, load factor, flights/day)? What’s the expected price per passenger? What are the
fixed costs? What are the variable costs?
Internal Capabilities - Does Green Airlines have the operational capabilities necessary to operate the slots (planes, overhead, sales system, suppliers)? Does operating in a
big airport demand a different strategy than operating small, regional airports? Does Green Airlines have the financial capabilities necessary to pay for the slots? If not, what
are its options?
Risks/Alternatives - Cultural issues of setting up operations in a different area. Are there other regions that might be more attractive?
EXHIBIT 1
Green
Current Operations Airlines A Airlines B Airlines C
Airlines
City Hub São Paulo Santa Catarina São Paulo Pará
REVENUE ANALYSIS
First step is to estimate the potential revenues of the slot operation. Ask the candidate what factors s/he would use to estimate the revenues. When asked, provide the
following information in the table:
# of planes 5
REVENUE CALCULATION
Revenue per month = # of planes * # flights/plane * # seats * load factor * ticket price
flights / plane / month 50 flights
= 5 * 50 * 250 * 80% * 200 = 50,000 passengers * $200/passenger
Seats / plane 250 seats = $10 million/month
COST ANALYSIS
Second, the candidate should estimate the costs of operating the slots. Ask her/him what s/he believes to be the main costs of an airline (fuel, crew, maintenance,
insurance, leasing, fees, overhead, etc.). After discussing the main lines of cost, provide the following information in the table:
ALTERNATIVE ANALYSIS
After concluding that the operating profit would be zero for the slots, ask the candidate what additional analyses s/he would make in order to decide whether to buy the
slot or not.
POTENTIAL ALTERNATIVES
The candidate should come up with potential alternatives:
Improve operational metrics
• Possibility to increase revenues (increase ticket price, include non-ticket revenues, offer packages, shuttle services, etc.)
• Possibility to reduce costs (use bigger planes to reduce fixed costs, negotiate lease terms, exclude food inflight, automatization of processes, change fuel supplier, etc.)
Buy slots and sell to other company
• Airlines A and Airlines C have their Hubs in Sao Paulo. The slots are probably worth a lot for them.
• How much is the market value of a Slot?
EXPECTED TAKEWAYS
If the candidate does not reach this solution by herself/himself, say that the slots are very valuable for the big airlines operating in the region.
The big airlines have operational advantages related to scale. They operate bigger planes (300 seats) than Green Airlines, so their potential revenues are higher (all other
assumptions remain the same, including costs).
Ask the candidate to calculate the value of the 10 slots for the big airlines, considering planes with 300 seats.
Expected Calculation:
Discount Rate
Valuation of Slots
10% per year
CALCULATION
Expected calculation (assuming the Net Profit as a perpetuity):
Right to use perpetual
Value of slots = $24M / 10% = $240M
Expected Insight:
The candidate should identify that the 10 slots have a total value of approx. $ 240M for the big
airlines, and that the best choice is to buy the slots, operate them for 5 years at zero profit, and sell
them to a big airlines for a value between $105M and $240M.
CASE GUIDANCE
transport between two given points gets
15% faster and the useful lifetime of the
pipelines increases by 20%.
Crude oil Value chain Midstream Business Model
Minerva’s University asked our help to Downstream: 1) Buy from the extractors (*)
determine the value at which they - Exploration - Extraction 2) Transport crude oil from the extractor to the refinery
should sell the technology. Midstream: 3) Sell to the refineries at $10 per barrel
- Transportation
Upstream: (*) Assume that Cost of transportation already
- Refinery - Marketing/Sales incorporates the buying price from the extractors.
A) PRICING:
Value = (1) Savings Costs of transportation + (2) Savings Cost of replacing pipelines – (3) Cost to implement
B) COMPARISON: Compare the value of the technology to other investments to validate the final pricing
PRICING CALCULATION
(1) Savings in cost of transportations (SCOT):
SCOT = (I) Sales for 20 years * (II) Savings in switching transportation = $162,000 M * 0.035 = $5,670 M ~ $6,000 M in 20 years (or $300 M / year)
(I) Sales for 20 years = Chart area (trapezoid) * 360 days * price per barrel: = [(2+2.5) * (20) x (1/2)] * 360 * 10 = $162,000 M
(II) Savings in switching transportation = % increase pipeline use * proportional savings = 10% * 0.35 = 0.035
Switching from truck (5%) and rail (5%) to pipeline: % increase pipeline use = 15% * 70% = 10.5% ~ 10%
Proportional Savings:= [% truck * (cost truck – cost pipeline) + % rail * (cost rail – cost pipeline)] = 5% * ($6 - $2) + 5% * ($5 - $2) = 0.35
EXHIBIT 1
Income Statement
+ Sales $7,200 M
- Cost of transportation (*) $1,980 M
- Cost of replacing pipelines $1,000 M
- Other operating costs (**) $3,500 M Table 1: Income statement for Year 0,
assuming sales of 2M barrels per day.
Operating profit $720 M
(*) Cost of transportation already includes the buying price from the extractors.
(**) Assume that Other Operating Costs do not change over the years.
EXHIBIT 2
Crude oil demand forecast
2
Barrels per day
1.5
1
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Year
(*) In a given year, assume that the demand per day is the same for all the 360 days.
= Cost of replacing pipelines per year * 20 years * (1 - new lifetime/current lifetime) - Lifetime of regular pipeline: 5 years
= $1,000M * 20 * [1 - 4/5 years] = $4,000M in 20 years (or $200M per year)
= (Additional capacity in 20 years / Additional Capacity) * cost to implement - Cost per additional capacity = $ 700 M
= (2.5 M – 2M) / 0.05 M * $700 M = $7,000 M
COMPARISON ANALYSIS
PRICING $8,000 M INVESTMENTS
NEGOTIATION
The University can recover its investment by selling the technology for any price over $1,200 M. Given the estimated savings and cost of installation, NOC will pay less
than $ 8,000 M to guarantee profits/savings.
Alternatively, NOC can construct its own pipeline network for a total investment of $7,000 M. Then, it is better to buy the technology for $ 7,000 or less than to go forth
with this alternative investment. Note that the alternative investment is limited by additional 50,000 barrels/day capacity in two years, while the new technology can be
put in operation in just one year.
Therefore, a reasonable price for selling this technology would be between $1,200 M and $7,000 M.
RECOMMENDATION
What would be your final recommendation to Minerva’s University?
SAMPLE RECOMMENDATION
The general recommendation is open. One of the possibilities is to sell the new technology for a price of $1,500 M plus a 30% participation in the additional revenue while
the University holds the patent (40% of $10,000M = $3,000M in 20 years, disregarding cost of installation). There are three reasons that support this proposal:
1) Cost savings by increasing the volume of crude oil transported in pipelines. According to the calculations, $300 M per yea r (around 40% of the current Operating
Profits)
2) The improvement in the pipeline lifetime is also relevant accounting for $200 M per year (around 25% to 30% of the current Operating Profits)
3) The alternative of expanding the pipeline network is a higher investment than the cost savings generated by the new technology. Besides that, expanding the
pipelines is limited by additional 50,000 barrels/day in two years, while the new technology can be put in operation in just one year.
A great candidate would also briefly discuss any risks or next steps:
Next steps:
- Verify calculations with NOC’s calculations/data to validate
Main risks / sensitive assumptions:
the assumptions
- Delay in installation of the new technology
- Define a negotiation strategy based on the
- Limitation in reaching some regions, since it can be done only by a specific means of transportation
calculations/assumptions
- High investment ($2,000M). Options: cash surplus, bank loan, increase in equity
- If the negotiation fails, look for other prospective buyers
- Crude oil price fluctuation -> Use future contracts to guarantee buying and selling prices
- Demand fluctuations because of crisis or other external factor
• A good candidate will take into consideration uncertainties related to production and revenues streams and express the intention to estimate NPV
of each project.
• Other aspects to bear in mind are competition, market trends, company’s strategy, etc.
If asked for information about REVENUES and COST, make him/her BRAINSTORM about it.
• A good candidate would understand that revenues come not only from tickets or broadcasting royalties but also from merchandising, games,
DVD/Blu-rays, etc. In terms of cost, the candidate should mention the basics: director, actors, production, marketing, etc.
Main Actor Tom Hardy 50M USD Mark Walhberg 25M USD
Others Production & Marketing 50M USD Production & Marketing 60M USD
Critics Critics
Good 70% chance of getting 600M audience 80% chance of getting 400M audience
Bad 30% chance of getting 400M audience 20% chance of getting 200M audience
Note: Filmmakers receive as income 10% of the ticket sales (10 USD/ticket);
If the candidate realizes about the sunk cost, she/he will choose to produce a Series. If not, make him/her identify the mistake
(M USD) SERIES
Year 0 1
Investment --100 0
ADDITIONAL DATA INVESTMENT (USD)
Income 20 420
Upfront (M USD) 20 Cost (M USD) 100
Cash Flow --80 420
# episodes 10
Upfront income (M USD) 20 NPV --80 350
Income per episode
600,000 Investment (M USD) 80
(PMV) (USD) Accumulated NPV 270 -
EXHIBIT 2: SERIES
EXPENSES ADDITIONAL DATA
Script (already bought) 10 Upfront income (M USD) 20
Actors 60 # episodes 10
Production 40 Income per episode (PMV) 600,000
AUDIENCE PER
AUDIENCE LEVEL PROBABILITY
EPISODE (M USD)
High 100 30%
Medium 70 40%
Bad 40 30%
TAKEWAYS – EXHBIT 3
Show the candidate Exhibit 3, which contains an additional cash flow for Michael Bay movie from merchandising and other incomes.
The candidate should identify the tendency in the cashflow (CAGR -10%) and calculate a perpetuity.
Adding those Cash Flows to Alternative 2 will affect the NPV.
As a result of this information, the final decision will change.
ALTERNATIVE 1 ALTERNATIVE 2
PERPETUITY
Probability (%) 60% 40%
Initial Cash Flow (M USD) 20
NPV (M USD) 300 266.6
Growth (%) -10%
Contribution (M) 180 107
Discount Rate (%) 20%
Average NPV (M US) 287 -
NPV (M US) 66.7
15 14,58
13,12
11,81
10,63
10 9,57
8,61
7,75
5 4,58
2,70
1,60
0,00
0
0 1 2 3 4 5 6 7 8 9 10 15 20 25
Year
EXPECTED CONSIDERATION
The candidate should quickly identify the uncertainty and our capability to assess it as the main risk.
Factors that can influence:
• Production is not finished on time and target launch is missed
• The launch of a good movie made by a competitor
• An economic crisis that affects the consumption
• Others
This question is to test the candidate’s business sense and creativity. There is room for the candidate to discuss other factors, including other
revenue streams and intangible factors, always justifying his/her answer.
RECOMMENDATION
Great, our client is coming and will request a recommendation.
RECOMMENDATION – SUGGESTION
The candidate should be concise and structured, without mentioning topics that were not discussed.
It is important to highlight the uncertainty of the decision process and he/she should suggest potential ways to reduce it.
Agriculture Easy
Sustainability Medium
Operations Hard
CASE GUIDANCE
This case is designed to test brainstorming, business decision-making skills and logic. It will help candidates
wanting to practice market sizing and working on unconventional problems. For calculations ignore the time
value of money.
It is a long case designed for advanced candidates; some aspects can be removed for the sake of time – these
are clearly marked.
Interviewer guidance has been provided at various stages.
14,0
70% 70%
Farming 65%
90% Cows
10% Other
2017 2018 2019 Farming (2019)
SUGGESTED CALCULATION
** if the interview is progressing slowly, skip this estimation and give the number Total annual domestic consumption:
of cows of 5 million, then move straight to part 2 after reading the prompt [Milk consumption per person]*[population of NZ]
below** = 750 million L/year
Cows required for domestic consumption:
This is an estimation problem – the candidate should recognize the need to size the [Annual dom. Cons.]/([Daily pro./cow]*[days in a year])
herd using suitable assumptions, provide the estimation data only if the candidate = 250,000 cows
asks. Total cows:
[domestics cows]/[% of market]
= 5 million cows
BRAINSTROMING SAMPLE
** if the interview is progressing slowly, skip this brainstorming and move straight to part 2 after reading prompt 2 on this page**
This brainstorm is a chance for the candidate to be creative. No structure is superior but looking at options split between processes and transportation is one way to go. Keep
pushing until you are satisfied with the ideas generated.
PROCESSES TRANSPORTATION
Alternative power sources (all renewable) Larger trucks (i.e. less GHG/L transported)
Carbon capture of emissions Electric vehicles
More energy-efficient processes Shorter routes of transportation
R&D into different ways to process milk Regular maintenance to increase efficiency
Outsource production Outsource transportation
Shutdown inefficient plants
1 % of reduction in GHG emissions that the process or transportation will emit, based on the current emissions shown in Exhib it 1, once 100% of the units have been replaced
2 number of units MIC currently owns that can be replaced in a 1:1 ratio with the new alternatives
3 % of units that can be replaced annually (due to end of life requirements) e.g. a total of 2 units can be replaced per year for ‘renewable energy source’
4 How much it will cost MIC annually to replace the maximum allowable units e.g. will cost MIC $150m to replace 2 units of ‘renewable energy source’ per year
RECOMMENDATION
Great, the CSO is about to join us, can you please provide her with a brief summary of what we have discussed today?
SAMPLE RECOMMENDATION
The candidate should summarize that:
• We should replace the herd with the new breed to reduce emissions by 21% in year 5, costing $2.5 billion
• We should convert to renewable energy and replace our transport fleet reducing our emissions by 19% in year 5, costing $1 bil lion
• These actions will get us 90% towards our target of 45% reduction
• We have $50m/year of our budget left to figure out the last 10% which could include.... (any ideas that you have discussed e.g., carbon credits, hiring a lawyer to reduce
potential fines, other emission reductions)
A great candidate would also briefly discuss any risks or next steps:
• Adaption to new technology
• Chance new breed has challenges
• Views from employees and farmers about changes
• Chance of lobbying government so the law is reversed
• Next steps: contact breeders to make sure they have enough cows, look for other reduction methods, etc.
PE / Pharmaceuticals Easy
Profitability Medium
M&A Hard
SAMPLE STRUCTURE
The main focus of the case is the acquisition,
hence the structure should emphasize the
Total yearly revenue of the
deal over the decline in revenue (or even target asset
exclude). Creating two structures to answer
both business questions is totally fine as long Can the PE achieve >20%
as the M&A structure is more thorough. EBITDA margin Total yearly costs of the
Either way, both questions have to get target asset
answered. Ideally, the candidate starts with
the OncoCo’s current business first before Should OncoCo acquire
diving into the acquisition. the commercial rights for Strategic fit of the
acquisition
liquid morphine?
Simplicity and specificity wins!
Does OncoCo have the
Can OncoCo mitigate the capacity and capability to
potential risks produce and sell the new
drug
140 M€
125 25.0%
120 M€ 110 110
100 20.0%
100 M€ 95
80 Revenues
80 M€ 15.0%
Total Costs
60 M€ 50 50
EBITDA Margin
10.0%
40 M€
5.0%
20 M€
0 M€ 0.0%
2018 2019 2020 2021 2022
Volumes
10 12.5 15 15 5
[in K]
40%
25%
4%
8%
55%
10%
16%
32% 10%
Intravenous Liquid Injection Capsules Tablet Target Asset Drug A Drug B Others
140 M€
125 125 125 125
120 M€ 110
100
100 M€
82 85 85 85
80
80 M€ Revenues
Total Costs
60 M€ 50
45
40 M€
20 M€
0 M€
2016 2017 2018 2019 2020 2021 2022
Volumes
12,500 15,000 10,000 11,000 12,500 12,500 12,500
[in K]
BRAINSTORMING QUESTION
What other aspects than the EBITDA margin should the PE fund consider, before acquiring the commercial rights? Ideally, this part is covered by the
rest of the candidates framework and hence the candidate can quickly come up with a structure. Either way, a very good candidate will be able to
structure the points and have a meaningful discussion with the interviewer about the pros and cons of each point. The discussions does not need to
capture all points mentioned below and should not last longer than 5 minutes.
SAMPLE ANSWERS
Strategic Operational Other opportunities
Is pain medicine a strategic reasonable addition to the Is OncoCo able to serve a mass market? Lawsuit to extend patent
portfolio? + ”Simple” product that does not require a lot of + Requires little “extra” effort since it can be outsourced
+ Diversification marketing efforts - High uncertainty until lawsuit is settled (which probably
- Different business model - Likely a need to build up production facilities and sales will take some time)
team from scratch
Does OncoCo want to get associated with Opioids and Are there any synergies in our production facility we can Change formulation
their negative reputation? use to reduce costs? + Allows to extend patent for another 5-10 years
+ Morphine has the “best” reputation + Lots of spare capacity starting 2022 - Likely too late as R&D phase has to be initiated
- Can harm the other product as well, image issues - Totally different production process and magnitude
Switch from specialized product with few patients to Acquire another asset
mass products with many patients + Identify a more similar asset
+ Enter a larger market - Assessment has to be repeated
- Management might not know how to play in that
market
IESE CONSULTING CLUB IESE CASE BOOK 2021 |218
PE / Pharmaceuticals Easy
Profitability Medium
RECOMMENDATION QUESTION
We have the Zoom call with the PE fund in 3 minutes, could you please present our findings?
SAMPLE RECOMMENDATION
There are good reasons for and against an acquisition. A good answer answers the initial questions first and then presents the findings:
[Recommendation] OncoCo’s board expects a 2/3 drop in revenues because of the loss of exclusivity of its only product and suggests to acquire the
commercial rights of liquid morphine to cushion the profit decline. However, despite the attractive EBITDA margin of 32%, we do not recommend to
proceed with the acquisition as the risks outweigh the potential financial benefits.
[Risks] In particular, we think that OncoCo’s current business model is in stark contrast to the ones of the target asset, making it very questionable
whether the PE fund will be able to achieve the financial return without heavy investments in their production facilities and sales team. Further, it has
to factor in the negative reputation of Opioids that might affect OncoCo’s enterprise value in the long term.
[Next steps] We propose to look for another asset that fits better to OncoCo’s current portfolio, potentially within the same therapeutic area
(Oncology).
STRUCTURE GUIDANCE
A good structure would touch on:
• The financials of the spin off: (i) additional revenues (ii) expected higher costs and (iii) potential lost revenues due to previous cross-sold customers from the retail bank
• Considering break even period, NPV and other metrics related to the financial return of the spin off is a nice plus of the structure (although not used for case’s calculations)
• Consideration of several qualitative aspects regarding the newly created IB is crucial: new IB strategy, legal entity, culture, organizational structure, operational model,
governance, positioning against competitors, etc.
SAMPLE STRUCTURE
• Revenues impact: impact on transaction volume and average fee by business line (M&A and Advisory, Sales, etc.). When the candidate asks for data on revenues, please
show them Exhibit 1
• The candidate is not expected to know that revenues for an Investment Bank are generated, in general, based on a fee of the total transaction. The information
should be given to the candidate if he/she does not mention this aspect
• Cost impact: in general, costs are expected to grow because the Investment Bank benefitted from sharing structure and services with the retail bank conglomerate. When
the candidate asks for data on costs, please show them Exhibit 2
• Qualitative aspects of the spin off:
• IB Strategy
• Governance
• Organizational structure
• Operational model
• Capabilities to become standalone
• Competitive landscape
222
• …
IESE CONSULTING CLUB IESE CASE BOOK 2021 |
Financial Services Easy
Profitability Medium
QUANTITATIVE ANALYSIS
Revenues: when the candidate asks for data on revenues, show them Exhibit 1 and ask for insights. It will be then expected that the candidate starts the revenue calculation
• The fastest way of calculating is to compute the revenue differential by the difference of market share between the current and expected scenario.
• A slower calculation would be to calculate the current revenues, expected revenues and subtract one from the other. One benefit of using this approach is that the expected
revenues will be used for the Costs calculations
Costs: likewise for revenues, show Exhibit 2 and ask for insights. Then, the candidate should be prompted for starting the calculation (please refer to Exhibit 2)
• It is expected that the current cost structure of the IB will change because it benefitted from shared services with the retail bank (e.g. IT, rent, etc.). The IB would now have
to, for example, rent a building, hire an IT provider and other extra expenditures that were not previously needed
• Here the candidate should make fair assumptions on what is the fair share of cost items (as % of revenues) based on benchmarks of Investment Banks similar to our client,
shown in Exhibit 2 (which are separated standalone Investment Banks)
SOLUTION
Revenues:
• Current revenues: Transaction market * Average fee * Current market share = 500M * 5% * 10% + 600M * 4% * 35% + 400M * 8% * 20% + 1,500M * 2% * 5% = USD 18.8 M
• Expected revenues: : Transaction market * Average fee * Expected market share = 500M * 5% * 20% + 600M * 4% * 25% + 400M * 8% * 30% + 1,500M * 2% * 15% = USD 25.1 M
• Thus, incremental revenues of USD 25.1 – 18.8 = 6.3 M - One good insight is that the USD 6.3M revenue increase is precisely a 1/3 increase in total revenues
Costs: the items that the client, when associated with the Retail Bank, paid apparently less than peers were IT and systems, and Rent & Maintenance (likely due to shared services,
premises and systems). For IT, the cost representativeness will increase from 1% to 5% of total revenues and Rent from 2% to 6%
• Current IT Costs: USD 200k ; current Rent & Maintenance costs: USD 400k
• New IT Costs = 5% * 25M = 1.25M ; New Rent & Maintenance costs = 6% * 25M = 1.5M → Incremental costs of USD 2.75M – 600k = 2.15M
Profit: in summary, the new bank will have a greater profit of USD 6.3 – 2.15 M = USD 4.15 M (meaning that financially speaking, it makes sense to spin off)
Business Line Total transaction Average fee1 Current market Expected market
market share share2
Equity Capital Market (ECM) USD 500 M 5% 10% 20%
1. Revenues of Investment Banks are generally calculated as a standard fee that is a percentage of the total value of a determined transaction (e.g. an IPO)
2. After the spin off from the retail bank. Estimates provided by the client
3. The market share in DCM is expected to drop because the Retail Bank cross-sells DCM deals to the Investment Bank, which will not happen if they are separate
BRAINSTORMING QUESTION
Aside from financial considerations, what are other pros and cons of spinning off the Investment Banking unit from the rest of the conglomerate?
SAMPLE ANSWERS
Here there is no right answer, but the idea is rather to test the candidate’s creativity on this type of business situation
Pros
• Reduced bureaucracy with no formal ties with conglomerate
• Greater organizational “identity” - new IB culture
• Possibility of more flexible work arrangements typical of Investment Banks
• Openness for engaging with other institutions (for example establishing a Joint Venture with another Investment Bank)
Cons
• Increased costs (IT & systems, Rent & maintenance) end up higher than expected
• Cross sell with retail bank is significantly reduced or clients leave the IB bank after spin off non mapped reasons
• In the future, the Retail Bank may create another IB unit (new competitors)
• Lack of strategic perspective previously provided by other areas of the bank
• Limitation on talent transfer between bank areas
• Legal aspects not considered
RECOMMENDATION QUESTION
Our client just messaged you saying that she is now free and would like to hear your current viewpoint on the project. What is your recommendation?
SAMPLE RECOMMENDATION
Being concise, structured, and mentioning only relevant points mentioned in the case are crucial for a good recommendation.
Based on the financial calculation, the recommendation should be to pursue the spin off. When explaining the reasoning, the candidate should bring critical numbers calculated
during the case
It is also important that the candidate mentions the pros, cons and risks associated with the recommended spin off
A great plus from the recommendation would be to suggest potential next steps for implementing the spin off